UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, |
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report |
Commission file numbers | Barclays PLC | 1-09246 | ||
Barclays Bank PLC | 1-10257 |
BARCLAYS PLC
BARCLAYS BANK PLC
(Exact Names of Registrants as Specified in their Charters)Charter[s])
ENGLAND
(Jurisdiction of Incorporation or Organization)
1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND
(Address of Principal Executive Offices)
PATRICK GONSALVES, +44 (0)20 7116 2901, PATRICK.GONSALVES@BARCLAYS.COM
1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND
*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Barclays PLC
Title of Each Class | Name of Each Exchange On Which Registered | |
25p ordinary shares | New York Stock Exchange* | |
American Depository Shares, each representing four 25p ordinary shares | New York Stock Exchange |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Barclays Bank PLC
Title of Each Class | Name of Each Exchange On Which Registered | |
Callable Floating Rate Notes 2035 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 2 | New York Stock Exchange* | |
American Depository Shares, Series 2, each representing one Non-Cumulative Callable Dollar Preference Share, Series 2 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 3 | New York Stock Exchange* | |
American Depository Shares, Series 3, each representing one Non-Cumulative Callable Dollar Preference Share, Series 3 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 4 | New York Stock Exchange* | |
American Depository Shares, Series 4, each representing one Non-Cumulative Callable Dollar Preference Share, Series 4 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 5 | New York Stock Exchange* | |
American Depository Shares, Series 5, each representing one Non-Cumulative Callable Dollar Preference Share, Series 5 | New York Stock Exchange | |
iPath® Dow Jones – | ||
NYSE Arca | ||
iPath® Dow Jones – UBS Agriculture Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Aluminum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Cocoa Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Coffee Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Copper Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Cotton Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Energy Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Grains Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Industrial Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Lead Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Livestock Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Natural Gas Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Nickel Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Platinum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Precious Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Softs Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Sugar Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Tin Subindex Total ReturnSM ETN | NYSE Arca | |
iPath®S&P GSCI | NYSE Arca | |
iPath® S&P GSCI® Crude Oil Total Return Index ETN | NYSE Arca | |
iPath® CBOE S&P | NYSE Arca | |
iPath® MSCI India IndexSM ETN | NYSE Arca | |
iPath® EUR/USD Exchange Rate ETN | NYSE Arca | |
iPath® GBP/USD Exchange Rate ETN | NYSE Arca | |
iPath® JPY/USD Exchange Rate ETN | NYSE Arca | |
iPath® S&P500 VIX Short-Term FuturesTM ETN | NYSE Arca | |
iPath® S&P 500 VIX Mid-Term FuturesTM ETN | NYSE Arca | |
iPath® | NYSE Arca | |
iPath® Optimized Currency Carry ETN | NYSE Arca | |
Barclays GEMS IndexTM ETN | NYSE Arca | |
Barclays GEMS Asia 8 ETN | NYSE Arca | |
Barclays Asian and Gulf Currency Revaluation ETN | NYSE Arca | |
Barclays | ||
Barclays ETN + Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Long B Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Short B Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Long C Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM | NYSE Arca |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be 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 | |||
Barclays Bank PLC | £1 ordinary shares | |||
£1 preference shares | 1,000 | |||
£100 preference shares | 75,000 | |||
€100 preference shares | 240,000 | |||
$0.25 preference shares | 237,000,000 | |||
$100 preference shares | 100,000 |
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.
Yes ¨ No þ
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*
Yes þ No ¨
* | This requirement does not apply to the registrants until their fiscal year ending December 31, 2011. |
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Barclays PLC | ||||||||||||
Large Accelerated Filer þ | Accelerated Filer ¨ | Non-Accelerated Filer ¨ | ||||||||||
Barclays Bank PLC | ||||||||||||
Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer þ |
* | Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: |
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board þ
Other ¨
* | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: |
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has 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 ¨ No ¨
Certain non-IFRS measures
In this document certain non-IFRS (International Financial Reporting Standards) measures are reported. Barclays management believes that these non-IFRS measures provide valuable information to readers of its financial statements because they enable the reader to focus more directly on the underlying day-to-day performance of its businesses and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays management. However, any non-IFRS measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well. Among other non-IFRS information, certain information and related discussion are provided in pages 2 to 50 relating to the Group’s total results rather than separating out discontinued operations, representing the Barclays Global Investors (BGI) business sold on 1st December 2009. These non-IFRS measures are provided because management considers that including BGI as part of Group operations and separately identifying the gain on this disposal provides useful information about the performance of the Group as a whole and reflects how the operations were managed until the disposal of BGI. The consolidated summary income statement on page 2 provides a reconciliation between continuing and Group results, and the discussion of Group results from page 4 to 10 describe the Group’s results on a continuing operations basis, followed by a discussion of the Group’s discontinued operations.
Market and other data
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 Dealogic, Euroweek, Thompson Reuters, AMEX/NYSE weekly reports, European ETF reports 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.
Forward-looking statements
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 conditionconditions and performance. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate to only to historicalhistoric or current facts. Forward-looking statements sometimes use words such as ‘may’“may”, ‘will’“will”, ‘seek’“seek”, ‘continue’“continue”, ‘aim’“aim”, ‘anticipate’“anticipate”, ‘target’“target”, ‘expect’“expect”, ‘estimate’“estimate”, ‘intend’“intend”, ‘plan’“plan”, ‘goal’“goal”, ‘believe’“believe” or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group’s future financial position, income growth, assets, impairmentimpairments, charges, business strategy, capital ratios, leverage, payment of dividends, projected levels of growth in the banking and financialfinance markets, projected costs, estimates of capital expenditures,expenditure, and plans and objectives for future operations and other statements that are not historical by fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, UK domestic and global economic and business conditions, the effectseffect of continued volatility in credit markets, market related risks such as changes in interest rates and exchange rates, effects of changes in valuation of credit market exposures, changes in valuation of issuedissue notes, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under IFRSInternational Financial Reporting Standards (IFRS) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, progress in the integration of the Lehman Brothers North American businesses into the Group’s business and the quantification of the benefits resulting from such acquisition, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of competitioncompletion – a number of whichsuch factors arebeing beyond the Group’s control. As a result, the Group’s actual future results may differ materially from the plans, goals, and expectations set forth in the Group’s forward-looking statements.statement.
Any forward-looking statements made herein speak only as of the date they are made. ExceptExpect as required by the UKU.K. Financial Services Authority (FSA), the London Stock Exchange or applicable law, Barclayslaws, Barlcays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcementreport to reflect any change in BarclaysBarclay’s expectations with regard thereto or any change in events, conditions or circumstancescircumstance on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the U.S. Securities and Exchange Commission (SEC).Commission.
Certain terms
The term ‘Barclays PLC Group’ means Barclays PLC together with its subsidiaries and the term ‘Barclays Bank PLC Group’ means Barclays Bank PLC together with its subsidiaries. ‘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’, ‘Parent Company’ or ‘Parent’ refers to Barclays PLC, and the term ‘Bank’ refers to Barclays Bank PLC. The term ‘Absa Group Limited’ is used to refer to Absa Group Limited and its subsidiaries, and the term ‘GRCB – Absa’ is used to the refer to the component of the Global Retail and Commercial Banking segment represented by this business. In this report, the abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively; the abbreviations ‘US$m’ and ‘US$bn’ represent millions and thousands of millions of US dollars, respectively, and ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively.
i
SEC FORM 20-F CROSS REFERENCE INFORMATIONBarclays Bank PLC
Title of Each Class | Name of Each Exchange On Which Registered | |
Callable Floating Rate Notes 2035 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 2 | New York Stock Exchange* | |
American Depository Shares, Series 2, each representing one Non-Cumulative Callable Dollar Preference Share, Series 2 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 3 | New York Stock Exchange* | |
American Depository Shares, Series 3, each representing one Non-Cumulative Callable Dollar Preference Share, Series 3 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 4 | New York Stock Exchange* | |
American Depository Shares, Series 4, each representing one Non-Cumulative Callable Dollar Preference Share, Series 4 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 5 | New York Stock Exchange* | |
American Depository Shares, Series 5, each representing one Non-Cumulative Callable Dollar Preference Share, Series 5 | New York Stock Exchange | |
iPath® Dow Jones – UBS Commodity Index Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Agriculture Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Aluminum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Cocoa Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Coffee Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Copper Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Cotton Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Energy Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Grains Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Industrial Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Lead Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Livestock Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Natural Gas Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Nickel Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Platinum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Precious Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Softs Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Sugar Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Dow Jones – UBS Tin Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® S&P GSCI® Total Return Index ETN | NYSE Arca | |
iPath® S&P GSCI® Crude Oil Total Return Index ETN | NYSE Arca | |
iPath® CBOE S&P 500 BuyWrite IndexSM ETN | NYSE Arca | |
iPath® MSCI India IndexSM ETN | NYSE Arca | |
iPath® EUR/USD Exchange Rate ETN | NYSE Arca | |
iPath® GBP/USD Exchange Rate ETN | NYSE Arca | |
iPath® JPY/USD Exchange Rate ETN | NYSE Arca | |
iPath® S&P 500 VIX Short-Term FuturesTM ETN | NYSE Arca | |
iPath® S&P 500 VIX Mid-Term FuturesTM ETN | NYSE Arca | |
iPath® Global Carbon ETN | NYSE Arca | |
iPath® Optimized Currency Carry ETN | NYSE Arca | |
Barclays GEMS IndexTM ETN | NYSE Arca | |
Barclays GEMS Asia 8 ETN | NYSE Arca | |
Barclays Asian and Gulf Currency Revaluation ETN | NYSE Arca | |
Barclays ETN + Short C Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Long B Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Short B Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Long C Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM | NYSE Arca |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be 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.
25p ordinary shares |
| |||
| ||||
2,342,558,515 | ||||
| ||||
| ||||
75,000 | ||||
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.
Yes ¨ No þ
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*
Yes þ No ¨
* |
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For the year ended 31st December | |||||||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004 £ma | |||||||||||
Net interest income | 11,469 | 9,610 | 9,143 | 8,075 | 6,833 | ||||||||||
Net fee and commission income | 8,407 | 7,708 | 7,177 | 5,705 | 4,847 | ||||||||||
Principal transactions | 2,009 | 4,975 | 4,576 | 3,179 | 2,514 | ||||||||||
Net premiums from insurance contracts | 1,090 | 1,011 | 1,060 | 872 | 1,042 | ||||||||||
Other income | 377 | 188 | 214 | 147 | 131 | ||||||||||
Total income | 23,352 | 23,492 | 22,170 | 17,978 | 15,367 | ||||||||||
Net claims and benefits incurred on insurance contracts | (237 | ) | (492 | ) | (575 | ) | (645 | ) | (1,259 | ) | |||||
Total income net of insurance claims | 23,115 | 23,000 | 21,595 | 17,333 | 14,108 | ||||||||||
Impairment charges and other credit provisions | (5,419 | ) | (2,795 | ) | (2,154 | ) | (1,571 | ) | (1,093 | ) | |||||
Net income | 17,696 | 20,205 | 19,441 | 15,762 | 13,015 | ||||||||||
Operating expenses | (14,366 | ) | (13,199 | ) | (12,674 | ) | (10,527 | ) | (8,536 | ) | |||||
Share of post-tax results of associates and joint ventures | 14 | 42 | 46 | 45 | 56 | ||||||||||
Profit before business acquisitions and disposals | 3,344 | 7,048 | 6,813 | 5,280 | 4,535 | ||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | 327 | 28 | 323 | – | 45 | ||||||||||
Gains on acquisitions | 2,406 | – | – | – | – | ||||||||||
Profit before tax | 6,077 | 7,076 | 7,136 | 5,280 | 4,580 | ||||||||||
Tax | (790 | ) | (1,981 | ) | (1,941 | ) | (1,439 | ) | (1,279 | ) | |||||
Profit after tax | 5,287 | 5,095 | 5,195 | 3,841 | 3,301 | ||||||||||
Profit attributable to minority interests | 905 | 678 | 624 | 394 | 47 | ||||||||||
Profit attributable to equity holders of the parent | 4,382 | 4,417 | 4,571 | 3,447 | 3,254 | ||||||||||
5,287 | 5,095 | 5,195 | 3,841 | 3,301 | |||||||||||
Selected financial statistics
| |||||||||||||||
Basic earnings per share | 59.3p | 68.9p | 71.9p | 54.4p | 51.0p | ||||||||||
Diluted earnings per share | 57.5p | 66.7p | 69.8p | 52.6p | 49.8p | ||||||||||
Dividends per ordinary share | 11.5p | 34.0p | 31.0p | 26.6p | 24.0p | ||||||||||
Dividend payout ratio | 19.4% | 49.3% | 43.1% | 48.9% | 47.1% | ||||||||||
Profit attributable to the equity holders of the parent as a percentage of: | |||||||||||||||
average shareholders’ equity | 16.5% | 20.3% | 24.7% | 21.1% | 21.7% | ||||||||||
average total assets | 0.2% | 0.3% | 0.4% | 0.4% | 0.5% | ||||||||||
Cost: income ratio | 62% | 57% | 59% | 61% | 61% | ||||||||||
Average United States Dollar exchange rate used in preparing the accounts | 1.86 | 2.00 | 1.84 | 1.82 | 1.83 | ||||||||||
Average Euro exchange rate used in preparing the accounts | 1.26 | 1.46 | 1.47 | 1.46 | 1.47 | ||||||||||
Average Rand exchange rate used in preparing the accounts | 15.17 | 14.11 | 12.47 | 11.57 | 11.83 |
The financial information above is extracted from the published accounts for the last three years. This information should be read together with, and is qualified by reference to, the accounts and notes included in this report.
Note
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Income statement
Barclays delivered profit before taxIndicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of £6,077m“accelerated filer and large accelerated filer” in 2008, a decline of 14% on 2007. The results included the following significant items:
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Profit after tax increased 4% to £5,287m. This reflected an effective tax rate of 13% (2007: 28%) primarily due to the gain on the acquisition of Lehman Brothers North American businesses of £2,262m in part being offset by carried forward US tax losses attributable to Barclays businesses. Earnings per share were 59.3p (2007: 68.9p), a decline of 14% from 2007, reflecting the impact of share issuance during 2008 on the weighted average number of shares in issue.
Income grew 1% to £23,115m. Income in Global Retail and Commercial Banking increased 17% and was particularly strong in businesses outsideRule 12b-2 of the UK to which we have directed significant resource. Income in Investment Banking and Investment Management was down 19%. Barclays Capital was affected by very challenging market conditions in 2008, with income falling by £1,888m (27%) on 2007, reflecting gross losses of £6,290m relating to credit market assets, partially offset by gains of £1,663m on the fair valuation of notes issued by Barclays
Capital due to widening of credit spreads and £1,433m in related income and hedges. Excluding credit market related losses, gains on own credit and related income and hedges, income in Barclays Capital increased 6%.
Impairment charges and other credit provisions of £5,419m increased 94% on the prior year. Impairment charges included £1,763m arising from US sub-prime mortgages and other credit market exposures. Other wholesale impairment charges increased significantly as corporate credit conditions turned sharply worse. In Barclays Capital increased charges also arose in prime services, corporate lending and private equity. In Barclays Commercial Bank, increased impairment charges reflected the UK economy moving into recession. In the UK there was a moderate increase in impairment in UK Retail Banking as a result of book growth and a deteriorating economic environment. UK mortgage impairment charges remained low. There was a lower charge in UK cards as net flows into delinquency and arrears levels reduced. Significant impairment growth in our Global Retail and Commercial Banking businesses outside the UK reflected very strong book growth in recent years, and maturation of those portfolios, together with deteriorating credit conditions and rising delinquency rates in the US, South Africa and Spain.
Operating expenses increased 9% to £14,366m. We continued to invest in our distribution network in the Global Retail and Commercial Banking businesses. Expenses fell in Barclays Capital due to lower performance related costs. Expenses in Barclays Global Investors included selective support of liquidity products of £263m (2007: £80m). Group gains from property disposals were £148m (2007: £267m). Head office reflects £101m due to the cost of the contribution to the UK Financial Services Compensation Scheme. Underlying cost growth was well controlled. The Group cost:income ratio deteriorated by five percentage points to 62%.
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Financial review
Income statement commentary
Net interest income
2008/07
Group net interest income increased 19% (£1,859m) to £11,469m (2007: £9,610m) reflecting balance sheet growth across the Global Retail and Commercial Banking businesses and in particular very strong growth internationally driven by expansion of the distribution network and entrance into new markets. An increase in net interest income was also seen in Barclays Capital due to strong results from global loans and money markets.
Group net interest income includes the impact of structural hedges which function to reduce the impact of the volatility of short-term interest rate movements on equity and customer balances that do not re-price with market rates. The contribution of structural hedges relative to average base rates increased income by £117m (2007: £351m expense), largely due to the effect of the structural hedge on changes in interest rates.
2007/06
Group net interest income increased 5% (£467m) to £9,610m (2006: £9,143m) reflecting balance sheet growth across a number of businesses. The contribution of structural hedges relative to average base rates decreased to £351m expense (2006: £26m income), largely due to the effect of the structural hedge on changes in interest rates. Other interest expense principally includes interest on repurchase agreements and hedging activity.
Net interest income |
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2008 £m | 2007 £m | 2006 £m | |||||||
Cash and balances with central banks | 174 | 145 | 91 | ||||||
Available for sale investments | 2,355 | 2,580 | 2,811 | ||||||
Loans and advances to banks | 1,267 | 1,416 | 903 | ||||||
Loans and advances to customers | 23,754 | 19,559 | 16,290 | ||||||
Other | 460 | 1,608 | 1,710 | ||||||
Interest income | 28,010 | 25,308 | 21,805 | ||||||
Deposits from banks | (2,189 | ) | (2,720 | ) | (2,819 | ) | |||
Customer accounts | (6,697 | ) | (4,110 | ) | (3,076 | ) | |||
Debt securities in issue | (5,910 | ) | (6,651 | ) | (5,282 | ) | |||
Subordinated liabilities | (1,349 | ) | (878 | ) | (777 | ) | |||
Other | (396 | ) | (1,339 | ) | (708 | ) | |||
Interest expense | (16,541 | ) | (15,698 | ) | (12,662 | ) | |||
Net interest income | 11,469 | 9,610 | 9,143 |
|
Net fee and commission income
2008/07
Net fee and commission income increased 9% (£699m) to £8,407m (2007: £7,708m). Banking and credit related fees and commissions increased 13% (£845m) to £7,208m (2007: £6,363m), reflecting growth in Barclaycard International, increased fees from advisory and origination activities in Barclays Capital and increased foreign exchange, derivative and debt fees in Barclays Commercial Bank.
2007/06
Net fee and commission income increased 7% (£531m) to £7,708m (2006: £7,177m). Fee and commission income rose 8% (£673m) to £8,678m (2006: £8,005m) reflecting increased management and securities lending fees in Barclays Global Investors, increased client assets and higher transactional income in Barclays Wealth and higher income generated from lending fees in Barclays Commercial Bank. Fee income in Barclays Capital increased primarily due to the acquisition of HomEq.
Net fee and commission income |
| ||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Brokerage fees | 87 | 109 | 70 | ||||||
Investment management fees | 1,616 | 1,787 | 1,535 | ||||||
Securities lending | 389 | 241 | 185 | ||||||
Banking and credit related fees and commissions | 7,208 | 6,363 | 6,031 | ||||||
Foreign exchange commission | 189 | 178 | 184 | ||||||
Fee and commission income | 9,489 | 8,678 | 8,005 | ||||||
Fee and commission expense | (1,082 | ) | (970 | ) | (828 | ) | |||
Net fee and commission income | 8,407 | 7,708 | 7,177 |
|
Financial review
Income statement commentary
Principal transactions
2008/07
Principal transactions decreased 60% (£2,966m) to £2,009m (2007: £4,975m).
Net trading income decreased 65% (£2,430m) to £1,329m (2007: £3,759m). The majority of the Group’s net trading income arises in Barclays Capital. Growth in the Rates related business reflected growth in fixed income, prime services, foreign exchange, commodities and emerging markets. The Credit related business included net losses from credit market dislocation partially offset by the benefits of widening credit spreads on structured notes issued by Barclays Capital.
Net investment income decreased 44% (£536m) to £680m (2007: £1,216m). The cumulative gain from disposal of available for sale assets decreased 62% (£348m) to £212m (2007: £560m) reflecting the lower profits realised on the sale of investments. The £212m gain in 2008 included the £47m gain from sale of shares in MasterCard.
The dividend income increased £170m to £196m (2007: £26m) reflecting the Visa IPO dividend received by GRCB – Western Europe, GRCB – Emerging Markets and Barclaycard in the current year. The GRCB – Absa gain on the Visa IPO of £47m has been recognised in other income.
Net gain from financial instruments designated at fair value decreased 89% (£260m) to £33m (2007: £293m), driven by the continued decrease in value of assets backing customer liabilities in Barclays Life Assurance; and fair value decreases of a number of investments reflecting the current market condition.
Other investment income decreased 29% (£98m) to £239m (2007: £337m) due to a number of non-recurring disposals in the prior year.
2007/06
Principal transactions increased 9% (£399m) to £4,975m (2006: £4,576m).
Net trading income increased 4% (£145m) to £3,759m (2006: £3,614m). The majority of the Group’s net trading income arose from Barclays Capital. Growth in the Rates related business reflected very strong performances in fixed income, commodities, foreign exchange, equity and prime services. The Credit related business included net losses from credit market turbulence and the benefits of widening credit spreads on structured notes issued by Barclays Capital.
Net investment income increased 26% (£254m) to £1,216m (2006: £962m). The cumulative gain from disposal of available for sale assets increased 82% (£253m) to £560m (2006: £307m) largely as a result of a number of private equity realisations and divestments. Net income from financial instruments designated at fair value decreased by 34% (£154m) largely due to lower growth in the value of linked insurance assets within Barclays Wealth.
Fair value movements on insurance assets included within net investment income contributed £113m (2006: £205m).
Net premiums from insurance contracts
2008/07
Net premiums from insurance contracts increased 8% (£79m) to £1,090m (2007: £1,011m), primarily due to expansion in GRCB – Western Europe reflecting a full year’s impact of a range of insurance products launched in late 2007, partially offset by lower net premiums following the sale of the closed life assurance book.
2007/06
Net premiums from insurance contracts decreased 5% (£49m) to £1,011m (2006: £1,060m), primarily due to lower customer take up of loan protection insurance.
Other income
2008/07
Certain asset management products offered to institutional clients by Barclays Global Investors are recognised as investment contracts. Accordingly, the invested assets and the related liabilities to investors are held at fair value and changes in those fair values are reported within other income. Other income in 2008 includes a £47m gain from the Visa IPO.
2007/06
Certain asset management products offered to institutional clients by Barclays Global Investors are recognised as investment contracts. Accordingly, the invested assets and the related liabilities to investors are held at fair value and changes in those fair values are reported within other income. Other income in 2007 includes a loss on the part disposal of Monument credit card portfolio and gains on reinsurance transactions in 2007 and 2006.
Principal transactions | ||||||||
2008 £m | 2007 £m | 2006 £m | ||||||
Rates related business | 4,751 | 4,162 | 2,848 | |||||
Credit related business | (3,422 | ) | (403 | ) | 766 | |||
Net trading income | 1,329 | 3,759 | 3,614 | |||||
Net gain from disposal of available for sale assets | 212 | 560 | 307 | |||||
Dividend income | 196 | 26 | 15 | |||||
Net gain from financial instruments designated at fair value | 33 | 293 | 447 | |||||
Other investment income | 239 | 337 | 193 | |||||
Net investment income | 680 | 1,216 | 962 | |||||
Principal transactions | 2,009 | 4,975 | 4,576 |
Net premiums from insurance contracts | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Gross premiums from insurance contracts | 1,138 | 1,062 | 1,108 | ||||||
Premiums ceded to reinsurers | (48 | ) | (51 | ) | (48 | ) | |||
Net premiums from insurance contracts | 1,090 | 1,011 | 1,060 |
Other income | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
(Decrease)/increase in fair value of assets held in respect of linked liabilities to customers under investment contracts | (10,422 | ) | 5,592 | 7,417 | |||||
Decrease/(increase) in liabilities to customers under investment contracts | 10,422 | (5,592 | ) | (7,417 | ) | ||||
Property rentals | 73 | 53 | 55 | ||||||
Loss on part disposal of Monument credit card portfolio | – | (27 | ) | – | |||||
Other | 304 | 162 | 159 | ||||||
Other income | 377 | 188 | 214 |
Net claims and benefits incurred on insurance contracts | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Gross claims and benefits incurred on insurance contracts | 263 | 520 | 588 | ||||||
Reinsurers’ share of claims incurred | (26 | ) | (28 | ) | (13 | ) | |||
Net claims and benefits incurred on insurance contracts | 237 | 492 | 575 |
|
Net claims and benefits incurred on insurance contracts
2008/07
Net claims and benefits incurred under insurance contracts decreased 52% (£255m) to £237m (2007: £492m), principally due to a decrease in the value of unit linked insurance contracts in Barclays Wealth; explained by falls in equity markets and disposal of closed life business in October 2008. Partially offsetting these trends is the increase in contract liabilities associated with increased net premiums driven by the growth in GRCB – Western Europe.
2007/06
Net claims and benefits incurred under insurance contracts decreased 14% (£83m) to £492m (2006: £575m), principally reflecting lower investment gains attributable to customers in Barclays Wealth.
Impairment charges and other credit provisions
2008/07
Impairment charges in UK Retail Banking increased £43m to £602m (2007: £559m), reflecting growth in the book and deteriorating economic conditions. In UK Home Finance, whilst three month arrears increased from 0.63% to 0.91%, the quality of the book and conservative loan to value ratios meant that the impairment charges and amounts charged off remained low at £24m (2007: £3m release). Impairment charges in Consumer Lending increased 3%, reflecting the current economic environment and loan growth.
The impairment charge in Barclays Commercial Bank increased £122m to £414m (2007: £292m), primarily reflecting higher impairment losses in Larger Business, particularly in the final quarter as the UK corporate credit environment deteriorated.
The impairment charge in Barclaycard increased £270m to £1,097m (2007: £827m), reflecting higher charges in Barclaycard International portfolios, particularly Barclaycard US which was driven by loan growth, rising delinquency due to deteriorating economic conditions and exchange rate movements; and £68m from the inclusion of Goldfish. These factors were partially offset by lower charges in UK Cards and secured consumer lending.
Impairment charges in GRCB – Western Europe increased £220m to £296m (2007: £76m), principally due to deteriorating economic trends and asset growth in Spain, where there were higher charges in the commercial portfolios as a consequence of the slowdown in the property and construction sectors. In addition, higher household indebtedness and rising unemployment has driven up delinquency and charge-offs in the personal sector.
Impairment charges in GRCB – Emerging Markets increased £127m to £166m (2007: £39m), reflecting: weakening credit conditions which adversely impacted delinquency trends in the majority of the retail portfolios; asset growth, particularly in India; and increased wholesale impairment in Africa.
Impairment charges in GRCB – Absa increased £201m to £347m (2007: £146m) as a result of rising delinquency levels in the retail portfolios, which have been impacted by rising interest and inflation rates and increasing consumer indebtedness.
Barclays Capital impairment charges of £2,423m (2007: £846m) included a charge of £1,763m (2007: £782m) against ABS CDO Super Senior and other credit market positions. Further impairment charges of £241m were incurred in respect of available for sale assets and reverse repurchase agreements (2007: nil). Other impairment charges increased £355m to £419m (2007: £64m) and primarily related to charges in the private equity and other loans business.
The impairment charge in Barclays Wealth increased £37m to £44m (2007: £7m) from a very low base. This increase reflected both the substantial increase in the loan book over the last three years and the impact of the current economic environment on client liquidity and collateral values.
The impairment charge In Head office functions and other operations increased £8m to £11m (2007: £3m), mainly reflecting losses on Floating Rate Notes held for hedging purposes. An additional £19m (2007: nil) of impairment charges were incurred on available for sale assets.
Impairment charges and other credit provisions | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Impairment charges on loans and advances | |||||||||
– New and increased impairment allowances | 5,116 | 2,871 | 2,722 | ||||||
– Releases | (358 | ) | (338 | ) | (389 | ) | |||
– Recoveries | (174 | ) | (227 | ) | (259 | ) | |||
Impairment charges on loans and advances | 4,584 | 2,306 | 2,074 | ||||||
Charge/(release) in respect of provision for undrawn contractually committed facilities and guarantees provided | 329 | 476 | (6 | ) | |||||
Impairment charges on loans and advances and other credit provisions | 4,913 | 2,782 | 2,068 | ||||||
Impairment charges on reverse repurchase agreements | 124 | – | – | ||||||
Impairment on available for sale assets | 382 | 13 | 86 | ||||||
Impairment charges and other credit provisions | 5,419 | 2,795 | 2,154 | ||||||
Impairment charges and other credit provisions on ABS CDO Super Senior and other credit market exposures included above: | |||||||||
Impairment charges on loans and advances | 1,218 | 300 | – | ||||||
Charges in respect of undrawn facilities and guarantees | 299 | 469 | – | ||||||
Impairment charges on loans and advances and other credit provisions on ABS CDO Super Senior and other credit market exposures | 1,517 | 769 | – | ||||||
Impairment charges on reverse repurchase agreements | 54 | – | – | ||||||
Impairment charges on available for sale assets | 192 | 13 | – | ||||||
Impairment charges and other credit provisions on ABS CDO Super Senior and other credit market exposures | 1,763 | 782 | – |
|
Financial review
Income statement commentary
2007/06
Impairment charges in UK Retail Banking decreased by £76m to £559m (2006: £635m), reflecting lower charges in unsecured Consumer Lending and Local Business driven by improved collection processes, reduced flows into delinquency, lower arrears trends and stable charge-offs. In UK Home Finance, asset quality remained strong and mortgage charges remained negligible. Mortgage delinquencies as a percentage of outstandings remained stable and amounts charged off were low.
The impairment charge in Barclays Commercial Bank increased £39m to £292m (2006: £253m), primarily due to higher impairment charges in Larger Business, partially offset by a lower charge in Medium Business due to a tightening of the lending criteria.
Impairment charges in Barclaycard decreased £226m to £827m (2006: £1,053m), reflecting reduced flows into delinquency, lower levels of arrears and lower charge-offs in UK Cards. Changes were made to impairment methodologies to standardise the approach and in anticipation of Basel II. The net positive impact of these changes in methodology was offset by the increase in impairment charges in Barclaycard International and secured consumer lending.
Impairment charges in GRCB – Western Europe and GRCB – Emerging Markets rose by £47m to £115m (2006: £68m), reflecting very strong balance sheet growth in 2006 and 2007 and the impact of lower releases in 2007. Arrears in some of GRCB – Absa’s retail portfolios deteriorated in 2007, driven by interest rate increases in 2006 and 2007 resulting in pressure on collections.
Barclays Capital impairment charges and other credit provisions of £846m included a charge of £782m against ABS CDO Super Senior and other credit market exposures and £58m net of fees relating to drawn leveraged finance positions.
Operating expenses
2008/07
Operating expenses increased 9% (£1,167m) to £14,366m (2007: £13,199m).
Administrative expenses grew 30% (£1,175m) to £5,153m (2007: £3,978m), reflecting the impact of acquisitions (in particular Lehman Brothers North American businesses and Goldfish), fees associated with Group capital raisings, the cost of the Financial Services Compensation Scheme as well as continued investment in the Global Retail and Commercial Banking distribution network. In addition, Barclays Global Investors’ selective support of liquidity products increased to £263m in the year (2007: £80m).
Operating expenses were reduced by gains from the sale of property of £148m (2007: £267m) as the Group continued the sale and leaseback of some of its freehold portfolio, principally in UK Retail Banking, Barclays Commercial Bank and GRCB – Western Europe.
Amortisation of intangible assets increased 56% (£105m) to £291m (2007: £186m), primarily related to intangible assets arising from the acquisition of Lehman Brothers North American businesses.
Goodwill impairment of £111m reflects the full write-down of £74m relating to EquiFirst, a US non-prime mortgage originator and a partial write-down of £37m relating to FirstPlus following its closure to new business in August 2008.
2007/06
Operating expenses grew 4% (£525m) to £13,199m (2006: £12,674m). The increase was driven by growth of 3% (£236m) in staff costs to £8,405m (2006: £8,169m) and lower gains on property disposals.
Administrative expenses remained flat at £3,978m (2006: £3,980m), reflecting good cost control across all businesses.
Operating lease rentals increased 20% (£69m) to £414m (2006: £345m), primarily due to increased property held under operating leases.
Operating expenses | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Staff costs | 7,779 | 8,405 | 8,169 | ||||||
Administrative expenses | 5,153 | 3,978 | 3,980 | ||||||
Depreciation | 630 | 467 | 455 | ||||||
Impairment charges/(releases) | |||||||||
– property and equipment | 33 | 2 | 14 | ||||||
– intangible assets | (3 | ) | 14 | 7 | |||||
– goodwill | 111 | – | – | ||||||
Operating lease rentals | 520 | 414 | 345 | ||||||
Gain on property disposals | (148 | ) | (267 | ) | (432 | ) | |||
Amortisation of intangible assets | 291 | 186 | 136 | ||||||
Operating expenses | 14,366 | 13,199 | 12,674 |
|
Operating expenses were reduced by gains from the sale of property of £267m (2006: £432m) as the Group continued the sale and leaseback of some of its freehold portfolio, principally in UK Retail Banking.
Amortisation of intangible assets increased 37% (£50m) to £186m (2006: £136m), primarily reflecting the amortisation of mortgage servicing rights relating to the acquisition of HomEq in November 2006.
Staff costs
2008/07
Staff costs decreased 7% (£626m) to £7,779m (2007: £8,405m). Salaries and accrued incentive payments fell overall by 10% (£720m) to £6,273m (2007: £6,993m), after absorbing increases of £718m relating to in year hiring and staff from acquisitions. Performance related costs were 48% lower, driven mainly by Barclays Capital.
Defined benefit plans pension costs decreased 41% (£61m) to £89m (2007: £150m). This was due to recognition of actuarial gains, higher expected return on assets and reduction in past service costs partially offset by higher interest costs and reduction in curtailment credit.
2007/06
Staff costs increased 3% (£236m) to £8,405m (2006: £8,169m). Salaries and accrued incentive payments rose 5% (£358m) to £6,993m (2006: £6,635m), reflecting increased permanent and fixed term staff worldwide. Defined benefit plans pension costs decreased 47% (£132m) to £150m (2006: £282m). This was mainly due to lower service costs.
Staff numbers
2008/07
Staff numbers are shown on a full-time equivalent basis. Total Group permanent and fixed-term contract staff comprised 60,700 (2007: 61,900) in the UK and 95,600 (2007: 73,000) internationally.
UK Retail Banking staff numbers decreased 300 to 30,400 (2007: 30,700). Barclays Commercial Bank staff numbers increased 600 to 9,800 (2007: 9,200), reflecting investment in product expertise, sales and risk capability and associated support areas. Barclaycard staff numbers increased 700 to 9,600 (2007: 8,900), primarily due to the transfer of staff into Absacard as a result of the acquisition of a majority stake in the South African Woolworth Financial Services business in October 2008. GRCB – Western Europe staff numbers increased 2,100 to 10,900 (2007: 8,800), reflecting expansion of the retail distribution network. GRCB – Emerging Markets staff numbers increased 8,800 to 22,700 (2007: 13,900), driven by expansion into new markets and continued investment in distribution in existing countries. GRCB – Absa staff numbers increased 1,000 to 36,800 (2007: 35,800), reflecting continued growth in the business and investment in collections capacity.
Barclays Capital staff numbers increased 6,900 to 23,100 (2007: 16,200), due principally to the acquisition of Lehman Brothers North American businesses. Barclays Global Investors staff numbers increased 300 to 3,700 (2007: 3,400). Staff numbers increased primarily in the iShares business due to continued expansion in the global ETF franchise. Barclays Wealth staff numbers increased 1,000 to 7,900 (2007: 6,900), principally due to the acquisition of the Lehman Brothers North American businesses.
2007/06
Total Group permanent and fixed term contract staff comprised 61,900 (2006: 62,400) in the UK and 73,000 (2006: 60,200) internationally.
Staff costs | ||||||
2008 £m | 2007 £m | 2006 £m | ||||
Salaries and accrued incentive payments | 6,273 | 6,993 | 6,635 | |||
Social security costs | 464 | 508 | 502 | |||
Pension costs | ||||||
– defined contribution plans | 237 | 141 | 128 | |||
– defined benefit plans | 89 | 150 | 282 | |||
Other post retirement benefits | 1 | 10 | 30 | |||
Other | 715 | 603 | 592 | |||
Staff costs | 7,779 | 8,405 | 8,169 |
Staff numbers | ||||||
2008 | 2007 | 2006 | ||||
UK Retail Banking | 30,400 | 30,700 | 34,500 | |||
Barclays Commercial Bank | 9,800 | 9,200 | 8,100 | |||
Barclaycard | 9,600 | 8,900 | 9,100 | |||
GRCB – Western Europe | 10,900 | 8,800 | 6,600 | |||
GRCB – Emerging Markets | 22,700 | 13,900 | 7,600 | |||
GRCB – Absa | 36,800 | 35,800 | 33,000 | |||
Barclays Capital | 23,100 | 16,200 | 13,200 | |||
Barclays Global Investors | 3,700 | 3,400 | 2,700 | |||
Barclays Wealth | 7,900 | 6,900 | 6,600 | |||
Head office functions and other operations | 1,400 | 1,100 | 1,200 | |||
Total Group permanent and fixed-term contract staff worldwide | 156,300 | 134,900 | 122,600 |
|
Financial review
Income statement commentary
UK Retail Banking headcount decreased 3,800 to 30,700 (2006: 34,500), due to efficiency initiatives in back-office operations and the transfer of operations personnel to Barclays Commercial Bank. Barclays Commercial Bank headcount increased 1,100 to 9,200 (2006: 8,100) due to the transfer of operations personnel from UK Retail Banking and additional investment in front line staff to drive improved geographical coverage. Barclaycard staff numbers decreased 200 to 8,900 (2006: 9,100), due to efficiency initiatives implemented across the UK operation and the sale of part of the Monument card portfolio, partially offset by an increase in the International cards businesses. GRCB – Western Europe staff numbers increased 2,200 to 8,800 (2006: 6,600) and GRCB – Emerging Markets staff numbers increased 6,300 to 13,900 (2006: 7,600) due to growth in the distribution network. GRCB – Absa staff numbers increased 2,800 to 35,800 (2006: 33,000) reflecting growth in the business and distribution network.
Barclays Capital staff numbers increased 3,000 to 16,200 (2006: 13,200) including 800 from the acquisition of EquiFirst. This reflected further investment in the front office, systems development and control functions to support continued business expansion. The majority of organic growth was in Asia Pacific. Barclays Global Investors staff numbers increased 700 to 3,400 (2006: 2,700). Headcount increased in all geographical regions and across product groups and the support functions, reflecting continued investment to support further growth. Barclays Wealth staff numbers increased 300 to 6,900 (2006: 6,600) principally due to the acquisition of Walbrook and increased client- facing professionals.
Share of post-tax results of associates and joint ventures
2008/07
The overall share of post-tax results of associates and joint ventures decreased £28m to £14m (2007: £42m).The share of results from associates decreased £11m mainly due to reduced contribution from private equity associates. The share of results from joint ventures decreased £17m mainly due to reduced contribution from Barclays Capital joint ventures.
2007/06
The overall share of post-tax results of associates and joint ventures decreased £4m to £42m (2006: £46m). The share of results from associates decreased £20m mainly due to the sale of FirstCaribbean International Bank (2006: £41m) at the end of 2006, partially offset by an increased contribution from private equity associates. The share of results from joint ventures increased by £16m mainly due to the contribution from private equity entities.
Profit on disposal of subsidiaries, associates and joint ventures
2008/07
On 31st October 2008 Barclays completed the sale of Barclays Life Assurance Company Ltd to Swiss Reinsurance Company for a net consideration of £729m leading to a net profit on disposal of £326m.
2007/06
The profit on disposal in 2007 related mainly to the disposal of the Group’s shareholdings in Gabetti Property Solutions (£8m) and Intelenet Global Services (£13m).
Share of post-tax results of associates and joint ventures | ||||||||
2008 £m | 2007 £m | 2006 £m | ||||||
Profit from associates | 22 | 33 | 53 | |||||
(Loss)/profit from joint ventures | (8 | ) | 9 | (7 | ) | |||
Share of post-tax results of associates and joint ventures | 14 | 42 | 46 | |||||
Profit on disposal of subsidiaries, associates and joint ventures | ||||||||
2008 £m | 2007 £m | 2006 £m | ||||||
Profit on disposal of subsidiaries, associates and joint ventures | 327 | 28 | 323 |
|
Gains on acquisitions
2008/07
The gains on acquisitions in 2008 relate to the acquisition of Lehman Brothers North American businesses (£2,262m) on 22nd September 2008, Goldfish credit card UK business (£92m) on 31st March 2008 and Macquarie Bank Limited Italian residential mortgage business (£52m) on 6th November 2008.
Tax
The overall tax charge is explained in the table below.
2008/07
The effective rate of tax for 2008, based on profit before tax, was 13% (2007: 28%). The effective tax rate differs from the 2007 effective rate and the UK corporation tax rate of 28.5% principally due to the Lehman Brothers North American businesses acquisition. Under IFRS the gain on acquisition of £2,262m is calculated net of deferred tax liabilities included in the acquisition balance sheet and is thus not subject to further tax in calculating the tax charge for the year. Furthermore, Barclays has tax losses previously unrecognised as a deferred tax asset but capable of sheltering part of this deferred tax liability. This gives rise to a tax benefit of £492m which, in accordance with IAS 12, is included as a credit within the tax charge for the year. The effective rate has been adversely impacted by the effect of the fall in the Barclays share price on the deferred tax asset recognised on share awards. In common with prior years there have been offsetting adjustments relating to different overseas tax rates, disallowable expenditure and non-taxable gains and income.
2007/06
The tax charge for the period was based on a UK corporation tax rate of 30% (2006: 30%). The effective rate of tax for 2007, based on profit before tax, was 28% (2006: 27%). The effective tax rate differed from 30% as it took account of the different tax rates applied to profits earned outside the UK, non-taxable gains and income and adjustments to prior year tax provisions. The forthcoming change in the UK rate of corporation tax from 30% to 28% on 1st April 2008 led to an additional tax charge in 2007 as a result of its effect on the Group’s net deferred tax asset. The effective tax rate for 2007 was higher than the 2006 rate, principally because there was a higher level of profit on disposals of subsidiaries, associates and joint ventures offset by losses or exemptions in 2006.
Gains on acquisitions | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Gains on acquisitions | 2,406 | – | – | ||||||
Tax | |||||||||
2008 £m | 2007 £m | 2006 £m | |||||||
Profit before tax | 6,077 | 7,076 | 7,136 | ||||||
Tax charge at average UK corporation tax rate of 28.5% (2007: 30%, 2006: 30%) | 1,732 | 2,123 | 2,141 | ||||||
Prior year adjustments | (176 | ) | (37 | ) | 24 | ||||
Differing overseas tax rates | 215 | (77 | ) | (17 | ) | ||||
Non-taxable gains and income (including amounts offset by unrecognised tax losses) | (833 | ) | (136 | ) | (393 | ) | |||
Share-based payments | 229 | 72 | 27 | ||||||
Deferred tax assets not previously recognised | (514 | ) | (158 | ) | (4 | ) | |||
Change in tax rates | (1 | ) | 24 | 4 | |||||
Other non-allowable expenses | 138 | 170 | 159 | ||||||
Overall tax charge | 790 | 1,981 | 1,941 | ||||||
Effective tax rate | 13% | 28% | 27% |
2009 Strategic Framework
Our framework for moving the strategy forward in 2009 has the following features:
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Outlook
We expect 2009 to be another challenging year with continuing downturns or recessions in many of the economies in which we are represented. In 2008 our profits were reduced by the impacts of substantial gross credit market losses. In 2009, we expect the impact of such credit market losses to be lower. Whilst we are confident in the relative quality of our major books of assets, we also expect the recessionary environments in the UK, Spain, South Africa and the US to increase the loan loss rates on our loans and advances.
Governments in the UK and elsewhere have taken significant measures to assist borrowers and lenders in response to the emerging recession, including reducing official interest rates. The low interest rate environment will have the impact of substantially reducing the spread generated on our retail and commercial banking deposits, particularly in the UK, but we expect the combined impact of these government measures to be positive for the economy in time.
2009 Trading
Customer and client activity levels were high in the first month of 2009, and we have had a good start to the year. In particular, the operating performance of Barclays Capital, benefiting from the now complete integration of the Lehman Brothers North American businesses, was extremely strong. The trends that lie behind the strong operating performance in Global Retail and Commercial Banking in 2008 were again observable in its performance in January.
Recent Developments
As reported in note 35 of the financial statements, in March 2007 the United States Court of Appeals for the Fifth Circuit issued a decision that the Newby litigation relating to Enron could not proceed against Barclays as a class action because the plaintiffs had not alleged a proper claim against Barclays. On 5th March 2009, the District Court granted summary judgment in Barclays favour on plaintiffs’ claims against Barclays. The District Court also denied plaintiffs’ request to amend the complaint to assert revised claims against Barclays on behalf of the putative class. Plaintiffs’ time in which to file an appeal regarding the District Court’s 5th March 2009 decision has not yet expired. For further information on the Newby litigation, see note 35 of the financial statements.
Exchange Act. (Check one):
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Financial review
As at 31st December
2008 | 2007 | 2006 | 2005 | 2004 | ||||||
£m | £m | £m | £m | £ma | ||||||
Assets | ||||||||||
Cash and other short-term funds | 31,714 | 7,637 | 9,753 | 5,807 | 3,525 | |||||
Treasury bills and other eligible bills | n/a | n/a | n/a | n/a | 6,658 | |||||
Trading portfolio and financial assets designated at fair value | 306,836 | 341,171 | 292,464 | 251,820 | n/a | |||||
Derivative financial instruments | 984,802 | 248,088 | 138,353 | 136,823 | n/a | |||||
Debt securities and equity securities | n/a | n/a | n/a | n/a | 141,710 | |||||
Loans and advances to banks | 47,707 | 40,120 | 30,926 | 31,105 | 80,632 | |||||
Loans and advances to customers | 461,815 | 345,398 | 282,300 | 268,896 | 262,409 | |||||
Available for sale financial investments | 64,976 | 43,072 | 51,703 | 53,497 | n/a | |||||
Reverse repurchase agreements and cash collateral on securities borrowed | 130,354 | 183,075 | 174,090 | 160,398 | n/a | |||||
Other assets | 24,776 | 18,800 | 17,198 | 16,011 | 43,247 | |||||
Total assets | 2,052,980 | 1,227,361 | 996,787 | 924,357 | 538,181 | |||||
Liabilities | ||||||||||
Deposits and items in the course of collection due to banks | 116,545 | 92,338 | 81,783 | 77,468 | 112,229 | |||||
Customer accounts | 335,505 | 294,987 | 256,754 | 238,684 | 217,492 | |||||
Trading portfolio and financial liabilities designated at fair value | 136,366 | 139,891 | 125,861 | 104,949 | n/a | |||||
Liabilities to customers under investment contracts | 69,183 | 92,639 | 84,637 | 85,201 | n/a | |||||
Derivative financial instruments | 968,072 | 248,288 | 140,697 | 137,971 | n/a | |||||
Debt securities in issue | 149,567 | 120,228 | 111,137 | 103,328 | 83,842 | |||||
Repurchase agreements and cash collateral on securities lent | 182,285 | 169,429 | 136,956 | 121,178 | n/a | |||||
Insurance contract liabilities, including unit-linked liabilities | 2,152 | 3,903 | 3,878 | 3,767 | 8,377 | |||||
Subordinated liabilities | 29,842 | 18,150 | 13,786 | 12,463 | 12,277 | |||||
Other liabilities | 16,052 | 15,032 | 13,908 | 14,918 | 87,200 | |||||
Total liabilities | 2,005,569 | 1,194,885 | 969,397 | 899,927 | 521,417 | |||||
Shareholders’ equity | ||||||||||
Shareholders’ equity excluding minority interests | 36,618 | 23,291 | 19,799 | 17,426 | 15,870 | |||||
Minority interests | 10,793 | 9,185 | 7,591 | 7,004 | 894 | |||||
Total shareholders’ equity | 47,411 | 32,476 | 27,390 | 24,430 | 16,764 | |||||
Total liabilities and shareholders’ equity | 2,052,980 | 1,227,361 | 996,787 | 924,357 | 538,181 | |||||
Risk weighted assets and capital ratiosb | ||||||||||
Risk weighted assets | 433,302 | 353,878 | 297,833 | 269,148 | 218,601 | |||||
Tier 1 ratio | 8.6% | 7.6% | 7.7% | 7.0% | 7.6% | |||||
Risk asset ratio | 13.6% | 11.2% | 11.7% | 11.3% | 11.5% | |||||
Selected financial and other statistics | ||||||||||
Net asset value per ordinary share | 437p | 353p | 303p | 269p | 246p | |||||
Number of ordinary shares of Barclays PLC (in millions) | 8,372 | 6,601 | 6,535 | 6,490 | 6,454 | |||||
Year-end United States Dollar exchange rate used in preparing the accounts | 1.46 | 2.00 | 1.96 | 1.72 | 1.92 | |||||
Year-end Euro exchange rate used in preparing the accounts | 1.04 | 1.36 | 1.49 | 1.46 | 1.41 | |||||
Year-end Rand exchange rate used in preparing the accounts | 13.74 | 13.64 | 13.71 | 10.87 | 10.86 |
The financial information above is extracted from the published accounts for the last three years. This information should be read together with, and is qualified by reference to, the accounts and Notes included in this report.
Notes
|
Financial review
Balance sheet
Total assets increased £826bn to £2,053bn in 2008. Of this increase, £737bn was attributable to an increase in derivative assets and £124bn was attributable to increased loans and advances. All other assets declined by £35bn.
Shareholders’ equity
Shareholders’ equity, excluding minority interests increased, nearly 57% from £23bn at the end of 2007 to £37bn at the end of 2008. The main drivers for this were: equity issuances in July and September of £5.0bn; equity impact of issuing Mandatorily Convertible Notes and Warrants of £4.4bn; and after-tax profits of £5.3bn. Other reserves increased £1.6bn and we paid dividends of £2.3bn.
Capital management
At 31st December 2008, on a Basel II basis the equity Tier 1 ratio was 6.7% and the Tier 1 ratio was 9.7%, both stated on a basis to reflect conversion into ordinary shares of the Mandatorily Convertible Notes and inclusion of all innovative Tier 1 capital. Capital ratios reflect a 22% increase in risk weighted assets to £433bn during the year. This was driven by the combined impacts on risk weighted assets of the weakening of Sterling and the pro-cyclical effects of the International Basel Accord as well as lending growth in 2008. The capital ratios reflect this risk weighted asset growth and benefited from the significant increases in our capital over the course of 2008. The pro forma ratios significantly exceed the minimum levels established by the UK Financial Services Authority.
On 19th January 2009 the UK government announced, amongst other measures, an asset protection scheme under which banks may insure certain assets on their balance sheet. We are working with the Tripartite Authorities (Her Majesty’s Treasury, Bank of England and the
UK Financial Services Authority) to determine the terms on which, and the extent to which, we would wish to participate in the scheme. The procuring of such insurance could have the effect of reducing risk weighted assets. The UK Financial Services Authority also announced on 19th January 2009 a programme of work to reduce significantly the requirement for additional capital raising from the pro-cyclical effects of the International Basel Accord.
We expect a single digit percentage rate of risk weighted asset growth in 2009.
We expect to maintain the equity Tier 1 ratio and Tier 1 ratio at levels which significantly exceed the minimum requirements of the UK Financial Services Authority for the duration of the current period of financial and economic stress.
Foreign Currency Translation
Assets and risk weighted assets were affected by the decline in value of Sterling relative to other currencies during 2008, particularly in the last two months of the year. Over the course of the year, Sterling depreciated by 37% relative to the US Dollar and 31% relative to the Euro. We estimate that currency movements contributed £60bn to risk weighted assets.
Our hedging strategy in respect of net investments in foreign currencies is designed to mitigate against the impact of such movements on our capital ratios. In this regard, equity and Tier 1 capital ratios are hedged to approximately 75%, 30% and 100% of the movements in US Dollar, Euro and South African Rand respectively against Sterling.
The currency translation reserve increased by £3.1bn year on year. This reflected foreign exchange movements in foreign currency net investments which are largely economically hedged through preference share capital (denominated in US Dollars and Euros) that is not revalued for accounting purposes.
|
Financial review
Balance sheet commentary
Total assets and risk weighted assetsa
2008/07
Total assets increased 67% to £2,053.0bn (2007: £1,227.4bn). Risk weighted assets increased 22% to £433.3bn (2007: £353.9bn).
UK Retail Banking total assets increased 15% to £101.4bn (31st December 2007: £88.5bn) driven by growth in mortgage balances. Risk weighted assets decreased 3% to £30.5bn (31st December 2007: £31.5bn) as lending growth mainly in high quality, low risk mortgages was more than offset in capital terms by active risk management.
Barclays Commercial Bank total assets grew 13% to £84.0bn (31st December 2007: £74.6bn) driven by higher loans and advances. Risk weighted assets increased 11% to £63.1bn (31st December 2007: £57.0bn). This was slightly lower than asset growth, reflecting a relative increase in lower risk portfolios.
Barclaycard total assets increased 40% to £30.9bn (31st December 2007: £22.1bn) reflecting increases in International assets, the acquisition of Goldfish and the appreciation of the Euro and US Dollar against Sterling. Risk weighted assets increased 35% to £27.3bn (31st December 2007: £20.2bn), driven by acquisitions, the redemption of securitisation deals and exposure growth predominantly in the US.
GRCB – Western Europe total assets grew 48% to £64.7bn (31st December 2007: £43.7bn) reflecting growth in retail mortgages, unsecured lending, commercial lending and a 31% appreciation over the year in the value of the Euro against Sterling. Risk weighted assets increased 46% to £36.5bn (31st December 2007: £25.0bn), primarily reflecting underlying lending growth and the appreciation of the Euro.
GRCB – Emerging Markets total assets grew 60% to £14.7bn (31st December 2007: £9.2bn) reflecting increases in retail and commercial lending combined with the impact of Sterling depreciation. Risk weighted assets increased 44% to £15.1bn (31st December 2007: £10.5bn), reflecting portfolio growth.
GRCB – Absa total assets increased 11% to £40.4bn (31st December 2007: £36.4bn) reflecting broad based asset growth. Risk weighted assets increased 6% to £18.8bn (31st December 2007: £17.8bn), reflecting balance sheet growth.
Barclays Capital total assets increased 94% (£789.2bn) to £1,629.1bn (31st December 2007: £839.9bn) due to an increase in derivative assets of £736.7bn, predominantly driven by significant volatility and movements in yield curves during the year, together with a substantial depreciation in Sterling against most major currencies. Risk weighted assets increased 28% to £227.4bn (31st December 2007: £178.2bn). This was driven by the depreciation in Sterling against the US Dollar and Euro, and an increase in market volatility.
Barclays Global Investors total assets decreased 20% to £71.3bn (31st December 2007: £89.2bn), mainly attributable to adverse market movements in certain asset management products recognised as investment contracts. Risk weighted assets decreased 11% to £3.9bn (31st December 2007: £4.4bn) mainly attributed to changes in the asset class mix, partially offset by the weakening of Sterling against other currencies.
Barclays Wealth total assets decreased 27% to £13.3bn (31st December 2007: £18.2bn) reflecting the sale of the closed life assurance business partially offset by strong growth in lending to high net worth and intermediary clients. Risk weighted assets increased 26% to £10.3bn (31st December 2007: £8.2bn) reflecting strong growth in lending.
Head office functions and other operations total assets decreased 46% to £3.1bn (31st December 2007: £5.7bn). Risk weighted assets decreased 64% to £0.4bn (31st December 2007: £1.1bn). The decrease in the year was mainly attributable to the increased netting of Group deferred tax assets and liabilities.
Total assets by business
2008 | 2007 | 2006 | ||||
£m | £m | £m | ||||
UK Retail Banking | 101,384 | 88,477 | 81,693 | |||
Barclays Commercial Bank | 84,029 | 74,566 | 66,224 | |||
Barclaycard | 30,925 | 22,121 | 20,033 | |||
GRCB – Western Europe | 64,732 | 43,702 | 33,487 | |||
GRCB – Emerging Markets | 14,653 | 9,188 | 5,219 | |||
GRCB – Absa | 40,391 | 36,368 | 29,575 | |||
Barclays Capital | 1,629,117 | 839,850 | 657,922 | |||
Barclays Global Investors | 71,340 | 89,218 | 80,515 | |||
Barclays Wealth | 13,263 | 18,188 | 15,023 | |||
Head office functions and other operations | 3,146 | 5,683 | 7,096 | |||
Total assets | 2,052,980 | 1,227,361 | 996,787 |
Risk weighted assets by business
2008b | 2007b | 2007 | 2006 | |||||
Basel II | Basel II | Basel I | Basel I | |||||
£m | £m | £m | £m | |||||
UK Retail Banking | 30,491 | 31,463 | 46,059 | 43,020 | ||||
Barclays Commercial | ||||||||
Bank | 63,081 | 57,040 | 54,325 | 50,302 | ||||
Barclaycard | 27,316 | 20,199 | 19,690 | 16,873 | ||||
GRCB | ||||||||
– Western Europe | 36,480 | 24,971 | 24,462 | 17,567 | ||||
GRCB | ||||||||
– Emerging Markets | 15,080 | 10,484 | 6,050 | 3,255 | ||||
GRCB – Absa | 18,846 | 17,829 | 22,448 | 19,809 | ||||
Barclays Capital | 227,448 | 178,206 | 169,124 | 137,635 | ||||
Barclays Global Investors | 3,910 | 4,369 | 1,994 | 1,375 | ||||
Barclays Wealth | 10,300 | 8,216 | 7,692 | 6,077 | ||||
Head office functions and other operations | 350 | 1,101 | 1,632 | 1,920 | ||||
Total risk weighted assets | 433,302 | 353,878 | 353,476 | 297,833 |
Notes
Barclays Bank PLC | ||||||||||||
| Non-Accelerated Filer þ |
* | Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: |
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board þ
Other ¨
* | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: |
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has 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 ¨ No ¨
2007/06Certain non-IFRS measures
Total assets increased 23% to £1,227.4bn (2006: £996.8bn). Risk weighted assets increased 19% to £353.5bn (2006: £297.8bn). Loans and advances to customers that have been securitised increased £4.3bn to £28.7bn (2006: £24.4bn).
UK Retail Banking total assets increased 8% to £88.5bn (2006: £81.7bn). This was mainly attributable to growth in mortgage balances. Risk weighted assets increased by 7% to £46.1bn (2006: £43.0bn) with growth in mortgages partially offset by an increase in securitised balances and other reductions.
Barclays Commercial Bank total assets grew 13% to £74.6bn (2006: £66.2bn) driven by good growth across lending products. Risk weighted assets increased 8% to £54.3bn (2006: £50.3bn), reflecting asset growth partially offset by increased regulatory netting and an increase in securitised balances.
Barclaycard total assets increased 11% to £22.1bn (2006: £20.0bn). Risk weighted assets increased 17% to £19.7bn (2006: £16.9bn), primarily reflecting the increase in total assets, redemption of securitisation transactions, partially offset by changes to the treatment of regulatory associates and the sale of part of the Monument card portfolio.
GRCB – Western Europe total assets grew 31% to £43.7bn (2006: £33.5bn). This growth was mainly driven by increases in retail mortgages and unsecured lending. Risk weighted assets increased 39% to £24.5bn (2006: £17.6bn), reflecting asset growth.
GRCB – Emerging Markets total assets grew by 76% to £9.2bn (2006: £5.2bn). This growth was driven by increases in unsecured lending. Risk weighted assets increased 86% to £6.1bn (2006: £3.3bn), reflecting asset growth.
GRCB – Absa total assets increased 23% to £36.4bn (2006: £29.6bn), primarily driven by increases in mortgages, credit cards and commercial property finance. Risk weighted assets increased 13% to £22.4bn (2006: £19.8bn), reflecting balance sheet growth.
Barclays Capital total assets rose 28% to £839.9bn (2006: £657.9bn). Derivative assets increased £109.7bn primarily due to movements across a range of market indices. This was accompanied by a corresponding increase in derivative liabilities. The increase in non-derivative assets reflects an expansion of the business across a number of asset classes, combined with an increase in drawn leveraged loan positions and mortgage-related assets. Risk weighted assets increased 23% to £169.1bn (2006: £137.6bn) reflecting growth in fixed income, equities and credit derivatives.
Barclays Global Investors total assets increased 11% to £89.2bn (2006: £80.5bn), mainly attributable to growth inIn this document certain asset management products recognised as investment contracts. The majority of total assets relates to asset management products with equal and offsetting balances reflected within liabilities to customers. Risk weighted assets increased 45% to £2.0bn (2006: £1.4bn) mainly attributable to overall growth in the balance sheet and the mix of securities lending activity.
Barclays Wealth total assets increased 21% to £18.2bn (2006: £15.0bn) reflecting strong growth in lending to high net worth, affluent and intermediary clients. Risk weighted assets increased 27% to £7.7bn (2006: £6.1bn) reflecting the increase in lending.
Head office functions and other operations total assets decreased 20% to £5.7bn (2006: £7.1bn). Risk weighted assets decreased 15% to £1.6bn (2006: £1.9bn).
Adjusted gross leverage
The adjusted gross leverage ratio is defined as the multiple of adjusted total tangible assets over total qualifying Tier 1 capital. Adjusted total tangible assetsnon-IFRS (International Financial Reporting Standards) measures are total assets less derivative counterparty netting, assets under management on the balance sheet, settlement balances, goodwill and tangible assets. Tier 1 capital is defined by the UK FSA. Adjusted gross leverage is a non-IFRS measure. However,reported. Barclays management believes that this measure providesthese non-IFRS measures provide valuable information to readers of Barclaysits financial statements because there will bethey enable the reader to focus more capitaldirectly on the underlying day-to-day performance of its businesses and less leverageprovide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence. They also reflect an important aspect of the way in the banking system, as a key measure of stability, which operating targets are defined and performance is consistent with the views of regulators and investors.monitored by Barclays management. However, any non-IFRS measures in this measure isdocument are not a substitute for IFRS measures and readers should consider the IFRS measures as well. Among other non-IFRS information, certain information and related discussion are provided in pages 2 to 50 relating to the Group’s total results rather than separating out discontinued operations, representing the Barclays Global Investors (BGI) business sold on 1st December 2009. These non-IFRS measures are provided because management considers that including BGI as part of Group operations and separately identifying the gain on this disposal provides useful information about the performance of the Group as a whole and reflects how the operations were managed until the disposal of BGI. The consolidated summary income statement on page 2 provides a reconciliation between continuing and Group results, and the discussion of Group results from page 4 to 10 describe the Group’s results on a continuing operations basis, followed by a discussion of the Group’s discontinued operations.
VolatilityMarket and other data
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 reference ratesrespect of internal estimates, a third party using different methods would obtain the same estimates as Barclays.
Forward-looking statements
This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and yield curves usedSection 27A of the US Securities Act of 1933, as amended, with respect to certain Group’s plans and its current goals and expectations relating to its future financial conditions and performance. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate to only to historic or current facts. Forward-looking statements sometimes use words such as “may”, “will”, “seek”, “continue”, “aim”, “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding Group’s future financial position, income growth, assets, impairments, charges, business strategy, capital ratios, leverage, payment of dividends, projected levels of growth in the banking and finance markets, projected costs, estimates of capital expenditure, and plans and objectives for pricing have ledfuture operations and other statements that are not historical by fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to significantly higher values for derivative assetsfuture events and liabilities. Limited netting is permittedcircumstances, including, but not limited to, UK domestic and global economic and business conditions, the effect of continued volatility in credit market exposures, changes in valuation of issue notes, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards (IFRS) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, even for receivablesthe outcome of pending and payablesfuture litigation, the success of future acquisitions and other strategic transactions and the impact of completion – a number of such factors being beyond the Group’s control. As a result, the Group’s actual results may differ materially from plans, goals, and expectations set forth in the Group’s forward-looking statement.
Any forward-looking statements made herein speak only as of the date they are made. Expect as required by the U.K. Financial Services Authority (FSA), the London Stock Exchange or applicable laws, Barlcays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this report to reflect any change in Barclay’s expectations with regard thereto or any change in events, conditions or circumstance on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the same counterparty where there are contractually agreed netting arrangements. Derivative assetsU.S. Securities and liabilities would be £917bn (2007: £215bn) lower than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty or for which we hold cash collateral.Exchange Commission.
Assets and liabilities also include amounts held under investment contracts with third parties of a further £69bn as at 31st December 2008 (2007: £93bn). These constitute asset management products offered to institutional pension funds which are required to be recognised as financial instruments. Changes in value in these assets are entirely to the account of the beneficial owner of the asset.
Excluding these items, settlement balances, goodwill and intangible assets, our adjusted total tangible assets were £1,026bn at 31st December 2008 (2007: £888bn). On this basis we define adjusted gross leverage, being the multiple of adjusted total tangible assets over total qualifying Tier 1 capital. At 31st December 2008 adjusted gross leverage was 28x (2007: 33x).
We expect adjusted gross leverage to improve further over time.
Adjusted gross leverage | ||||||
2008 £m | 2007 £m | |||||
Total assets | 2,052,980 | 1,227,361 | ||||
Counterparty net/ collateralised derivatives | (917,074 | ) | (215,485 | ) | ||
Financial assets designated at fair value and associated cash balances – held in respect of linked liabilities to customers under investment contracts | (69,183 | ) | (92,639 | ) | ||
Net settlement balances | (29,786 | ) | (22,459 | ) | ||
Goodwill and intangible assets | (10,402 | ) | (8,296 | ) | ||
Adjusted total tangible assets | 1,026,535 | 888,482 | ||||
Total qualifying Tier 1 capital | 37,250 | 26,743 | ||||
Adjusted gross leverage | 28 | 33 |
|
Financial review
Balance sheet commentary
Total shareholders’ equityCertain terms
2008/07
Total shareholders’ equity increased £14,935m to £47,411m (2007: £32,476m).
Called up share capital comprises 8,372 million ordinary shares of 25p each (2007: 6,600 million ordinary shares of 25p each and 1 million staff shares of £1 each).
Retained earnings increased £3,238m to £24,208m (2007: £20,970m). Profit attributable to the equity holders of the parent of £4,382mThe term ‘Barclays PLC Group’ means Barclays PLC together with its subsidiaries and the proceeds of capital raising of £1,410m were partially offset by dividends paid to shareholders of £2,344m. Other equity of £3,652m represents the issue of Mandatorily Convertible Notes, which will convert into ordinary shares by June 2009.
Movements in other reserves, except the capital redemption reserve, reflect the relevant amounts recorded in the consolidated statement of recognised income and expense on page 206.
Minority interests increased £1,608m to £10,793m (2007: £9,185m). The increase primarily reflects a preference share issuance byterm ‘Barclays Bank PLC Group’ means Barclays Bank PLC of £1,345m.
The Group’s authoritytogether with its subsidiaries. ‘Barclays’ and ‘Group’ are terms which are used to buy-back equity shares was renewed at the 2008 AGM.
2007/06
Total shareholders’ equity increased £5,086mrefer to £32,476m (2006: £27,390m).
Called up share capital comprises 6,600 million (2006: 6,535 million) ordinary shares of 25p each and 1 million (2006: 1 million) staff shares of £1 each. Called up share capital increased by £17m representing the nominal value of shares issued to Temasek Holdings, China Development Bank (CDB) and employees under share option plans largely offset by a reduction in nominal value arising from share buy-backs. Share premium
reduced by £5,762m; the reclassification of £7,223m to retained earnings resulting from the High Court approved cancellation of share premium was partly offset by additional premium arising on the issuance to CDB and on employee options. The capital redemption reserve increased by £75m representing the nominal valueeither of the share buy-backs.
Retained earnings increased by £8,801m. Increases primarily arose from profit attributablepreceding groups when the subject matter is identical. The term ‘Company’, ‘Parent Company’ or ‘Parent’ refers to equity holdersBarclays PLC, and the term ‘Bank’ refers to Barclays Bank PLC. The term ‘Absa Group Limited’ is used to refer to Absa Group Limited and its subsidiaries, and the term ‘GRCB – Absa’ is used to the refer to the component of the parentGlobal Retail and Commercial Banking segment represented by this business. In this report, the abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of £4,417m,millions of pounds sterling, respectively; the reclassificationabbreviations ‘US$m’ and ‘US$bn’ represent millions and thousands of share premiummillions of £7,223mUS dollars, respectively, and the proceeds‘€m’ and ‘€bn’ represent millions and thousands of the Temasek issuance in excessmillions of nominal value of £941m. Reductions primarily arose from external dividends paid of £2,079m and the total cost of share repurchases of £1,802m.euros, respectively.
Movements in other reserves, except the capital redemption reserve, reflect the relevant amounts recorded in the consolidated statement of recognised income and expense on page 206.
Minority interests increased £1,594m to £9,185m (2006: £7,591m). The increase was primarily driven by preference share issuances of £1,322m and an increase in the minority interest in Absa of £225m.i
The Group’s authority to buy-back equity shares was renewed at the 2007 AGM.
Barclays Bank PLC
Title of Each Class | Name of Each Exchange On Which Registered | |
Callable Floating Rate Notes 2035 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 2 | New York Stock Exchange* | |
American Depository Shares, Series 2, each representing one Non-Cumulative Callable Dollar Preference Share, Series 2 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 3 | New York Stock Exchange* | |
American Depository Shares, Series 3, each representing one Non-Cumulative Callable Dollar Preference Share, Series 3 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 4 | New York Stock Exchange* | |
American Depository Shares, Series 4, each representing one Non-Cumulative Callable Dollar Preference Share, Series 4 | New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 5 | New York Stock Exchange* | |
American Depository Shares, Series 5, each representing one Non-Cumulative Callable Dollar Preference Share, Series 5 | New York Stock Exchange | |
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iPath® Global Carbon ETN | NYSE Arca | |
iPath® Optimized Currency Carry ETN | NYSE Arca | |
Barclays GEMS IndexTM ETN | NYSE Arca | |
Barclays GEMS Asia 8 ETN | NYSE Arca | |
Barclays Asian and Gulf Currency Revaluation ETN | NYSE Arca | |
Barclays ETN + Short C Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Long B Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Short B Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM | NYSE Arca | |
Barclays ETN + Long C Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM | NYSE Arca |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be 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 | 11,411,577,230 | ||
Barclays Bank PLC | £1 ordinary shares | 2,342,558,515 | ||
£1 preference shares | 1,000 | |||
£100 preference shares | 75,000 | |||
€100 preference shares | 240,000 | |||
$0.25 preference shares | 237,000,000 | |||
$100 preference shares | 100,000 |
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.
Yes ¨ No þ
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*
Yes þ No ¨
* | This requirement does not apply to the registrants until their fiscal year ending December 31, 2011. |
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Barclays PLC | ||||||||||||
Large Accelerated Filer þ | Accelerated Filer ¨ | Non-Accelerated Filer ¨ | ||||||||||
Barclays Bank PLC | ||||||||||||
Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer þ |
* | Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: |
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board þ
Other ¨
* | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: |
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has 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 ¨ No ¨
Certain non-IFRS measures
In this document certain non-IFRS (International Financial Reporting Standards) measures are reported. Barclays management believes that these non-IFRS measures provide valuable information to readers of its financial statements because they enable the reader to focus more directly on the underlying day-to-day performance of its businesses and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays management. However, any non-IFRS measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well. Among other non-IFRS information, certain information and related discussion are provided in pages 2 to 50 relating to the Group’s total results rather than separating out discontinued operations, representing the Barclays Global Investors (BGI) business sold on 1st December 2009. These non-IFRS measures are provided because management considers that including BGI as part of Group operations and separately identifying the gain on this disposal provides useful information about the performance of the Group as a whole and reflects how the operations were managed until the disposal of BGI. The consolidated summary income statement on page 2 provides a reconciliation between continuing and Group results, and the discussion of Group results from page 4 to 10 describe the Group’s results on a continuing operations basis, followed by a discussion of the Group’s discontinued operations.
Market and other data
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.
Forward-looking statements
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 Group’s plans and its current goals and expectations relating to its future financial conditions and performance. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate to only to historic or current facts. Forward-looking statements sometimes use words such as “may”, “will”, “seek”, “continue”, “aim”, “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding Group’s future financial position, income growth, assets, impairments, charges, business strategy, capital ratios, leverage, payment of dividends, projected levels of growth in the banking and finance markets, projected costs, estimates of capital expenditure, and plans and objectives for future operations and other statements that are not historical by fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, UK domestic and global economic and business conditions, the effect of continued volatility in credit market exposures, changes in valuation of issue notes, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards (IFRS) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of completion – a number of such factors being beyond the Group’s control. As a result, the Group’s actual results may differ materially from plans, goals, and expectations set forth in the Group’s forward-looking statement.
Any forward-looking statements made herein speak only as of the date they are made. Expect as required by the U.K. Financial Services Authority (FSA), the London Stock Exchange or applicable laws, Barlcays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this report to reflect any change in Barclay’s expectations with regard thereto or any change in events, conditions or circumstance on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the U.S. Securities and Exchange Commission.
Certain terms
The term ‘Barclays PLC Group’ means Barclays PLC together with its subsidiaries and the term ‘Barclays Bank PLC Group’ means Barclays Bank PLC together with its subsidiaries. ‘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’, ‘Parent Company’ or ‘Parent’ refers to Barclays PLC, and the term ‘Bank’ refers to Barclays Bank PLC. The term ‘Absa Group Limited’ is used to refer to Absa Group Limited and its subsidiaries, and the term ‘GRCB – Absa’ is used to the refer to the component of the Global Retail and Commercial Banking segment represented by this business. In this report, the abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively; the abbreviations ‘US$m’ and ‘US$bn’ represent millions and thousands of millions of US dollars, respectively, and ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively.
i
SEC FORM 20-F CROSS REFERENCE INFORMATION
Form 20-F item number | Page and caption references in this document* | |||
1 | Identity of Directors, Senior Management and Advisers | Not applicable | ||
2 | Offer Statistics and Expected Timetable | Not applicable | ||
3 | Key Information | |||
A. Selected financial data | 11, 12, 304 | |||
B. Capitalization and indebtedness | Not applicable | |||
C. Reason for the offer and use of proceeds | Not applicable | |||
D. Risk factors | 54-58 | |||
4 | Information on the Company | |||
A. History and development of the company | 165, 225 (Note 38)-230 (Note 41), 234 (Note 43), 305, 312 | |||
B. Business overview | 117-118, 193-195 (Note 14), 222 (Note 36), 278-282 (Note 53) | |||
C. Organizational structure | 229-230 (Note 41) | |||
D. Property, plants and equipment | 201 (Note 23), 223-224 (Note 37) | |||
4A | Unresolved staff comments | Not applicable | ||
5 | Operating and Financial Review and Prospects | |||
A. Operating results | 2-50, 117-118, 193-195 (Note 14), 222 (Note 36), 257-261 (Note 48) | |||
B. Liquidity and capital resources | 17-18, 92-93, 102-104, 182, 193-195 (Note 14), 204-209 (Note 27), 209-210 (Note 29), 216-218 (Note 31), 220-221 (Note 34), 261-266 (Note 49), 277-278 (Note 52) | |||
C. Research and development, patents and licenses, etc. | Not applicable | |||
D. Trend information | - | |||
E. Off-balance sheet arrangements | 240-242 (note 45) | |||
F. Tabular disclosure of contractual obligations | 20 | |||
G. Safe harbor | i (Forward-looking statements) | |||
6 | Directors, Senior Management and Employees | |||
A. Directors and senior management | 119-121 | |||
B. Compensation | 145-161, 210-216 (Note 30), 230-234 (Note 42) | |||
C. Board practices | 119-140, 147, 154-156 | |||
D. Employees | 8, 51 | |||
E. Share ownership | 145-161, 233 (Note 42) | |||
7 | Major Shareholders and Related Party Transactions | |||
A. Major shareholders | 123, 165 | |||
B. Related party transactions | 230-234 (Note 42) | |||
C. Interests of experts and counsel | Not applicable | |||
8 | Financial Information | |||
A. Consolidated statements and other financial information | 122, 166-300, 302, 305-306 | |||
B. Significant changes | 125, 234 (Note 43) | |||
9 | The Offer and Listing | |||
A. Offer and listing details | 303 | |||
B. Plan of distribution | Not applicable | |||
C. Markets | 302 | |||
D. Selling shareholders | Not applicable | |||
E. Dilution | Not applicable | |||
F. Expenses of the issue | Not applicable | |||
10 | Additional Information |
ii
Form 20-F item number | Page and caption references in this document* | |||
A. Share capital | Not applicable | |||
B. Memorandum and Articles of Association | 305-307 | |||
C. Material contracts | 125, 154, 156, 217-218 (Note 31) | |||
D. Exchange controls | 309 | |||
E. Taxation | 308-309 | |||
F. Dividends and paying assets | Not applicable | |||
G. Statement by experts | Not applicable | |||
H. Documents on display | 309 | |||
I. Subsidiary information | 229-230 (Note 41) | |||
11 | Quantitative and Qualitative Disclosure about Market Risk | 53-116, 242 (Note 46)-266 (Note 49) | ||
12 | Description of Securities Other than Equity Securities | |||
A. Debt Securities | Not applicable | |||
B. Warrants and Rights | Not applicable | |||
C. Other Securities | Not applicable | |||
D. American Depositary Shares | 310-311 | |||
13 | Defaults, Dividends Arrearages and Delinquencies | Not applicable | ||
14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | Not applicable | ||
15 | Controls and Procedures | |||
A. Disclosure controls and procedures | 163 | |||
B. Management’s annual report on internal control over financial reporting | 162 | |||
C. Attestation report of the registered public accounting firm | 166 | |||
D. Changes in internal control over financial reporting | 162 | |||
15T | Controls and Procedures | 162-163 | ||
16A | Audit Committee Financial Expert | 134 | ||
16B | Code of Ethics | 144 | ||
16C | Principal Accountant Fees and Services | 125, 137 (Non-Audit Services Policy), 188-189 (Note 9) | ||
16D | Exemptions from the Listing Standards for Audit Committees | Not applicable | ||
16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 217 (Share Repurchase) | ||
16F | Change in Registrant’s Certifying Accountant | Not applicable | ||
16G | Corporate Governance | 127, 144 | ||
17 | Financial Statements | Not applicable | ||
18 | Financial Statements | 164-300 | ||
19 | Exhibits | Exhibit Index |
* | Captions have been included only in respect of pages with multiple sections on the same page in order to identify the relevant caption on that page covered by the corresponding Form 20-F item number. |
iii
Section 1 | ||
Business review | ||
3 | ||
51 | ||
52 | ||
Section 2 | ||
Risk management and governance | ||
54 | ||
119 | ||
122 | ||
126 | ||
145 | ||
162 |
Section 3 | ||
Financial statements | ||
165 | ||
166 | ||
167 | ||
283 | ||
Section 4 | ||
Shareholder information | ||
302 | ||
312 | ||
313 | ||
315 |
2 |
Consolidated summary income statement
Year ended 31st December | 2009 | 2008 | 2007 | ||||||||||||||||||||||||
Continuing operations £m | Discontinued operations £m | Total £m | Continuing operations £m | Discontinued operations £m | Total £m | Continuing operations £m | Discontinued operations £m | Total £m | |||||||||||||||||||
Net interest income | 11,918 | 33 | 11,951 | 11,469 | – | 11,469 | 9,598 | 12 | 9,610 | ||||||||||||||||||
Net fee and commission income | 8,418 | 1,759 | 10,177 | 6,491 | 1,916 | 8,407 | 5,771 | 1,937 | 7,708 | ||||||||||||||||||
Principal transactions | 7,057 | 67 | 7,124 | 2,019 | (10 | ) | 2,009 | 4,970 | 5 | 4,975 | |||||||||||||||||
Net premiums from insurance contracts | 1,172 | – | 1,172 | 1,090 | – | 1,090 | 1,011 | – | 1,011 | ||||||||||||||||||
Other income | 1,389 | 4 | 1,393 | 367 | 10 | 377 | 186 | 2 | 188 | ||||||||||||||||||
Total income | 29,954 | 1,863 | 31,817 | 21,436 | 1,916 | 23,352 | 21,536 | 1,956 | 23,492 | ||||||||||||||||||
Net claims and benefits incurred on insurance contracts | (831 | ) | – | (831 | ) | (237 | ) | – | (237 | ) | (492 | ) | – | (492 | ) | ||||||||||||
Total income net of insurance claims | 29,123 | 1,863 | 30,986 | 21,199 | 1,916 | 23,115 | 21,044 | 1,956 | 23,000 | ||||||||||||||||||
Impairment charges and other credit provisions | (8,071 | ) | – | (8,071 | ) | (5,419 | ) | – | (5,419 | ) | (2,795 | ) | – | (2,795 | ) | ||||||||||||
Net income | 21,052 | 1,863 | 22,915 | 15,780 | 1,916 | 17,696 | 18,249 | 1,956 | 20,205 | ||||||||||||||||||
Operating expenses | (16,715 | ) | (1,137 | ) | (17,852 | ) | (13,391 | ) | (975 | ) | (14,366 | ) | (12,096 | ) | (1,103 | ) | (13,199 | ) | |||||||||
Share of post-tax results of associates and joint ventures | 34 | – | 34 | 14 | – | 14 | 42 | – | 42 | ||||||||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | 188 | – | 188 | 327 | – | 327 | 28 | – | 28 | ||||||||||||||||||
Gains on acquisitions | 26 | – | 26 | 2,406 | – | 2,406 | – | – | – | ||||||||||||||||||
Profit before tax and disposal of discontinued operations | 4,585 | 726 | 5,311 | 5,136 | 941 | 6,077 | 6,223 | 853 | 7,076 | ||||||||||||||||||
Profit on disposal of discontinued operations | – | 6,331 | 6,331 | – | – | – | – | – | – | ||||||||||||||||||
Profit before tax | 4,585 | 7,057 | 11,642 | 5,136 | 941 | 6,077 | 6,223 | 853 | 7,076 | ||||||||||||||||||
Tax | (1,074 | ) | (280 | ) | (1,354 | ) | (453 | ) | (337 | ) | (790 | ) | (1,699 | ) | (282 | ) | (1,981 | ) | |||||||||
Profit after tax | 3,511 | 6,777 | 10,288 | 4,683 | 604 | 5,287 | 4,524 | 571 | 5,095 | ||||||||||||||||||
Profit for the year attributable to | |||||||||||||||||||||||||||
Equity holders of the Parent | 2,628 | 6,765 | 9,393 | 3,795 | 587 | 4,382 | 3,886 | 531 | 4,417 | ||||||||||||||||||
Non-controlling interests | 883 | 12 | 895 | 888 | 17 | 905 | 638 | 40 | 678 | ||||||||||||||||||
3,511 | 6,777 | 10,288 | 4,683 | 604 | 5,287 | 4,524 | 571 | 5,095 | |||||||||||||||||||
Earnings per share | |||||||||||||||||||||||||||
Basic earnings per share | 24.1p | 62.1p | 86.2p | 51.4p | 7.9p | 59.3p | 60.6p | 8.3p | 68.9p | ||||||||||||||||||
Diluted earnings per share | 22.7p | 58.9p | 81.6p | 49.8p | 7.7p | 57.5p | 58.8p | 8.1p | 66.9p |
The consolidated summary income statement above sets out the Group’s results analysed between continuing and discontinued operations for each income statement line for ease of comparability. The line items from “Net interest income” to “Profit before tax and disposal of discontinued operations” shown above under “Discontinued operations” for 2009 represent the results for the 11 month period to 30 November 2009 of the BGI discontinued operations that were sold on 1st December 2009. In addition, the figures included in the “Total” columns in 2009, 2008 and 2007 in respect of the line items from “Net interest income” to “Profit before tax and disposal of discontinued operations” are non-IFRS measures; see “Certain non-IFRS measures” on page i for more information with respect to including BGI results within such Group totals. The income statement on page 178 and the five year summary included on page 11 shows the income statement on a continuing basis with profit after tax from discontinued operations shown as a single line under profit after tax from continuing operations, in accordance with IFRS.
3 |
2009/08
Barclays delivered net profit for the year of £10,288m in 2009, an increase of 95% on 2008. This included the BGI gain on sale of £6,331m before tax, and was achieved after absorbing: £6,086m in writedowns on credit market exposures (including impairment of £1,669m), other Group impairment of £6,402m and a charge of £1,820m relating to the tightening of own credit spreads. Profit included £1,255m of gains on debt buy-backs and extinguishment.
Total income net of insurance claims grew 34% to £30,986m, and income from continuing operations grew 37% to £29,123m, with particularly strong growth in Barclays Capital. Within Global Retail and Commercial Banking (GRCB), Barclaycard and GRCB – Western Europe also reported good income growth. The aggregate revenue performance of GRCB businesses was, however, affected by the impact of margin compression on deposit income as a result of the very low absolute levels of interest rates. Barclays Capital income was up 122% compared to 2008. Top-line income rose by £8,004m reflecting the successful integration of the acquired Lehman Brothers North American businesses, buoyant market conditions observed across most financial markets in the first half of 2009 and a good relative performance in the second half of 2009 despite weaker markets. Income in Barclays Capital was impacted by writedowns of £4,417m (2008: £6,290m) relating to credit market exposures held in its trading books and by a charge of £1,820m (2008: gain of £1,663m) relating to own credit.
Impairment charges against loans and advances, available for sale assets and reverse repurchase agreements increased 49% to £8,071m, reflecting deteriorating economic conditions, portfolio maturation and currency movements. The impairment charge against credit market exposures included within this total reduced 5% to £1,669m. Impairment charges as a percentage of Group loans and advances as at 31st December 2009 increased to 156bps from 95bps, or 135bps on constant 2008 year end balance sheet amounts and average foreign exchange rates.
Total operating expenses increased 24% to £17,852m, but by 10% less than the rate of increase in Group total income. Operating expenses from continuing operations increased 25% to £16,715m. Expenses in GRCB were well controlled, with the cost:income ratio improving from 53% to 52%. Operating expenses in Barclays Capital increased by £2,818m to £6,592m reflecting the inclusion of the acquired Lehman Brothers North American business. The Group total cost:income ratio improved from 62% to 58% (from 63% to 57% on a continuing basis). At Barclays Capital the compensation:income ratio improved from 44% to 38%.
2008/07
Net profit for the year increased 4% to £5,287m. This included gains on acquisitions of £2,406m, including £2,262m gain on acquisition of Lehman Brothers North American businesses; profit on disposal of Barclays Closed UK Life assurance business of £326m; gains on Visa IPO and sales of shares in MasterCard of £291m; and gross credit market losses and impairment of £8,053m.
Total income net of insurance claims grew 1% to £23,115m and income from continuing operations grew 1% to £21,199m. Income in GRCB increased 17% and was particularly strong in businesses outside of the UK. Income in Barclays Capital was affected by very challenging market conditions in 2008, with income falling by £1,888m (27%) on 2007, reflecting gross losses of £6,290m relating to credit market assets, partially offset by gains of £1,663m on the fair valuation of notes issued due to widening of credit spreads and £1,433m in related income and hedges. Excluding credit market related losses, gains on own credit and related income and hedges, income in Barclays Capital increased 6%.
Impairment charges and other credit provisions of £5,419m increased 94% on the prior year. Impairment charges included £1,763m arising from US sub-prime mortgages and other credit market exposures. Other wholesale impairment charges increased significantly as corporate credit conditions turned sharply worse. Significant impairment growth in GRCB businesses reflected book growth and deteriorating credit conditions particularly in the US, South Africa and Spain.
Total operating expenses increased 9% to £14,366m and operating expenses from continuing operations increased 11% to £13,391m. This reflected continued investment in the distribution network in the GRCB businesses. Expenses fell in Barclays Capital due to lower performance related costs. Group gains from property disposals were £148m (2007: £267m). Head office costs included £101m relating to the UK Financial Services Compensation Scheme. Underlying cost growth was well controlled. The Group cost:income ratio deteriorated by five percentage points to 62% (from 57% to 63% on a continuing basis).
Note
a | Total income net of reinsurance claims, total operating expenses and total cost: income ratio information in the 2009/2008 and 2008/2007 discussions are non-IFRS measures because they present Group operating results that combine continued operations and discontinued operations. See page 2 for a reconciliation between continuing and Group results, see “Certain non-IFRS measures” on page i for more information with respect to including BGI results within such Group totals. In addition, “Top-line income” within Barclays Capital is a non-IFRS measure that represents income before gains/losses and credit market write-downs. This measure has been presented as it provides a consistent basis for comparing the business’ performance between financial periods. For a reconciliation of top-line income to total income of Barclays Capital, see page 43. |
4 |
Financial review
Income statement commentary
continued
Continuing operations
The commentary below reflects the Group’s results from continuing operations.
Net interest income
2009/08
Group net interest income increased 4% (£449m) to £11,918m (2008: £11,469m) reflecting growth in average customer balances primarily in Barclaycard and Western Europe, and net funding costs and hedging recognised in Head Office Functions and Other Operations.
Group net interest income includes the impact of structural hedges which function to reduce the impact of the volatility of short-term interest rate movements on equity and customer balances that do not re-price with market rates. In total, equity structural hedges generated a gain of £1,162m (2008: £21m gain).
Further discussion of margins is included in the analysis of results by business on pages 29 to 50.
2008/07
Group net interest income increased 19% (£1,871m) to £11,469m (2007: £9,598m) reflecting balance sheet growth across the Global Retail
and Commercial Banking businesses and in particular very strong growth internationally driven by expansion of the distribution network and entrance into new markets. An increase in net interest income was also seen in Barclays Capital due to strong results from global loans and money markets.
The contribution of structural hedges relative to average base rates increased income by £117m (2007: £351m expense), largely due to the effect of the structural hedge on changes in interest rates.
Net fee and commission income
2009/08
Net fee and commission income increased 30% (£1,927m) to £8,418m (2008: £6,491m). Banking and credit related fees and commissions increased 33% (£2,370m) to £9,578m (2008: £7,208m), primarily due to Barclays Capital’s strong performance in Equities and Investment Banking.
2008/07
Net fee and commission income increased 12% (£720m) to £6,491m (2007: £5,771m). Banking and credit related fees and commissions increased 13% (£845m) to £7,208m (2007: £6,363m), reflecting growth in Barclaycard International, increased fees from advisory and origination activities in Barclays Capital and increased foreign exchange, derivative and debt fees in Barclays Commercial Bank.
Net interest income | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Cash and balances with central banks | 131 | 174 | 145 | ||||||
Available for sale investments | 1,937 | 2,355 | 2,580 | ||||||
Loans and advances to banks | 513 | 1,267 | 1,416 | ||||||
Loans and advances to customers | 18,456 | 23,754 | 19,559 | ||||||
Other | 199 | 460 | 1,596 | ||||||
Interest income | 21,236 | 28,010 | 25,296 | ||||||
Deposits from banks | (634 | ) | (2,189 | ) | (2,720 | ) | |||
Customer accounts | (2,716 | ) | (6,697 | ) | (4,110 | ) | |||
Debt securities in issue | (3,889 | ) | (5,910 | ) | (6,651 | ) | |||
Subordinated liabilities | (1,718 | ) | (1,349 | ) | (878 | ) | |||
Other | (361 | ) | (396 | ) | (1,339 | ) | |||
Interest expense | (9,318 | ) | (16,541 | ) | (15,698 | ) | |||
Net interest income | 11,918 | 11,469 | 9,598 |
Net fee and commission income | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Brokerage fees | 88 | 56 | 78 | ||||||
Investment management fees | 133 | 120 | 122 | ||||||
Banking and credit related fees and commissions | 9,578 | 7,208 | 6,363 | ||||||
Foreign exchange commission | 147 | 189 | 178 | ||||||
Fee and commission income | 9,946 | 7,573 | 6,741 | ||||||
Fee and commission expense | (1,528 | ) | (1,082 | ) | (970 | ) | |||
Net fee and commission income | 8,418 | 6,491 | 5,771 |
5 |
Principal transactions
2009/08
Principal transactions comprise net trading income and net investment income. Net trading income increased £5,662m to £7,001m (2008: £1,339m). The majority of the Group’s trading income arises in Barclays Capital. Fixed Income, Currency and Commodities drove the very strong increase in trading income as the expansion of the business and client flows more than absorbed gross credit market losses of £4,417m (2008: £6,290m) and losses relating to own credit of £1,820m (2008: £1,663m gain).
Net investment income decreased 92% (£624m) to £56m (2008: £680m) driven by realised losses in commercial real estate equity investments and losses in the principal investments business, partially offset by gains on disposal of available for sale investments within Barclays Capital.
2008/07
Net trading income decreased 64% (£2,415m) to £1,339m (2007: £3,754m). The majority of the Group’s net trading income arose in Barclays Capital. There was growth in fixed income, prime services, foreign exchange, commodities and emerging markets. There were net losses from credit market dislocation partially offset by the benefits of widening credit spreads on structured notes issued by Barclays Capital.
Net investment income decreased 44% (£536m) to £680m (2007: £1,216m) reflecting the lower profits realised on the sale of investments, the continued decrease in value of assets backing customer liabilities in Barclays Life Assurance and fair value decreases of a number of investments reflecting the current market condition. This was offset by a £170m increase in dividend income reflecting the Visa IPO dividend received by GRCB – Western Europe, GRCB – Emerging Markets and Barclaycard.
Net premiums from insurance contracts
2009/08
Net premiums from insurance contracts increased 8% (£82m) to £1,172m (2008: £1,090m) primarily reflecting expansion in GRCB – Western Europe and GRCB – Absa, partially offset by the impact of the sale of the closed life assurance business in the second half of 2008.
2008/07
Net premiums from insurance contracts increased 8% (£79m) to £1,090m (2007: £1,011m), primarily due to expansion in GRCB – Western Europe reflecting a full year’s impact of a range of insurance products launched in late 2007, partially offset by lower net premiums following the sale of the closed life assurance business in the second half of 2008.
Other income
2009/08
Other income includes £1,170m gains on debt buy-backs relating to Upper Tier 2 perpetual debt and its corresponding hedge and £85m (2008: £24m) from the repurchase of securitised debt issued by Barclays Commercial Bank.
2008/07
Certain asset management products offered to institutional clients by Absa are recognised as investment contracts. Accordingly, the invested assets and the related liabilities to investors are held at fair value and changes in those fair values are reported within other income. Other income in 2008 included a £46m gain from the Visa IPO.
Principal transactions | |||||||
2009 £m | 2008 £m | 2007 £m | |||||
Net trading income | 7,001 | 1,339 | 3,754 | ||||
Net gain from disposal of available for sale assets | 349 | 212 | 560 | ||||
Dividend income | 6 | 196 | 26 | ||||
Net gain from financial instruments designated at fair value | (208 | ) | 33 | 293 | |||
Other investment income | (91 | ) | 239 | 337 | |||
Net investment income | 56 | 680 | 1,216 | ||||
Principal transactions | 7,057 | 2,019 | 4,970 |
Net premiums from insurance contracts | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Gross premiums from insurance contracts | 1,224 | 1,138 | 1,062 | ||||||
Premiums ceded to reinsurers | (52 | ) | (48 | ) | (51 | ) | |||
Net premiums from insurance contracts | 1,172 | 1,090 | 1,011 |
Other income | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Increase/(decrease) in fair value of assets held in respect of linked liabilities to customers under investment contracts | 102 | (1,219 | ) | 23 | |||||
(Increase)/decrease in liabilities to customers under investment contracts | (102 | ) | 1,219 | (23 | ) | ||||
Property rentals | 64 | 73 | 53 | ||||||
Gain on debt buy backs and extinguishments | 1,255 | 24 | – | ||||||
Other | 70 | 270 | 133 | ||||||
Other income | 1,389 | 367 | 186 |
6 |
Financial review
Income statement commentary
continued
Net claims and benefits incurred under insurance contracts
2009/08
Net claims and benefits incurred under insurance contracts increased 251% (£594m) to £831m (2008: £237m) reflecting the expansion in GRCB – Western Europe and GRCB – Absa and a credit as a result of falls in equity markets and the disposal of the closed life assurance business.
2008/07
Net claims and benefits incurred under insurance contracts decreased 52% (£255m) to £237m (2007: £492m), principally due to a decrease in the value of unit linked insurance contracts in Barclays Wealth, explained by falls in equity markets and the disposal of closed life business in October 2008. This was partially offset by the growth in GRCB – Western Europe.
Impairment charges and other credit provisions
2009/08
Impairment charges on loans and advances and other credit provisions increased 50% (£2,445m) to £7,358m (2008: £4,913m). The increase was primarily due to economic deterioration and portfolio maturation, currency movements and methodology enhancements, partially offset by a contraction in loan balances.
The impairment charge in Global Retail and Commercial Banking increased by 85% (£2,473m) to £5,395m (2008: £2,922m) as charges rose in all portfolios, reflecting deteriorating credit conditions across all regions.
In Investment Banking and Investment Management, impairment was broadly unchanged at £1,949m (2008: £1,980m).
The impairment charge against available for sale assets and reverse repurchase agreements increased by 41% (£207m) to £713m (2008: £506m), driven by impairment against credit market exposures.
Further discussion of impairments is included in the analysis of results by business on pages 29 to 50.
2008/07
Impairment charges on loans and advances and other credit provisions increased 77% (£2,131m) to £4,913m (2007: £2,782m). The increase was caused by charges against ABS CDO Super Senior and other credit market positions and as a result of deteriorating economic conditions coupled with growth in several portfolios.
The impairment charge in Global Retail and Commercial Banking increased by 51% (£983m) to £2,922m (2007: £1,939m) resulting from deteriorating economic conditions and growth in several portfolios.
In Investment Banking and Investment Management, impairment increased by 136% (£1,140m) to £1,980m (2007: £840m). This included a charge of £1,517m against ABS CDO Super Senior and other credit market positions. The remaining movement primarily related to charges in the private equity and other loans business.
The impairment charge against available for sale assets and reverse repurchase agreements increased by £493m to £506m (2007: £13m) driven by impairment against credit market exposures.
Net claims and benefits incurred on insurance contracts | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Gross claims and benefits incurred on insurance contracts | 858 | 263 | 520 | ||||||
Reinsurers’ share of claims incurred | (27 | ) | (26 | ) | (28 | ) | |||
Net claims and benefits incurred on insurance contracts | 831 | 237 | 492 |
Impairment charges and other credit provisions
2009 £m | 2008 £m | 2007 £m | |||||||
Impairment charges on loans and advances | |||||||||
– New and increased impairment allowances | 8,111 | 5,116 | 2,871 | ||||||
– Releases | (631 | ) | (358 | ) | (338 | ) | |||
– Recoveries | (150 | ) | (174 | ) | (227 | ) | |||
Impairment charges on loans and advances | 7,330 | 4,584 | 2,306 | ||||||
Charge/(release) in respect of provision for undrawn contractually committed facilities and guarantees provided | 28 | 329 | 476 | ||||||
Impairment charges on loans and advances and other credit provisions | 7,358 | 4,913 | 2,782 | ||||||
Impairment charges on reverse repurchase agreements | 43 | 124 | – | ||||||
Impairment on available for sale assets | 670 | 382 | 13 | ||||||
Impairment charges and other credit provisions | 8,071 | 5,419 | 2,795 | ||||||
Impairment charges and other credit provisions on ABS CDO Super Senior and other credit market exposures included above: | |||||||||
Impairment charges on loans and advances | 1,205 | 1,218 | 300 | ||||||
Charges in respect of undrawn facilities and guarantees | – | 299 | 469 | ||||||
Impairment charges on loans and advances and other credit provisions on ABS CDO Super Senior and other credit market exposures | 1,205 | 1,517 | 769 | ||||||
Impairment charges on reverse repurchase agreements | – | 54 | – | ||||||
Impairment charges on available for sale assets | 464 | 192 | 13 | ||||||
Impairment charges and other credit provisions on ABS CDO Super Senior and other credit market exposures | 1,669 | 1,763 | 782 |
7 |
Operating expenses
2009/08
Operating expenses increased 25% (£3,324m) to £16,715m (2008: £13,391m). The increase was driven by a 38% increase (£2,744m) in staff costs to £9,948m (2008: £7,204m).
Administrative expenses grew 2% (£98m) to £4,889m (2008:
£4,791m) reflecting the impact of acquisitions made during 2008, the costs of servicing an expanded distribution network across Global Retail and Commercial Banking, and expenses relating to the Financial Services Compensation Scheme.
Operating expenses increased due to a £119m decrease in gains from sale of property to £29m (2008: £148m) as the Group wound down its sale and leaseback of freehold property programme.
Amortisation of intangibles increased £171m to £447m (2008: £276m) primarily related to the intangible assets arising from the acquisition of the Lehman Brothers North American businesses.
2008/07
Operating expenses increased 11% (£1,295m) to £13,391m (2007: £12,096m).
Administrative expenses grew 30% (£1,100m) to £4,791m (2007: £3,691m), reflecting the impact of acquisitions (in particular Lehman Brothers North American businesses and Goldfish), fees associated with Group capital raisings, the cost of the Financial Services Compensation Scheme as well as continued investment in the Global Retail and Commercial Banking distribution network.
Operating expenses were reduced by gains from the sale of property of £148m (2007: £267m) as the Group continued the sale and leaseback of some of its freehold portfolio in 2008.
Amortisation of intangible assets increased 55% (£98m) to £276m (2007: £178m), primarily related to intangible assets arising from the acquisition of Lehman Brothers North American businesses.
Goodwill impairment of £112m reflects the full write-down of £74m relating to EquiFirst and a partial write-down of £37m relating to FirstPlus following its closure to new business in August 2008.
Staff costs
2009/08
Staff costs increased 38% (£2,744m) to £9,948m (2008: £7,204m) driven by a 40% increase in salaries and accrued incentive payments, primarily in Barclays Capital, reflecting the inclusion of the acquired Lehman Brothers North American businesses and associated net increase of 7,000 employees in September 2008.
In December 2009, the UK government announced that the Finance Bill 2010 will introduce a bank payroll tax of 50% applicable to discretionary bonuses over £25,000 awarded to UK bank employees between 9th December 2009 and 5th April 2010. Draft legislation and further guidance on its application has been published. Based on this, and in accordance with IAS 19 – Employee benefits, we have accrued for the estimated tax payable in respect of employee services provided during the period. For 2009, £190m has been included within Other Staff Costs in respect of 2009 cash awards. A further provision of £35m has also been included in Other Staff Costs in respect of certain prior year awards being distributed during the tax window, which may fall within the proposed legislation.
Defined benefit plan pension costs decreased £122m to £33m credit (2008: cost of £89m) primarily due to the UK Retirement Fund whose charges decreased as a result of a one-off credit of £371m from the closure of the final salary scheme to existing members.
2008/07
Staff costs decreased 5% (£407m) to £7,204m (2007: £7,611m). Salaries and accrued incentive payments fell overall by 8% (£535m) to £5,787m in 2008 (2007: £6,322m), after absorbing increases of £718m relating to in year hiring and staff from acquisitions. Performance related costs were 48% lower, driven mainly by Barclays Capital.
Defined benefit plans pension costs decreased 41% (£61m) to £89m (2007: £150m). This was due to recognition of actuarial gains, higher expected return on assets and reduction in past service costs partially offset by higher interest costs and reduction in curtailment credit.
Operating expenses | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Staff costs | 9,948 | 7,204 | 7,611 | ||||||
Administrative expenses | 4,889 | 4,791 | 3,691 | ||||||
Depreciation | 759 | 606 | 453 | ||||||
Impairment charges/(releases) | |||||||||
– property and equipment | 33 | 33 | 2 | ||||||
– intangible assets | 28 | (3 | ) | 14 | |||||
– goodwill | 1 | 112 | – | ||||||
Operating lease rentals | 639 | 520 | 414 | ||||||
Gain on property disposals | (29 | ) | (148 | ) | (267 | ) | |||
Amortisation of intangible assets | 447 | 276 | 178 | ||||||
Operating expenses | 16,715 | 13,391 | 12,096 |
Staff costs | |||||||
2009 £m | 2008 £m | 2007 £m | |||||
Salaries and accrued incentive payments | 8,081 | 5,787 | 6,322 | ||||
Social security costs | 606 | 444 | 480 | ||||
Pension costs | |||||||
– defined contribution plans | 224 | 221 | 119 | ||||
– defined benefit plans | (33 | ) | 89 | 150 | |||
Other post retirement benefits | 16 | 1 | 9 | ||||
Other | 1,054 | 662 | 531 | ||||
Staff costs | 9,948 | 7,204 | 7,611 |
8 |
Financial review
Income statement commentary
continued
Staff numbers
2009/08
Staff numbers are shown on a full-time equivalent basis. Group permanent and fixed term contract staff comprised 55,700 (31st December 2008: 59,600) in the UK and 88,500 (31st December 2008: 93,200) internationally.
UK Retail Banking number of employees decreased 2,200 to 30,400 (31st December 2008: 32,600) reflecting active cost management. Barclays Commercial Bank number of employees decreased 400 to 9,100 (31st December 2008: 9,500) reflecting tightly managed costs, partly offset by the expansion of risk and offshore support operations. Barclaycard number of employees decreased 300 to 10,300 (31st December 2008: 10,600) reflecting the centralisation of certain support functions in Absa from Absa Card and active cost management, offset by increases in collections capacity. GRCB – Western Europe number of employees decreased 200 to 11,600 (31st December 2008: 11,800) primarily due to restructuring within Spain and Russia, partially offset by increases in Portugal and Italy to support the expansion of the network in these countries. GRCB – Emerging Markets number of employees decreased 2,700 to 17,400 (31st December 2008: 20,100) mainly driven by the introduction of more effective and efficient structures. GRCB – Absa number of employees decreased 2,500 to 33,300 (31st December 2008: 35,800), reflecting restructuring and a freeze on recruitment.
Barclays Capital number of employees increased 100 to 23,200 (31st December 2008: 23,100) as a net reduction in the first half of the year was offset by strategic growth in the business and the annual graduate intake. Barclays Wealth number of employees decreased 500 to 7,400 (31st December 2008: 7,900) reflecting active cost management, including efficiency savings in non-client facing areas.
2008/07
Staff numbers are shown on a full-time equivalent basis. Total Group permanent and fixed-term contract staff comprised 59,600 (2007: 60,900) in the UK and 93,200 (2007: 70,600) internationally.
UK Retail Banking staff numbers increased 700 to 32,600 (2007: 31,900). Barclays Commercial Bank staff numbers increased 200 to 9,500 (2007: 9,300), reflecting investment in product expertise, sales and risk capability and associated support areas. Barclaycard staff numbers increased 1,200 to 10,600 (2007: 9,400), primarily due to the transfer of staff into Absacard as a result of the acquisition of a majority stake in the South African Woolworth Financial Services business in October 2008. GRCB – Western Europe staff numbers increased 3,600 to 11,800 (2007: 8,200), reflecting expansion of the retail distribution network. GRCB – Emerging Markets staff numbers increased 6,800 to 20,100 (2007: 13,300), driven by expansion into new markets and continued investment in distribution in existing countries. GRCB – Absa staff numbers increased 600 to 35,800 (2007: 35,200), reflecting continued growth in the business and investment in collections capacity.
Barclays Capital staff numbers increased 6,900 to 23,100 (2007: 16,200), due principally to the acquisition of Lehman Brothers North American businesses. Barclays Wealth staff numbers increased 1,000 to 7,900 (2007: 6,900), principally due to the acquisition of the Lehman Brothers North American businesses.
Staff numbers As at 31st December | ||||||
2009 | 2008 | 2007 | ||||
UK Retail Banking | 30,400 | 32,600 | 31,900 | |||
Barclays Commercial Bank | 9,100 | 9,500 | 9,300 | |||
Barclaycard | 10,300 | 10,600 | 9,400 | |||
GRCB – Western Europe | 11,600 | 11,800 | 8,200 | |||
GRCB – Emerging Markets | 17,400 | 20,100 | 13,300 | |||
GRCB – Absa | 33,300 | 35,800 | 35,200 | |||
Barclays Capital | 23,200 | 23,100 | 16,200 | |||
Barclays Wealth | 7,400 | 7,900 | 6,900 | |||
Head office functions and other operations | 1,500 | 1,400 | 1,100 | |||
Total Group permanent and fixed- term contract staff worldwide | 144,200 | 152,800 | 131,500 |
9 |
Share of post-tax results of associates and joint ventures
2009/08
The share of post-tax results of associates and joint ventures increased £20m to £34m (2008: £14m), reflecting a £23m increase in results from joint ventures largely from Barclaycard and Barclays Capital, and a £3m decrease in results from associates, mainly due to reduced contributions from private equity investments.
2008/07
The overall share of post-tax results of associates and joint ventures decreased £28m to £14m (2007: £42m), mainly due to reduced contributions from private equity associates and Barclays Capital joint ventures.
Profit on disposal of subsidiaries, associates and joint ventures
2009/08
The profit on disposal of £188m (2008: £327m) is largely attributable to the sale of 50% of Barclays Vida y Pensiones Compañía de Seguros
(£157m), and the 7% sale of GRCB – Emerging Markets Botswana business (£24m).
2008/07
On 31st October 2008 Barclays completed the sale of Barclays Life Assurance Company Ltd to Swiss Reinsurance Company for a net consideration of £729m leading to a net profit on disposal of £326m.
Gains on acquisitions
2009/08
Gains of £26m for the year relate to the acquisition of the Portuguese credit card business of Citibank International PLC in December 2009.
2008/07
The gains on acquisitions in 2008 related to the acquisition of Lehman Brothers North American businesses (£2,262m) on 22nd September 2008, Goldfish credit card UK business (£92m) on 31st March 2008 and Macquarie Bank Limited Italian residential mortgage business (£52m) on 6th November 2008.
Share of post-tax results of associates and joint ventures | |||||||
2009 £m | 2008 £m | 2007 £m | |||||
Profit from associates | 19 | 22 | 33 | ||||
Profit/(loss) from joint ventures | 15 | (8 | ) | 9 | |||
Share of post-tax results of associates and joint ventures | 34 | 14 | 42 | ||||
Profit on disposal of subsidiaries, associates and joint ventures | |||||||
2009 £m | 2008 £m | 2007 £m | |||||
Profit on disposal of subsidiaries, associates and joint ventures | 188 | 327 | 28 | ||||
Gains on acquisitions | |||||||
2009 £m | 2008 £m | 2007 £m | |||||
Gains on acquisitions | 26 | 2,406 | – |
10 |
Financial review
Income statement commentary
continued
Tax
2009/08
The effective tax rate for 2009, based on profit before tax on continuing operations was 23.4% (2008: 8.8%). The effective tax rate differs from the UK tax rate of 28% (2008: 28.5%) because of non-taxable gains and income, different tax rates applied to taxable profits and losses outside the UK, disallowed expenditure and adjustments in respect of prior years. The low effective tax rate of 8.8% on continuing operations in 2008 mainly resulted from the Lehman Brothers North American businesses acquisition.
2008/07
The effective rate of tax for 2008, based on profit before tax on continuing operations was 8.8% (2007: 27.3%). The effective tax rate differs from the 2007 effective rate and the UK corporation tax rate of 28.5% principally due to the Lehman Brothers North American businesses acquisition.
Discontinued operations
Profit after tax from discontinued operations 2009/08
Profit after tax from discontinued operations increased £6,173m to £6,777m, reflecting the gain on sale of the discontinued operations of £6,331m (2008: £nil) and other profit before tax of £726m (2008: £604m). The results for 2009 included 11 months of operations compared to 12 months for 2008.
2008/07
The profit after tax from discontinued operations increased 6% to £604m, reflecting an 8% appreciation of the average value of the US Dollar against Sterling and a £128m decrease in operating expenses, principally reflecting reduced performance related costs, offset by a decline in income from fees and commissions and a reduction in trading income.
Tax | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Profit before tax from continuing operations | 4,585 | 5,136 | 6,223 | ||||||
Tax charge at average UK corporation tax rate of 28% (2008: 28.5%, 2007: 30%) | 1,284 | 1,464 | 1,867 | ||||||
Prior year adjustments | (220 | ) | (171 | ) | (17 | ) | |||
Differing overseas tax rates | (27 | ) | 175 | (82 | ) | ||||
Non-taxable gains and income (including amounts offset by unrecognised tax losses) | (112 | ) | (859 | ) | (136 | ) | |||
Share-based payments | (38 | ) | 201 | 71 | |||||
Deferred tax assets not recognised/(previously not recognised) | 27 | (504 | ) | (159 | ) | ||||
Change in tax rates | (12 | ) | (1 | ) | 24 | ||||
Other non-allowable expenses | 172 | 148 | 131 | ||||||
Tax charge | 1,074 | 453 | 1,699 | ||||||
Effective tax rate | 23% | 9% | 27% |
Discontinued operations | ||||||
2009 £m | 2008 £m | 2007 £m | ||||
Profit for the year from discontinued operations, including gain on disposal | 6,777 | 604 | 571 |
11 |
Financial review
Five-year consolidated summary income statement
For the year ended 31st December | |||||||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | |||||||||||
Continuing operations | |||||||||||||||
Net interest income | 11,918 | 11,469 | 9,598 | 9,133 | 8,060 | ||||||||||
Non-interest income | 18,036 | 9,967 | 11,938 | 11,372 | 8,600 | ||||||||||
Net claims and benefits incurred on insurance contracts | (831 | ) | (237 | ) | (492 | ) | (575 | ) | (645 | ) | |||||
Total income net of insurance claims | 29,123 | 21,199 | 21,044 | 19,930 | 16,015 | ||||||||||
Impairment charges and other credit provisions | (8,071 | ) | (5,419 | ) | (2,795 | ) | (2,154 | ) | (1,571 | ) | |||||
Operating expenses | (16,715 | ) | (13,391 | ) | (12,096 | ) | (11,723 | ) | (9,748 | ) | |||||
Share of post-tax results of associates and joint ventures | 34 | 14 | 42 | 46 | 45 | ||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | 188 | 327 | 28 | 323 | – | ||||||||||
Gain on acquisitions | 26 | 2,406 | – | – | – | ||||||||||
Profit before tax from continuing operations | 4,585 | 5,136 | 6,223 | 6,422 | 4,741 | ||||||||||
Tax from continuing operations | (1,074 | ) | (453 | ) | (1,699 | ) | (1,611 | ) | (1,251 | ) | |||||
Profit after tax from continuing operations | 3,511 | 4,683 | 4,524 | 4,811 | 3,490 | ||||||||||
Profit for the year from discontinued operations, including gain on disposal | 6,777 | 604 | 571 | 384 | 351 | ||||||||||
Net profit for the year | 10,288 | 5,287 | 5,095 | 5,195 | 3,841 | ||||||||||
Profit attributable to equity holders of the Parent | 9,393 | 4,382 | 4,417 | 4,571 | 3,447 | ||||||||||
Profit attributable to non-controlling interests | 895 | 905 | 678 | 624 | 394 | ||||||||||
10,288 | 5,287 | 5,095 | 5,195 | 3,841 | |||||||||||
Selected financial statistics | |||||||||||||||
Basic earnings per share | 86.2p | 59.3p | 68.9p | 71.9p | 54.4p | ||||||||||
Basic earnings per share from continuing operations | 24.1p | 51.4p | 60.6p | 66.6p | 49.5p | ||||||||||
Diluted earnings per share | 81.6p | 57.5p | 66.9p | 69.8p | 52.6p | ||||||||||
Dividends per ordinary share | 2.5p | 11.5p | 34.0p | 31.0p | 26.6p | ||||||||||
Dividend payout ratio | 2.9% | 19.4% | 49.3% | 43.1% | 48.9% | ||||||||||
Profit attributable to the equity holders of the Parent as a percentage of: | |||||||||||||||
average shareholders’ equity | 23.8% | 16.5% | 20.3% | 24.7% | 21.1% | ||||||||||
average total assets | 0.5% | 0.2% | 0.3% | 0.4% | 0.4% | ||||||||||
Average United States Dollar exchange rate used in preparing the accounts | 1.57 | 1.86 | 2.00 | 1.84 | 1.82 | ||||||||||
Average Euro exchange rate used in preparing the accounts | 1.12 | 1.26 | 1.46 | 1.47 | 1.46 | ||||||||||
Average Rand exchange rate used in preparing the accounts | 13.14 | 15.17 | 14.11 | 12.47 | 11.57 |
The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying financial statements.
12 |
Financial review
Consolidated summary balance sheet
As at 31st December | ||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||
Assets | ||||||||||
Cash and other short-term funds | 83,076 | 31,714 | 7,637 | 9,753 | 5,807 | |||||
Trading portfolio and financial assets designated at fair value | 193,912 | 306,836 | 341,171 | 292,464 | 251,820 | |||||
Derivative financial instruments | 416,815 | 984,802 | 248,088 | 138,353 | 136,823 | |||||
Loans and advances to banks | 41,135 | 47,707 | 40,120 | 30,926 | 31,105 | |||||
Loans and advances to customers | 420,224 | 461,815 | 345,398 | 282,300 | 268,896 | |||||
Available for sale financial investments | 56,483 | 64,976 | 43,072 | 51,703 | 53,497 | |||||
Reverse repurchase agreements and cash collateral on securities borrowed | 143,431 | 130,354 | 183,075 | 174,090 | 160,398 | |||||
Other assets | 23,853 | 24,776 | 18,800 | 17,198 | 16,011 | |||||
Total assets | 1,378,929 | 2,052,980 | 1,227,361 | 996,787 | 924,357 | |||||
Liabilities | ||||||||||
Deposits and items in the course of collection due to banks | 77,912 | 116,545 | 92,338 | 81,783 | 77,468 | |||||
Customer accounts | 322,429 | 335,505 | 294,987 | 256,754 | 238,684 | |||||
Trading portfolio and financial liabilities designated at fair value | 137,454 | 136,366 | 139,891 | 125,861 | 104,949 | |||||
Liabilities to customers under investment contracts | 1,679 | 69,183 | 92,639 | 84,637 | 85,201 | |||||
Derivative financial instruments | 403,416 | 968,072 | 248,288 | 140,697 | 137,971 | |||||
Debt securities in issue | 135,902 | 149,567 | 120,228 | 111,137 | 103,328 | |||||
Repurchase agreements and cash collateral on securities lent | 198,781 | 182,285 | 169,429 | 136,956 | 121,178 | |||||
Insurance contract liabilities, including unit-linked liabilities | 2,140 | 2,152 | 3,903 | 3,878 | 3,767 | |||||
Subordinated liabilities | 25,816 | 29,842 | 18,150 | 13,786 | 12,463 | |||||
Other liabilities | 14,922 | 16,052 | 15,032 | 13,908 | 14,918 | |||||
Total liabilities | 1,320,451 | 2,005,569 | 1,194,885 | 969,397 | 899,927 | |||||
Shareholders’ equity | ||||||||||
Shareholders’ equity excluding non-controlling interests | 47,277 | 36,618 | 23,291 | 19,799 | 17,426 | |||||
Non-controlling interests | 11,201 | 10,793 | 9,185 | 7,591 | 7,004 | |||||
Total shareholders’ equity | 58,478 | 47,411 | 32,476 | 27,390 | 24,430 | |||||
Total liabilities and shareholders’ equity | 1,378,929 | 2,052,980 | 1,227,361 | 996,787 | 924,357 | |||||
Risk weighted assets and capital ratiosa | ||||||||||
Risk weighted assets | 382,653 | 433,302 | 353,878 | 297,833 | 269,148 | |||||
Tier 1 ratio | 13.0% | 8.6% | 7.6% | 7.7% | 7.0% | |||||
Risk asset ratio | 16.6% | 13.6% | 11.2% | 11.7% | 11.3% | |||||
Selected financial statistics | ||||||||||
Net asset value per ordinary share | 414p | 437p | 353p | 303p | 269p | |||||
Number of ordinary shares of Barclays PLC (in millions) | 11,412 | 8,372 | 6,601 | 6,535 | 6,490 | |||||
Year-end United States Dollar exchange rate used in preparing the accounts | 1.62 | 1.46 | 2.00 | 1.96 | 1.72 | |||||
Year-end Euro exchange rate used in preparing the accounts | 1.12 | 1.04 | 1.36 | 1.49 | 1.46 | |||||
Year-end Rand exchange rate used in preparing the accounts | 11.97 | 13.74 | 13.64 | 13.71 | 10.87 |
The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying financial statements.
Note
a | Risk weighted assets and capital ratios for 2006 and 2005 are calculated on a Basel I basis. |
Risk weighted assets and capital ratios for 2009, 2008 and 2007 are calculated on a Basel II basis. |
13 |
Financial review
Shareholders’ equity
Shareholders’ equity, including non-controlling interests, increased 23% to £58.5bn in 2009 driven by profit after tax of £10.3bn. Net tangible asset value increased by 47% to £38.5bn. Net tangible asset value per share increased to 337p (2008: 313p).
Balance sheet
Total assets decreased by £674bn to £1,379bn in 2009, primarily reflecting movements in market rates and active reductions in derivative balances.
Assets and risk weighted assets were affected by the depreciation in value of various currencies relative to Sterling during 2009. As at 31st December 2009, the US Dollar and the Euro had depreciated 10% and 7%, respectively, relative to Sterling.
Capital management
At 31st December 2009, on a Basel II basis, our Core Tier 1 ratio was 10.0% (31st December 2008: 5.6%) and our Tier 1 ratio was 13.0% (31st December 2008: 8.6%). Capital ratios reflect a 12% decrease (£51bn) in risk weighted assets to £383bn in 2009. Key drivers included a reduction in the overall size of the balance sheet and foreign exchange movements.
Liquidity
The liquidity pool held by the Group increased to £127bn at 31st December 2009 from £43bn at the end of 2008. Whilst funding markets were difficult, particularly in the first half of 2009, the Group were able to increase available liquidity and the Group extended the average term of unsecured liabilities from 14 months to 26 months. The Group issued £15bn equivalent in public senior unguaranteed debt markets, across multiple currencies and maturities. In addition, the Group raised £1.8bn equivalent in the covered bond market and issued £21bn equivalent of structured notes. The Group have continued to manage liquidity prudently in the light of market conditions and in anticipation of ongoing regulatory developments.
Foreign currency translation
During 2009, US Dollar and Euro depreciated 10% and 7%, respectively, relative to Sterling. As a result, foreign currency assets and risk weighted assets decreased in value in Sterling terms.
The Group’s hedging strategy in respect of net investments in foreign currencies is designed to minimise the volatility of the capital ratios caused by changes in the Sterling value of foreign currency capital resources and risk weighted assets due to movements in foreign currency exchange rates. In this regard, the Group’s 31st December 2009 Core Tier 1 ratio is hedged to approximately 75%, 25% and 80% of the movements in US Dollar, Euro and South African Rand respectively against Sterling.
The currency translation reserve reduced by £1.2bn in 2009. This reflected movements in foreign currency net investments which are partially economically hedged through preference share capital (denominated in US Dollars and Euros) that is not revalued for accounting purposes.
14 |
Financial review
Balance sheet commentary
continued
Total assets and risk weighted assets by business
2009/08
Total assets decreased by £674bn to £1,379bn and risk weighted assets decreased £51bn to £383bn.
Barclays UK Retail Bank’s total assets increased 4% to £105.2bn (31st December 2008: £101.4bn) driven by growth in mortgage balances. Risk weighted assets increased 6% (£1.7bn) to £32.2bn (2008: £30.5bn), a significant contributor being the growth in the mortgage book.
Total assets in Barclays Commercial Bank fell 10% (£8.5bn) to £75.5bn (2008: £84.0bn) driven by reduced overdraft borrowings and lower volumes in Barclays Asset and Sales Finance business. New term lending was £14bn. Risk weighted assets fell 4% (£2.8bn) to £60.3bn (2008: £63.1bn) largely reflecting a reduction in net balance sheet exposures offset by the impact of deteriorating credit conditions.
Total assets decreased 2% to £30.2bn (2008: £30.9bn) in Barclaycard reflecting the depreciation in the US Dollar and Euro against Sterling, the decision to stop writing new business in FirstPlus and tighter lending criteria. Risk weighted assets increased 12% (£3.3bn) to £30.6bn (2008: £27.3bn) due to higher volumes and the impact of moving toward an advanced risk measurement methodology offset by favourable foreign exchange and lower secured lending balances in FirstPlus.
Total assets in GRCB – Western Europe remained stable at £64.2bn (2008: £65.5bn), as underlying asset growth was offset by depreciation in the period end value of the Euro against Sterling. Risk weighted assets decreased 12% (£4.6bn) to £32.4bn (2008: £37.0bn) driven by active management and the migration of certain retail portfolios onto the advanced credit risk approach.
GRCB – Emerging Markets’ total assets decreased 14% (£2.0bn) to £11.9bn (2008: £13.9bn), and risk weighted assets decreased 15% (£2.2bn) to £12.4bn (2008: £14.6bn) due to the business pro-actively managing down portfolio exposures and the impact of exchange rate movements driven by a realignment of lending strategy in light of the economic downturn. Customer assets decreased 25% (£2.4bn) to £7.3bn (2008: £9.7bn) and customer deposits decreased 9% (£0.8bn) to £8.5bn (2008: £9.3bn).
Total assets in GRCB – Absa increased 13% to £45.8bn (2008: £40.4bn) and risk weighted assets increased 14% (£2.6bn) to £21.4bn (2008: £18.8bn), reflecting the impact of exchange rate movements.
Total assets in Barclays Capital reduced 37% to £1,019.1bn (2008: £1,629.1bn) primarily as a result of lower derivative balances. There were further reductions in the trading portfolio and lending as well as depreciation in the value of other currencies relative to Sterling. These reductions contributed to an overall decrease of 9% in the adjusted gross leverage assets to £618.2bn (2008: £681bn). Risk weighted assets reduced 20% (£46.3bn) to £181.1bn (2008: £227.4bn) following reductions in the size of the balance sheet and reclassification of certain securitisation assets to capital deductions and depreciation on the value of other currencies against Sterling, partially offset by a deterioration in credit conditions which increased probabilities of default.
Barclays Global Investors’ total assets have decreased £65.9bn to £5.4bn (2008: £71.3bn) reflecting the sale of BGI and the Group’s ongoing interest in BlackRock shares.
In Barclays Wealth, total assets increased 14% to £15.1bn (2008: £13.3bn) and risk weighted assets increased 10% (£1.1bn) to £11.4bn (2008: £10.3bn) reflecting growth in loans and advances.
Total assets by business
2009 £m | 2008 £m | 2007 £m | ||||
UK Retail Banking | 105,228 | 101,384 | 88,477 | |||
Barclays Commercial Bank | 75,547 | 84,029 | 74,566 | |||
Barclaycard | 30,220 | 30,925 | 22,121 | |||
GRCB – Western Europe | 64,185 | 65,519 | 43,702 | |||
GRCB – Emerging Markets | 11,874 | 13,866 | 9,188 | |||
GRCB – Absa | 45,824 | 40,391 | 36,368 | |||
Barclays Capital | 1,019,120 | 1,629,117 | 839,850 | |||
Barclays Global Investors | 5,406 | 71,340 | 89,218 | |||
Barclays Wealth | 15,095 | 13,263 | 18,188 | |||
Head office functions and other operations | 6,430 | 3,146 | 5,683 | |||
Total assets | 1,378,929 | 2,052,980 | 1,227,361 |
Risk weighted assets by business under Basel II
2009 £m | 2008 £m | 2007 £m | ||||
UK Retail Banking | 32,176 | 30,491 | 31,463 | |||
Barclays Commercial Bank | 60,292 | 63,081 | 57,040 | |||
Barclaycard | 30,566 | 27,316 | 20,199 | |||
GRCB – Western Europe | 32,396 | 36,953 | 24,971 | |||
GRCB – Emerging Markets | 12,399 | 14,607 | 10,484 | |||
GRCB – Absa | 21,410 | 18,846 | 17,829 | |||
Barclays Capital | 181,117 | 227,448 | 178,206 | |||
Barclays Global Investors | 73 | 3,910 | 4,369 | |||
Barclays Wealth | 11,354 | 10,300 | 8,216 | |||
Head office functions and other operations | 870 | 350 | 1,101 | |||
Total risk weighted assets | 382,653 | 433,302 | 353,878 |
15 |
2008/07
Total assets increased 67% to £2,053.0bn (2007: £1,227.4bn). Risk weighted assets increased 22% to £433.3bn (2007: £353.9bn).
UK Retail Banking total assets increased 15% to £101.4bn (2007: £88.5bn) driven by growth in mortgage balances. Risk weighted assets decreased 3% to £30.5bn (2007: £31.5bn) as lending growth mainly in high quality, low risk mortgages was more than offset in capital terms by active risk management.
Barclays Commercial Bank total assets grew 13% to £84.0bn (2007: £74.6bn) driven by higher loans and advances. Risk weighted assets increased 11% to £63.1bn (2007: £57.0bn). This was slightly lower than asset growth, reflecting a relative increase in lower risk portfolios.
Barclaycard total assets increased 40% to £30.9bn ( 2007: £22.1bn) reflecting increases in International assets, the acquisition of Goldfish and the appreciation of the Euro and US Dollar against Sterling. Risk weighted assets increased 35% to £27.3bn ( 2007: £20.2bn), driven by acquisitions, the redemption of securitisation deals and exposure growth predominantly in the US.
GRCB – Western Europe total assets grew 50% to £65.5bn (2007: £43.7bn) reflecting growth in retail mortgages, unsecured lending, commercial lending and a 31% appreciation over the year in the value of the Euro against Sterling. Risk weighted assets increased 48% to £37bn (2007: £25.0bn), primarily reflecting underlying lending growth and the appreciation of the Euro.
GRCB – Emerging Markets total assets grew 51% to £13.9bn (2007: £9.2bn) reflecting increases in retail and commercial lending combined with the impact of Sterling depreciation. Risk weighted assets increased 39% to £14.6bn (2007: £10.5bn), reflecting portfolio growth.
GRCB – Absa total assets increased 11% to £40.4bn (2007: £36.4bn) reflecting broad based asset growth. Risk weighted assets increased 6% to £18.8bn (2007: £17.8bn), reflecting balance sheet growth.
Barclays Capital total assets increased 94% (£789.2bn) to £1,629.1bn (2007: £839.9bn) due to an increase in derivative assets of £736.7bn, predominantly driven by significant volatility and movements in yield curves in 2008, together with a substantial depreciation in Sterling against most major currencies. Total assets excluding derivatives increased by 9% in
Sterling. On a constant currency basis, total assets excluding derivatives decreased by approximately 15%. Risk weighted assets increased 28% to £227.4bn (2007: £178.2bn). This was driven by the depreciation in Sterling against the US Dollar and Euro, and an increase in market volatility.
The total assets of our former business, Barclays Global Investors, decreased 20% to £71.3bn (2007: £89.2bn), mainly attributable to adverse market movements in certain asset management products recognised as investment contracts. Risk weighted assets decreased 11% to £3.9bn (2007: £4.4bn) mainly attributed to changes in the asset class mix, partially offset by the weakening of Sterling against other currencies.
Barclays Wealth total assets decreased 27% to £13.3bn (2007: £18.2bn) reflecting the sale of the closed life assurance business partially offset by strong growth in lending to high net worth and intermediary clients. Risk weighted assets increased 26% to £10.3bn (2007: £8.2bn) reflecting strong growth in lending.
Head office functions and other operations total assets decreased 46% to £3.1bn (2007: £5.7bn). Risk weighted assets decreased 64% to £0.4bn (2007: £1.1bn). The decrease in the year was mainly attributable to the increased netting of Group deferred tax assets and liabilities.
Adjusted gross leverage
2009/08
The adjusted gross leverage ratio is defined as the multiple of adjusted total tangible assets over total qualifying Tier 1 capital.
Adjusted total tangible assets are total assets less derivative counterparty netting, assets under management on the balance sheet, settlement balances, goodwill and tangible assets. Tier 1 capital is defined by the UK FSA. Adjusted gross leverage is a non-IFRS measure. However, Barclays management believes that this measure provides valuable information to readers of Barclays financial statements as a key measure of stability, which is consistent with the views of regulators and investors. However, this measure is not a substitute for IFRS measures and readers should consider IFRS measures as well.
Limited netting is permitted under IFRS, even for receivables and payables with the same counterparty where there are contractually agreed netting arrangements. Derivative assets and liabilities would be £374bn (2008: £917bn) lower than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty or for which we hold cash collateral.
Assets and liabilities also include amounts held under investment contracts with third parties of a further £2bn as at 31st December 2009 (2008: £69bn). These constitute asset management products offered to institutional pension funds which are required to be recognised as financial instruments. Changes in value in these assets are entirely to the account of the beneficial owner of the asset.
Adjusted gross leverage | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Total assets | 1,378,929 | 2,052,980 | 1,227,361 | ||||||
Counterparty net/ collateralised derivatives | (374,099 | ) | (917,074 | ) | (215,485 | ) | |||
Financial assets designated at fair value and associated cash balances – held in respect of linked liabilities to customers under investment contracts | (1,679 | ) | (69,183 | ) | (92,639 | ) | |||
Net settlement balances | (25,825 | ) | (29,786 | ) | (22,459 | ) | |||
Goodwill and intangible assets | (8,795 | ) | (10,402 | ) | (8,296 | ) | |||
Adjusted total tangible assets | 968,531 | 1,026,535 | 888,482 | ||||||
Total qualifying Tier 1 capital | 49,637 | 37,250 | 26,743 | ||||||
Adjusted gross leverage | 20 | 28 | 33 |
16 |
Financial review
Balance sheet commentary
continued
Excluding these items, settlement balances, goodwill and intangible assets, our adjusted total tangible assets were £969bn at 31st December 2009 (2008: £1,026bn). At 31st December 2009 adjusted gross leverage was 20x (2008: 28x).
Adjusted total tangible assets include cash and balances at central banks of £81.5bn (2008: £30.0bn). Excluding these balances the adjusted gross leverage would be 18x (2008: 27x).
2008/07
Derivative assets and liabilities would be £917bn lower than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty or for which we hold cash collateral. Assets and liabilities also include amounts held under investment contracts with third parties of a further £69bn as at 31st December 2008. These constitute asset management products offered to institutional pension funds which are required to be recognised as financial instruments. Changes in value in these assets are entirely to the account of the beneficial owner of the asset.
Excluding these items, settlement balances, goodwill and intangible assets, our adjusted total tangible assets were £1,026bn at 31st December 2008 (2007: £888bn). At 31st December 2008 adjusted gross leverage was 28x (2007: 33x).
Total shareholders’ equity
2009/08
Total shareholders’ equity increased £11,067m to £58,478m (2008: £47,411m).
Called up share capital comprises 11,412 million ordinary shares of 25p each (2008: 8,372 million ordinary shares of 25p each).
Retained earnings increased £9,637m to £33,845m (2008: £24,208m). Profit attributable to the equity holders of the Parent of £9,393m and the proceeds of capital raising of £784m were partially offset by dividends paid to shareholders of £113m. Other equity in the prior year represents Mandatorily Convertible Notes, which were converted into ordinary shares by June 2009.
Movements in other reserves, except the capital redemption reserve and
other capital reserve, reflect the relevant amounts recorded in the consolidated statement of comprehensive income on page 179.
Non-controlling interests increased £408m to £11,201m (2008: £10,793m). The increase primarily reflects profit for the year attributable to non-controlling interests of £895m, currency translation differences of £277m, offset by dividends paid of £767m.
The Group’s authority to buy back equity shares was renewed at the 2009 AGM.
2008/07
Total shareholders’ equity increased £14,935m to £47,411m (2007: £32,476m).
Called up share capital comprised 8,372 million ordinary shares of 25p each (2007: 6,600 million ordinary shares of 25p each and 1 million staff shares of £1 each).
Retained earnings increased £3,238m to £24,208m (2007: £20,970m). Profit attributable to the equity holders of the Parent of £4,382m and the proceeds of capital raising of £1,410m were partially offset by dividends paid to shareholders of £2,344m. Other equity of £3,652m represents the issue of Mandatorily Convertible Notes, which were subsequently converted into ordinary shares prior to 1st July 2009.
Movements in other reserves, except the capital redemption reserve and other capital reserve, reflect the relevant amounts recorded in the consolidated statement of comprehensive income on page 179.
Non-controlling interests increased £1,608m to £10,793m (2007: £9,185m). The increase primarily reflects a 2008 preference share issuance by Barclays Bank PLC of £1,345m.
Barclays Bank PLC
Preference shares issued by Barclays Bank PLC are included within share capital and share premium in the Barclays Bank PLC Group but represent minoritynon-controlling interests in the Barclays PLC Group. Certain issuances of reserve capital instruments and capital notes by Barclays Bank PLC are included within other shareholders’ equity in the Barclays Bank PLC Group but represent minoritynon-controlling interests in Barclays PLC Group. The Mandatorily Convertible Notes issued pursuant to the equity issuances by Barclays PLC represent financial liabilities in the financial statements of Barclays Bank PLC and have not been included in shareholders’ equity.
Total shareholders’ equity |
| ||||||||||||
2008 £m | 2007 £m | 2006 £m | |||||||||||
Barclays PLC Group | |||||||||||||
Called up share capital | 2,093 | 1,651 | 1,634 | ||||||||||
Share premium account | 4,045 | 56 | 5,818 | ||||||||||
Other equity | 3,652 | – | – | ||||||||||
Available for sale reserve | (1,190 | ) | 132 | ||||||||||
Cash flow hedging reserve | 132 | 26 | (230 | ) | |||||||||
Capital redemption reserve | 394 | 384 | 309 | ||||||||||
Other capital reserve | 617 | 617 | 617 | ||||||||||
Currency translation reserve | 2,840 | (307 | ) | (438 | ) | ||||||||
Other reserves | 2,793 | 874 | 390 | ||||||||||
Retained earnings | 24,208 | 20,970 | 12,169 | ||||||||||
Less: Treasury shares | (173 | ) | (260 | ) | (212 | ) | |||||||
Shareholders’ equity excluding minority interests | 36,618 | 23,291 | 19,799 | ||||||||||
Minority interests | 10,793 | 9,185 | 7,591 | ||||||||||
Total shareholders’ equity | 47,411 | 32,476 | 27,390 |
Total shareholders’ equity |
| ||||||||||||
2008 £m | 2007 £m | 2006 £m | |||||||||||
Barclays Bank PLC Group | |||||||||||||
Called up share capital | 2,398 | 2,382 | 2,363 | ||||||||||
Share premium account | 12,060 | 10,751 | 9,452 | ||||||||||
Available for sale reserve | (1,249 | ) | 111 | 184 | |||||||||
Cash flow hedging reserve | 132 | 26 | (230 | ) | |||||||||
Currency translation reserve | 2,840 | (307 | ) | (438 | ) | ||||||||
Other reserves | 1,723 | (170 | ) | (484 | ) | ||||||||
Other shareholders’ equity | 2,564 | 2,687 | 2,534 | ||||||||||
Retained earnings | 22,457 | 14,222 | 11,556 | ||||||||||
Shareholders’ equity excluding minority interests | 41,202 | 29,872 | 25,421 | ||||||||||
Minority interests | 2,372 | 1,949 | 1,685 | ||||||||||
Total shareholders’ equity | 43,574 | 31,821 | 27,106 |
Total shareholders’ equity
| |||||||||||||
2009 £m | 2008 £m | 2007 £m | |||||||||||
Barclays PLC Group | |||||||||||||
Called up share capital | 2,853 | 2,093 | 1,651 | ||||||||||
Share premium account | 7,951 | 4,045 | 56 | ||||||||||
Other equity | – | 3,652 | – | ||||||||||
Available for sale reserve | (110 | ) | (1,190 | ) | 154 | ||||||||
Cash flow hedging reserve | 252 | 132 | 26 | ||||||||||
Capital redemption reserve | 394 | 394 | 384 | ||||||||||
Other capital reserve | 617 | 617 | 617 | ||||||||||
Currency translation reserve | 1,615 | 2,840 | (307 | ) | |||||||||
Other reserves | 2,768 | 2,793 | 874 | ||||||||||
Retained earnings | 33,845 | 24,208 | 20,970 | ||||||||||
Less: Treasury shares | (140 | ) | (173 | ) | (260 | ) | |||||||
Shareholders’ equity excluding non-controlling interests | 47,277 | 36,618 | 23,291 | ||||||||||
Non-controlling interests | 11,201 | 10,793 | 9,185 | ||||||||||
Total shareholders’ equity | 58,478 | 47,411 | 32,476 |
Total shareholders’ equity
| |||||||||||||
2009 £m | 2008 £m | 2007 £m | |||||||||||
Barclays Bank PLC Group | |||||||||||||
Called up share capital | 2,402 | 2,398 | 2,382 | ||||||||||
Share premium account | 12,092 | 12,060 | 10,751 | ||||||||||
Available for sale reserve | (84 | ) | (1,249 | ) | 111 | ||||||||
Cash flow hedging reserve | 252 | 132 | 26 | ||||||||||
Currency translation reserve | 1,615 | 2,840 | (307 | ) | |||||||||
Other reserves | 1,783 | 1,723 | (170 | ) | |||||||||
Other shareholders’ equity | 2,559 | 2,564 | 2,687 | ||||||||||
Retained earnings | 37,089 | 22,457 | 14,222 | ||||||||||
Shareholders’ equity excluding non-controlling interests | 55,925 | 41,202 | 29,872 | ||||||||||
Non-controlling interests | 2,774 | 2,372 | 1,949 | ||||||||||
Total shareholders’ equity | 58,699 | 43,574 | 31,821 |
|
Financial review
Capital resources
2009/08
Core Tier 1 capital for Barclays PLC Group increased £14.1bn to £38.4bn and Tier 1 capital increased £12.4bn to £49.6bn.
Retained earnings and capital issues (including the conversion of the Mandatorily Convertible Notes) contributed £9.3bn and £4.7bn respectively to Core Tier 1 and Tier 1 capital. Reductions in the adjustment for own credit (£1.3bn) and deduction for intangible assets (£1.6bn) were broadly offset by the increase in securitisation deductions (£2.1bn).
The investment in BlackRock contributed to the £2.6bn increase in deductions from Tier 1 capital. This was partially offset by an increase in the amount of Reserve Capital Instruments eligible for inclusion in Tier 1.
Tier 2 capital decreased by £7.6bn. Deductions increased by £4.6bn, mainly in respect of the investment in BlackRock and securitisation positions. Subordinated loan capital decreased by £4.0bn, driven by net redemptions, the impact of exchange rate movements and lower levels of Reserve Capital Instruments in excess of the Tier 1 limits.
2008/07
Core Tier 1 capital increased by £7.6bn to £24.4bn and Tier 1 capital increased by £10.5bn during the year, driven by issues of ordinary shares (£5.2bn), other capital issuances (£4.3bn), retained profits (£2.0bn) and exchange rate movements (£3.2bn). These movements were partially offset by an increase in intangible assets (£1.3bn), innovative Tier 1 capital in excess of regulatory limits being reclassified as Tier 2 capital (£1.3bn) and the reversal of gains on own credit, net of tax (£1.2bn).
Tier 2 capital increased by £8.5bn due to issuance of loan capital (£3.6bn) net of redemptions (£1.1bn), inclusion of innovative capital in excess of the Tier 1 limits (£1.3bn), increases in collective impairment (£1.2bn) and exchange rate movements (£3.9bn).
The Mandatorily Convertible Notes (MCNs) issued during the year (£4.1bn) will qualify as equity capital from the date of their conversion, on or before 30th June 2009.
All capital issuance referred to above is stated gross of issue costs.
Basel I transitional floor
Barclays commenced calculating capital requirements under the Basel II capital framework from 1st January 2008. The Group manages its businesses and reports capital requirements on a Basel II basis. During the transition period for the adoption of Basel II, banks’ capital requirements may not fall below a transitional floor. In 2008 this floor was 90% of adjusted Basel I capital requirements. As at 31st December 2008, the Group had additional capital requirements under the transitional floor rules of £1.5bn. The Group’s total capital resources of £58.7bn exceeded its capital requirements taking into account the transitional floor by £22.5bn. On 1st January 2009, the transitional floor reduced to 80% of adjusted Basel I capital requirements and there were no additional capital requirements resulting from its application.
Capital ratios under Basel II
| 2009 | 2008 | 2007 | |||||||||
Barclays PLC Group | Barclays Bank PLC Group | Barclays PLC Group | Barclays Bank PLC Group | Barclays PLC Group | Barclays Bank PLC Group | |||||||
Capital ratios | % | % | % | % | % | % | ||||||
Core Tier 1 ratio | 10.0 | 10.1 | 5.6 | 5.6 | 4.7 | 4.5 | ||||||
Tier 1 ratio | 13.0 | 13.0 | 8.6 | 8.6 | 7.6 | 7.3 | ||||||
Risk asset ratio | 16.6 | 16.6 | 13.6 | 13.5 | 11.2 | 11.0 | ||||||
Risk weighted assets | £m | £m | £m | £m | £m | £m | ||||||
Credit risk | 252,054 | 252,054 | 266,912 | 266,912 | 244,474 | 244,469 | ||||||
Counterparty risk | 45,450 | 45,450 | 70,902 | 70,902 | 41,203 | 41,203 | ||||||
Market risk | ||||||||||||
– Modelled – VaR | 10,623 | 10,623 | 14,452 | 14,452 | 7,270 | 7,270 | ||||||
– Modelled – IRDC aand non-VaR | 5,378 | 5,378 | 7,771 | 7,771 | 5,522 | 5,522 | ||||||
– Standardised | 38,525 | 38,525 | 43,149 | 43,149 | 27,020 | 27,020 | ||||||
Operational risk | 30,623 | 30,623 | 30,116 | 30,116 | 28,389 | 28,389 | ||||||
Total risk weighted assets | 382,653 | 382,653 | 433,302 | 433,302 | 353,878 | 353,873 |
Capital ratiosNote
Basel II | Basel II | Basel I | Basel I | |||||||||||||||||||||
2008 | 2007 | 2007 | 2006 | |||||||||||||||||||||
Barclays PLC Group |
| Barclays Bank PLC Group |
| Barclays PLC Group |
| Barclays Bank PLC Group |
| Barclays PLC Group |
| Barclays Bank PLC Group |
| Barclays PLC Group |
| Barclays Bank PLC Group |
| |||||||||
Capital ratios | % | % | % | % | % | % | % | % | ||||||||||||||||
Tier 1 ratio | 8.6 | 8.6 | 7.6 | 7.3 | 7.8 | 7.5 | 7.7 | 7.5 | ||||||||||||||||
Risk asset ratio | 13.6 | 13.5 | 11.2 | 11.0 | 12.1 | 11.8 | 11.7 | 11.5 | ||||||||||||||||
Risk weighted assets | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||
Credit risk | 266,912 | 266,912 | 244,474 | 244,469 | 265,264 | 265,259 | 233,630 | 233,630 | ||||||||||||||||
Counterparty risk | 70,902 | 70,902 | 41,203 | 41,203 | 51,947 | 51,947 | 33,912 | 33,912 | ||||||||||||||||
Market risk | 65,372 | 65,372 | 39,812 | 39,812 | 36,265 | 36,265 | 30,291 | 30,291 | ||||||||||||||||
Operational risk | 30,116 | 30,116 | 28,389 | 28,389 | n/a | n/a | n/a | n/a | ||||||||||||||||
Total risk weighted assets | 433,302 | 433,302 | 353,878 | 353,873 | 353,476 | 353,471 | 297,833 | 297,833 | ||||||||||||||||
Total net capital resources
| ||||||||||||||||||||||||
Capital resources (as defined for regulatory purposes) | ||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||
Tier 1 | ||||||||||||||||||||||||
Called up share capital | 2,093 | 2,338 | 1,651 | 2,382 | 1,651 | 2,382 | 1,634 | 2,363 | ||||||||||||||||
Eligible reserves | 31,156 | 36,639 | 22,939 | 26,028 | 22,526 | 25,615 | 19,608 | 21,700 | ||||||||||||||||
Minority interests | 13,915 | 8,038 | 10,551 | 5,857 | 10,551 | 5,857 | 7,899 | 4,528 | ||||||||||||||||
Tier One Notes | 1,086 | 1,086 | 899 | 899 | 899 | 899 | 909 | 909 | ||||||||||||||||
Less: Intangible assets | (9,964 | ) | (9,964 | ) | (8,191 | ) | (8,191 | ) | (8,191 | ) | (8,191 | ) | (7,045 | ) | (7,045 | ) | ||||||||
Less: Deductions from Tier 1 capital | (1,036 | ) | (1,036 | ) | (1,106 | ) | (1,106 | ) | (28 | ) | (28 | ) | – | – | ||||||||||
Total qualifying Tier 1 capital | 37,250 | 37,101 | 26,743 | 25,869 | 27,408 | 26,534 | 23,005 | 22,455 | ||||||||||||||||
Tier 2 | ||||||||||||||||||||||||
Revaluation reserves | 26 | 26 | 26 | 26 | 26 | 26 | 25 | 25 | ||||||||||||||||
Available for sale equity | 122 | 122 | 295 | 295 | 295 | 295 | 221 | 221 | ||||||||||||||||
Collectively assessed impairment allowances | 1,654 | 1,654 | 440 | 440 | 2,619 | 2,619 | 2,556 | 2,556 | ||||||||||||||||
Minority interests | 607 | 607 | 442 | 442 | 442 | 442 | 451 | 451 | ||||||||||||||||
Qualifying subordinated liabilities | ||||||||||||||||||||||||
Undated loan capital | 6,745 | 6,768 | 3,191 | 3,191 | 3,191 | 3,191 | 3,180 | 3,180 | ||||||||||||||||
Dated loan capital | 14,215 | 14,215 | 10,578 | 10,578 | 10,578 | 10,578 | 7,603 | 7,603 | ||||||||||||||||
Less: Deductions from Tier 2 capital | (1,036 | ) | (1,036 | ) | (1,106 | ) | (1,106 | ) | (28 | ) | (28 | ) | – | – | ||||||||||
Total qualifying Tier 2 capital | 22,333 | 22,356 | 13,866 | 13,866 | 17,123 | 17,123 | 14,036 | 14,036 | ||||||||||||||||
Less: Regulatory deductions | ||||||||||||||||||||||||
Investments not consolidated for supervisory purposes | (403 | ) | (403 | ) | (633 | ) | (633 | ) | (633 | ) | (633 | ) | (982 | ) | (982 | ) | ||||||||
Other deductions | (453 | ) | (561 | ) | (193 | ) | (193 | ) | (1,256 | ) | (1,256 | ) | (1,348 | ) | (1,348 | ) | ||||||||
Total deductions | (856 | ) | (964 | ) | (826 | ) | (826 | ) | (1,889 | ) | (1,889 | ) | (2,330 | ) | (2,330 | ) | ||||||||
Total net capital resources | 58,727 | 58,493 | 39,783 | 38,909 | 42,642 | 41,768 | 34,711 | 34,161 |
a | Incremental Default Risk Charge. |
18 |
|
Financial review
Capital management
continued
Capital resourcescontinued
Total net capital resources under Basel II
2009 | 2008 | 2007 | ||||||||||||||||
Capital resources (as defined for regulatory purposes) | Barclays PLC Group £m | Barclays Bank PLC | Barclays PLC Group £m | Barclays Bank PLC Group £m | Barclays PLC Group £m | Barclays Bank PLC Group £m | ||||||||||||
Ordinary shareholders’ fundsa | 47,277 | 55,925 | 36,618 | 41,202 | 23,291 | 29,872 | ||||||||||||
Regulatory adjustments: | ||||||||||||||||||
MCNs not yet converted | – | – | (3,652 | ) | – | – | – | |||||||||||
Available for sale reserve – debtb | 83 | 83 | 372 | 372 | 49 | 49 | ||||||||||||
Available for sale reserve – equity | (309 | ) | (335 | ) | (122 | ) | (63 | ) | (295 | ) | (514 | ) | ||||||
Cash flow hedging reserve | (252 | ) | (252 | ) | (132 | ) | (132 | ) | (26 | ) | (26 | ) | ||||||
Defined benefit pension scheme | 431 | 431 | 849 | 849 | 1,052 | 1,052 | ||||||||||||
Adjustments for scope of regulatory consolidation | 196 | 196 | 847 | 847 | (191 | ) | (191 | ) | ||||||||||
Foreign exchange on RCIs and upper Tier 2 loan stock | 25 | 25 | (231 | ) | (231 | ) | 499 | 499 | ||||||||||
Adjustment for own credit | (340 | ) | (340 | ) | (1,650 | ) | (1,650 | ) | (461 | ) | (461 | ) | ||||||
Other adjustments | 144 | 144 | 305 | 304 | 465 | 465 | ||||||||||||
Equity non-controlling interest | 2,351 | 2,351 | 1,981 | 1,981 | 1,608 | 1,608 | ||||||||||||
Less: Intangible assets | (8,345 | ) | (8,345 | ) | (9,964 | ) | (9,964 | ) | (8,191 | ) | (8,191 | ) | ||||||
Less: Net excess of expected loss over impairment at 50% | (25 | ) | (25 | ) | (159 | ) | (159 | ) | (743 | ) | (743 | ) | ||||||
Less: Securitisation positions at 50% | (2,799 | ) | (2,799 | ) | (704 | ) | (704 | ) | (335 | ) | (335 | ) | ||||||
Less: Non Core Tier 1 capital issues included in shareholders’ funds | – | (8,427 | ) | – | (8,421 | ) | – | (7,236 | ) | |||||||||
Core Tier 1 Capital | 38,437 | 38,632 | 24,358 | 24,231 | 16,722 | 15,848 | ||||||||||||
Preference sharesc | 6,256 | 6,256 | 6,191 | 6,191 | 5,035 | 5,035 | ||||||||||||
Reserve Capital Instrumentsd | 6,724 | 6,724 | 5,743 | 5,721 | 3,908 | 3,908 | ||||||||||||
Tier 1 Notese | 1,017 | 1,017 | 1,086 | 1,086 | 899 | 899 | ||||||||||||
Tax on the net excess of expected loss over impairment | 8 | 8 | 46 | 46 | 207 | 207 | ||||||||||||
Less: Material holdings in financial companies at 50% | (2,805 | ) | (2,915 | ) | (174 | ) | (174 | ) | (28 | ) | (28 | ) | ||||||
Total qualifying Tier 1 capital | 49,637 | 49,722 | 37,250 | 37,101 | 26,743 | 25,869 | ||||||||||||
Revaluation reserves | 26 | 26 | 26 | 26 | 26 | 26 | ||||||||||||
Available for sale reserve – equity | 309 | 335 | 122 | 122 | 295 | 295 | ||||||||||||
Collectively assessed impairment allowances | 2,443 | 2,443 | 1,654 | 1,654 | 440 | 440 | ||||||||||||
Tier 2 non-controlling interests | 547 | 547 | 607 | 607 | 442 | 442 | ||||||||||||
Qualifying subordinated liabilitiesf | ||||||||||||||||||
Undated loan capital | 1,350 | 1,350 | 6,745 | 6,768 | 3,191 | 3,191 | ||||||||||||
Dated loan capital | 15,657 | 15,658 | 14,215 | 14,215 | 10,578 | 10,578 | ||||||||||||
Less: Net excess of expected loss over impairment at 50% | (25 | ) | (25 | ) | (158 | ) | (158 | ) | (743 | ) | (743 | ) | ||||||
Less: Securitisation positions at 50% | (2,799 | ) | (2,799 | ) | (704 | ) | (704 | ) | (335 | ) | (335 | ) | ||||||
Less: Material holdings in financial companies at 50% | (2,805 | ) | (2,915 | ) | (174 | ) | (174 | ) | (28 | ) | (28 | ) | ||||||
Total qualifying Tier 2 capital | 14,703 | 14,620 | 22,333 | 22,356 | 13,866 | 13,866 | ||||||||||||
Less: Other regulatory deductions | (880 | ) | (880 | ) | (856 | ) | (964 | ) | (826 | ) | (826 | ) | ||||||
Total net capital resources | 63,460 | 63,462 | 58,727 | 58,493 | 39,783 | 38,909 |
Notes
a | For Barclays Bank PLC this balance represents Shareholders’ equity excluding non-controlling interests. |
b | Adjusted for the scope of regulatory consolidation. |
Preference shares are included in the balance sheet under non-controlling interests for Barclays PLC and shareholders equity for Barclays Bank PLC. |
d | Reserve Capital Instruments comprise instruments that are both debt and equity accounted and are included in the balance sheet under subordinated liabilities and non-controlling interests for Barclays PLC and subordinated liabilities and shareholders equity for Barclays Bank PLC. |
e | Tier 1 Notes are included in the balance sheet under subordinated liabilities. |
f | Qualifying subordinated liabilities include excess innovative Tier 1 instruments and are subject to limits laid down in the regulatory requirements. |
19 |
Financial review
Additional financial disclosure
Deposits and short-term borrowings
Deposits
Deposits include deposits from banks and customers accounts.
Average: year ended 31st December | Averagea for the year ended 31st December | |||||||||||
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008 £m | 2007 £m | |||||||
Deposits from banks | ||||||||||||
Customers in the United Kingdom | 14,003 | 15,321 | 12,832 | 13,702 | 14,003 | 15,321 | ||||||
Customers outside the | ||||||||||||
United Kingdom: | ||||||||||||
Other European Union | 38,210 | 33,162 | 30,116 | 48,161 | 38,210 | 33,162 | ||||||
United States | 15,925 | 6,656 | 7,352 | 14,757 | 15,925 | 6,656 | ||||||
Africa | 3,110 | 4,452 | 4,140 | 2,218 | 3,110 | 4,452 | ||||||
Rest of the World | 36,599 | 36,626 | 35,013 | 24,350 | 36,599 | 36,626 | ||||||
Total deposits from banks | 107,847 | 96,217 | 89,453 | 103,188 | 107,847 | 96,217 | ||||||
Customer accounts | ||||||||||||
Customers in the United Kingdom | 206,020 | 187,249 | 173,767 | 197,363 | 206,020 | 187,249 | ||||||
Customers outside the | ||||||||||||
United Kingdom: | ||||||||||||
Other European Union | 30,909 | 23,696 | 22,448 | 38,326 | 30,909 | 23,696 | ||||||
United States | 31,719 | 21,908 | 17,661 | 32,218 | 31,719 | 21,908 | ||||||
Africa | 35,692 | 29,855 | 23,560 | 37,009 | 35,692 | 29,855 | ||||||
Rest of the World | 27,653 | 23,032 | 19,992 | 23,655 | 27,653 | 23,032 | ||||||
Customer accounts | 331,993 | 285,740 | 257,428 | 328,571 | 331,993 | 285,740 |
Deposits from banks in offices in the United Kingdom received from non- residentsnon-residents amounted to £63,284m (2007: £45,162m)£51,423m (2008: £63,284m).
Year ended 31st December | Year ended 31st December | |||||||||||
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008 £m | 2007 £m | |||||||
Customer accounts | 335,505 | 294,987 | 256,754 | 322,429 | 335,505 | 294,987 | ||||||
In offices in the United Kingdom: | ||||||||||||
Current and Demand accounts | ||||||||||||
– interest free | 41,351 | 33,400 | 25,650 | 45,160 | 41,351 | 33,400 | ||||||
Current and Demand accounts | ||||||||||||
– interest bearing | 20,898 | 32,047 | 31,769 | 24,066 | 20,898 | 32,047 | ||||||
Savings accounts | 68,335 | 70,682 | 62,745 | 71,238 | 68,335 | 70,682 | ||||||
Other time deposits – retail | 33,785 | 36,123 | 36,110 | 29,678 | 33,785 | 36,123 | ||||||
Other time deposits – wholesale | 74,417 | 65,726 | 53,733 | 52,891 | 74,417 | 65,726 | ||||||
Total repayable in offices in the United Kingdom | 238,786 | 237,978 | 210,007 | 223,033 | 238,786 | 237,978 | ||||||
In offices outside the United Kingdom: | ||||||||||||
Current and Demand accounts | ||||||||||||
– interest free | 4,803 | 2,990 | 2,169 | 7,308 | 4,803 | 2,990 | ||||||
Current and Demand accounts | ||||||||||||
– interest bearing | 15,463 | 11,570 | 17,626 | 24,176 | 15,463 | 11,570 | ||||||
Savings accounts | 7,673 | 3,917 | 3,041 | 9,950 | 7,673 | 3,917 | ||||||
Other time deposits | 68,780 | 38,532 | 23,911 | 57,962 | 68,780 | 38,532 | ||||||
Total repayable in offices outside the United Kingdom | 96,719 | 57,009 | 46,747 | 99,396 | 96,719 | 57,009 |
Customer accounts deposits in offices in the United Kingdom received from non-residents amounted to £61,714m (2007: £49,179m)£57,014m (2008: £61,714m).
Note
a | Calculated using month-end balances. |
Short-term borrowings
Short-term borrowings include deposits from banks, commercial paper and negotiable certificates of deposit.
Deposits from banks
Deposits from banks are taken from a wide range of counterparties and generally have maturities of less than one year.
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008 £m | 2007 £m | |||||||
Year-end balance | 114,910 | 90,546 | 79,562 | 76,446 | 114,910 | 90,546 | ||||||
Average balance | 107,847 | 96,217 | 89,453 | |||||||||
Average balanceda | 103,188 | 107,847 | 96,217 | |||||||||
Maximum balance | 139,836 | 109,586 | 97,165 | 121,940 | 139,836 | 109,586 | ||||||
Average interest rate during year | 3.6% | 4.1% | 4.2% | 0.6% | 3.6% | 4.1% | ||||||
Year-end interest rate | 2.3% | 4.0% | 4.3% | 0.4% | 2.3% | 4.0% |
Commercial paper
Commercial paper is issued by the Group, mainly in the United States, generally in denominations of not less than US$100,000, with maturities of up to 270 days.
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008 £m | 2007 £m | |||||||
Year-end balance | 27,692 | 23,451 | 26,546 | 19,300 | 27,692 | 23,451 | ||||||
Average balance | 24,668 | 26,229 | 29,740 | |||||||||
Average balancea | 21,835 | 24,668 | 26,229 | |||||||||
Maximum balance | 27,792 | 30,736 | 31,859 | 28,756 | 27,792 | 30,736 | ||||||
Average interest rate during year | 4.4% | 5.4% | 4.4% | 2.5% | 4.4% | 5.4% | ||||||
Year-end interest rate | 4.2% | 5.2% | 5.0% | 2.5% | 4.2% | 5.2% |
Negotiable certificates of deposit
Negotiable certificates of deposits are issued mainly in the United Kingdom and United States, generally in denominations of not less than US$100,000.
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008 £m | 2007 £m | |||||||
Year-end balance | 61,332 | 58,401 | 52,800 | 44,681 | 61,332 | 58,401 | ||||||
Average balance | 55,122 | 55,394 | 49,327 | |||||||||
Average balancea | 54,960 | 55,122 | 55,394 | |||||||||
Maximum balance | 67,715 | 62,436 | 60,914 | 64,054 | 67,715 | 62,436 | ||||||
Average interest rate during year | 4.4% | 5.1% | 5.3% | 2.3% | 4.4% | 5.1% | ||||||
Year-end interest rate | 4.1% | 5.0% | 5.1% | 2.2% | 4.1% | 5.0% |
|
Financial review
Additional financial disclosure
continued
Commitments and contractual obligations
Commercial commitments include guarantees, contingent liabilities and standby facilities.
Commercial commitments
2008 Amount of commitment expiration per period | Amount of commitment expiration per period | |||||||||||||||||||
Less than one year £m | Between one to £m | Between three to £m | After £m | Total £m | Less than one year £m | Between one to three years £m | Between three to five years £m | After five years £m | Total amounts committed £m | |||||||||||
2009 | ||||||||||||||||||||
Acceptances and endorsements | 576 | 6 | 3 | – | 585 | 372 | 3 | – | – | 375 | ||||||||||
Guarantees and letters of credit pledged as collateral security | 7,272 | 2,529 | 1,781 | 4,070 | 15,652 | 6,770 | 4,103 | 1,286 | 3,247 | 15,406 | ||||||||||
Securities lending arrangements | 38,290 | – | – | – | 38,290 | |||||||||||||||
Securities lending arrangementsa | 27,406 | – | – | – | 27,406 | |||||||||||||||
Other contingent liabilities | 7,989 | 1,604 | 372 | 1,818 | 11,783 | 7,637 | 853 | 381 | 716 | 9,587 | ||||||||||
Documentary credits and other short-term trade related transactions | 770 | 88 | 1 | – | 859 | 722 | 38 | 2 | – | 762 | ||||||||||
Forward asset purchases and forward deposits placed | 50 | 241 | – | – | 291 | 46 | – | – | – | 46 | ||||||||||
Standby facilities, credit lines and other | 195,035 | 29,666 | 26,150 | 8,815 | 259,666 | 145,916 | 44,004 | 9,794 | 6,753 | 206,467 | ||||||||||
2007 Amount of commitment expiration per period | ||||||||||||||||||||
Less than £m | Between one to £m | Between three to five years £m | After five years £m | Total £m | ||||||||||||||||
2008 | ||||||||||||||||||||
Acceptances and endorsements | 365 | – | – | – | 365 | 576 | 6 | 3 | – | 585 | ||||||||||
Guarantees and letters of credit pledged as collateral security | 6,417 | 2,711 | 1,971 | 1,874 | 12,973 | 7,272 | 2,529 | 1,781 | 4,070 | 15,652 | ||||||||||
Securities lending arrangements | 22,719 | – | – | – | 22,719 | |||||||||||||||
Securities lending arrangementsa | 38,290 | – | – | – | 38,290 | |||||||||||||||
Other contingent liabilities | 6,594 | 1,556 | 416 | 1,151 | 9,717 | 7,989 | 1,604 | 372 | 1,818 | 11,783 | ||||||||||
Documentary credits and other short-term trade related transactions | 401 | 121 | – | – | 522 | 770 | 88 | 1 | – | 859 | ||||||||||
Forward asset purchases and forward deposits placed | 283 | – | – | – | 283 | 50 | 241 | – | – | 291 | ||||||||||
Standby facilities, credit lines and other | 136,457 | 17,039 | 28,127 | 10,211 | 191,834 | 195,035 | 29,666 | 26,150 | 8,815 | 259,666 | ||||||||||
Contractual obligations include debt securities, operating lease and purchase obligations.
Contractual obligations | ||||||||||||||||||||
2008 Payments due by period | ||||||||||||||||||||
Less than £m | Between one to three years £m | Between five years £m | After five years £m | Total £m | ||||||||||||||||
Long-term debt | 108,172 | 24,701 | 10,855 | 22,008 | 165,736 | |||||||||||||||
Operating lease obligations | 280 | 690 | 785 | 2,745 | 4,500 | |||||||||||||||
Purchase obligations | 214 | 225 | 61 | 20 | 520 | |||||||||||||||
Total | 108,666 | 25,616 | 11,701 | 24,773 | 170,756 | |||||||||||||||
2007 Payments due by period | ||||||||||||||||||||
Less than one year £m | Between one to three years £m | Between three to five years £m | After five years £m | Total £m | ||||||||||||||||
Long-term debt | 90,201 | 13,558 | 8,630 | 19,358 | 131,747 | |||||||||||||||
Operating lease obligations | 197 | 755 | 610 | 2,225 | 3,787 | |||||||||||||||
Purchase obligations | 141 | 186 | 27 | 6 | 360 | |||||||||||||||
Total | 90,539 | 14,499 | 9,267 | 21,589 | 135,894 |
Contractual obligations include debt securities, operating lease and purchase obligations.
Contractual obligations
Payments due by period | ||||||||||
Less than one year £m | Between one to three years £m | Between three to five years £m | After five years £m | Total £m | ||||||
2009 | ||||||||||
Long-term debt | 80,824 | 31,138 | 12,982 | 28,626 | 153,570 | |||||
Operating lease obligations | 468 | 808 | 675 | 2,936 | 4,887 | |||||
Purchase obligations | 1,109 | 940 | 541 | 1,243 | 3,833 | |||||
Total | 82,401 | 32,886 | 14,198 | 32,805 | 162,290 | |||||
2008 | ||||||||||
Long-term debt | 108,172 | 24,701 | 10,855 | 22,008 | 165,736 | |||||
Operating lease obligations | 280 | 690 | 785 | 2,745 | 4,500 | |||||
Purchase obligations | 214 | 225 | 61 | 20 | 520 | |||||
Total | 108,666 | 25,616 | 11,701 | 24,773 | 170,756 |
The long-term debt does not include undated loan capital of £13,673m (2007: £6,631m)£8,148m (2008: £13,673m).
Further information on the contractual maturity of the Group’s assets and liabilities is given in Note 49.
Note
a | Securities lending arrangements are fully collateralised, and are not expected to result in an outflow of funds from the Group, see Note 34 on page 220 for further details. |
|
Financial review
Additional financial disclosure
The following table analyses the book value of securities which are carried at fair value.
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||
Book value £m | Amortised £m | Book value £m | Amortised £m | Book value £m | Amortised £m | Book value £m | Amortised cost £m | Book value £m | Amortised cost £m | Book value £m | Amortised cost £m | |||||||||||||
Investment securities – available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
United Kingdom government | 1,238 | 1,240 | 78 | 81 | 758 | 761 | 77 | 74 | 1,238 | 1,240 | 78 | 81 | ||||||||||||
Other government | 11,456 | 11,338 | 7,383 | 7,434 | 12,587 | 12,735 | 10,958 | 8,389 | 11,456 | 11,338 | 7,383 | 7,434 | ||||||||||||
Other public bodies | 2,373 | 2,379 | 634 | 632 | 280 | 277 | ||||||||||||||||||
Other public bodies and US Agencies | 3,456 | 3,505 | 14,660 | 14,834 | 5,052 | 5,048 | ||||||||||||||||||
Mortgage and asset backed securities | 3,510 | 4,126 | 1,367 | 1,429 | 1,706 | 1,706 | 2,498 | 2,958 | 3,510 | 4,126 | 1,367 | 1,429 | ||||||||||||
Bank and building society certificates of deposit | 10,478 | 10,535 | 3,028 | 3,029 | 6,686 | 6,693 | 7,697 | 7,343 | 10,478 | 10,535 | 3,028 | 3,029 | ||||||||||||
Corporate and other issuers | 29,776 | 30,363 | 26,183 | 26,219 | 25,895 | 25,857 | 19,202 | 18,986 | 17,489 | 17,908 | 21,765 | 21,803 | ||||||||||||
Equity securities | 2,142 | 1,814 | 1,676 | 1,418 | 1,371 | 1,047 | 6,676 | 6,247 | 2,142 | 1,814 | 1,676 | 1,418 | ||||||||||||
Investment securities – available for sale | 60,973 | 61,795 | 40,349 | 40,242 | 49,283 | 49,076 | 50,564 | 47,502 | 60,973 | 61,795 | 40,349 | 40,242 | ||||||||||||
Other securities – held for trading | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
United Kingdom government | 6,955 | n/a | 3,832 | n/a | 4,986 | n/a | 6,815 | n/a | 6,955 | n/a | 3,832 | n/a | ||||||||||||
Other government | 50,727 | n/a | 51,104 | n/a | 46,845 | n/a | 54,161 | n/a | 50,727 | n/a | 51,104 | n/a | ||||||||||||
Other public bodies and US Agencies | 20,517 | n/a | 21,909 | n/a | 9,466 | n/a | ||||||||||||||||||
Mortgage and asset backed securities | 30,748 | n/a | 37,038 | n/a | 29,606 | n/a | 12,942 | n/a | 30,748 | n/a | 27,572 | n/a | ||||||||||||
Bank and building society certificates of deposit | 7,518 | n/a | 17,751 | n/a | 14,159 | n/a | 995 | n/a | 7,518 | n/a | 17,751 | n/a | ||||||||||||
Corporate and other issuers | 52,738 | n/a | 43,053 | n/a | 44,980 | n/a | 21,164 | n/a | 30,829 | n/a | 43,053 | n/a | ||||||||||||
Equity securities | 30,535 | n/a | 36,307 | n/a | 31,548 | n/a | 19,602 | n/a | 30,535 | n/a | 36,307 | n/a | ||||||||||||
Other securities – held for trading | 179,221 | n/a | 189,085 | n/a | 172,124 | n/a | 136,196 | n/a | 179,221 | n/a | 189,085 | n/a |
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.
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.
In addition to UK government securities shown above, at 31st December 2008, 2007 and 2006, the Group held the following government securities which exceeded 10% of shareholders’ equity.equity in any of the last three years. These securities are held at fair value.
Government securities
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||
Book value £m | Book value £m | Book value £m | Book value £m | Book value £m | Book value £m | |||||||
United States | 17,165 | 15,156 | 18,343 | 17,356 | 17,165 | 15,156 | ||||||
Japan | 9,092 | 9,124 | 15,505 | 7,609 | 9,092 | 9,124 | ||||||
Germany | 5,832 | 5,136 | 4,741 | 9,698 | 5,832 | 5,136 | ||||||
France | 4,091 | 3,538 | 4,336 | 2,574 | 4,091 | 3,538 | ||||||
Italy | 6,091 | 5,090 | 3,419 | 6,297 | 6,091 | 5,090 | ||||||
Spain | 3,647 | 3,674 | 2,859 | 4,948 | 3,647 | 3,674 |
Maturities and yield of available for sale debt securities
Maturing within one year | Maturing after one but within five years | Maturing after five but within ten years | Maturing after ten years | Total | Maturing within one year | Maturing after one but within five years | Maturing after five but within ten years | Maturing after ten years | Total | |||||||||||||||||||||||||||||||
Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | Amount £m | Yield % | |||||||||||||||||||||
Government | 3,096 | 6.0 | 5,410 | 5.1 | 1,694 | 1.1 | 2,493 | 0.9 | 12,693 | 4.0 | 971 | 5.3 | 6,647 | 2.5 | 2,147 | 1.8 | 1,270 | 1.2 | 11,035 | 2.5 | ||||||||||||||||||||
Other public bodies | 832 | 1.9 | 1,526 | 0.9 | 1 | – | 14 | 4.7 | 2,373 | 1.3 | ||||||||||||||||||||||||||||||
Other public bodies and US Agencies | 14 | 3.6 | 148 | 2.4 | 3,279 | 4.1 | 15 | 4.8 | 3,456 | 4.1 | ||||||||||||||||||||||||||||||
Other issuers | 21,749 | 4.3 | 9,692 | �� | 3.8 | 7,702 | 4.4 | 4,622 | 5.7 | 43,765 | 4.3 | 14,727 | 2.7 | 12,983 | 1.4 | 1,075 | 3.0 | 612 | 3.4 | 29,397 | 2.3 | |||||||||||||||||||
Total book value | 25,677 | 4.4 | 16,628 | 3.9 | 9,397 | 3.8 | 7,129 | 4.0 | 58,831 | 4.1 | 15,712 | 2.9 | 19,778 | 1.8 | 6,501 | 3.2 | 1,897 | 1.9 | 43,888 | 2.5 |
The yield for each range of maturities is calculated by dividing the annualised interest income prevailing at 31st December 20082009 by the fair value of securities held at that date.
|
Financial review
Additional financial disclosure
continued
Average balance sheet and net interest income (year ended 31st December)
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||
Average balance a £m | | Interest £m | | Average rate % | Average balance a £m |
| Interest £m | | Average rate % | Average balance a £m |
| Interest £m | | Average rate % | Average balancea £m | Interest £m | Average rate % | Average balance a £m | Interest £m | Average rate % | Average balance a £m | Interest £m | Average rate % | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to banksb: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 38,913 | 1,453 | 3.7 | 29,431 | 1,074 | 3.6 | 18,401 | 647 | 3.5 | 41,912 | 483 | 1.2 | 38,913 | 1,453 | 3.7 | 29,431 | 1,074 | 3.6 | ||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 14,379 | 419 | 2.9 | 12,262 | 779 | 6.4 | 12,278 | 488 | 4.0 | 35,073 | 271 | 0.8 | 14,379 | 419 | 2.9 | 12,262 | 779 | 6.4 | ||||||||||||||||||||||||||||||
Loans and advances to customersb: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 249,081 | 13,714 | 5.5 | 205,707 | 13,027 | 6.3 | 184,392 | 11,247 | 6.1 | 264,687 | 9,405 | 3.6 | 249,081 | 13,714 | 5.5 | 205,707 | 13,027 | 6.3 | ||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 116,284 | 9,208 | 7.9 | 88,212 | 6,733 | 7.6 | 77,615 | 4,931 | 6.4 | 135,936 | 8,869 | 6.5 | 116,284 | 9,208 | 7.9 | 88,212 | 6,733 | 7.6 | ||||||||||||||||||||||||||||||
Lease receivables: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 4,827 | 281 | 5.8 | 4,822 | 283 | 5.9 | 5,266 | 300 | 5.7 | 4,316 | 174 | 4.0 | 4,827 | 281 | 5.8 | 4,822 | 283 | 5.9 | ||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 6,543 | 752 | 11.5 | 5,861 | 691 | 11.8 | 6,162 | 595 | 9.7 | 7,406 | 732 | 9.9 | 6,543 | 752 | 11.5 | 5,861 | 691 | 11.8 | ||||||||||||||||||||||||||||||
Financial investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 35,844 | 1,654 | 4.6 | 37,803 | 2,039 | 5.4 | 41,125 | 1,936 | 4.7 | 46,702 | 1,525 | 3.3 | 35,844 | 1,654 | 4.6 | 37,803 | 2,039 | 5.4 | ||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 10,450 | 697 | 6.7 | 14,750 | 452 | 3.1 | 14,191 | 830 | 5.8 | 13,590 | 485 | 3.6 | 10,450 | 697 | 6.7 | 14,750 | 452 | 3.1 | ||||||||||||||||||||||||||||||
Reverse repurchase agreements and cash collateral on securities borrowed: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 207,521 | 8,768 | 4.2 | 211,709 | 9,644 | 4.6 | 166,713 | 6,136 | 3.7 | 163,139 | 1,770 | 1.1 | 207,521 | 8,768 | 4.2 | 211,709 | 9,644 | 4.6 | ||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 128,250 | 4,450 | 3.5 | 109,012 | 5,454 | 5.0 | 100,416 | 5,040 | 5.0 | 145,606 | 665 | 0.5 | 128,250 | 4,450 | 3.5 | 109,012 | 5,454 | 5.0 | ||||||||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 107,626 | 4,948 | 4.6 | 120,691 | 5,926 | 4.9 | 106,148 | 4,166 | 3.9 | 96,421 | 3,262 | 3.4 | 107,626 | 4,948 | 4.6 | 120,691 | 5,926 | 4.9 | ||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 128,287 | 5,577 | 4.3 | 57,535 | 3,489 | 6.1 | 61,370 | 2,608 | 4.2 | 103,789 | 3,228 | 3.1 | 128,287 | 5,577 | 4.3 | 57,535 | 3,489 | 6.1 | ||||||||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the United Kingdom | 18,881 | 822 | 4.4 | 20,299 | 1,325 | 6.5 | 19,154 | 849 | 4.4 | |||||||||||||||||||||||||||||||||||||||
– in offices outside the United Kingdom | 13,552 | 315 | 2.3 | 8,690 | 426 | 4.9 | 11,298 | 713 | 6.3 | |||||||||||||||||||||||||||||||||||||||
Total average interest earning assets | 1,048,005 | 51,921 | 5.0 | 897,795 | 49,591 | 5.5 | 794,077 | 38,924 | 4.9 | 1,091,010 | 32,006 | 2.9 | 1,076,994 | 53,672 | 5.0 | 928,247 | 51,153 | 5.5 | ||||||||||||||||||||||||||||||
Impairment allowances/provisions | (5,749 | ) | (4,435 | ) | (3,565 | ) | (8,705 | ) | (5,749 | ) | (4,435 | ) | ||||||||||||||||||||||||||||||||||||
Non-interest earning assets | 711,856 | 422,834 | 310,949 | 782,378 | 682,867 | 392,382 | ||||||||||||||||||||||||||||||||||||||||||
Total average assets and interest income | 1,754,112 | 51,921 | 3.0 | 1,316,194 | 49,591 | 3.8 | 1,101,461 | 38,924 | 3.5 | 1,864,683 | 32,006 | 1.7 | 1,754,112 | 53,672 | 3.1 | 1,316,194 | 51,153 | 3.9 | ||||||||||||||||||||||||||||||
Percentage of total average interest earning assets in offices outside the United Kingdom | 38.6% | 32.0% | 34.3% | 41.7% | 38.3% | 32.2% | ||||||||||||||||||||||||||||||||||||||||||
Total average interest earning assets related to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | 51,921 | 5.0 | 49,591 | 5.5 | 38,924 | 4.9 | ||||||||||||||||||||||||||||||||||||||||||
Interest expense | (38,181 | ) | 3.6 | (37,892 | ) | 4.2 | (30,385 | ) | 3.8 | |||||||||||||||||||||||||||||||||||||||
Interest incomec | 32,006 | 2.9 | 53,672 | 5.0 | 51,153 | 5.5 | ||||||||||||||||||||||||||||||||||||||||||
Interest expensec | (20,713 | ) | 1.9 | (39,820 | ) | 3.8 | (39,201 | ) | 4.6 | |||||||||||||||||||||||||||||||||||||||
13,740 | 1.4 | 11,699 | 1.3 | 8,539 | 1.1 | 11,293 | 1.0 | 13,852 | 1.2 | 11,952 | 0.9 |
Notes
a | Average balances are based upon daily averages for most UK banking operations and monthly averages elsewhere. |
b | Loans and advances to |
c | In addition to interest income and interest expense shown on the income statement on page 178, interest income and interest expense above includes interest related to principal transactions and available for sale assets and liabilities. |
|
Financial review
Additional financial disclosure
Average balance sheet
Average balance sheet and net interest income (year ended 31st December)
2008 | 2007 | 2006 | ||||||||||||||||
Average balance a £m | Interest £m | Average rate % | Average balance a £m | Interest £m | Average rate % | Average balance a £m | Interest £m | Average rate % | ||||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||
Deposits by banks: | ||||||||||||||||||
– in offices in the United Kingdom | 70,272 | 2,780 | 4.0 | 63,902 | 2,511 | 3.9 | 62,236 | 2, 464 | 4.0 | |||||||||
– in offices outside the United Kingdom | 32,172 | 956 | 3.0 | 27,596 | 1,225 | 4.4 | 23,438 | 1,137 | 4.9 | |||||||||
Customer accounts: | ||||||||||||||||||
demand deposits: | ||||||||||||||||||
– in offices in the United Kingdom | 24,333 | 910 | 3.7 | 29,110 | 858 | 2.9 | 25,397 | 680 | 2.7 | |||||||||
– in offices outside the United Kingdom | 14,902 | 572 | 3.8 | 13,799 | 404 | 2.9 | 10,351 | 254 | 2.5 | |||||||||
Customer accounts: | ||||||||||||||||||
savings deposits: | ||||||||||||||||||
– in offices in the United Kingdom | 71,062 | 2,143 | 3.0 | 55,064 | 2,048 | 3.7 | 57,734 | 1,691 | 2.9 | |||||||||
– in offices outside the United Kingdom | 7,033 | 413 | 5.9 | 4,848 | 128 | 2.6 | 3,124 | 74 | 2.4 | |||||||||
Customer accounts: | ||||||||||||||||||
other time deposits – retail: | ||||||||||||||||||
– in offices in the United Kingdom | 32,283 | 1,523 | 4.7 | 30,578 | 1,601 | 5.2 | 34,865 | 1,548 | 4.4 | |||||||||
– in offices outside the United Kingdom | 20,055 | 1,350 | 6.7 | 12,425 | 724 | 5.8 | 8,946 | 482 | 5.4 | |||||||||
Customer accounts: | ||||||||||||||||||
other time deposits – wholesale: | ||||||||||||||||||
– in offices in the United Kingdom | 60,574 | 2,362 | 3.9 | 52,147 | 2,482 | 4.8 | 45,930 | 1,794 | 3.9 | |||||||||
– in offices outside the United Kingdom | 31,300 | 2,094 | 6.7 | 24,298 | 1,661 | 6.8 | 23,442 | 1,191 | 5.1 | |||||||||
Debt securities in issue: | ||||||||||||||||||
– in offices in the United Kingdom | 41,014 | 1,920 | 4.7 | 41,552 | 2,053 | 4.9 | 47,216 | 1,850 | 3.9 | |||||||||
– in offices outside the United Kingdom | 80,768 | 3,734 | 4.6 | 94,271 | 5,055 | 5.4 | 74,125 | 3,686 | 5.0 | |||||||||
Dated and undated loan capital and other subordinated liabilities principally: | ||||||||||||||||||
– in offices in the United Kingdom | 22,912 | 1,435 | 6.3 | 12,972 | 763 | 5.9 | 13,686 | 777 | 5.7 | |||||||||
Repurchase agreements and cash collateral on securities lent: | ||||||||||||||||||
– in offices in the United Kingdom | 203,967 | 8,445 | 4.1 | 169,272 | 7,616 | 4.5 | 141,862 | 5,080 | 3.6 | |||||||||
– in offices outside the United Kingdom | 177,883 | 2,800 | 1.6 | 118,050 | 5,051 | 4.3 | 86,693 | 4,311 | 5.0 | |||||||||
Trading portfolio liabilities: | ||||||||||||||||||
– in offices in the United Kingdom | 56,675 | 2,657 | 4.7 | 47,971 | 2,277 | 4.7 | 49,892 | 2,014 | 4.0 | |||||||||
– in offices outside the United Kingdom | 62,239 | 2,087 | 3.4 | 29,838 | 1,435 | 4.8 | 39,064 | 1,352 | 3.5 | |||||||||
Total average interest bearing liabilities | 1,009,444 | 38,181 | 3.8 | 827,693 | 37,892 | 4.6 | 748,001 | 30,385 | 4.1 | |||||||||
Interest free customer deposits: | ||||||||||||||||||
– in offices in the United Kingdom | 40,439 | 34,109 | 27,549 | |||||||||||||||
– in offices outside the United Kingdom | 3,089 | 3,092 | 2,228 | |||||||||||||||
Other non-interest bearing liabilities | 664,458 | 421,473 | 297,816 | |||||||||||||||
Minority and other interests and shareholders’ equity | 36,682 | 29,827 | 25,867 | |||||||||||||||
Total average liabilities, shareholders’ equity and interest expense | 1,754,112 | 38,181 | 2.2 | 1,316,194 | 37,892 | 2.9 | 1,101,461 | 30,385 | 2.8 | |||||||||
Percentage of total average interest bearing non-capital liabilities in offices outside the United Kingdom | 42.2% | 39.4% | 36.1% |
Average balance sheet and net interest income (year ended 31st December) |
2009 | 2008 | 2007 | ||||||||||||||||
Average balance a £m | Interest £m | Average rate % | Average balance a £m | Interest £m | Average rate % | Average balance a £m | Interest £m | Average rate % | ||||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||
Deposits by banks: | ||||||||||||||||||
– in offices in the United Kingdom | 66,394 | 805 | 1.2 | 70,272 | 2,780 | 4.0 | 63,902 | 2,511 | 3.9 | |||||||||
– in offices outside the United Kingdom | 31,091 | 295 | 0.9 | 32,172 | 956 | 3.0 | 27,596 | 1,225 | 4.4 | |||||||||
Customer accounts: | ||||||||||||||||||
demand deposits: | ||||||||||||||||||
– in offices in the United Kingdom | 20,989 | 374 | 1.8 | 24,333 | 910 | 3.7 | 29,110 | 858 | 2.9 | |||||||||
– in offices outside the United Kingdom | 23,774 | 876 | 3.7 | 14,902 | 572 | 3.8 | 13,799 | 404 | 2.9 | |||||||||
Customer accounts: | ||||||||||||||||||
savings deposits: | ||||||||||||||||||
– in offices in the United Kingdom | 71,818 | 388 | 0.5 | 71,062 | 2,143 | 3.0 | 55,064 | 2,048 | 3.7 | |||||||||
– in offices outside the | ||||||||||||||||||
United Kingdom | 8,563 | 326 | 3.8 | 7,033 | 413 | 5.9 | 4,848 | 128 | 2.6 | |||||||||
Customer accounts: | ||||||||||||||||||
other time deposits – retail: | ||||||||||||||||||
– in offices in the United Kingdom | 30,233 | 647 | 2.1 | 32,283 | 1,523 | 4.7 | 30,578 | 1,601 | 5.2 | |||||||||
– in offices outside the United Kingdom | 28,612 | 1,728 | 6.0 | 20,055 | 1,350 | 6.7 | 12,425 | 724 | 5.8 | |||||||||
Customer accounts: | ||||||||||||||||||
other time deposits – wholesale: | ||||||||||||||||||
– in offices in the United Kingdom | 54,459 | 1,140 | 2.1 | 60,574 | 2,362 | 3.9 | 52,147 | 2,482 | 4.8 | |||||||||
– in offices outside the United Kingdom | 20,595 | 988 | 4.8 | 31,300 | 2,094 | 6.7 | 24,298 | 1,661 | 6.8 | |||||||||
Debt securities in issue: | ||||||||||||||||||
– in offices in the United Kingdom | 75,950 | 2,186 | 2.9 | 41,014 | 1,920 | 4.7 | 41,552 | 2,053 | 4.9 | |||||||||
– in offices outside the United Kingdom | 81,077 | 2,278 | 2.8 | 80,768 | 3,734 | 4.6 | 94,271 | 5,055 | 5.4 | |||||||||
Dated and undated loan capital and other subordinated liabilities principally: | ||||||||||||||||||
– in offices in the United Kingdom | 26,379 | 1,889 | 7.2 | 22,912 | 1,435 | 6.3 | 12,972 | 763 | 5.9 | |||||||||
Repurchase agreements and cash collateral on securities lent: | ||||||||||||||||||
– in offices in the United Kingdom | 169,824 | 1,300 | 0.8 | 203,967 | 8,445 | 4.1 | 169,272 | 7,616 | 4.5 | |||||||||
– in offices outside the United Kingdom | 215,714 | 849 | 0.4 | 177,883 | 2,800 | 1.6 | 118,050 | 5,051 | 4.3 | |||||||||
Trading portfolio liabilities: | ||||||||||||||||||
– in offices in the United Kingdom | 55,704 | 2,193 | 3.9 | 56,675 | 2,657 | 4.7 | 47,971 | 2,277 | 4.7 | |||||||||
– in offices outside the United Kingdom | 36,812 | 999 | 2.7 | 62,239 | 2,087 | 3.4 | 29,838 | 1,435 | 4.8 | |||||||||
Financial liabilities designated at fair value: | ||||||||||||||||||
– in offices in the United Kingdom | 32,573 | 1,223 | 3.8 | 32,311 | 1,062 | 3.3 | 16,337 | 1,068 | 6.5 | |||||||||
– in offices outside the United Kingdom | 18,484 | 229 | 1.2 | 14,237 | 577 | 4.1 | 9,190 | 241 | 2.6 | |||||||||
Total average interest bearing liabilities | 1,069,045 | 20,713 | 1.9 | 1,055,992 | 39,820 | 3.8 | 853,220 | 39,201 | 4.6 | |||||||||
Interest free customer deposits: | ||||||||||||||||||
– in offices in the United Kingdom | 43,897 | 40,439 | 34,109 | |||||||||||||||
– in offices outside the United Kingdom | 4,816 | 3,089 | 3,092 | |||||||||||||||
Other non-interest bearing liabilities | 696,478 | 617,910 | 395,946 | |||||||||||||||
Non-controlling and other interests and shareholders’ equity | 50,447 | 36,682 | 29,827 | |||||||||||||||
Total average liabilities, shareholders’ equity and interest expense | 1,864,683 | 20,713 | 1.1 | 1,754,112 | 39,820 | 2.3 | 1,316,194 | 39,201 | 3.0 | |||||||||
Percentage of total average interest bearing non-capital liabilities in offices outside the United Kingdom | 43.5% | 41.7% | 39.2% |
Note
a | Average balances are based upon daily averages for most UK banking operations and monthly averages elsewhere. |
|
Additional financial disclosure
continued
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
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.
2008/2007 Change due to increase/ (decrease) in: | 2007/2006 Change due to increase/ (decrease) in: | 2006/2005 Change due to increase/ (decrease) in: | 2009/2008 Change due to increase/ (decrease) in: | 2008/2007 Change due to increase/ (decrease) in: | 2007/2006 Change due to increase/ (decrease) in: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | ||||||||||||||||||||||||||||||||||||
Interest receivable | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to banks: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | 379 | 354 | 25 | 427 | 402 | 25 | 193 | 121 | 72 | (970 | ) | 104 | (1,074 | ) | 379 | 354 | 25 | 427 | 402 | 25 | |||||||||||||||||||||||||||||||||
– in offices outside the UK | (360 | ) | 117 | (477 | ) | 291 | (1 | ) | 292 | 85 | 46 | 39 | (148 | ) | 310 | (458 | ) | (360 | ) | 117 | (477 | ) | 291 | (1 | ) | 292 | |||||||||||||||||||||||||||
19 | 471 | (452 | ) | 718 | 401 | 317 | 278 | 167 | 111 | (1,118 | ) | 414 | (1,532 | ) | 19 | 471 | (452 | ) | 718 | 401 | 317 | ||||||||||||||||||||||||||||||||
Loans and advances to customers: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | 687 | 2,525 | (1,838 | ) | 1,780 | 1,337 | 443 | 1,018 | 726 | 292 | (4,309 | ) | 814 | (5,123 | ) | 687 | 2,525 | (1,838 | ) | 1,780 | 1,337 | 443 | |||||||||||||||||||||||||||||||
– in offices outside the UK | 2,475 | 2,214 | 261 | 1,802 | 728 | 1,074 | 1,956 | 1,695 | 261 | (339 | ) | 1,422 | (1,761 | ) | 2,475 | 2,214 | 261 | 1,802 | 728 | 1,074 | |||||||||||||||||||||||||||||||||
3,162 | 4,739 | (1,577 | ) | 3,582 | 2,065 | 1,517 | 2,974 | 2,421 | 553 | (4,648 | ) | 2,236 | (6,884 | ) | 3,162 | 4,739 | (1,577 | ) | 3,582 | 2,065 | 1,517 | ||||||||||||||||||||||||||||||||
Lease receivables: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | (2 | ) | – | (2 | ) | (17 | ) | (26 | ) | 9 | (48 | ) | (70 | ) | 22 | (107 | ) | (27 | ) | (80 | ) | (2 | ) | – | (2 | ) | (17 | ) | (26 | ) | 9 | ||||||||||||||||||||||
– in offices outside the UK | 61 | 79 | (18 | ) | 96 | (30 | ) | 126 | 478 | 413 | 65 | (20 | ) | 92 | (112 | ) | 61 | 79 | (18 | ) | 96 | (30 | ) | 126 | |||||||||||||||||||||||||||||
59 | 79 | (20 | ) | 79 | (56 | ) | 135 | 430 | 343 | 87 | (127 | ) | 65 | (192 | ) | 59 | 79 | (20 | ) | 79 | (56 | ) | 135 | ||||||||||||||||||||||||||||||
Financial investments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | (385 | ) | (102 | ) | (283 | ) | 103 | (165 | ) | 268 | 181 | (85 | ) | 266 | (129 | ) | 426 | (555 | ) | (385 | ) | (102 | ) | (283 | ) | 103 | (165 | ) | 268 | ||||||||||||||||||||||||
– in offices outside the UK | 245 | (163 | ) | 408 | (378 | ) | 32 | (410 | ) | 363 | 202 | 161 | (212 | ) | 171 | (383 | ) | 245 | (163 | ) | 408 | (378 | ) | 32 | (410 | ) | |||||||||||||||||||||||||||
(140 | ) | (265 | ) | 125 | (275 | ) | (133 | ) | (142 | ) | 544 | 117 | 427 | (341 | ) | 597 | (938 | ) | (140 | ) | (265 | ) | 125 | (275 | ) | (133 | ) | (142 | ) | ||||||||||||||||||||||||
Reverse repurchase agreements and cash collateral on securities borrowed: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | (876 | ) | (188 | ) | (688 | ) | 3,508 | 1,865 | 1,643 | 1,519 | 324 | 1,195 | (6,998 | ) | (1,564 | ) | (5,434 | ) | (876 | ) | (188 | ) | (688 | ) | 3,508 | 1,865 | 1,643 | ||||||||||||||||||||||||||
– in offices outside the UK | (1,004 | ) | 855 | (1,859 | ) | 414 | 430 | (16 | ) | 2,316 | 254 | 2,062 | (3,785 | ) | 532 | (4,317 | ) | (1,004 | ) | 855 | (1,859 | ) | 414 | 430 | (16 | ) | |||||||||||||||||||||||||||
(1,880 | ) | 667 | (2,547 | ) | 3,922 | 2,295 | 1,627 | 3,835 | 578 | 3,257 | (10,783 | ) | (1,032 | ) | (9,751 | ) | (1,880 | ) | 667 | (2,547 | ) | 3,922 | 2,295 | 1,627 | |||||||||||||||||||||||||||||
Trading portfolio assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | (978 | ) | (616 | ) | (362 | ) | 1,760 | 621 | 1,139 | 1,456 | 907 | 549 | (1,686 | ) | (477 | ) | (1,209 | ) | (978 | ) | (616 | ) | (362 | ) | 1,760 | 621 | 1,139 | ||||||||||||||||||||||||||
– in offices outside the UK | 2,088 | 3,303 | (1,215 | ) | 881 | (172 | ) | 1,053 | 492 | 151 | 341 | (2,349 | ) | (943 | ) | (1,406 | ) | 2,088 | 3,303 | (1,215 | ) | 881 | (172 | ) | 1,053 | ||||||||||||||||||||||||||||
1,110 | 2,687 | (1,577 | ) | 2,641 | 449 | 2,192 | 1,948 | 1,058 | 890 | (4,035 | ) | (1,420 | ) | (2,615 | ) | 1,110 | 2,687 | (1,577 | ) | 2,641 | 449 | 2,192 | |||||||||||||||||||||||||||||||
Financial assets designated at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | (503 | ) | (87 | ) | (416 | ) | 476 | 53 | 423 | 479 | 534 | (55 | ) | ||||||||||||||||||||||||||||||||||||||||
– in offices outside the UK | (111 | ) | 174 | (285 | ) | (287 | ) | (146 | ) | (141 | ) | 478 | 357 | 121 | |||||||||||||||||||||||||||||||||||||||
(614 | ) | 87 | (701 | ) | 189 | (93 | ) | 282 | 957 | 891 | 66 | ||||||||||||||||||||||||||||||||||||||||||
Total interest receivable: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
– in offices in the UK | (1,175 | ) | 1,973 | (3,148 | ) | 7,561 | 4,034 | 3,527 | 4,319 | 1,923 | 2,396 | (14,702 | ) | (811 | ) | (13,891 | ) | (699 | ) | 2,026 | (2,725 | ) | 8,040 | 4,568 | 3,472 | ||||||||||||||||||||||||||||
– in offices outside the UK | 3,505 | 6,405 | (2,900 | ) | 3,106 | 987 | 2,119 | 5,690 | 2,761 | 2,929 | (6,964 | ) | 1,758 | (8,722 | ) | 3,218 | 6,259 | (3,041 | ) | 3,584 | 1,344 | 2,240 | |||||||||||||||||||||||||||||||
2,330 | 8,378 | (6,048 | ) | 10,667 | 5,021 | 5,646 | 10,009 | 4,684 | 5,325 | (21,666 | ) | 947 | (22,613 | ) | 2,519 | 8,285 | (5,766 | ) | 11,624 | 5,912 | 5,712 |
25 |
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Financial review
Additional financial disclosure
Average balance sheet
Changes in net interest income – volume and rate analysis
2008/2007 Change due to increase/ (decrease) in: | 2007/2006 Change due to increase/ (decrease) in: | 2006/2005 Change due to increase/ (decrease) in: | |||||||||||||||||||||||||
Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | Total change £m | Volume £m | Rate £m | |||||||||||||||||||
Interest payable | |||||||||||||||||||||||||||
Deposits by banks: | |||||||||||||||||||||||||||
– in offices in the UK | 269 | 252 | 17 | 47 | 66 | (19 | ) | 799 | 247 | 552 | |||||||||||||||||
– in offices outside the UK | (269 | ) | 181 | (450 | ) | 88 | 190 | (102 | ) | 432 | 52 | 380 | |||||||||||||||
– | 433 | (433 | ) | 135 | 256 | (121 | ) | 1,231 | 299 | 932 | |||||||||||||||||
Customer accounts – demand deposits: | |||||||||||||||||||||||||||
– in offices in the UK | 52 | (155 | ) | 207 | 178 | 105 | 73 | 170 | 68 | 102 | |||||||||||||||||
– in offices outside the UK | 168 | 34 | 134 | 150 | 95 | 55 | 166 | 80 | 86 | ||||||||||||||||||
220 | (121 | ) | 341 | 328 | 200 | 128 | 336 | 148 | 188 | ||||||||||||||||||
Customer accounts – savings deposits: | |||||||||||||||||||||||||||
– in offices in the UK | 95 | 527 | (432 | ) | 357 | (81 | ) | 438 | 121 | 152 | (31 | ) | |||||||||||||||
– in offices outside the UK | 285 | 77 | 208 | 54 | 45 | 9 | 35 | 28 | 7 | ||||||||||||||||||
380 | 604 | (224 | ) | 411 | (36 | ) | 447 | 156 | 180 | (24 | ) | ||||||||||||||||
Customer accounts – other time deposits – retail: | |||||||||||||||||||||||||||
– in offices in the UK | (78 | ) | 86 | (164 | ) | 53 | (204 | ) | 257 | 78 | 41 | 37 | |||||||||||||||
– in offices outside the UK | 626 | 500 | 126 | 242 | 200 | 42 | 222 | 125 | 97 | ||||||||||||||||||
548 | 586 | (38 | ) | 295 | (4 | ) | 299 | 300 | 166 | 134 | |||||||||||||||||
Customer accounts – other time deposits – wholesale: | |||||||||||||||||||||||||||
– in offices in the UK | (120 | ) | 367 | (487 | ) | 688 | 263 | 425 | 603 | 129 | 474 | ||||||||||||||||
– in offices outside the UK | 433 | 469 | (36 | ) | 470 | 45 | 425 | 601 | 550 | 51 | |||||||||||||||||
313 | 836 | (523 | ) | 1,158 | 308 | 850 | 1,204 | 679 | 525 | ||||||||||||||||||
Debt securities in issue: | |||||||||||||||||||||||||||
– in offices in the UK | (133 | ) | (26 | ) | (107 | ) | 203 | (240 | ) | 443 | 219 | 22 | 197 | ||||||||||||||
– in offices outside the UK | (1,321 | ) | (673 | ) | (648 | ) | 1,369 | 1,063 | 306 | 1,991 | 850 | 1,141 | |||||||||||||||
(1,454 | ) | (699 | ) | (755 | ) | 1,572 | 823 | 749 | 2,210 | 872 | 1,338 | ||||||||||||||||
Dated and undated loan capital and other subordinated liabilities principally in offices in the UK | 672 | 620 | 52 | (14 | ) | (41 | ) | 27 | 172 | 135 | 37 | ||||||||||||||||
Repurchase agreements and cash collateral on securities lent: | |||||||||||||||||||||||||||
– in offices in the UK | 829 | 1,471 | (642 | ) | 2,536 | 1,090 | 1,446 | 1,446 | 329 | 1,117 | |||||||||||||||||
– in offices outside the UK | (2,251 | ) | 1,840 | (4,091 | ) | 740 | 1,402 | (662 | ) | 1,932 | 200 | 1,732 | |||||||||||||||
(1,422 | ) | 3,311 | (4,733 | ) | 3,276 | 2,492 | 784 | 3,378 | 529 | 2,849 | |||||||||||||||||
Trading portfolio liabilities: | |||||||||||||||||||||||||||
– in offices in the UK | 380 | 408 | (28 | ) | 263 | (80 | ) | 343 | 277 | 222 | 55 | ||||||||||||||||
– in offices outside the UK | 652 | 1,189 | (537 | ) | 83 | (366 | ) | 449 | 156 | 85 | 71 | ||||||||||||||||
1,032 | 1,597 | (565 | ) | 346 | (446 | ) | 792 | 433 | 307 | 126 | |||||||||||||||||
Total interest payable: | |||||||||||||||||||||||||||
– in offices in the UK | 1,966 | 3,550 | (1,584 | ) | 4,311 | 878 | 3,433 | 3,885 | 1,345 | 2,540 | |||||||||||||||||
– in offices outside the UK | (1,677 | ) | 3,617 | (5,294 | ) | 3,196 | 2,674 | 522 | 5,535 | 1,970 | 3,565 | ||||||||||||||||
289 | 7,167 | (6,878 | ) | 7,507 | 3,552 | 3,955 | 9,420 | 3,315 | 6,105 | ||||||||||||||||||
Movement in net interest income Increase/(decrease) in interest receivable | 2,330 | 8,378 | (6,048 | ) | 10,667 | 5,021 | 5,646 | 10,009 | 4,684 | 5,325 | |||||||||||||||||
(Increase)/decrease in interest payable | (289 | ) | (7,167 | ) | 6,878 | (7,507 | ) | (3,552 | ) | (3,955 | ) | (9,420 | ) | (3,315 | ) | (6,105 | ) | ||||||||||
2,041 | 1,211 | 830 | 3,160 | 1,469 | 1,691 | 589 | 1,369 | (780 | ) |
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Financial review
Additional financial disclosure
Off-balance sheet arrangements
In the ordinary course of business and primarily to facilitate client transactions, the Group enters into transactions which may involve the use of off-balance sheet arrangements and special purpose entities (SPEs). These arrangements include the provision of guarantees, loan commitments, retained interests in assets which have been transferred to an unconsolidated SPE or obligations arising from the Group’s involvements with such SPEs.
Guarantees
The Group issues guarantees on behalf of its customers. In the majority of cases, the Group will hold collateral against the exposure, have a right of recourse to the customer or both. In addition, the Group 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 Her Majesty’s Revenue and Customs and retention guarantees. The nominal principal amount of contingent liabilities with off-balance sheet risk is set out in Note 34 and in the table on page 33.
Loan commitments
The Group enters into commitments to lend to its customers subject to certain conditions. Such loan commitments are made either for a fixed period or are cancellable by the Group subject to notice conditions. Information on loan commitments and similar facilities is set out in Note 34 and in the table on page 33.
Special purpose entities
Transactions entered into by the Group may involve the use of SPEs.
SPEs are entities that are created to accomplish a narrow and well defined objective. There are often specific restrictions or limits around their on-going activities.
Transactions with SPEs take a number of forms, including:
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Depending on the nature of the Group’s resulting exposure, it may consolidate the SPE on to the Group’s balance sheet. The consolidation of SPEs is considered at inception, based on the arrangements in place and the assessed risk exposures at that time. In accordance with IFRS, SPEs are consolidated when the substance of the relationship between the Group and the entity indicates control. Potential indicators of control include, amongst others, an assessment of the Group’s exposure to the risks and benefits of the SPE. The initial consolidation analysis is revisited at a later date if:
A number of the Group’s transactions have recourse only to the assets of unconsolidated SPEs. Typically, the majority of the exposure to these assets is borne by third parties and the Group’s risk is mitigated through over-collateralisation, unwind features and other protective measures. The Group’s involvement with unconsolidated third party conduits, collateralised debt obligations and structured investment vehicles is described further below.
Collateralised debt obligations (CDOs)
The Group has structured and underwritten CDOs. At inception, the Group’s exposure principally takes the form of a liquidity facility provided to support future funding difficulties or cash shortfalls in the vehicles. If required by the vehicle, the facility is drawn with the amount advanced included within loans and advances in the balance sheet. Upon an event of default or other triggering event, the Group may acquire control of a CDO and, therefore, be required to fully consolidate the vehicle for accounting purposes. The potential for transactions to hit default triggers before the end of 2009 has been assessed and is included in the determination of £1,763m impairment charges and other credit provisions in relation to ABS CDO Super Senior and other credit market exposures for the year ended 31st December 2008.
The Group’s exposure to ABS CDO Super Senior positions before hedging was £3,104m as at 31st December 2008. This represents the Group’s exposure to High Grade CDOs, stated net of write-downs and charges. These facilities are fully drawn and included within loans and advances on the balance sheet. The undrawn mezzanine facilities that were in place as at 31st December 2007 relate to CDOs that have been consolidated during the period.
Collateral
The collateral underlying unconsolidated CDOs comprised 78% residential mortgage backed securities, 3% non-residential asset backed securities and 19% in other categories (a proportion of which will be backed by residential mortgage collateral).
The remaining Weighted Average Life (WAL) of all collateral is 5.1 years. The combined Net Asset Value (NAV) for all of the CDOs was £2.2bn below the nominal amount, equivalent to an aggregate 41.3% decline in value on average for all investors.
Funding
The CDOs were funded with senior unrated notes and rated notes up to AAA. The capital structure senior to the AAA notes on cash CDOs was supported by a liquidity facility provided by the Group. The senior portion covered by liquidity facilities is on average 85% of the capital structure.
The initial WAL of the notes in issue averaged 6.7 years. The full contractual maturity is 38 years.
Interests in third party CDOs
The Group has purchased securities in and entered into derivative instruments with third party CDOs. These interests are held as trading assets or liabilities on the Group’s balance sheet and measured at fair value. The Group has not provided liquidity facilities or similar agreements to third party CDOs.
Changes in net interest income – volume and rate analysis |
|
Financial review
Additional financial disclosure
Off-balance sheet arrangements
Structured investment vehicles (SIVs)
The Group has not structured or managed SIVs. Group exposure to third party SIVs comprised:
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to increase/ (decrease) in: (decrease) in: Interest payable Deposits by banks: – in offices in the UK – in offices outside the UK Customer accounts – demand deposits: – in offices in the UK – in offices outside the UK Customer accounts – savings deposits: – in offices in the UK – in offices outside the UK Customer accounts – other time deposits – retail: – in offices in the UK – in offices outside the UK Customer accounts – other time deposits – wholesale: – in offices in the UK – in offices outside the UK Debt securities in issue: – in offices in the UK – in offices outside the UK Dated and undated loan capital and other subordinated liabilities principally in offices in the UK Repurchase agreements and cash collateral on securities lent: – in offices in the UK – in offices outside the UK Trading portfolio liabilities: – in offices in the UK – in offices outside the UK Financial liabilities designated at fair value: – in offices in the UK – in offices outside the UK Total interest payable: – in offices in the UK – in offices outside the UK Movement in net interest income Increase/(decrease) in interest receivable (Increase)/decrease in interest payableSIV-Lites 2009/2008 Change due 2008/2007 Change due
to increase/
(decrease) in: 2007/2006 Change due
to increase/ Total
change
£m Volume
£m Rate
£m Total
change
£m Volume
£m Rate
£m Total
change
£m Volume
£m Rate
£m (1,975 ) (146 ) (1,829 ) 269 252 17 47 66 (19 ) (661 ) (31 ) (630 ) (269 ) 181 (450 ) 88 190 (102 ) (2,636 ) (177 ) (2,459 ) – 433 (433 ) 135 256 (121 ) (536 ) (111 ) (425 ) 52 (155 ) 207 178 105 73 304 327 (23 ) 168 34 134 150 95 55 (232 ) 216 (448 ) 220 (121 ) 341 328 200 128 (1,755 ) 23 (1,778 ) 95 527 (432 ) 357 (81 ) 438 (87 ) 77 (164 ) 285 77 208 54 45 9 (1,842 ) 100 (1,942 ) 380 604 (224 ) 411 (36 ) 447 (876 ) (91 ) (785 ) (78 ) 86 (164 ) 53 (204 ) 257 378 529 (151 ) 626 500 126 242 200 42 (498 ) 438 (936 ) 548 586 (38 ) 295 (4 ) 299 (1,222 ) (219 ) (1,003 ) (120 ) 367 (487 ) 688 263 425 (1,106 ) (605 ) (501 ) 433 469 (36 ) 470 45 425 (2,328 ) (824 ) (1,504 ) 313 836 (523 ) 1,158 308 850 266 1,202 (936 ) (133 ) (26 ) (107 ) 203 (240 ) 443 (1,456 ) 14 (1,470 ) (1,321 ) (673 ) (648 ) 1,369 1,063 306 (1,190 ) 1,216 (2,406 ) (1,454 ) (699 ) (755 ) 1,572 823 749 454 233 221 672 620 52 (14 ) (41 ) 27 (7,145 ) (1,217 ) (5,928 ) 829 1,471 (642 ) 2,536 1,090 1,446 (1,951 ) 497 (2,448 ) (2,251 ) 1,840 (4,091 ) 740 1,402 (662 ) (9,096 ) (720 ) (8,376 ) (1,422 ) 3,311 (4,733 ) 3,276 2,492 784 (464 ) (45 ) (419 ) 380 408 (28 ) 263 (80 ) 343 (1,088 ) (742 ) (346 ) 652 1,189 (537 ) 83 (366 ) 449 (1,552 ) (787 ) (765 ) 1,032 1,597 (565 ) 346 (446 ) 792 161 8 153 (6 ) 700 (706 ) 571 82 489 (348 ) 137 (485 ) 336 168 168 29 29 – (187 ) 145 (332 ) 330 868 (538 ) 600 111 489 (13,092 ) (363 ) (12,729 ) 1,960 4,250 (2,290 ) 4,882 960 3,922 (6,015 ) 203 (6,218 ) (1,341 ) 3785 (5,126 ) 3,225 2,703 522 (19,107 ) (160 ) (18,947 ) 619 8,035 (7,416 ) 8,107 3,663 4,444 (21,666 ) 947 (22,613 ) 2,519 8,285 (5,766 ) 11,624 5,912 5,712 19,107 160 18,947 (619 ) (8,035 ) 7,416 (8,107 ) (3,663 ) (4,444 ) (2,559 ) 1,107 (3,666 ) 1,900 250 1,650 3,517 2,249 1,268
The Group has exposure to two SIV-Lite transactions. The Group is not involved in their ongoing management. Exposures have increased by £531m relating to a SIV-Lite which had previously been hedged with Lehman Brothers. Following the Lehman Brothers bankruptcy this facility was reflected as a new exposure to the underlying assets. The other SIV-Lite of £107m represents drawn liquidity facilities supporting a CP programme.
During 2008 exposure to a third SIV-Lite through bond holdings was written down to zero.
Commercial paper and medium-term note conduits
The Group provided £22bn in undrawn backstop liquidity facilities to its own sponsored CP conduits. The Group fully consolidates these entities such that the underlying assets are reflected on the Group balance sheet.
These consolidated entities in turn provide facilities of £899m to third party conduits containing prime UK buy-to-let RMBS. As at 31st December 2008, the entire facility had been drawn and is included in available for sale financial investments.
The Group provided backstop facilities to support the paper issued by four third party conduits. These facilities totalled £866m, with underlying collateral comprising 100% auto loans. Drawings on these facilities were £25m as at 31st December 2008 and are included within loans and advances to customers.
The Group provided backstop facilities to six third party SPEs that fund themselves with medium-term notes. These notes are sold to investors as a series of 12 month securities and remarketed to investors annually. If investors decline to renew their holdings at a price below a pre-agreed spread, the backstop facility requires the Group to purchase the outstanding notes at scheduled maturity. The Group has provided facilities of £2.6bn to SPEs holding prime UK and Australian owner-occupied Residential Mortgage Back Securities (RMBS) assets. As at the balance sheet date these facilities had been drawn and were included in loans and advances.
Asset securitisations
The Group has assisted companies with the formation of asset securitisations, some of which are effected through the use of SPEs. These entities have minimal equity and rely on funding in the form of notes to purchase the assets for securitisation. As these SPEs are created for other companies, the Group does not usually control these entities and therefore does not consolidate them. The Group may provide financing in the form of senior notes or junior notes and may also provide derivatives to the SPE. These transactions are included on the balance sheet.
The Group has used SPEs to securitise part of its originated and purchased retail and commercial lending portfolios and credit card receivables. These SPEs are usually consolidated and de-recognition only occurs when the Group transfers its contractual right to receive cash flows from the financial assets, or retains the contractual rights to receive the cash flows, but assumes a contractual obligation to pay the cash flows to another party without material delay or reinvestment, and also transfers substantially all the risks and rewards of ownership, including credit risk, prepayment risk and interest rate risk. The carrying amount of securitised assets together with the associated liabilities are set out in Note 29.
Client intermediation
The Group has structured transactions as a financial intermediary to meet investor and client 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. Such transactions will typically result in a derivative being shown on the balance sheet, representing the Group’s exposure to the relevant asset.
The 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).
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. These funds are not consolidated because the Group does not own either a significant portion of the equity or the risks and rewards inherent in the assets.
During 2008, Group operating expenses included charges of £263m related to selective support of liquidity products managed by Barclays Global Investors and not consolidated by the Group. The Group have not provided any additional selective support subsequent to 31st December 2008.
26 |
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Financial review
Additional financial disclosure
The Group’s accounting policies are set out on pages 193167 to 203.177. Certain of these policies, as well as estimates made by management, are considered to be important to an understanding of the Group’s financial condition since they require management to make difficult, complex or subjective judgements and estimates, some of which may relate to matters that are inherently uncertain. The following accounting policies include estimates which are particularly sensitive in terms of judgements and the extent to which estimates are used. Other accounting policies involve significant amounts of judgements and estimates, but the total amounts involved are not significant to the financial statements. Management has discussed the accounting policies and critical accounting estimates with the Board Audit Committee.
Fair value of financial instruments
Some of the Group’s financial instruments are carried at fair value through profit or loss, such as those held for trading, designated by management under the fair value option and non-cash flow hedging derivatives.
Other non-derivative financial assets may be designated as available for sale. Available for sale financial investments are initially recognised at fair value and are subsequently held at fair value. Gains and losses arising from changes in fair value of such assets are included as a separate component of equity. 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 net trading income, 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 financial instruments held for trading are reported gross in trading portfolio assets and liabilities or derivative financial instruments, reduced by the effects of netting agreements where there is an intention to settle net with counterparties.
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. Where a valuation model is used to determine fair value, it makes maximum use of market inputs. The classification of these instruments is based on the lowest level input that is significant to the fair value measurement in its entirety.
Financial instruments with a fair value based on quoted market prices (Level 1) include valuations which are determined by unadjusted quoted prices for identical instruments in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions on an arm’s length basis.
Financial instruments with a fair value based on observable inputs (Level 2), other than quoted market prices as described for Level 1, but which are observable for the instrument, either directly or indirectly.
Financial instruments with a fair value based on significant unobservable inputs (Level 3), include valuations determined by unadjusted quoted priceswhich incorporate significant inputs for the instrument that are not based on observable market data (unobservable inputs). Unobservable inputs are those not readily available in an active market anddue to market standard pricing models that use observable inputs.
Financial instruments whose fair value is determined, at least in part, using unobservableilliquidity or complexity of the product. These inputs are further categorised into Vanilla and Exotic products as follows:generally determined based on observable inputs of a similar nature, historic observations on the level of the input or analytical techniques.
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An analysis of financial instruments carried at fair value by valuation technique, includinghierarchy, particulars of the extent of valuations based on unobservable inputs, together withvaluation techniques used and a sensitivity analysis of valuations using unobservable inputs is included in Note 50. This note also includes a discussion of the more judgemental aspects of valuation in the period, including: credit valuation adjustments on monoline exposures, commercial real estate loans, and private equity investments.
Allowances for loan impairment and other credit risk provisions
Allowances for loan impairment represent management’s estimate of the losses incurred in the loan portfolios as at the balance sheet date. Changes to the allowances for loan impairment and changes to the provisions for undrawn contractually committed facilities and guarantees provided are reported in the consolidated income statement as part of the impairment charge. Provision is made for undrawn loan commitments and similar facilities if it is probable that the facility will be drawn and result in recognition of an asset at an amount less than the amount advanced.
Within the retail and small businesses portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics where credit scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on a portfolio basis, based on historical recovery rates and assumed emergence periods. These statistical analyses use as primary inputs the extent to which accounts in the portfolio
27 |
Financial review
Additional financial disclosure
continued
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. Judgement and knowledge is needed in selecting the statistical methods to use when the models are developed or revised. The impairment allowance reflected in the financial statements for these portfolios is therefore considered to be reasonable and supportable. The impairment charge reflected in the income statement for these portfolios is £2,333m (2007: £1,605m)£3,917m (2008: £2,333m) and amounts to 51% (2007: 70%53% (2008: 47%) of the total impairment charge on loans and advances in 2008.2009.
For larger accounts, impairment allowances are calculated 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. The level of the impairment allowance is the difference between the value of the discounted expected future cash flows (discounted at the loan’s original effective interest rate), and its carrying amount. Subjective
|
Financial review
Additional financial disclosure
Critical accounting estimates
judgements are made in the calculation of future cash flows. Furthermore, judgements change with time as new information becomes available or as work-out strategies evolve, resulting in frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have a direct impact on the impairment charge. The impairment charge reflected in the financial statements in relation to larger accounts is £2,251m (2007: £701m) or 49% (2007: 30%£3,441m (2008: £2,580m) and amounts to 47% (2008: 53%) of the total impairment charge on loans and advances in 2007.advances. Further information on impairment allowances is set out in Note 477 on pages 257 and 260.page 188.
Goodwill
Management have to consider at least annually whether the current carrying value of goodwill is impaired. The first step of the impairment review process requires the identification of independent cash generating units by dividingand the Group business into as many largely independent income streams as is reasonably practicable. Theallocation of goodwill is then allocated to these independent units. The first element of thisThis 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 unit, including the allocated goodwill, is compared to its fair value to determine whether any impairment exists. If the fair value of a unit is less than its carrying value, goodwill will be impaired. Detailed calculations may need to be carried out taking into consideration changes in the market in
which a business operates (e.g. competitive activity, regulatory change). In the absence of readily available market price data this calculation is based
upon discounting expected pre-tax cash flows at a risk adjusted interest rate appropriate to the operating unit, the determination of both of which requires the exercise of judgement. The estimation of pre-tax cash flows is sensitive to the periods for which detailed forecasts are available and to assumptions regarding the long-term sustainable cash flows. While forecasts are compared with actual performance and external economic data, expected cash flows naturally reflect management’s view of future performance. The most significant amounts of goodwill relate to UK Retail Banking and GRCB – Absa, and Barclays Global Investors, where goodwill impairment testing performed in 20082009 indicated that this goodwill was not impaired. Goodwill impairment of £111m relating to FirstPlus and EquiFirst was recognised in 2008 (2007: nil). An analysis of goodwill by cluster, together with key assumptions underlying the impairment testing, is included in Note 21 on page 208.199.
Intangible assets
Intangible assets that derive their value from contractual customer relationships or that can be separated and sold and have a finite useful life are amortised over their estimated useful life. Determining the estimated useful life of these finite life intangible assets requires an analysis of circumstances, and judgement by the Bank’sGroup’s management. At each balance sheet date, or more frequently when events or changes in circumstances dictate, intangible assets are assessed for indications of impairment. If indications are present, these assets are subject to an impairment review. The impairment review comprises a comparison of the carrying amount of the asset with its recoverable amount: the higher of the asset’s or the cash-generating unit’s net selling price and its value in use. Net selling price is calculated by reference to the amount at which the asset could be disposed of in a binding sale agreement in an arm’s length
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transaction evidenced by an active market or recent transactions for similar assets. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the asset’s continued use, including those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis. The most significant amounts of intangible assets relate to the GRCB – Absa and Lehman Brothers North American businesses.
Retirement benefit obligations
The Group provides 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
28 |
account represents the contributions payable to the scheme. For defined benefit schemes, actuarial valuation of each of the scheme’s obligations using the projected unit credit method and the fair valuation of each of the scheme’s assets are performed annually in accordance with the requirements of IAS 19.
The actuarial valuation is dependent upon a series of assumptions, the key ones being interest rates, mortality, investment returns and inflation. Mortality estimates are based on standard industry and national mortality tables, adjusted where appropriate to reflect the Group’s own experience. The returns on fixed interest investments are set to market yields at the valuation date (less an allowance for risk) to ensure consistency with the asset valuation. The returns on UK and overseas equities are based on the long-term outlook for global equities at the calculation date having regard to current market yields and dividend growth expectations. The inflation assumption reflects long-term expectations of both earnings and retail price inflation.
The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date, adjusted for any historic unrecognised actuarial gains or losses and past service cost, is recognised as a liability in the balance sheet. An asset arising, for example, as a result of past over-funding or the performance of the plan investments, is recognised to the extent that it does not exceed the present value of future contribution holidays or refunds of contributions. To the extent that any unrecognised gains or losses at the start of the measurement year in relation to any individual defined benefit scheme exceed 10% of the greater of the fair value of the scheme assets and the defined benefit obligation for that scheme, a proportion of the excess is recognised in the income statement.
The Group’s IAS 19 pension deficit across all schemes as at 31st December 20082009 was £1,287m (2007: surplus of £393m)£3,946m (Note 30) (2008: £1,287m). There are net recognised liabilities of £1,292m (2007: £1,501m)£698m (2008: £1,292m) and unrecognised actuarial gainslosses of £3,248m (Note 30) (2008: £5m (2007: £1,894m)gains). The net recognised liabilities comprised retirement benefit liabilities of £1,357m (2007: £1,537m)£769m (2008: £1,357m) and assets of £65m (2007: £36m)£71m (2008: £65m).
The Group’s IAS 19 pension deficit in respect of the main UK scheme as at 31st December 20082009 was £858m (2007: surplus of £668m)£3,534m (2008: £858m). Among theThe most significant reasons for this change were the large lossdecrease in value of the assets over the year, and to a lesser extent the strengthening of the allowance made for future improvement in mortality. Offsetting these were the increase in the AA long-term corporate bond yields which resulted in a higherlower discount rate of 5.61% (31st December 2008: 6.75% (2007: 5.82%), a decrease and an increase in the long-term inflation assumption to 3.76% (31st December 2008: 3.16% (2007: 3.45%). The impact of the change in assumptions was partially offset by a one-off curtailment credit resulting from the closure of the UK final salary pension schemes to existing
members, better than expected asset performance, and contributions paid. paid in excess of the pension expense.
Further information on retirement benefit obligations, including assumptions, is set out in Note 30 to the accounts on page 220.210.
Derecognition of financial assets
The Group derecognises a financial asset, or a portion of a financial asset, where the contractual rights to that asset have expired. Derecognition is also appropriate where the rights to further cash flows from the asset have been transferred to a third party and, with them, either:
(i) substantially all the risks and rewards of the asset; or
(ii) significant risks and rewards, along with the unconditional ability to sell or pledge the asset.
Where significant risks and rewards have been transferred, but the transferee does not have the unconditional ability to sell or pledge the asset, the Group continues to account for the asset to the extent of its continuing involvement (‘continuing involvement accounting’).
To assess the extent to which risks and rewards have been transferred, it is often necessary to perform a quantitative analysis. Such an analysis will compare the Group’s exposure to variability in asset cash flows before the transfer with its retained exposure after the transfer.
A cash flow analysis of this nature typically involves significant judgement. In particular, it is necessary to estimate the asset’s expected future cash flows as well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the asset, with market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically determined by stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned to each scenario. Stressed parameters may include default rates, loss severity or prepayment rates.
Where neither derecognition nor continuing involvement accounting is appropriate, the Group continues to recognise the asset in its entirety and recognises any consideration received as a financial liability.
Taxation
The tax charge in the accounts for amounts due to fiscal authorities in the various territories in which the Group operates includes estimates based on judgement of the application of law and practice to quantify any liability arising after taking into account external advice where appropriate.
| 29 |
Business DescriptionAnalysis of results by business
Barclays Overview
Listed in London and New York, Barclays is a major global and financial servicesservice provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services with an extensive international presence in Europe, United States, Africa and Asia. With a strong long-term credit rating and over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs 156,000 people.banking. Barclays moves, lendslend and invests money for 48 million customerscustomer and clientsclient worldwide.
The following section analyses the Group’s performance by business.
For management and reporting purposes during 2009, Barclays iswas organised into the following business groupings:
Global Retail and Commercial Banking
– | UK Retail Banking |
– | Barclays Commercial Bank |
– | Barclaycard |
– | GRCB |
– | GRCB – Emerging Markets |
– | GRCB – Absa |
Investment Banking and Investment Management
– | Barclays Capital |
– | Barclays Global Investors |
– |
|
Head Office Functions and Other Operations
UK Retail Banking
UK Retail Banking one of the largest retail banks in the UK with over 1,700 branches, comprises Personal Customers, Home Finance, Local Business, Consumer Lending and Barclays Financial Planning. This cluster of businesses aims to build broader and deeper relationships with its Personal and Local Business customers through providing a wide range of products and financial services. Personal Customers and Home Finance provide access to current account and savings products, Woolwich branded mortgages and general insurance.
Consumer Lending provides unsecured loan and protection products and Barclays Financial Planning provides investment advice and products. Local Business provides banking services, including money transmission, to small businesses.
Barclays Commercial Bank
Barclays Commercial Bank provides banking services to over 81,000 business clientsorganisations with an annual turnover of more than £1m. Customers are served via a network of relationship and industry sector specialists, which provides solutions constructed from a comprehensive suite of banking products, support, expertise and services, including specialist asset financing and leasing facilities. Customers are also offered access to the products and expertise of other businesses in the Group, particularly Barclays Capital, Barclaycard and Barclays Wealth.
Barclaycard
Barclaycard is a multi-brand credit card and consumer lending business which also processes card payments for retailers and merchants and issues credit and charge cards to corporate customers and the UK Government. With 23 million customers in the UK, Europe and the United States, itIt is one of Europe’s leading credit card businesses and has an increasing presence in the United States and South Africa.
In the UK, Barclaycard comprises Barclaycard UK Cards, Barclaycard Partnerships, Barclays Partner Finance and FirstPlus.
Outside the UK, Barclaycard provides credit cards in the United States, Germany, South Africa (through management of the Absa credit card portfolio) and in the Scandinavian region, where Barclaycard operates through Entercard, a joint venture with Swedbank.
Barclaycard works closely with other parts of the Group, including UK Retail Banking, Barclays Commercial Bank and GRCB –Western– Western Europe and GRCB – Emerging Markets, to leverage their distribution capabilities.
Global Retail and Commercial Banking –Western– Western Europe
GRCB –Western– Western Europe encompasses Barclays Global Retail and Commercial Banking, as well as Barclaycard operations, in Spain, Italy, Portugal, France and France.Russia. GRCB –Western– Western Europe serves two million retail, premier, card, SME and corporate customers through a variety of distribution channels from nearly 1,200 distribution points.channels. GRCB –Western– Western Europe provides a variety of products including Retailretail mortgages, current and deposit accounts, commercial lending, unsecured lending, credit cards, investments, and insurance serving the needs of Barclays retail, mass affluent, and corporate customers.
Global Retail and Commercial Banking – Emerging Markets
GRCB – Emerging Markets encompasses Barclays Global Retail and Commercial Banking, as well as Barclaycard operations, in 14 countries organised in six geographic areas: India and Indian Ocean (India, Mauritius and Seychelles); Middle East and North Africa (UAE and Egypt); East and West Africa (Ghana, Tanzania, Uganda and Kenya); Southern Africa (Botswana, Zambia and Zimbabwe); Russia; and Pakistan (from 23rd July 2008). GRCB – Emerging Markets serves over four million customers through a variety of distribution channels, opening over 280 distribution points in 2008. GRCB – Emerging Markets provides a variety of traditional retail and commercial products including retail mortgages, currentbanking customers in Botswana, Egypt, Ghana, India, Kenya, Mauritius, Pakistan, Seychelles, Tanzania, Uganda, the UAE, Zambia, Indonesia and deposit accounts, commercial lending, unsecured lending, credit cards, treasuryZimbabwe. Through a network of more than 683 distribution points and investments. In addition to this, it provides specialist services such as Sharia-compliant1,023 ATMs, we provide 3.7 million customers and clients with a full range of products and mobile banking.services. This includes current accounts, savings, investments, mortgages and secured and unsecured lending.
Global Retail and Commercial Banking – Absa
GRCB – Absa represents Barclays consolidation of Absa, excluding Absa Capital and Absa Card and Absa Wealth which is included as part of Barclays Capital, Barclaycard and BarclaycardBarclays Wealth respectively. Absa Group Limited is a South African financial services organisation serving over 10 million personal, commercial and corporate customers predominantly in South Africa, from over 1,100 distribution points.Africa. GRCB – Absa serves retail customers through a variety of distribution channels and offers a full range of banking services, including current and deposit accounts, mortgages, instalment finance, credit cards, bancassurance products and wealth management services. It also offers customised business solutions for commercial and large corporate customers.
Barclays Capital
Barclays Capital is the investment banking division of Barclays that provides large corporate, institutional and government clients with solutions to their financing and risk management needs.
Barclays Capital services a wide variety of client needs, covering strategic advisory and Mergers and Acquisitions;M&A; equity and fixed income capital raising and corporate lending; and risk management across foreign exchange, interest rates, equities and commodities.
Activities are organised into three principal areas: Global Markets, which includes commodities, credit products, equities, foreign exchange, interest rate products; Investment Banking, which includes corporate advisory, Mergers and Acquisitions, equity and fixed-income capital raising and corporate lending; and Private Equity and Principal Investments. Barclays Capital includes Absa Capital, the investment banking business of Absa. Barclays Capital works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities.
Barclays Global Investors
The majority of the BGI business, which was previously reported as a separate business segment, was sold on 1st December 2009 to BlackRock, Inc. and represents the Group’s discontinued operations. The continuing operations of BGI disclosed in the segmental analysis represent residual obligations under the cash support arrangements and associated liquidity support charges and, from 1st December 2009, include the Group’s 19.9% ongoing economic interest in BlackRock, Inc. This investment is accounted for as an asset manager and a provider ofavailable for sale equity investment, management products and services, with US$1.5 trillion assets under management. BGI offers structured investment strategies such as indexing, global asset allocation and risk controlled active products including hedge funds and provides related investment services such as securities lending, cash management and portfolio transition services. BGI collaborates with the other Barclays businesses, particularly Barclays Capital and Barclays Wealth, to develop and market products and leverage capabilities to better serve the client base.no dividends being received during 2009.
Barclays Wealth
Barclays Wealth serves high net worth, affluentfocuses on private and intermediary clients worldwide providing international and private banking, assetfiduciary services, investment management, stockbroking, offshore banking, wealth structuring and financial planning services and managed the closed life assurance activities of Barclays and Woolwich in the UK. brokerage.
Barclays Wealth works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities.
Head Office Functions and Other Operations
Head Office Functions and Other Operations comprises head office and central support functions, businesses in transition and inter-segment adjustments.
Head office and central support functions comprises the following areas: Executive Management, Finance, Treasury, Corporate Affairs, Human Resources, Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are recharged to them.
Businesses in transition principally relate to certain lending portfolios that are centrally managed with the objective of maximising recovery from the assets.
Business segment reorganisation
In November 2009 we regrouped our activities to form:
– | Global Retail Banking (GRB), comprising UK Retail Banking, Barclaycard and the former Western Europe and Emerging Markets businesses, led by Antony Jenkins. |
– | Corporate and Investment Banking (CIB), comprising Barclays Capital and Barclays Commercial Bank (now called Barclays Corporate); Jerry del Missier and Rich Ricci and Co-Chief Executives of Corporate and Investment Banking. |
GRB focuses on mass consumers, mass affluent consumers and small business customers. We have significantly changed the footprint here over the past three years, and we intend to push that forward, increasing, through time, the ratio of non-UK to UK business whilst strengthening our UK franchises. We will place particular emphasis on creating appropriate scale in the markets in which we have a presence. As we do that, our objectives will be four-fold: profit growth; an improved loan-to-deposit ratio; further international diversification through deepening existing presences; and the generation of net equity.
Barclays Corporate, as part of CIB, focuses on the high end of what we used to call Barclays Commercial, particularly financial institutions, public sector entries and corporate clients. We brought this business alongside Barclays Capital within CIB because we see significant synergy in sharing relationship management and sector expertise across the two. Realisation of the synergy is enabled by the increasing fungibility of client requirements between traditional corporate banking and investment banking product needs within our client base. This is a global opportunity with significant income growth potential for CIB in the years ahead. Our early work has only reinforced that strongly held belief.
In the area of wealth management, the competitive landscape in the global industry has gone through a sea change over the course of the last three years. That creates opportunity, and we intend to seize that by investing to change the scale of this business over the next five years.
For management reporting purposes these changes have taken effect from 1st January 2010 and therefore have not been reflected in the analysis provided in this document.
30 |
|
Financial review
Analysis of results by business
Business performance – Global Retail and Commercial Banking
UK Retail Banking profit before tax grew 7%decreased 55% to £1,369m.£612m as economic conditions remained challenging. Income grew 4% to £4,482m,was down 11% reflecting strongthe impact of deposit margin compression net of hedges, partially offset by good growth in Home Finance and minimal settlements on overdraft fees. LoansFinance. Total loans and advances grew 15% driven by a market share ofto customers increased £4.7bn to £99.1bn. Gross new mortgage lending was £14.2bn during 2009 and net new mortgage lending was £5.7bn. The average loan to value ratio of 36%the mortgage book remained conservative at 43%. Impairment charges increased 55% due to the deteriorating economic environment. Operating expenses showedcontinued to be tightly controlled and decreased 3% reflecting a modest increase of 2% reflecting active managementone-off credit from the closure of the cost baseUK final salary pension scheme offset by a year on year increase in pension costs and the non-recurrence of gains from the sale of property.
Barclays Commercial Bank profit before tax decreased 41% to £749m. Income was broadly flat on 2008 with good growth in net fees and commissions offset by lower income from principal transactions. Net interest income was broadly flat as margin compression on the deposit book was offset by higher lending and deposit volumes. New term lending extended to UK customers during 2009 was £14bn. Operating expenses were tightly controlled and fell 3% driven by a one-off credit from the closure of the UK final salary pension scheme partially offset by an increase in pensions and share-based payment costs and the non-recurrence of gains from the sale of property. Impairment charges increased to £974m reflecting the impact of the weak business environment with rising default rates and falling asset values across all business segments.
Barclaycard profit before tax decreased 4% to £761m. Income growth of 26% reflected strong growth across the businesses driven by increased lending and improved margins. Average customer assets increased 19% to £28.1bn. Impairment charges increased 64% due to the deteriorating global economic environment, although the rate of growth in the second half of the year was lower than in the first half. Impairment grew across both the international and UK businesses. Cost growth of 5% was largely
driven by appreciation of the average value of the US Dollar and the Euro against Sterling and growth in the card portfolios including acquisitions made in 2008.
Global Retail and Commercial Banking – Western Europe profit before tax fell 48% to £130m. Results included Barclays Russia, which incurred a loss of £67m and reflected a gain of £157m on the sale of Barclays life insurance and pensions business in Iberia. Income grew in all countries, improving 18% as the expanded network continued to mature with customer deposits increasing £7.8bn to £23.4bn. Costs increased 16% reflecting the expansion of the Portuguese and Italian networks, the investment in Barclays Russia, restructuring charges of £24m and reduced gains from the sale of property. The cost:income ratio improved one percentage point. Impairment charges increased 8% reflecting strong growth£370m to £667m, largely driven by losses in assetsSpain in commercial property, construction and a deteriorating economic environment.SME portfolios. However, delinquency trends improved throughout the second half of 2009 in both retail and commercial portfolios.
BarclaysGlobal Retail and Commercial Bank profitBanking – Emerging Markets loss before tax decreased 7%of £254m compared to £1,266m.a profit of £141m in 2008. Income increased 5% with significant growth of 7% principally reflected increased sales of treasury products. Loansacross Africa and advances to customers increased 14% to £80.5bn. Costs increased 14% driventhe UAE, partially offset by lower gains on the sale of property, further investment
income in new payments capability, and growth in the operating lease business.India. Impairment charges increased 42% as the deteriorating economic environment caused higher delinquency and lower recovery rates on corporate credit.
Barclaycard profit before tax increased 31%£306m to £789m, including £260m from Barclaycard International. Income growth of 27% reflected strong growth£471m with significant increases in Barclaycard International, the income related to Goldfish since acquisition, and gains relating to the Visa IPOIndia and the sale of MasterCard shares. Costs increased 30%UAE, reflecting continued international growth, increased marketing expenditure and the impact of Goldfish. Impairment charges increased 33% reflecting growth in charges in the international businesses and the acquisition of Goldfish, partly offset by lower impairment in the other UK businesses.
GRCB – Western Europe profit before tax grew 31% to £257m. Income grew 53%, driven by very strong growth in deposits, mortgages
and commercial lendingeconomic recession across the expanded franchise, as well as gains of £82m relating to the Visa IPObusiness with continued pressure on liquidity, rising default rates and the sale of MasterCard shares. Costs increased 38% reflecting the expansion of the network by 347 distribution points to 1,145 and continued strategic investment in the Premier and core retail businesses. Impairment charges increased £220m to £296m, largely driven by deteriorating trends in Spain which led to losses in property-related commercial banking exposures and credit cards.
GRCB – Emerging Markets profit before tax increased 34% to £134m. Income increased 91%, driven by retail expansion in India, entry into new markets in Russia and Pakistan and strong performances in Africa, as well as gains of £82m relating to the Visa IPO and sale of MasterCard shares.lower asset values. Operating expense growth of 82%24% reflected continued investment in businessIndonesia and Pakistan and investment in infrastructure distributionacross other markets.
Global Retail and new markets. Distribution points increased 286 to 836. Impairment charges increased £127m to £166m reflecting asset growth, and increased wholesale impairment in Africa.
GRCBCommercial Banking – Absa profit before tax decreased 8% to £552m.£506m. Income growth of 10%16% was driven by solid balance sheet growth, the appreciation in the average value of the Rand against Sterling and higher fees and commissions, balance sheet growth as well as a gain relating to the Visa IPO.commissions. Operating expenses increased 3%, well below theat a lower rate of inflation, reflecting investment in new distribution points,13% which increased 176 to 1,177, offset by good cost control. This led to a four percentage pointan improvement in the cost:income ratio to 58% (2008: 59%). Impairment charges rose £201m£220m to £347m, mainly due to prolonged high interest rates and inflation rates and increased customer indebtedness resulting in£567m as a result of higher delinquency levels in the retail portfolios.portfolios reflecting high consumer indebtedness.
Analysis of results by business
For the year ended 31st December 2008
UK £m | Barclays Commercial £m | Barclaycard £m | GRCB – Western Europe £m | GRCB – Emerging Markets £m | GRCB – Absa £m | |||||||||||||
Net interest income | 2,996 | 1,757 | 1,786 | 856 | 616 | 1,104 | ||||||||||||
Net fee and commission income | 1,299 | 861 | 1,299 | 383 | 223 | 762 | ||||||||||||
Principal transactions | – | 22 | 82 | 165 | 169 | 111 | ||||||||||||
Net premiums from insurance contracts | 205 | – | 44 | 352 | – | 234 | ||||||||||||
Other income | 17 | 105 | 19 | 39 | 11 | 113 | ||||||||||||
Total income | 4,517 | 2,745 | 3,230 | 1,795 | 1,019 | 2,324 | ||||||||||||
Net claims and benefits incurred on insurance contracts | (35 | ) | – | (11 | ) | (365 | ) | – | (126 | ) | ||||||||
Total income, net of insurance claims | 4,482 | 2,745 | 3,219 | 1,430 | 1,019 | 2,198 | ||||||||||||
Impairment charges and other credit provisions | (602 | ) | (414 | ) | (1,097 | ) | (296 | ) | (166 | ) | (347 | ) | ||||||
Net income | 3,880 | 2,331 | 2,122 | 1,134 | 853 | 1,851 | ||||||||||||
Operating expenses | (2,519 | ) | (1,063 | ) | (1,422 | ) | (929 | ) | (719 | ) | (1,305 | ) | ||||||
Share of post-tax results of associates and joint ventures | 8 | (2 | ) | (3 | ) | – | – | 5 | ||||||||||
Profit on disposal of subsidiaries | – | – | – | – | – | 1 | ||||||||||||
Gains on acquisitions | – | – | 92 | 52 | – | – | ||||||||||||
Profit before tax | 1,369 | 1,266 | 789 | 257 | 134 | 552 | ||||||||||||
As at 31st December 2008 | ||||||||||||||||||
Total assets | 101,384 | 84,029 | 30,925 | 64,732 | 14,653 | 40,391 | ||||||||||||
Total liabilities | 104,640 | 64,997 | 3,004 | 37,250 | 10,517 | 20,720 |
|
UK Retail Banking £m | Barclays Commercial Bank £m | Barclaycard £m | GRCB – Western Europe £m | GRCB – Emerging Markets £m | GRCB – Absa £m | Barclays Capital £m | Barclays Global Investors a £m | Barclays Wealth £m | Head Office Functions and Other Operations £m | |||||||||||||||||||||
Net interest income | 2,624 | 1,741 | 2,723 | 1,182 | 743 | 1,300 | 1,598 | 43 | 504 | (507 | ) | |||||||||||||||||||
Net fee and commission income | 1,225 | 926 | 1,271 | 438 | 232 | 943 | 3,001 | 1,757 | 802 | (418 | ) | |||||||||||||||||||
Principal transactions | – | (26 | ) | 22 | 123 | 68 | 123 | 7,021 | 98 | 20 | (325 | ) | ||||||||||||||||||
Net premiums from insurance contracts | 198 | – | 44 | 544 | – | 294 | 5 | – | – | 92 | ||||||||||||||||||||
Other income | 6 | 112 | 2 | 8 | 2 | 60 | – | 5 | 7 | 1,186 | ||||||||||||||||||||
Total income | 4,053 | 2,753 | 4,062 | 2,295 | 1,045 | 2,720 | 11,625 | 1,903 | 1,333 | 28 | ||||||||||||||||||||
Net claims and benefits incurred on insurance contracts | (68 | ) | – | (20 | ) | (572 | ) | – | (171 | ) | – | – | – | – | ||||||||||||||||
Total income, net of insurance claims | 3,985 | 2,753 | 4,042 | 1,723 | 1,045 | 2,549 | 11,625 | 1,903 | 1,333 | 28 | ||||||||||||||||||||
Impairment charges and other credit provisions | (936 | ) | (974 | ) | (1,798 | ) | (667 | ) | (471 | ) | (567 | ) | (2,591 | ) | – | (51 | ) | (16 | ) | |||||||||||
Net income | 3,049 | 1,779 | 2,244 | 1,056 | 574 | 1,982 | 9,034 | 1,903 | 1,282 | 12 | ||||||||||||||||||||
Operating expenses | (2,440 | ) | (1,030 | ) | (1,494 | ) | (1,113 | ) | (852 | ) | (1,469 | ) | (6,592 | ) | (1,154 | ) | (1,138 | ) | (570 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | 3 | – | 8 | 4 | – | (4 | ) | 22 | – | – | 1 | |||||||||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | – | – | 3 | 157 | 24 | (3 | ) | – | (1 | ) | 1 | 7 | ||||||||||||||||||
Profit on disposal of discontinued operations | – | – | – | – | – | – | – | 6,331 | – | – | ||||||||||||||||||||
Gain on acquisitions | – | – | – | 26 | – | – | – | – | – | – | ||||||||||||||||||||
Profit before tax | 612 | 749 | 761 | 130 | (254 | ) | 506 | 2,464 | 7,079 | 145 | (550 | ) | ||||||||||||||||||
As at 31st December 2009 | ||||||||||||||||||||||||||||||
Total assets | 105,228 | 75,547 | 30,220 | 64,185 | 11,874 | 45,824 | 1,019,120 | 5,406 | 15,095 | 6,430 | ||||||||||||||||||||
Total liabilities | 102,934 | 68,108 | 5,543 | 48,049 | 9,836 | 25,769 | 951,192 | 416 | 41,648 | 66,848 |
Business performance – Investment Banking and Investment Management
Barclays Capital profit before tax was £1,302mincreased 89% to £2,464m as a result of very strong performances in a very challenging market, down 44%,the UK, Europe and included a gain on the acquisition of Lehman Brothers North American businesses of £2,262m. Net income of £2,808m was down 55% as the impact of market dislocation continued and included gross losses of £8,053m,US, partially offset by relateda charge of £1,820m relating to own credit (2008: £1,663m gain). Top-line income increased 81% to £17.9bn reflecting excellent results across the client franchise and hedgesa resilient fourth quarter with top-line income of £1,433m£3.6bn. Fixed Income, Currency and gainsCommodities (FICC) was up £5.6bn to £13.0bn following the expansion of £1,663m from the general wideningbusiness and increased client flows. Top-line income in Equities and Prime Services increased 147% and Investment Banking income more than doubled. Total credit market exposures were reduced by £14.1bn to £27.6bn. In addition £5.1bn of credit spreads on structured notes issued by Barclays Capital. Theremarket assets (and £2.4bn of other assets) were record performances in interest rate products, currency products, emerging markets, prime services and commodities. Equities, credit products, mortgages and asset backed securities and private equity were significantly impacted by market dislocation and recorded lower income than in 2007.sold to Protium Finance LP. Operating expenses after absorbing Lehman Brothers North American businesses, were 5% lower75% higher than 2008 given the substantial increase in 2007 duethe overall scale of the business. The cost:income ratio improved to lower performance related pay.57% (2008: 72%). Compensation expenses as a proportion of income reduced 38%, down from 44% in 2008. Total assets reduced 37% driven by initiatives to reduce derivative balances.
On 1st December 2009 Barclays completed the sale of Barclays Global Investors to BlackRock. Included in the consideration were 37.567 million new BlackRock shares giving Barclays an economic interest of 19.9% of the enlarged BlackRock group. The profit on disposal before tax decreased 19%was £6,331m. Profit before tax, excluding the profit on disposal, increased 26% to £595m. Income fell 4% to £1,844m due to lower incentive fees. Operating expenses increased 5%£748m (2008: £595m) following a recovery on liquidity support charges and included chargesan 18% appreciation in the average value of £263m (2007: £80m) related to selective support of liquidity products. Total assets under management were US$1,495bn, reflecting net new assets of US$99bn, negative market moves of US$553bn and adverse exchange rate movements of US$130bn.the US Dollar against Sterling.
Barclays Wealth profit before tax grew 119%reduced 78% to £671m, including£145m principally as a £326m profit on disposalresult of the closed life business, which contributed profit before tax of £104m before disposal. Income growth of 3% to £1,324m reflected strong growth in customer deposits and lending, partially offset by the impact of lower equity markets on fee income. Operating expenses decreased 4% reflecting strong cost control. Total client assets increased 10% (£12.6bn) to £145.1bn, with net new asset inflows and the acquisition of Lehman Brothers North American businesses offsetting the impact of negative market movements and the sale of the closed life business in 2008 and the cost of the integration of Barclays Wealth Americas during 2009. Income was in line with 2008. Excluding the impact of these transactions there was solid growth in income due to growth in the client franchise and the product offering. Operating expenses grew by 22%, reflecting the integration of the US business, partially offset by the disposal of the closed life business. Total client assets increased by 4% (£6bn) to £151bn.
Note
Analysis of results by business For the year ended 31st December 2008 | |||||||||
Barclays £m | Barclays £m | Barclays Wealth £m | |||||||
Net interest income | 1,724 | (38 | ) | 486 | |||||
Net fee and commission income | 1,429 | 1,917 | 720 | ||||||
Principal transactions | 2,065 | (43 | ) | (344 | ) | ||||
Net premiums from insurance contracts | – | – | 136 | ||||||
Other income | 13 | 8 | 26 | ||||||
Total income | 5,231 | 1,844 | 1,024 | ||||||
Net claims and benefits incurred on insurance contracts | – | – | 300 | ||||||
Total income, net of insurance claims | 5,231 | 1,844 | 1,324 | ||||||
Impairment charges and other credit provisions | (2,423 | ) | – | (44 | ) | ||||
Net income | 2,808 | 1,844 | 1,280 | ||||||
Operating expenses | (3,774 | ) | (1,249 | ) | (935 | ) | |||
Share of post-tax results of associates and joint ventures | 6 | – | – | ||||||
Profit on disposal of subsidiaries | – | – | 326 | ||||||
Gain on acquisition | 2,262 | – | – | ||||||
Profit before tax | 1,302 | 595 | 671 | ||||||
As at 31st December 2008 | |||||||||
Total assets | 1,629,117 | 71,340 | 13,263 | ||||||
Total liabilities | 1,603,093 | 68,372 | 45,846 |
a | Continuing and discontinued operations including profit on disposal. For a break-down of the continuing operations and discontinued operations in respect of BGI, including a reconciliation of the results of the continuing operations to the results of the total BGI result shown above, see page 46. |
|
Financial review
Analysis of results by business
continued
Global Retail and Commercial Banking
UK Retail Banking
UK Retail Banking comprises Personal Customers, Home Finance, Local Business, Consumer Lending and Barclays Financial Planning. We have one of the largest branch networks in the UK with around 1,700 branches and an extensive network of cash machines.
What we do
We are transforming Barclays to be the best bank in the UK by designing innovative, simple and transparent propositions, streamlining operating platforms and further leveraging Barclays Group capabilities.
Our cluster of businesses aims to build broader and deeper relationships with customers. Personal Customers and Home Finance provide a wide range of products and services to retail customers, including current accounts, savings and investment products, mortgages branded Woolwich and general insurance. Barclays Financial Planning provides banking, investment products and advice to affluent customers.
Local Business provides banking services to small businesses. UK Retail Banking is also a gateway to more specialised services from other parts of Barclays such as Barclays Stockbrokers.
Our business serves 15.215 million UK customers.
Performance
2009/08
In the continued challenging economic environment, UK Retail Banking profit before tax decreased 55% (£757m) to £612m (2008: £1,369m), impacted by low interest rates resulting in margin compression on the deposit book and increased impairment charges which together more than offset well controlled costs and an improved assets margin.
The number of Savings Accounts increased 10% to 13.2 million (31st December 2008: 12.0 million) and Mortgage Accounts increased 18,000 to 834,000 (31st December 2008: 816,000). Local Business customer numbers increased 26,000 to 686,000 (31st December 2008: 660,000) with gross new lending of £1,047m. Total loans and advances to customers increased £4.7bn to £99.1bn (31st December 2008: £94.4bn).
Income decreased 11% (£497m) to £3,985m (2008: £4,482m) reflecting the impact of margin compression, which more than offset good income growth in Home Finance.
Net interest income decreased 12% (£372m) to £2,624m (2008: £2,996m) driven by margin compression of £755m on liabilities after taking into account gains on product hedges implemented to protect income on current accounts and managed rate deposits. This was partially offset by increases in asset driven net interest income. Total average customer deposit balances increased 4% to £89.0bn (2008: £85.9bn), reflecting good growth in Personal Customer Current Account balances.
Average mortgage balances grew 10%, reflecting strongly positive net lending. Mortgage balances were £87.9bn at the end of the period (31st December 2008: £82.3bn), a market share of 7% (2008: 7%). Gross advances reduced to £14.2bn (2008: £22.9bn) reflecting a continued conservative approach to lending, with redemptions of £8.5bn (2008: £10.4bn). Net new mortgage lending was £5.7bn (2008: £12.5bn). The average loan to value ratio of the mortgage book (including buy-to-let) on a current valuation basis was 43% (2008: 40%). The average loan to value ratio of new mortgage lending was 48% (2008: 47%).
Net fee and commission income decreased 6% (£74m) to £1,225m (2008: £1,299m) reflecting changing customer usage together with lower mortgage application and redemption fees. Overall sales productivity resulted in fee income growth in investments.
Total impairment charges represented 0.93% (2008: 0.63%) of total gross loans and advances to customers and banks. Impairment charges increased 55% (£334m) to £936m (2008: £602m), reflecting lower expectations for recoveries in line with the current economic environment. Impairment charges within Consumer Lending increased 56% to £573m (2008: £368m) with impairment charges increasing 75% to £183m (2008: £105m) in Personal Customer Current Accounts. Mortgage impairment charges remained low at £26m (2008: £24m).
Operating expenses remained well controlled and decreased 3% (£79m) to £2,440m (2008: £2,519m). This reflected the receipt of a one-off credit of £175m resulting from the closure of the UK final salary pension scheme to existing members, offset by a year on year increase in pension costs of £115m and the non-recurrence of gains of £75m from the sale of property.
32 |
2008/07
UK Retail Banking profit before tax increased 7% (£94m) to £1,369m (2007: £1,275m) through solid income growth and continued good control of impairment and costs. The launch of new products and propositions supported a significant increase in customer accounts, with Current Accounts increasing 4% (0.4m) to 11.7m (2007: 11.3m), Savings
Accounts increasing 8% (0.9m) to 12.0m (2007: 11.1m) and Mortgage Accounts increasing 8% (62,000) to 816,000 (2007: 754,000).
Income grew 4% (£185m) to £4,482m (2007: £4,297m) reflecting strong growth in Home Finance and solid growth in Consumer Lending and Local Business, partially offset by reduced income from Personal Customer Savings Accounts due to the impact of the reductions in the UK base rates in the second half of 2008.
Net interest income increased 5% (£138m) to £2,996m (2007: £2,858m) driven by strong growth in loans and advances. Total average customer deposit balances increased 5% to £85.9bn (2007: £81.8bn), reflecting solid growth in Personal Customer and Local Business balances. The average liabilities margin declined to 2.01% (2007: 2.15%) reflecting the reductions in UK base rates in the second half of 2008.
Mortgage balances grew 18%, driven by increased share of new lending and higher levels of balance retention. Mortgage balances were £82.3bn at the end of the period (31st December 2007: £69.8bn), a market share
of 7% (2007: 6%). Gross advances were stable at £22.9bn, with redemptions of £10.4bn (2007: £15.0bn). Net new lending was £12.5bn (2007: £8.0bn), a market shareba of 36% (2007: 8%). The average loan to value ratio of the mortgage book (including buy-to-let) on a current valuation basis was 40% (2007: 34%). The average loan to value ratio of new mortgage lending was 47% (2007: 49%).
Net fee and commission income increased 10% (£116m) to £1,299m (2007: £1,183m) reflecting £116m settlements on overdraft fees in 2007. Excluding this, net fees and commissions were stable.
Impairment charges increased 8% (£43m) to £602m (2007: £559m), reflecting growth in customer assets of 15% and the impact of the current economic environment. Mortgage impairment charges were £24m (2007: release of £3m). Impairment charges within Consumer Lending increased 3%.
| ||
| ||
Key facts
| |||||||||
2008
| 2007
| 2006
| |||||||
Personal Customers | |||||||||
Number of UK current accountsa | 11.7m | 11.3m | 11.5m | ||||||
Number of UK savings accounts | 12.0m | 11.1m | 11.0m | ||||||
Total UK mortgage balances | £ | 82.3bn | £ | 69.8bn | £ | 61.7bn | |||
Local Business | |||||||||
Number of Local Business customers | 660,000 | 643,000 | 630,000 |
Notes
Operating expenses increased 2% (£49m) to £2,519m (2007: £2,470m) reflecting reduced gains from the sale of property of £75m (2007: £193m). Continued strong and active management of expense lines, including back-office consolidation and process efficiencies, funded increased investment in product development and distribution channels.
The cost:income ratio improved one percentage point to 56% (2007: 57%).
2007/06
UK Retail Banking profit before tax increased 8% (£94m) to £1,275m (2006: £1,181m) due to reduced costs and a strong improvement in impairment.
Income grew 2% (£67m) before the impact of settlements on overdraft fees in relation to prior years (£116m). This was driven by very strong growth in Personal Customer retail savings and good growth in Personal Customer current accounts, Home Finance and Local Business. Including the impact of settlements on overdraft fees, income decreased £49m to £4,297m (2006: £4,346m).
Net interest income increased 3% (£93m) to £2,858m (2006: £2,765m). Growth was driven by a higher contribution from deposits, through a combination of good balance sheet growth and an increased liability margin. Total average customer deposit balances increased 7% to £81.9bn (2006: £76.5bn), supported by the launch of new products.
Mortgage volumes increased significantly, driven by an improved mix of longer term value products for customers, higher levels of retention and continuing improvements in processing capability. Mortgage balances were £69.8bn at the end of the period (2006: £61.7bn), an approximate market share of 6% (2006: 6%). Gross advances were 25% higher at £23.0bn (2006: £18.4bn). Net lending was £8.0bn (2006: £2.4bn), representing market share of 8% (2006: 2%). The average loan to value
ratio of the residential mortgage book on a current valuation basis was 33%. The average loan to value ratio of new residential mortgage lending in 2007 was 54%. Consumer Lending balances decreased 4% to £7.9bn (2006: £8.2bn), reflecting the impact of tighter lending criteria.
Overall asset margins decreased as a result of the increased proportion of mortgages and contraction in unsecured loans.
Net fee and commission income reduced 4% (£49m) to £1,183m (2006: £1,232m). There was strong Current Account income growth in Personal Customers and good growth within Local Business. This was more than offset by settlements on overdraft fees.
Net premiums from insurance underwriting activities reduced 26% (£90m) to £252m (2006: £342m), as there continued to be lower customer take-up of loan protection insurance. Net claims and benefits on insurance contracts increased to £43m (2006: £35m).
Impairment charges decreased 12% (£76m) to £559m (2006: £635m) reflecting lower charges in unsecured Consumer Lending and Local Business. This was driven by improvements in the collection process which led to reduced flows into delinquency, lower levels of arrears and stable charge-offs. Mortgage impairment charges remained negligible.
Operating expenses reduced 2% (£62m) to £2,470m (2006: £2,532m), reflecting strong and active management of all expense lines, targeted processing improvements and back-office consolidation. Gains from the sale of property were £193m (2006: £253m). Increased investment was focused on improving the overall customer experience through converting and improving the branch network; revitalising the product offering; increasing operational and process efficiency; and meeting regulatory requirements.
The cost:income ratio improved one percentage point to 57%. Excluding the impact of settlements on overdraft fees, the cost:income ratio improved two percentage points to 56%.
UK Retail Banking |
2009 | 2008 £m | 2007 £m | |||||||||
Income statement information | ||||||||||||
Net interest income | 2,624 | 2,996 | 2,858 | |||||||||
Net fee and commission income | 1,225 | 1,299 | 1,183 | |||||||||
Net premiums from insurance contracts | 198 | 205 | 252 | |||||||||
Other income | 6 | 17 | 47 | |||||||||
Total income | 4,053 | 4,517 | 4,340 | |||||||||
Net claims and benefits on insurance contracts | (68 | ) | (35 | ) | (43 | ) | ||||||
Total income net of insurance claims | 3,985 | 4,482 | 4,297 | |||||||||
Impairment charges | (936 | ) | (602 | ) | (559 | ) | ||||||
Net income | 3,049 | 3,880 | 3,738 | |||||||||
Operating expenses excluding amortisation of intangible assets | (2,400 | ) | (2,499 | ) | (2,461 | ) | ||||||
Amortisation of intangible assets | (40 | ) | (20 | ) | (9 | ) | ||||||
Operating expenses | (2,440 | ) | (2,519 | ) | (2,470 | ) | ||||||
Share of post-tax results of associates and joint ventures | 3 | 8 | 7 | |||||||||
Profit before tax | 612 | 1,369 | 1,275 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to customers | £ | 99.1bn | £ | 94.4bn | £ | 82.0bn | ||||||
Customer accounts | £ | 92.5bn | £ | 89.6bn | £ | 87.1bn | ||||||
Total assets | £ | 105.2bn | £ | 101.4bn | £ | 88.5bn | ||||||
Risk weighted assets b | £ | 32.2bn | £ | 30.5bn | £ | 31.5bn | ||||||
Performance ratios | ||||||||||||
Cost:income ratio | 61% | 56% | 57% | |||||||||
Cost:net income ratio | 80% | 65% | 66% |
UK Retail BankingNotes
2008 £m | 2007 £m | 2006 £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 2,996 | 2,858 | 2,765 | |||||||||||||
Net fee and commission income | 1,299 | 1,183 | 1,232 | |||||||||||||
Net premiums from insurance contracts | 205 | 252 | 342 | |||||||||||||
Other income | 17 | 47 | 42 | |||||||||||||
Total income | 4,517 | 4,340 | 4,381 | |||||||||||||
Net claims and benefits on insurance contracts | (35 | ) | (43 | ) | (35 | ) | ||||||||||
Total income net of insurance claims | 4,482 | 4,297 | 4,346 | |||||||||||||
Impairment charges | (602 | ) | (559 | ) | (635 | ) | ||||||||||
Net income | 3,880 | 3,738 | 3,711 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (2,499 | ) | (2,461 | ) | (2,531 | ) | ||||||||||
Amortisation of intangible assets | (20 | ) | (9 | ) | (1 | ) | ||||||||||
Operating expenses | (2,519 | ) | (2,470 | ) | (2,532 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | 8 | 7 | 2 | |||||||||||||
Profit before tax | 1,369 | 1,275 | 1,181 | |||||||||||||
Balance sheet information | ||||||||||||||||
Loans and advances to customers | £ | 94.4bn | £ | 82.0bn | £ | 74.7bn | ||||||||||
Customer accounts | £ | 89.6bn | £ | 87.1bn | £ | 82.3bn | ||||||||||
Total assets | £ | 101.4bn | £ | 88.5bn | £ | 81.7bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost:income ratio | 56% | 57% | 58% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk tendency | £ | 520m | £ | 470m | £ | 500m | ||||||||||
Risk weighted assetsa | £ | 30.5bn | £ | 31.5bn | £ | 43.0bn |
Note
a | Excludes Housing Associations. |
b | Risk weighted assets for |
|
Financial review
Analysis of results by business
continued
Global Retail and Commercial Banking
Barclays Commercial Bank
Barclays Commercial Bank is one of the UK’s leading providers of banking solutions to business customers and clients with an annual turnover of more than £1m.
What we do
Barclays Commercial Bank provides banking services to more than 81,000 customers in the UK via a network of relationship, regional, industry-sector and product specialists.speacialists across the UK.
Working closely with our clients to understand their needs, we deliver financing, risk management, trade and cash management solutions constructed from a comprehensive suite of products, expertise and services. This includes specialist asset financing and leasing facilities.
Performance
2009/08
Barclays Commercial Bank profit before tax decreased 41% (£517m) to £749m (2008: £1,266m), primarily driven by significantly higher impairment charges. Income was flat, with strong performance from net fees and commissions offset by lower principal transactions.
PerformanceIncome totalled £2,753m (2008: £2,745m). Net interest income fell 1% (£16m) to £1,741m (2008: £1,757m) with the benefit of increased average lending balances and higher deposit volumes offset by margin compression in the deposit book. Average lending grew 3% (£1.6bn) to £63.3bn (2008: £61.7bn) reflecting our continuing commitment to lend to viable businesses. Average customer deposits grew 3% (£1.4bn) to £49.0bn (2008: £47.6bn) benefiting from ongoing product initiatives.
Non-interest income comprised 37% of total income (2008: 36%). Net fees and commissions income increased 8% (£65m) to £926m (2008: £861m), driven by strong debt fees, trade guarantees and other fee income.
Principal transactions income decreased £48m to a loss of £26m (2008: gain of £22m) as a result of investment writedowns and fewer opportunities for equity realisation within the current market environment.
Other income grew 7% (£7m) to £112m (2008: £105m) reflecting increased income from the repurchase of securitised debt issued of £85m (2008: £24m), partially offset by lower rental income from operating leases of £21m (2008: £29m). 2008 income included a £39m gain from the restructuring of Barclays interest in a third party finance operation.
Impairment charges rose to £974m (2008: £414m), reflecting the impact of the economic recession across the business with continued pressure on corporate liquidity, rising default rates and lower asset values.
34 |
Impairment as a percentage of period end gross loans and advances to customers and banks increased to 1.58% (2008: 0.60%).
Operating expenses fell 3% to £1,030m (2008: £1,063m), reflecting tightly managed discretionary costs and a £100m one-off credit for the closure of the UK final salary pensions scheme partially offset by an incremental increase in pension costs of £69m and the non-recurrence of property credits.
The number of customers fell 6% primarily as a result of reductions in exposures to high risk sectors within Barclays Asset and Sales Finance.
2008/07
Barclays Commercial Bank profit before tax decreased 7% (£91m) to £1,266m (2007: £1,357m) reflecting a resilient performance in challenging market conditions.conditions in 2008. The impact of growth in net fee and commission income and continued strong growth in customer lending was offset by increased impairment charges and higher operating expenses.
Income increased 7%(£181m)to£2,745m to £2,745m (2007:£2,564m) £2,564m).
Net interest income improved 1% (£10m) to £1,757m (2007: £1,747m). There was strong growth in average customer assets, particularly term loans, which increased 14% to £61.7bn (2007: £53.9bn) reflecting the continued commitment to lend to viable businesses. Average customer accounts grew 3% to £47.6bn (2007: £46.4bn).
Non-interest income increased to 36% of total income (2007: 32%) partly reflecting continued focus on cross sales and efficient balance sheet utilisation. Net fee and commission income increased 15% (£111m) to £861m (2007: £750m) due to increased income from foreign exchange, derivative sales and debt fee income.
Income from principal transactions fell to £22m (2007: £56m) due to lower equity realisations.
Other income of £105m (2007: £11m) included a £39m gain arising from the restructuring of Barclays interest in a third party finance operation. This gain was offset by a broadly similar tax charge. Other income also included £29m (2007: £7m) rental income from operating leases.
| ||
Key facts | ||||||
2008
| 2007
| 2006
| ||||
Number of customers | 81,200 | 83,800 | 77,100 | |||
Number of colleagues | 9,800 | 9,200 | 8,100 |
Impairment charges increased 42% (£122m) to £414m (2007: £292m) primarily reflecting higher impairment losses in Larger Business, particularly in the final quarter of 2008 as the UK corporate credit environment deteriorated. Impairment as a percentage of period-end loans and advances to customers and banks increased to 0.60% (2007: 0.45%).
Operating expenses increased 14% (£134m) to £1,063m (2007: £929m) reflecting lower gains on the sale of property of £10m (2007: £40m), investment in a new payments capability (2008: £69m, 2007: £42m), growth in the operating lease business (2008: £31m, 2007: £7m) and investment in risk and operations infrastructure, sales force capability and product specialists.
2007/06
Barclays Commercial Bank profit before tax decreased £5m to £1,357m (2006: £1,362m) due to continued good income growth partially offset by lower gains from business disposals. Profit before business disposals increased 4% to £1,343m (2006: £1,286m).
Income increased 7% (£160m) to £2,564m (2006: £2,404m). Non-interest income increased to 32% of total income (2006: 29%), reflecting continuing focus on cross sales and efficient balance sheet utilisation. There was very strong growth in net fee and commission income, which increased 17% (£107m) to £750m (2006: £643m) due to very strong performance in lending fees. There was also good growth in transaction
related income, foreign exchange and derivatives transactions undertaken on behalf of clients.
Net interest income improved 2% (£37m) to £1,747m (2006: £1,710m). Average customer lendings increased 3% to £53.9bn (2006: £52.3bn). Average customer accounts grew 4% to £46.4bn (2006: £44.8bn).
Income from principal transactions primarily reflecting venture capital and other equity realisations increased 87% (£26m) to £56m (2006: £30m).
Impairment charges increased 15% (£39m) to £292m (2006: £253m), mainly due to a higher level of impairment losses in Larger Business as impairment trended towards risk tendency. There was a reduction in impairment levels in Medium Business due to a tightening of the lending criteria.
Operating expenses increased 7% (£61m) to £929m (2006: £868m). Operating expenses are net of gains of £39m (2006: £60m) on the sale of property. Growth in operating expenses was focused on continuing investment in operations, infrastructure, and new initiatives in product development and sales capability.
Income statement information Net interest income Net fee and commission income Net trading income Net investment income Principal transactions Other income Total income Impairment charges and other credit provisions Net income Operating expenses excluding amortisation of intangible assets Amortisation of intangible assets Operating expenses Share of post-tax results of associates and joint ventures Profit on disposal of subsidiaries, associates and joint ventures Profit before tax Balance sheet information Loans and advances to customers Loans and advances to customers including those designated at fair value Customer accounts Total assets Risk weighted assets Performance ratios Cost: income ratio Cost: net income ratioBarclays Commercial BankBarclays Commercial Bank 2009
£m 2008
£m 2007
£m 1,741 1,757 1,747 926 861 750 25 3 9 (51 ) 19 47 (26 ) 22 56 112 105 11 2,753 2,745 2,564 (974 ) (414 ) (292 ) 1,779 2,331 2,272 (1,009 ) (1,048 ) (924 ) (21 ) (15 ) (5 ) (1,030 ) (1,063 ) (929 ) – (2 ) – – – 14 749 1,266 1,357 £ 59.6bn £ 67.5bn £ 63.7bn £ 72.7bn £ 80.5bn £ 70.7bn £ 62.7bn £ 60.6bn £ 60.8bn £ 75.5bn £ 84.0bn £ 74.6bn £ 60.3bn £ 63.1bn £ 57.0bn 37% 39% 36% 58% 46% 41%
2008 £m
| 2007 £m
| 2006 £m
| ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 1,757 | 1,747 | 1,710 | |||||||||||||
Net fee and commission income | 861 | 750 | 643 | |||||||||||||
Net trading income | 3 | 9 | 2 | |||||||||||||
Net investment income | 19 | 47 | 28 | |||||||||||||
Principal transactions | 22 | 56 | 30 | |||||||||||||
Other income | 105 | 11 | 21 | |||||||||||||
Total income | 2,745 | 2,564 | 2,404 | |||||||||||||
Impairment charges and other credit provisions | (414 | ) | (292 | ) | (253 | ) | ||||||||||
Net income | 2,331 | 2,272 | 2,151 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (1,048 | ) | (924 | ) | (867 | ) | ||||||||||
Amortisation of intangible assets | (15 | ) | (5 | ) | (1 | ) | ||||||||||
Operating expenses | (1,063 | ) | (929 | ) | (868 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | (2 | ) | – | 3 | ||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | – | 14 | 76 | |||||||||||||
Profit before tax | 1,266 | 1,357 | 1,362 | |||||||||||||
Balance sheet information | ||||||||||||||||
Loans and advances to customers | £ | 67.5bn | £ | 63.7bn | £ | 56.6bn | ||||||||||
Loans and advances to customers including those designated at fair value | £ | 80.5bn | £ | 70.7bn | £ | 62.1bn | ||||||||||
Customer accounts | £ | 60.6bn | £ | 60.8bn | £ | 57.4bn | ||||||||||
Total assets | £ | 84.0bn | £ | 74.6bn | £ | 66.2bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost:income ratio | 39% | 36% | 36% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk Tendency | £ | 400m | £ | 305m | £ | 300m | ||||||||||
Risk weighted assetsa | £ | 63.1bn | £ | 57.0bn | £ | 50.3bn |
Note
|
Financial review
Analysis of results by business
continued
Global Retail and Commercial Banking
Barclaycard
Barclaycard is a multi-brand international payment services provider for consumer and business customers including credit card,cards and consumer lending and payment processing business.lending. Our credit card was the first to be launched in the UK in 1966 and is now one of the leading credit card businesses in Europe, with a fast growing business in the United States and South Africa.
What we do
In the UK our activitiesconsumer payment services include all Barclaycard branded credit cards, secured lending business and Barclays Partner Finance, our retail finance business. In addition to these activities, Barclaycard also operates partnership cards with leading brands such as SkyCard. We continue to lead the UK market and we strengthened our position in 2008 with the purchase of the Goldfish portfolio, adding more than 1m customers to our growing customer base.secured lending.
Barclaycard’s international presence continues to grow very strongly, with international consumer customers now almost equallingexceeding the number in the UK. We currently operate in Germany, South Africa and the United States where we are one of the fastest-growing credit card businesses.and South Africa. In Scandinavia, we operate through Entercard, a joint venture with Swedbank.
Our UK and international payment processing business, Barclaycard Business, processes card paymentsbusinesses provide payment acceptance services for 89,00087,000 retailers and merchants, both for face to face transactions and over the internet and provides market-leading acceptance of contactless cards. The business also issues credit and charge cards to corporate customers and the UK Government. ItGovernment, and provides sales financing at retailers and auto dealers. Barclaycard is Europe’s number one issuer of Visa Commercial Cards with over 132,000145,000 public and private sector corporate customers.
Performance
2009/08
Barclaycard profit before tax decreased 4% (£28m) to £761m (2008: £789m). Strong income growth across the portfolio driven by increased lending, improved margins and foreign exchange gains, was offset by higher impairment charges, driven by the deterioration in the global economy.
International businesses’ profit before tax decreased 59% to £107m (2008: £261m) driven by the US business. Strong income growth driven by higher average extended credit balances was more than offset by impairment growth, especially in the US and South African businesses, and increased operating expenses. In the UK our businesses benefited from an improvement in margins and growth in average extended balances leading
to income increasing 18% to £2,494m (2008: £2,111m). Income growth was partially offset by the growth in impairment as worsening economic conditions impacted delinquencies.
Income increased 26% (£823m) to £4,042m (2008: £3,219m) reflecting strong growth across the portfolio, especially in the international businesses through higher extended credit balances, lower funding rates and the appreciation of the average values of the US Dollar and the Euro against Sterling.
Net interest income increased 52% (£937m) to £2,723m (2008: £1,786m) driven by strong growth in international average extended credit card balances, up 52% to £7.9bn (2008: £5.2bn), and lower funding rates as margins improved.
Net fee and commission income decreased 2% (£28m) to £1,271m (2008: £1,299m) through lower volumes in FirstPlus due to the decision taken to stop writing new business in 2008 and lower volumes in the UK card portfolios partially offset by growth in the international businesses.
Principal transactions of £22m (2008: £82m) included a £20m gain from the sale of MasterCard shares (2008: £16m). Investment income in 2008 included a £64m gain from the Visa IPO.
Other income in 2008 included an £18m gain on the sale of a portfolio in the US.
Impairment charges increased £701m (64%) to £1,798m (2008: £1,097m). The rate of growth in the second half of the year was lower than that in the first half. Impairment charges in the international businesses increased £444m, driven by higher delinquencies due to deteriorating economic conditions, growth in average receivables and the appreciation of the average values of the US Dollar and the Euro against Sterling. UK portfolio charges were higher as a result of rising delinquencies due to the economic deterioration, especially in the loan portfolios, and the inclusion of Goldfish in UK Cards.
Operating expenses increased 5% (£72m) to £1,494m (2008: £1,422m), due to the appreciation in the average value of the US Dollar and the Euro against Sterling and growth in the portfolios including the acquisitions made in the UK, US and South Africa in 2008.
The purchase of Goldfish resulted in a gain on acquisition of £92m in 2008.
PerformanceNote
a | The number of customers at 31st December 2009 is, after a reduction of 1.5 million, due to the closure of dormant accounts. |
36 |
2008/07
Barclaycard profit before tax increased 31% (£186m) to £789m (2007: £603m), driven by strong international income growth and lower UK impairment charges. 2008 profit included £40m from the acquisition of, and contribution from, Goldfish, Discover’s UK credit card business, acquired on 31st March 2008. The scale of the UK and international businesses increased substantially with total customer numbers up 31% to 23.3m.
Income increased 27% (£689m) to £3,219m (2007: £2,530m), reflecting strong growth in Barclaycard International and £156m from the inclusion of Goldfish, partially offset by a decline in FirstPlus following its closure to new business.
Net interest income increased 30% (£412m) to £1,786m (2007: £1,374m), driven by 58% growth in international average extended credit card balances to £5.2bn.
Net fee and commission income increased 14% (£156m) to £1,299m (2007: £1,143m), driven by growth in Barclaycard International.
Investment incomeIncome from principal transactions increased £69m£71m to £80m£82m (2007: £11m), reflecting a £64m gain from the Visa IPO and a £16m gain from the sale of shares in MasterCard.
Other income increased £44m to £19m (2007: £25m loss), reflecting a gain from a portfolio sale in the United States. 2007 results reflected a £27m loss on disposal of part of the Monument card portfolio.
Impairment charges increased 33% (£270m) to £1,097m (2007: £827m)
£827m), reflecting £252m growth in charges in the international businesses and £68m from the inclusion of Goldfish. These factors were partially offset by £50m lower impairment in the other UK businesses with reduced flows into delinquency and lower levels of arrears.
| ||
| ||
Key facts | |||||||||
2008
| 2007
| 2006
| |||||||
Number of Barclaycard UK customers | 11.7m | 10.1m | 9.8m | ||||||
UK credit cards – average outstanding balances | £ | 9.9bn | £ | 8.4bn | £ | 9.4bn | |||
UK credit cards – average extended credit balances | £ | 8.0bn | £ | 6.9bn | £ | 8.0bn | |||
Number of Barclaycard | |||||||||
International customers | 11.6m | 7.7m | 6.0m | ||||||
International – average outstanding balance | £ | 6.5bn | £ | 4.1bn | £ | 3.1bn | |||
International – average extended credit balances | £ | 5.2bn | £ | 3.3bn | £ | 2.5bn | |||
Secured lending – average outstanding balance | £ | 4.7bn | £ | 4.3bn | £ | 3.4bn | |||
Number of retailer relationships | 89,000 | 93,000 | 93,000 |
Operating expenses increased 30% (£329m) to £1,422m (2007: £1,093m), reflecting continued international growth and increased marketing investment. Operating expenses reflected Goldfish expenses of £140m, including restructuring costs of £64m.
The acquisition of Goldfish resulted in a gain on acquisition of £92m.
Barclaycard International maintained its strong growth momentum, delivering a 71% (£108m) increase in profit before tax to £260m (2007: £152m). Barclaycard US profit before tax was US$249m which exceeded delivery of the financial plan of US$150m set out at the time of acquisition. Strong balance sheet growth in Barclaycard US included US$1.9bn of credit card receivables acquired from FIA Card Services in August 2008, furthering the existing partnership agreement with US Airways. The acquisition of a majority stake in Woolworths Financial Services in October 2008, added 1.6 million customers to the existing Absa credit card business in South Africa. The Entercard joint venture with Swedbank continued to build presence in Norway, Sweden and Denmark.
2007/06
Barclaycard profit before tax increased 16% (£81m) to £603m (2006: £522m), driven by strong international growth coupled with a significant improvement in UK impairment charges. Other income included a £27m loss on disposal of part of the Monument card portfolio. 2006 results reflected a property gain of £38m.
Income decreased 2% (£46m) to £2,530m (2006: £2,576m), reflecting strong growth in Barclaycard International, offset by a decline in UK Cards revenue resulting from a more cautious approach to lending in the UK and a £27m loss on disposal of part of the Monument card portfolio.
Net interest income increased 1% (£11m) to £1,374m (2006: £1,363m), due to strong organic growth in international average
extended credit card balances, up 32% to £3.3bn and average secured consumer lending balances up 26% to £4.3bn, partially offset by lower UK average extended credit card balances which fell 14% to £6.9bn.
Net fee and commission income fell 3% (£40m) to £1,143m (2006: £1,183m), with growth in Barclaycard International offset by our actions in response to the Office of Fair Trading’s findings on late and overlimit fees in the UK which were implemented in August 2006.
Impairment charges improved 21% (£226m) to £827m (2006: £1,053m), reflecting reduced flows into delinquency, lower levels of arrears and lower charge-offs in UK Cards. We made changes to our impairment methodologies to standardise our approach and in anticipation of Basel II. The net positive impact of these changes in methodology was offset by an increase in impairment charges in Barclaycard International and secured consumer lending.
Operating expenses increased 10% (£100m) to £1,093m (2006: £993m). Excluding a property gain of £38m in 2006, operating expenses increased 6% (£62m), reflecting continued investment in expanding our businesses in Europe and the United States. Costs in the UK businesses were broadly flat, with investment in new UK product innovations such as Barclaycard OnePulse being funded out of operating efficiencies.
Barclaycard International continued to gain momentum, delivering a profit before tax of £152m against a profit before tax of £8m in 2006. The Entercard joint venture continued to perform ahead of plan and entered the Danish market, extending its reach across the Scandinavian region. Barclaycard US was profitable, with very strong average balance growth and a number of new card partnerships, including Lufthansa Airlines and Princess Cruise Lines.
Barclaycard 2008 Income statement information Net interest income Net fee and commission income Net trading income Net investment income Principal transactions Net premiums from insurance contracts Other income Total income Net claims and benefits incurred on insurance contracts Total income net of insurance claims Impairment charges and other credit provisions Net income Operating expenses excluding amortisation of intangible assets Amortisation of intangible assets Operating expenses Profit on disposal of subsidiaries, associates and joint ventures Share of post-tax results of associates and joint ventures Gain on acquisition Profit before tax Balance sheet information Loans and advances to customers Total assets Risk weighted assets Performance ratios Cost: income ratio Cost: net income ratio
2009
£m
£m 2007
£m 2,723 1,786 1,374 1,271 1,299 1,143 (1 ) 2 – 23 80 11 22 82 11 44 44 40 2 19 (25 ) 4,062 3,230 2,543 (20 ) (11 ) (13 ) 4,042 3,219 2,530 (1,798 ) (1,097 ) (827 ) 2,244 2,122 1,703 (1,412 ) (1,361 ) (1,057 ) (82 ) (61 ) (36 ) (1,494 ) (1,422 ) (1,093 ) 8 (3 ) (7 ) 3 – – – 92 – 761 789 603 £ 26.5bn £ 27.4bn £ 19.7bn £ 30.2bn £ 30.9bn £ 22.1bn £ 30.6bn £ 27.3bn £ 20.2bn 37% 44% 43% 67% 67% 64%
Barclaycard
2008 | 2007 | 2006 | ||||||||||||||
£m | £m | £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 1,786 | 1,374 | 1,363 | |||||||||||||
Net fee and commission income | 1,299 | 1,143 | 1,183 | |||||||||||||
Net tracking income | 2 | – | – | |||||||||||||
Net investment income | 80 | 11 | 20 | |||||||||||||
Principal transactions | 82 | 11 | 20 | |||||||||||||
Net premiums from insurance contracts | 44 | 40 | 18 | |||||||||||||
Other income | 19 | (25 | ) | – | ||||||||||||
Total income | 3,230 | 2,543 | 2,584 | |||||||||||||
Net claims and benefits incurred on insurance contracts | (11 | ) | (13 | ) | (8 | ) | ||||||||||
Total income net of insurance claims | 3,219 | 2,530 | 2,576 | |||||||||||||
Impairment charges and other credit provisions | (1,097 | ) | (827 | ) | (1,053 | ) | ||||||||||
Net income | 2,122 | 1,703 | 1,523 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (1,361 | ) | (1,057 | ) | (969 | ) | ||||||||||
Amortisation of intangible assets | (61 | ) | (36 | ) | (24 | ) | ||||||||||
Operating expenses | (1,422 | ) | (1,093 | ) | (993 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | (3 | ) | (7 | ) | (8 | ) | ||||||||||
Gain on acquisition | 92 | – | – | |||||||||||||
Profit before tax | 789 | 603 | 522 | |||||||||||||
Balance sheet information | ||||||||||||||||
Loans and advances to customers | £ | 27.4bn | £ | 19.7bn | £ | 18.1bn | ||||||||||
Total assets | £ | 30.9bn | £ | 22.1bn | £ | 20.0bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost: income ratio | 44% | 43% | 39% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk Tendency | £ | 1,475m | £ | 955m | £ | 1,090m | ||||||||||
Risk weighted assetsa | £ | 27.3bn | £ | 20.2bn | £ | 16.9bn |
Note
|
Financial review
Analysis of results by business
continued
Global Retail and Commercial Banking
Western Europe
GRCB – Western Europe comprises our retail and commercial banking operations, as well as our Barclaycard businesses, in Spain, Portugal, France, Italy and Italy.Russia.
What we do
GRCB – Western Europe serves more than 2mapproximately 2.8m retail and commercial banking customers in France, Italy, Portugal, Spain and SpainRussia through a variety of distribution channels including 9611,128 branches, 184190 sales centres and 9881,481 ATMs.
GRCB – Western Europe provides a variety of products and services including retail mortgages, current and deposit accounts, commercial lending, unsecured lending, credit cards, investments and insurance products, serving the needs of Barclays retail, mass affluent and corporate customers.
Performance
2009/08
Global Retail and Commercial Banking – Western Europe profit before tax fell 48% (£120m) to £130m (2008: £250m) against the backdrop of a very challenging macroeconomic environment across all key markets, particularly Spain. The results included a gain of £157m on the sale of Barclays Vida y Pensiones Compañía de Seguros, Barclays Iberian life insurance and pensions business, a restructuring charge of £24m largely concentrated in Spain and an operating loss before tax of £67m (2008: loss before tax of £7m) related to Barclays Russia driven by increased impairment due to the economic environment and increased expenses incurred in positioning the business for future growth. Excluding Russia, all businesses traded profitably although Spain’s net profit fell significantly due to high impairment charges, particularly in the commercial property portfolio. Profit before tax was favourably
impacted by the 13% appreciation in the average value of the Euro against Sterling.
Income increased across all countries, improving 18% (£268m) to £1,723m (2008: £1,455m) driven by the appreciation of the Euro and the significant expansion in the distribution network in 2007 and 2008. The number of distribution points increased by 137 to 1,318 (31st December 2008: 1,181) reflecting further selected organic growth and development of the franchise.
Net interest income increased 35% (£307m) to £1,182m (2008: £875m). The increase was principally driven by strong growth in customer deposits of 50% to £23.4bn (2008: £15.6bn), an improvement in the customer assets margin and an increase in treasury interest income. This was partially offset by competitive pressures on liability margin compression.
Net fee and commission income increased 13% (£49m) to £438m (2008: £389m), generated from asset management and insurance product lines.
Principal transactions fell 20% (£31m) to £123m (2008: £154m), mainly due to the non-recurrence of the gains from both the Visa IPO (2008: £65m) and the sale of shares in MasterCard (2008: £17m), partially offset by profit on the sale of Government backed bonds.
Net premiums from insurance contracts increased £192m to £544m (2008: £352m) reflecting growth in the life assurance business. Net claims and benefits incurred increased correspondingly by £207m.
Impairment charges increased £370m to £667m (2008: £297m), principally due to higher impairment in Spain on the commercial property, construction and SME portfolios and, to a lesser extent, on the retail portfolio. The impairment charge for Spain increased 107% (£235m) to £455m (2008: £220m) of which £270m related to the corporate and SME portfolios.
Operating expenses increased 16% (£153m) to £1,113m (2008: £960m) due to the continued expansion of the Italian and Portuguese networks, investment in Barclays Russia, restructuring charges of £24m and reduced gains from the sale of property of £25m (2008: £55m). Underlying costs were tightly controlled.
38 |
In September 2009, Barclays established a long-term life insurance joint venture in Spain, Portugal and Italy with CNP Assurances SA (CNP). As part of this transaction Barclays sold a 50 per cent stake in Barclays Vida y Pensiones Compañía de Seguros to CNP. The transaction gave rise to a gain of £157m. Barclays share of the results of the joint venture with CNP are reported within share of post-tax results of associates and joint ventures.
Barclays acquired the Citigroup cards business in Portugal in December 2009. This resulted in the acquisition of approximately 400,000 customers and loans and advances to customers of £550m. The transaction generated a gain on acquisition of £26m.
2008/07
GRCB – Western Europe profit before tax grew 31%28% (£61m)54m) to £257m£250m (2007: £196m), despite challenging market conditions in Spain in 2008 and accelerated investment in the expansion of the franchise. Distribution points increased 347383 to 1,1451,181 (2007: 798), including 149 in Italy. Strong income growth including gains of £82m from the Visa IPO and the sale of shares in MasterCard was partially offset by increased impairment and higher operating costs. Profit before tax was favourably impacted by the 16% appreciation in the average value of the Euro against Sterling.
Income increased 53%55% (£493m)518m) to £1,430m£1,455m (2007: £937m), reflecting growth in both net interest income and net fee and commission income.
Net interest income increased 62%66% (£329m)348m) to £856m£875m (2007: £527m), driven by a 63%66% increase in customer liabilities to £15.3bn£15.6bn (2007: £9.4bn) and a 53%54% increase in customer assets to £53.5bn£53.9bn (2007: £35.0bn).
Net fee and commission income increased 19%21% (£61m)67m) to £383m£389m (2007: £322m). Increased fees in retail and in the life insurance businesses were offset by lower market-related investment revenue.
Principal transactions grew £59m£48m to £165m£154m (2007: £106m) including
gains from the Visa IPO (£65m) and the sale of shares in MasterCard (£17m) which enabled GRCB – Western Europe to invest in the expansion of the business.
Impairment charges increased £220m£221m to £296m£297m (2007: £76m). This increase was principally due to higher charges in Spanish commercial property (£82m) and deterioration of the Spanish credit card portfolio (£66m) as a consequence of the rapid slowdown in the Spanish economy.
Operating expenses increased 38%43% (£256m)287m) to £929m£960m (2007: £673m), reflecting the rapid expansion of the retail distribution network and the strengthening of the Premier segment. Operating expenses also included £55m (2007: £22m) gains from the sale of property.
Gain on acquisition of £52m (2007: £nil) arose from the purchase of the Italian residential mortgage business of Macquarie Bank Limited in November 2008.
2007/06
GRCB – Western Europe profit before tax increased 21% (£34m) to £196m (2006: £162m). The performance reflected strong income growth driven by an increase in distribution points of 145 to 798 (2006: 653).
Income increased 25% (£186m) to £937m (2006: £751m), reflecting strong growth in net fee and commission income and principal transactions.
Net interest income increased 21% (£91m) to £527m (2006: £436m), driven by a 38% increase in customer liabilities to £9.4bn (2006: £6.8bn) and a 30% increase in customer assets to £35.0bn (2006: £26.9bn).
Net fee and commission income increased 30% (£74m) to £322m (2006: £248m), driven by the expansion of the customer base.
Principal transactions grew 34% (£27m) to £106m (2006: £79m), reflecting gains on equity investments.
Impairment charges grew 100% (£38m) to £76m (2006: £38m), reflecting very strong balance sheet growth.
Operating expenses grew 22% (£123m) to £673m (2006: £550m), driven by the expansion of the distribution network. Operating expenses included property sales in Spain of £22m (2006: £55m).
Key facts | ||||||
2008 | 2007 | 2006 | ||||
Number of distribution points | 1,145 | 798 | 653 | |||
|
GRCB – Western Europe
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008a £m | 2007a £m | |||||||||||||||||||||||
Income statement information | ||||||||||||||||||||||||||||
Net interest income | 856 | 527 | 436 | 1,182 | 875 | 527 | ||||||||||||||||||||||
Net fee and commission income | 383 | 322 | 248 | 438 | 389 | 322 | ||||||||||||||||||||||
Net trading income | 4 | 13 | 14 | – | (7 | ) | 13 | |||||||||||||||||||||
Net investment income | 161 | 93 | 65 | 123 | 161 | 93 | ||||||||||||||||||||||
Principal transactions | 165 | 106 | 79 | 123 | 154 | 106 | ||||||||||||||||||||||
Net premiums from insurance contracts | 352 | 145 | 110 | 544 | 352 | 145 | ||||||||||||||||||||||
Other income | 39 | 7 | 16 | 8 | 50 | 7 | ||||||||||||||||||||||
Total income | 1,795 | 1,107 | 889 | 2,295 | 1,820 | 1,107 | ||||||||||||||||||||||
Net claims and benefits incurred under insurance contracts | (365 | ) | (170 | ) | (138 | ) | (572 | ) | (365 | ) | (170 | ) | ||||||||||||||||
Total income net of insurance claims | 1,430 | 937 | 751 | 1,723 | 1,455 | 937 | ||||||||||||||||||||||
Impairment charges | (296 | ) | (76 | ) | (38 | ) | (667 | ) | (297 | ) | (76 | ) | ||||||||||||||||
Net income | 1,134 | 861 | 713 | 1,056 | 1,158 | 861 | ||||||||||||||||||||||
Operating expenses excluding amortisation of intangible assets | (915 | ) | (665 | ) | (542 | ) | (1,075 | ) | (941 | ) | (665 | ) | ||||||||||||||||
Amortisation of intangible assets | (14 | ) | (8 | ) | (8 | ) | (38 | ) | (19 | ) | (8 | ) | ||||||||||||||||
Operating expenses | (929 | ) | (673 | ) | (550 | ) | (1,113 | ) | (960 | ) | (673 | ) | ||||||||||||||||
Share of post-tax results of associates and joint ventures | – | – | (1 | ) | 4 | – | – | |||||||||||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | – | 8 | – | 157 | – | 8 | ||||||||||||||||||||||
Gain on acquisition | 52 | – | – | 26 | 52 | – | ||||||||||||||||||||||
Profit before tax | 257 | 196 | 162 | 130 | 250 | 196 | ||||||||||||||||||||||
Balance sheet information | ||||||||||||||||||||||||||||
Loans and advances to customers | £ | 53.5bn | £ | 35.0bn | £ | 26.9bn | £ | 52.7bn | £ | 53.9bn | £ | 35.0bn | ||||||||||||||||
Customer accounts | £ | 15.3bn | £ | 9.4bn | £ | 6.8bn | £ | 23.4bn | £ | 15.6bn | £ | 9.4bn | ||||||||||||||||
Total assets | £ | 64.7bn | £ | 43.7bn | £ | 33.5bn | £ | 64.2bn | £ | 65.5bn | £ | 43.7bn | ||||||||||||||||
Risk weighted assets | £ | 32.4bn | £ | 37.0bn | £ | 25.0bn | ||||||||||||||||||||||
Performance ratios | ||||||||||||||||||||||||||||
Cost: income ratio | 65% | 72% | 73% | 65% | 66% | 72% | ||||||||||||||||||||||
Other financial measures | ||||||||||||||||||||||||||||
Risk Tendency | £ | 270m | £ | 135m | £ | 90m | ||||||||||||||||||||||
Risk weighted assetsa | £ | 36.5bn | £ | 25.0bn | £ | 17.6bn | ||||||||||||||||||||||
Cost: net income ratio | 105% | 83% | 78% |
Note
a |
|
Financial review
Analysis of results by business
continued
Global Retail and Commercial Banking
Emerging Markets
GRCB – Emerging Markets comprises our retail and commercial banking operations, as well as our Barclaycard businesses, in 14 countries across Africa, the Middle East and South East Asia.
What we do
GRCB – Emerging Markets serves retail and commercial banking customers in Botswana, Egypt, Ghana, India, Kenya, Mauritius, Pakistan, Russia, Seychelles, Tanzania, Uganda, the UAE, Zambia, Indonesia and Zimbabwe.
Through a network of more than 830683 distribution points and 1,4401,023 ATMs, we provide 4.2m3.7m customers and clients with a full range of products and services. This includes current accounts, savings, investments, mortgages and secured and unsecured lending.
Performance
2009/08
Global Retail and Commercial Banking – Emerging Markets made a loss before tax of £254m in 2009 versus a profit before tax of £141m in 2008. Good income growth across Emerging Markets was offset by significantly increased impairment in India and UAE and continued investment across
Performancenew and existing markets. Profit before tax in the established markets in Africa and the Indian Ocean decreased to £109m (2008: £182m) primarily due to the allocation of gains from the Visa IPO and sale of shares in MasterCard during 2008.
Income increased 5% to £1,045m (2008: £994m) driven by strong growth in UAE, Africa and the Indian Ocean, partially offset by lower income in India.
Net interest income increased 24% (£146m) to £743m (2008: £597m), driven by retail and commercial balance sheet growth with average customer assets up 19% to £8.3bn (2008: £7.0bn) and customer deposits up 11% to £8.2bn (2008: £7.4bn).
Net fee and commission income increased 7% (£15m) to £232m (2008:£217m) primarily driven by growth in retail fee income.
Principal transactions decreased £111m to £68m (2008: £179m). 2008 included a gain of £82m from the sale of shares in MasterCard and Visa. Excluding this gain, principal transactions decreased £29m driven by lower fees from foreign exchange income transactions.
Impairment charges increased to £471m (2008: £165m) including an increase of £255m across India and UAE due to the deterioration in the credit environment in 2009 reflecting the impact of the economic recession
40 |
across the business with continued pressure on liquidity, rising default rates and lower asset values.
Operating expenses increased 24% (£164m) to £852m (2008: £688m) reflecting continued investment in Indonesia and Pakistan and investment in infrastructure across other markets.
Profit on disposal of subsidiaries, associates and joint ventures of £24m represented the sale of a 7% stake in the GRCB – Emerging Markets Botswana business. The residual holding of Barclays in Barclays Bank of Botswana Limited following the sale is 68%.
2008/07
GRCB – Emerging Markets profit before tax increased 34%41% (£34m)41m) to £134m£141m (2007: £100m). Very strong income growth, including £82m from the Visa IPO and the sale of shares in MasterCard, absorbed the increased investment across existing and new markets and higher impairment charges. The number of distribution points increased 286250 to 836800 (2007: 550). New market entries in 2008 comprised the acquisition of Expobank in Russia, the launch of a new business in Pakistan and the announced acquisition of Bank Akita in Indonesia.Indonesia which was completed in 2009.
Income increased 91%86% (£486m)461m) to £1,019m£994m (2007: £533m), reflecting growth in lending, deposit taking and fee-driven transactional revenues.
Net interest income increased 93%87% (£297m)278m) to £616m£597m (2007: £319m), loans and advances to customers increased 98%90% to £10.1bn£9.7bn (2007: £5.1bn). Customer accounts increased 55%50% to £9.6bn£9.3bn (2007: £6.2bn).
| ||
Key facts
| ||||||
2008 | 2007 | 2006 | ||||
Number of distribution points | 836 | 550 | 214 |
Net fee and commission income increased 59%55% (£83m)77m) to £223m£217m (2007: £140m), primarily driven by very strong growth in commercial banking and treasury fee income.
Principal transactions increased £97m£107m to £169m£179m (2007: £72m), reflecting higher foreign exchange income, a gain of £68m£82m relating to the Visa IPO and a gain of £14m from the sale of shares in MasterCard.
Impairment charges increased £127m£126m to £166m£165m (2007: £39m), reflecting higher assets and delinquencies, particularly in India and increased wholesale impairment in Africa.
Operating expenses increased 82%74% (£324m)293m) to £719m£688m (2007: £395m), reflecting continued investment in new markets and expansion of the business in existing markets, with investment in infrastructure and the roll-out of global platforms.
2007/06
GRCB – Emerging Markets profit before tax decreased 74% to £100m (2006: £384m). The performance in 2006 reflected the sale of First Carribean International Bank which resulted in a profit of £247m in December 2006. In addition, profits of £41m were generated by the First Carribean business up to date of sale. Excluding First Carribean, the performance reflected very strong income growth driven by a rapid growth
in distribution points to 550 (2006: 214), as well as the launch of new businesses in India and UAE.
Income increased 35% (£137m) to £533m (2006: £396m) driven by new business in India and UAE and excellent performances in Egypt, Kenya and Ghana.
Net interest income increased 30% (£73m) to £319m (2006: £246m). Total customer loans increased 89% (£2.4bn) to £5.1bn (2006: £2.7bn) with lending margins improving with changing product mix. Customer deposits increased 47% (£2.0bn) to £6.2bn (2006: £4.2bn), driven by growth across the markets.
Net fee and commission income declined marginally (£1m) to £140m (2006: £141m).
Principal transactions increased £68m to £72m (2006: £4m), reflecting gains on equity investments and higher foreign exchange income across markets.
Impairment charges rose 30% (£9m) to £39m (2006: £30m). The increase reflected very strong balance sheet growth in 2006 and 2007.
Operating expenses grew 46% (£125m) to £395m (2006: £270m), driven by the rapid expansion of the distribution network across all markets and investment in people and infrastructure to support future growth across the franchise.
GRCB – Emerging Markets
2008 £m | 2007 £m | 2006 £m | 2009 £m | 2008a £m | 2007a £m | |||||||||||||||||||||||
Income statement information | ||||||||||||||||||||||||||||
Net interest income | 616 | 319 | 246 | 743 | 597 | 319 | ||||||||||||||||||||||
Net fee and commission income | 223 | 140 | 141 | 232 | 217 | 140 | ||||||||||||||||||||||
Net trading income | 78 | 56 | 3 | 61 | 88 | 56 | ||||||||||||||||||||||
Net investment income | 91 | 16 | 1 | 7 | 91 | 16 | ||||||||||||||||||||||
Principal transactions | 169 | 72 | 4 | 68 | 179 | 72 | ||||||||||||||||||||||
Net premiums from insurance contracts | – | – | 1 | |||||||||||||||||||||||||
Other income | 11 | 2 | 4 | 2 | 1 | 2 | ||||||||||||||||||||||
Total income | 1,019 | 533 | 396 | 1,045 | 994 | 533 | ||||||||||||||||||||||
Impairment charges | (166 | ) | (39 | ) | (30 | ) | (471 | ) | (165 | ) | (39 | ) | ||||||||||||||||
Net income | 853 | 494 | 366 | 574 | 829 | 494 | ||||||||||||||||||||||
Operating expenses excluding amortisation of intangible assets | (711 | ) | (391 | ) | (269 | ) | (846 | ) | (685 | ) | (391 | ) | ||||||||||||||||
Amortisation of intangible assets | (8 | ) | (4 | ) | (1 | ) | (6 | ) | (3 | ) | (4 | ) | ||||||||||||||||
Operating expenses | (719 | ) | (395 | ) | (270 | ) | (852 | ) | (688 | ) | (395 | ) | ||||||||||||||||
Share of post-tax results of associates and joint ventures | – | 1 | 41 | – | – | 1 | ||||||||||||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | – | – | 247 | 24 | – | – | ||||||||||||||||||||||
Profit before tax | 134 | 100 | 384 | (254 | ) | 141 | 100 | |||||||||||||||||||||
Balance sheet information | ||||||||||||||||||||||||||||
Loans and advances to customers | £ | 10.1bn | £ | 5.1bn | £ | 2.7bn | £ | 7.3bn | £ | 9.7bn | £ | 5.1bn | ||||||||||||||||
Customer accounts | £ | 9.6bn | £ | 6.2bn | £ | 4.2bn | £ | 8.5bn | £ | 9.3bn | £ | 6.2bn | ||||||||||||||||
Total assets | £ | 14.7bn | £ | 9.2bn | £ | 5.2bn | £ | 11.9bn | £ | 13.9bn | £ | 9.2bn | ||||||||||||||||
Risk weighted assets | £ | 12.4bn | £ | 14.6bn | £ | 10.5bn | ||||||||||||||||||||||
Performance ratios | ||||||||||||||||||||||||||||
Cost: income ratio | 71% | 74% | 68% | 82% | 69% | 74% | ||||||||||||||||||||||
Other financial measures | ||||||||||||||||||||||||||||
Risk Tendency | £ | 350m | £ | 140m | £ | 35m | ||||||||||||||||||||||
Risk weighted assetsa | £ | 15.1bn | £ | 10.5bn | £ | 3.3bn | ||||||||||||||||||||||
Cost: net income ratio | 148% | 83% | 80% |
Note
Figures have been restated to exclude Barclays Russia, which was transferred from GRCB – Emerging Markets to GRCB – Western Europe during 2009. |
|
Financial review
Analysis of results by business
continued
Global Retail and Commercial Banking
Absa
GRCB – Absa comprises three operating divisions: Retail Banking, Commercial Banking and a Bancassurance division. The Absa Group’s other businesses are Absa Capital, Absa Card and Absa Card,Wealth, which are included in Barclays Capital, Barclaycard and BarclaycardBarclays Wealth respectively.
What we do
GRCB – Absa forms part of Absa Group Limited, one of South Africa’s largest financial services groups, listed on the Johannesburg Stock Exchange Limited. GRCB – Absa offers a complete range of banking products and services, including current accounts, savings products, bancassurance, mortgages, instalment finance and wealth management. It also offers customised business solutions for commercial and large corporate customers.
Absa’s business is conducted primarily in South Africa. In addition to this, the Group has equity holdings in banks in Mozambique Angola and Tanzania.
Absa serves more than 10m11 million customers through a range of physical channels that include 1,1771,062 distribution points and 8,7198,560 ATMs, as well as electronic channels such as telephone and online banking.
Performance
2008/072009/08
GlobalProfit before tax decreased 8% (£46m) to £506m (2008: £552m) owing to challenging market conditions. Modest Rand income growth and tight cost control were offset by increased impairment.
Income increased 16% (£351m) to £2,549m (2008: £2,198m) predominantly reflecting the impact of exchange rate movements.
Net interest income improved 18% (£196m) to £1,300m (2008: £1,104m) reflecting the appreciation in the average value of the Rand against Sterling and modest balance sheet growth. Average customer assets increased 17% to £32.5bn (2008: £27.7bn) driven by appreciation of the Rand against Sterling and modest growth in loans and advances. Retail and Commercial Banking – Absacommercial mortgages remained relatively flat in 2009 while instalment finance showed a slight decline with the run-off outweighing new sales. Average customer deposits increased 29% to £17.4bn (2008: £13.5bn), primarily driven by the appreciation of the Rand and the increase in the number of customers. Retail and commercial deposits increased 3.9% and 4.6% respectively.
Net fee and commission increased 24% (£181m) to £943m (2008: £762m), reflecting pricing increases, volume growth and the impact of exchange rate movements.
Principal transactions increased £12m to £123m (2008: £111m) reflecting the impact of exchange rate movements and gains of £17m from the sale of shares in MasterCard, slightly offset by lower gains on economic hedges.
Net premiums from insurance contracts increased 26% (£60m) to £294m (2008: £234m) reflecting volume growth in short-term insurance contracts and the impact of exchange rate movements.
Other income decreased £53m to £60m (2008: £113m) reflecting the non-recurrence of the gain of £46m recorded on the Visa IPO in 2008.
Impairment charges increased £220m to £567m (2008: £347m) due to high delinquency levels in the retail portfolios as a result of continued consumer indebtedness, despite the decline in interest and inflation rates during the first half of the year. There was a slight improvement in impairment ratios in the second half of 2009.
Operating expenses increased 13% (£164m) to £1,469m (2008: £1,305m) reflecting the impact of exchange rate movements. Costs were tightly controlled in Rand.
42 |
2008/07
GRCB – Absa profit before tax decreased 8% (£45m) to £552m (2007: £597m), owing to challenging market conditions and the 7% depreciation in the average value of the Rand against Sterling. Profit before tax included a gain of £47m£46m relating to the Visa IPO. Very strong Rand income growth was partially offset by increased impairment and investment in the expansion of the franchise by 176 distribution points to 1,177 (2007: 1,001).
Total income increased 10% (£211m) to £2,324m (2007: £2,113m).
Net interest income improved 5% (£49m) to £1,104m (2007: £1,055m) reflecting strong balance sheet growth. Average customer assets increased 9% to £27.7bn (2007: £25.3bn), primarily driven by retail and commercial mortgages and commercial cheque accounts. Average customer liabilities increased 17% to £13.5bn (2007: £11.5bn), primarily driven by retail savings.
Net fee and commission income increased 11% (£78m) to £762m (2007: £684m), underpinned by retail transaction volume growth.
|
|
Key facts
| ||||||
2008 | 2007 | 2006 | ||||
Number of ATMs | 8,719 | 8,162 | 7,411 | |||
Number of corporate customers | 107,000 | 100,000 | 84,000 |
Principal transactions increased £41m to £111m (2007: £70m) reflecting gains on economic hedges relating to the commercial property finance and liquid asset portfolios.
Other income increased £36m to £113m (2007: £77m), reflecting a gain of £47m£46m from the Visa IPO.
Impairment charges increased £201m to £347m (2007: £146m) as a result of rising delinquency levels in the retail portfolios, which have been impacted by rising interest and inflation rates and increasing consumer indebtedness.
Operating expenses increased 3% (£38m) to £1,305m (2007: £1,267m). The cost:income ratio improved from 63% to 59%.
2007/06
Global Retail and Commercial Banking – Absa
GRCB – Absa profit before tax decreased 2% (£12m) to £597m (2006: £609m) mainly owing to the weaker currency. The impact of the weaker currency was offset by very good performances from Retail Banking and Absa Corporate and Business Bank. Key factors impacting the results included: very strong asset and income growth; the diversification of earnings in favour of investment banking and commercial banking; an increased retail credit impairment charge, and the achievement of the Absa – Barclays synergy target 18 months ahead of schedule.
Income decreased 2% (£32m) to £1,999m (2006: £2,031m).
Net interest income increased by 7% (£72m) to £1,055m (2006: £983m), driven by growth in loans and advances and deposits at improved margins. Loans and advances to customers increased 27% from 31st December 2006 mainly driven by growth of 23% in mortgages.
Net fee and commission income decreased by 9% (£70m) to £684m (2006: £754m) mainly owing to the weaker currency. The increase in local currency reflects a growth of 3% underpinned by increased transaction volumes in Retail Banking and Absa Corporate and Business Bank.
Principal transactions decreased £36m to £70m (2006: £106m) reflecting losses on economic hedges relating to the commercial property finance and liquid asset portfolios.
Other income increased £23m to £77m (2006: £54m).
Impairment charges increased £34m to £146m (2006: £112m) from the cyclically low levels of recent years, Arrears in retail portfolios increased driven by interest rate increases in 2006 and 2007. Impairment charges as a percentage of loans and advances to customers was 0.49%, ahead of the 0.48% charge in 2006 but within long-term industry averages.
Operating expenses decreased 4% (£52m) to £1,267m (2006: £1,319m), resulting from the realisation of synergy benefits of R1,428m (£100m) thus achieving the synergy target of R1.4bn 18 months ahead of schedule. This was partially offset by the increased investment in new distribution outlets and staff in order to support continued growth in volumes and customers.
GRCB – Absa
| ||||||||||||||||
2008 £m | 2007 £m | 2006 £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 1,104 | 1,055 | 983 | |||||||||||||
Net fee and commission income | 762 | 684 | 754 | |||||||||||||
Net trading income/(expense) | 6 | – | (11 | ) | ||||||||||||
Net investment income | 105 | 70 | 117 | |||||||||||||
Principal transactions | 111 | 70 | 106 | |||||||||||||
Net premiums from insurance contracts | 234 | 227 | 240 | |||||||||||||
Other income | 113 | 77 | 54 | |||||||||||||
Total income | 2,324 | 2,113 | 2,137 | |||||||||||||
Net claims and benefits incurred under insurance contracts | (126 | ) | (114 | ) | (106 | ) | ||||||||||
Total income net of insurance claims | 2,198 | 1,999 | 2,031 | |||||||||||||
Impairment charges | (347 | ) | (146 | ) | (112 | ) | ||||||||||
Net income | 1,851 | 1,853 | 1,919 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (1,255 | ) | (1,212 | ) | (1,250 | ) | ||||||||||
Amortisation of intangible assets | (50 | ) | (55 | ) | (69 | ) | ||||||||||
Operating expenses | (1,305 | ) | (1,267 | ) | (1,319 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | 5 | 6 | 9 | |||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | 1 | 5 | – | |||||||||||||
Profit before tax | 552 | 597 | 609 | |||||||||||||
Balance sheet information | ||||||||||||||||
Loans and advances to customers | £ | 32.7bn | £ | 29.9bn | £ | 23.5bn | ||||||||||
Customer accounts | £ | 17.0bn | £ | 13.0bn | £ | 10.9bn | ||||||||||
Total assets | £ | 40.4bn | £ | 36.4bn | £ | 29.6bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost:income ratio | 59% | 63% | 65% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk Tendency | £ | 255m | £ | 190m | £ | 130m | ||||||||||
Risk weighted assetsa | £ | 18.8bn | £ | 17.8bn | £ | 19.8bn |
Income statement information Net interest income Net fee and commission income Net trading income/(expense) Net investment income Principal transactions Net premiums from insurance contracts Other income Total income Net claims and benefits incurred under insurance contracts Total income net of insurance claims Impairment charges Net income Operating expenses excluding amortisation of intangible assets Amortisation of intangible assets Operating expenses Share of post-tax results of associates and joint ventures Profit on disposal of subsidiaries, associates and joint ventures Profit before tax Balance sheet information Loans and advances to customers Customer accounts Total assets Risk weighted assets Performance ratios Cost:income ratio Cost:net income ratioNoteGRCB – Absa 2009
£m 2008
£m 2007
£m 1,300 1,104 1,055 943 762 684 (5) 6 – 128 105 70 123 111 70 294 234 227 60 113 77 2,720 2,324 2,113 (171) (126) (114) 2,549 2,198 1,999 (567) (347) (146) 1,982 1,851 1,853 (1,418) (1,255) (1,212) (51) (50) (55) (1,469) (1,305) (1,267) (4) 5 6 (3) 1 5 506 552 597 £ 36.4bn £ 32.7bn £ 29.9bn £ 19.7bn £ 17.0bn £ 13.0bn £ 45.8bn £ 40.4bn £ 36.4bn £ 21.4bn £ 18.8bn £ 17.8bn 58% 59% 63% 74% 71% 68%
|
Financial review
Analysis of results by business
continued
Investment Banking and Investment Management
Barclays Capital
Barclays Capital is a leading global investment bank providing large corporate, government and institutional clients with a full spectrum of solutions to their strategic advisory, financing and risk management needs.
What we do
Barclays Capital is a global investment bank, which offers clients the full range of services covering strategic advisory and M&A; equity and fixed income capital raising and corporate lending; and risk management across foreign exchange, interest rates, equities and commodities.
Activities are organised into three principal areas: Global Markets, which includes commodities, credit products, equities, foreign exchange, interest rate products; Investment Banking, which includes corporate advisory, Mergers and Acquisitions, equity and fixed-income capital raising and corporate lending; and Private Equity and Principal Investments. Barclays Capital includes Absa Capital, the investment banking business of Absa.
Barclays Capital works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities.
Performance
2009/08
Barclays Capital profit before tax increased 89% to £2,464m (2008: £1,302m). The substantial increase in income and profit reflected very strong performances in the UK and Europe, and a transformation in the scale and service offering in the US through the integration of the Lehman Brothers North American businesses acquired in September 2008. Profit before tax was struck after credit market writedowns of £6,086m (2008: £8,053m), including £4,417m credit market losses (2008: £6,290m) and £1,669m of impairment (2008: £1,763m). The loss on own credit was £1,820m (2008: £1,663m gain). For more information on credit market losses, see page 82 and for more information on own credit losses, see Note 24 to the financial statements.
Income of £11,625m was up 122% (2008: £5,231m), reflecting excellent growth across the client franchise. Top-line incomea increased 81% to £17,862m (2008: £9,858m). Top-line income in Fixed Income, Currency and Commodities increased 76% and drove the strong increase in trading income following the expansion of the business and the associated increase in client flows. Top-line income in Equities and Prime Services increased 147% driven by the acquisition of the Lehman Brothers North American businesses with particularly strong performances in cash equities and equity derivatives.
Investment Banking, which comprises advisory businesses and equity and debt underwriting, more than doubled to £2,195m (2008: £1,053m) driven by origination and advisory activity. The cash equity business, along with Investment Banking, drove a significant rise in fee and commission income.
Losses in Principal Investments of £143m (2008: income of £299m) contributed to the overall net investment loss of £164m (2008: income of £559m).
Impairment charges of £2,591m (2008: £2,423m) included credit market impairment of £1,669m (2008: £1,763m) as discussed on page 81. Non credit market related impairment of £922m (2008: £660m) principally related to charges in the portfolio management, global loans and principal investment businesses. Impairment charges declined significantly in the second half of 2009.
Operating expenses increased 75% to £6,592m (2008: £3,774m), reflecting the inclusion of the acquired Lehman business. Compensation costs represented 38% of income, a reduction of 6 percentage points on the prior year.
2008/07
In an exceptionally challenging market environment in 2008, Barclays Capital profit before tax decreased 44% (£1,033m) to £1,302m (2007: £2,335m). Profit before tax included a gain on the acquisition of Lehman Brothers North American businesses of £2,262m. Absa Capital profit before tax grew 13% to £175m (2007: £155m).
Net income included gross losses of £8,053m (2007: £2,999m) due to continuing dislocation in the credit markets. These losses were partially offset by income and hedges of £1,433m (2007: £706m), and gains of £1,663m (2007: £658m) from the general widening of credit spreads on structured notes issued by Barclays Capital. The gross losses, comprised £6,290m (2007: £2,217m) against income and £1,763m (2007: £782m) in impairment charges. Further detail is provided on page 94.
The integration of the Lehman Brothers North American businesses is completewas completed in the fourth quarter of 2008 and the acquired businesses made a positive contribution in the period following completion, with
good results in equities, fixed income and advisory. There was a gain on acquisition of £2,262m. Not included in this gain is expenditure relating to integration of the acquired business.
Analysis of Total Income | |||||||||
Year ended 31st December | |||||||||
2009 £m | 2008 £m | 2007 £m | |||||||
Fixed Income, Currency and Commodities | 12,964 | 7,353 | 5,722 | ||||||
Equities and Prime Services | 2,846 | 1,153 | 1,631 | ||||||
Investment Banking | 2,195 | 1,053 | 921 | ||||||
Principal Investments | (143 | ) | 299 | 404 | |||||
Top-line incomea | 17,862 | 9,858 | 8,678 | ||||||
Credit market losses in income | (4,417 | ) | (6,290 | ) | (2,217 | ) | |||
Own credit | (1,820 | ) | 1,663 | 658 | |||||
Total Income | 11,625 | 5,231 | 7,119 |
Note
a | Top-line income is a non-IFRS measure that represents income before own credit gains/losses and credit market write-downs. This measure has been presented as it provides for a consistent basis for comparing the business’ performance between financial periods. For a reconciliation of top-line income to total income for Barclays Capital, see the “Analysis of Total Income” table on this page. |
44 |
Income was down 27% at £5,231m (2007: £7,119m) driven by the impact of the market dislocation. There was very strong underlying growth in the US driven by fixed income, prime services and the acquired businesses. In other regions income fell driven by the challenging environment.
Net trading income decreased 60% (£2,233m) to £1,506m (2007: £3,739m) reflecting losses from the credit market dislocation and weaker performance in credit products and equities. This was partially offset by significant growth in interest rates, foreign exchange, emerging markets and prime services. Average DVaR at 95% increased by 64% to £53.4m driven by higher credit spread and interest rate risk.
Net investment income decreased 41% (£394m) to £559m reflecting the market conditions. Net interest income increased 46% (£545m) to £1,724m (2007: £1,179m), driven by strong results in global loans and money markets. Net fee and commission income from advisory and origination activities increased 16% (£194m) to £1,429m. The corporate lending portfolio, including leveraged finance, increased 46% to £76.6bn (31st December 2007: £52.3bn) driven by the decline in the value of Sterling relative to other currencies as well as draw downs on existing
loan facilities and the extension of new loans at current terms to financial and manufacturing institutions.
Impairment charges and other credit provisions of £2,423m (2007: £846m) included £1,763m (2007: £782m) due to the credit market dislocation. Other impairment charges of £660m (2007: £64m) principally related to private equity, prime services and the loan book.
Operating expenses fell 5% (£199m) to £3,774m (2007: £3,973m) due to lower performance related pay, partially offset by operating costs of the acquired businesses. The cost:income ratio increased to 72% (2007: 56%) and the compensation cost:income ratio increased to 44% (2007: 42%). Amortisation of intangible assets increased £38m to £92m (2007: £54m).
Total headcount increased 6,900 to 23,100 (31st December 2007: 16,200). Prior to the acquisition of Lehman Brothers North American businesses, headcount during 2008 was materially unchanged except for hiring associated with the annual global graduate programme. The acquisition initially added 10,000 to the headcount but there were reductions in the fourth quarter of 2008 as the US businesses were integrated.
|
Key facts
| ||||||
League table rankings | 2008 | 2007 | 2006 | |||
Rankings: | ||||||
Global All Bonds | 1 | 2 | 1 | |||
US Investment Grade | 3 | 10 | 7 | |||
US Government Securities Survey | 1 | 1 | 8 | |||
Foreign Exchange Survey | 3 | 5 | 4 | |||
US M&A | 4 | – | – |
2009 £m | 2008 £m | 2007 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | 1,598 | 1,724 | 1,179 | |||||||||
Net fee and commission income | 3,001 | 1,429 | 1,235 | |||||||||
Net trading income | 7,185 | 1,506 | 3,739 | |||||||||
Net investment (loss)/income | (164 | ) | 559 | 953 | ||||||||
Principal transactions | 7,021 | 2,065 | 4,692 | |||||||||
Other income | 5 | 13 | 13 | |||||||||
Total income | 11,625 | 5,231 | 7,119 | |||||||||
Impairment charges and other credit provisions | (2,591 | ) | (2,423 | ) | (846 | ) | ||||||
Net income | 9,034 | 2,808 | 6,273 | |||||||||
Operating expenses excluding amortisation of intangible assets | (6,406 | ) | (3,682 | ) | (3,919 | ) | ||||||
Amortisation of intangible assets | (186 | ) | (92 | ) | (54 | ) | ||||||
Operating expenses | (6,592 | ) | (3,774 | ) | (3,973 | ) | ||||||
Share of post-tax results of associates and joint ventures | 22 | 6 | 35 | |||||||||
Gain on acquisition | – | 2,262 | – | |||||||||
Profit before tax | 2,464 | 1,302 | 2,335 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised cost | £ | 162.6bn | £ | 206.8bn | £ | 135.6bn | ||||||
Total assets | £ | 1,019.1bn | £ | 1,629.1bn | £ | 839.9bn | ||||||
Risk weighted assets | £ | 181.1bn | £ | 227.4bn | £ | 178.2bn | ||||||
Performance ratios | ||||||||||||
Cost: income ratio | 57% | 72% | 56% | |||||||||
Cost: net income ratio | 73% | 134% | 63% | |||||||||
Compensation:income ratio | 38% | 44% | 42% | |||||||||
Average total income per employee (‘000) | £ | 515 | £ | 281 | £ | 465 | ||||||
Other financial measures | ||||||||||||
Average DVaR (95%)a | £ | 77.0m | £ | 53.4m | £ | 32.5m |
2007/06
Barclays Capital delivered profits ahead of the record results achieved in 2006 despite challenging trading conditions in the second half of the year. Profit before tax increased 5% (£119m) to £2,335m (2006: £2,216m). There was strong income growth across the Rates businesses and excellent results in Continental Europe, Asia and Africa demonstrating the breadth of the client franchise. Net income was slightly ahead at £6,273m (2006: £6,225m) and costs were tightly managed, declining slightly year on year. Absa Capital delivered very strong growth in profit before tax to £155m (2006: £71m).
The US sub-prime driven market dislocation affected performance in the second half of 2007. Exposures relating to US sub-prime were actively managed and declined over the period. Barclays Capital’s 2007 results reflected gross losses of £2,999m (2006: £nil) due to the dislocation of credit markets. These losses were partially offset by income and hedges of £706m (2006: £nil) and gains of £658m (2006: £nil) from the general widening of credit spreads on structured notes issued by Barclays Capital. The gross losses comprised £2,217m (2006: £nil) against income and £782m (2006: £nil) in impairment charges.
Income increased 14% (£852m) to £7,119m (2006: £6,267m) as a result of very strong growth in interest rate, currency, equity, commodity and emerging market asset classes. There was excellent income growth in continental Europe, Asia, and Africa. Average DVaR increased 13% to £42m (2006: £37.1m) in line with income.
Secondary income, comprising principal transactions (net trading income and net investment income), is mainly generated from providing client financing and risk management solutions. Secondary income increased 11% (£578m) to £5,871m (2006: £5,293m).
Net trading income increased 5% (£177m) to £3,739m (2006: £3,562m) with strong contributions from fixed income, commodities, equities, foreign exchange and prime services businesses. These were largely offset by net losses in the business affected by sub-prime
mortgage related write-downs. The general widening of credit spreads that occurred over the course of the second half of 2007 also reduced the carrying value of the £40.7bn of structured notes issued by Barclays Capital held at fair value on the balance sheet, resulting in gains of £658m (2006: £nil). Net investment income increased 66% (£380m) to £953m (2006: £573m) as a result of a number of private equity realisations, investment disposals in Asia and structured capital markets transactions. Net interest income increased 2% (£21m) to £1,179m (2006: £1,158m), driven by higher contributions from money markets. The corporate lending portfolio increased 29% to £52.3bn (2006: £40.6bn), largely due to an increase in drawn leveraged finance positions and a rise in drawn corporate loan balances.
Primary income, which comprises net fee and commission income from advisory and origination activities, grew 30% (£283m) to £1,235m (2006: £952m), with good contributions from bonds and loans.
Impairment charges and other credit provisions of £846m included £722m against ABS CDO Super Senior exposures, £60m from other credit market exposures and £58m relating to drawn leveraged finance underwriting positions. Other impairment charges on loans and advances amounted to a release of £7m (2006: £44m release) before impairment charges on available for sale assets of £13m (2006: £86m).
Operating expenses decreased 1% (£36m) to £3,973m (2006: £4,009m). Performance related pay, discretionary investment spend and short term contractor resources represented 42% (2006: 50%) of the cost base. Amortisation of intangible assets of £54m (2006: £13m) principally related to mortgage service rights.
Total headcount increased 3,000 during 2007 to 16,200 (2006: 13,200) including 800 from the acquisition of EquiFirst. The majority of organic growth was in Asia Pacific.
Barclays Capital
| ||||||||||||||||
2008 £m | 2007 £m | 2006 £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 1,724 | 1,179 | 1,158 | |||||||||||||
Net fee and commission income | 1,429 | 1,235 | 952 | |||||||||||||
Net trading income | 1,506 | 3,739 | 3,562 | |||||||||||||
Net investment income | 559 | 953 | 573 | |||||||||||||
Principal transactions | 2,065 | 4,692 | 4,135 | |||||||||||||
Other income | 13 | 13 | 22 | |||||||||||||
Total income | 5,231 | 7,119 | 6,267 | |||||||||||||
Impairment charges and other credit provisions | (2,423 | ) | (846 | ) | (42 | ) | ||||||||||
Net income | 2,808 | 6,273 | 6,225 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (3,682 | ) | (3,919 | ) | (3,996 | ) | ||||||||||
Amortisation of intangible assets | (92 | ) | (54 | ) | (13 | ) | ||||||||||
Operating expenses | (3,774 | ) | (3,973 | ) | (4,009 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | 6 | 35 | – | |||||||||||||
Gain on acquisition | 2,262 | – | – | |||||||||||||
Profit before tax | 1,302 | 2,335 | 2,216 | |||||||||||||
Balance sheet information | ||||||||||||||||
Total assets | £ | 1,629.1bn | £ | 839.9bn | £ | 657.9bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost:income ratio | 72% | 56% | 64% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk Tendency | £ | 415m | £ | 140m | £ | 95m | ||||||||||
Risk weighted assetsa | £ | 227.4bn | £ | 178.2bn | £ | 137.6bn | ||||||||||
Average DVaR (95%)b | £ | 53.4m | £ | 32.5m | £ | 37.1m |
NotesNote
a |
|
Financial review
Analysis of results by business
continued
Investment Banking and
Investment Management
Barclays Global Investors
Barclays Global Investors (BGI) was sold to BlackRock, Inc. (BlackRock) on 1st December 2009. As a result of the transaction we retain a 19.9% economic interest in the enlarged BlackRock Group.
Performancea
2009/08
Barclays Global Investors (BGI) is onetotal profit before tax increased £6,484m to £7,079m (2008: £595m), including the profit arising from the sale of Barclays Global Investors to BlackRock. Consideration of £9,501m included 37.567 million new BlackRock shares valued at £5,294m as at 1st December 2009.
The profit on disposal before tax was £6,331m after deducting amounts relating to non-controlling interests, transaction costs and a break fee relating to the termination of CVC Capital Partners’ proposed purchase of the world’s largest asset managersiShares business. Further information on the disposal is set out below. For more information on the sale of BGI and Barclays on-going relationship with BlackRock, see Note 38 to the financial statements.
Profit before tax excluding the profit on disposal increased 26% to £748m (2008: £595m) reflecting a leading global providerrecovery on liquidity support of investment management products and services. We are the global leader in assets and products in the exchange traded funds business, with 360 funds for institutions and individuals trading globally. BGI’s investment philosophy is founded on managing all dimensions of performance: a consistent focus on controlling risk, return and cost.
With a 3,000-plus strong workforce, we currently have over £1trn in assets under management, for 3,000 clients around the world.
What we do
BGI offers structured investment strategies such as indexing, global asset allocation and risk controlled active products including hedge funds and provides related investment services such as securities lending, cash management and portfolio transition services.£25m
during 2009 (2008: charge of £263m) and an 18% appreciation in the average value of the US Dollar against Sterling. The 2009 results included 11 months of discontinued operations compared to 12 months for 2008. Total income grew 3% (£59m) to £1,903m (2008: £1,844m).
Net fee and commission income declined 8% (£160m) to £1,757m (2008: £1,917m) largely reflecting 11 months’ activity in the year.
Principal transactions increased £141m to a gain of £98m (2008: £43m loss) driven by sales of assets excluded from the disposal to BlackRock.
Operating expenses decreased 8% (£95m) to £1,154m (2008: £1,249m), benefiting from a recovery on liquidity support of £24m during 2009 (2008: charge of £263m), partially offset by exchange rate movements.
The continuing operations of BGI collaboratesrepresent residual obligations under the cash support arrangements and associated liquidity support charges and, from 1st December 2009, included the Group’s 19.9% ongoing interest in BlackRock. This investment is accounted for as an available for sale equity investment, with no dividends being received during 2009. Profit before tax on continuing operations for 2009 increased by £368m to £22m (2008: £346m loss) primarily due to lower liquidity support charges.
Total assets as at 31st December 2009 reflect shares to the other Barclays businesses, particularly Barclays Capital and Barclays Wealth,value of £5,386m held in BlackRock, with assets from continuing operations as at 31st December 2008 representing residual assets excluded from the disposal to develop and market products and leverage capabilities to better serve the client base.BlackRock.
Profit on disposal information | As at 1st December 2009 £m | |
Consideration including hedging gains | ||
– Cash | 4,207 | |
– BlackRock shares | 5,294 | |
Total consideration | 9,501 | |
Net assets disposed | (2,051) | |
CVC fee | (106) | |
Transaction costs | (433) | |
Amounts relating to non-controlling interests | (580) | |
Profit on disposal before tax | 6,331 |
PerformanceNote
a | Certain BGI total information may be considered non-IFRS measures because they present BGI results that combine continuing operations and discontinuing operations. See “Certain non-IFRS Measures” on page i for more information with respect to including BGI results within Group totals. For a reconciliation of the results of the continuing operations in respect of BGI to total BGI results which include both discontinued and continuing operations, see table on page 46. |
46 |
2008/07
Barclays Global Investors profit before tax decreased 19% (£139m) to £595m (2007: £734m). Profit was impacted by the cost of provision of selective support of liquidity products of £263m (2007: £80m) and an 8% appreciation in the average value of the US Dollar against Sterling.
Income declined 4% (£82m) to £1,844m (2007: £1,926m).
Net fee and commission income declined 1% (£19m) to £1,917m (2007: £1,936m). This was primarily attributable to reduced incentive fees of £49m (2007: £198m), partially offset by increased securities lending revenue.
Operating expenses increased 5% (£57m) to £1,249m (2007: £1,192m). Operating expenses included charges of £263m (2007: £80m) related to selective support of liquidity products, partially offset by a reduction in performance related costs. The cost:income ratio increased to 68% (2007: 62%).
| ||
|
Key facts
2008 | 2007 | 2006 | ||||||||
Assets under management | ||||||||||
(£): | 1,040bn | 1,044bn | 927bn | |||||||
– indexed | 653bn | 615bn | 566bn | |||||||
– iShares | 226bn | 205bn | 147bn | |||||||
– active | 161bn | 224bn | 214bn | |||||||
Net new assets in period (£) | 61bn | 42bn | 37bn | |||||||
Assets under management | ||||||||||
(US$): | 1,495bn | 2,079bn | 1,814bn | |||||||
– indexed | 939bn | 1,225bn | 1,108bn | |||||||
– iShares | 325bn | 408bn | 287bn | |||||||
– active | 231bn | 446bn | 419bn | |||||||
Net new assets in period (US$) | 99bn | 86bn | 68bn | |||||||
Number of iShares products | 360 | 324 | 191 | |||||||
Number of institutional clients | 3,000 | 3,000 | 2,900 |
|
Total assets under management remained flat at £1,040bn (2007: £1,044bn) comprising £61bn of net new assets, £234bn of favourable exchange movements and £299bn of adverse market movements. In US Dollar terms assets under management decreased 28% (US$584bn) to US$1,495bn (2007: US$2,079bn), comprising US$99bn of net new assets, US$130bn of negative exchange rate movements and US$553bn of negative market movements.
2007/06
Barclays Global Investors delivered solid growth in profitThe loss before tax whichon continuing operations increased 3% (£20m) to £734m (2006: £714m). Very strong US Dollar income and strong profit growth was partially offset by£346m (2007: £119m) principally reflecting the 8% depreciation inliquidity support charge recognised during the average value of the US Dollar against Sterling.
Income grew 16% (£261m) to £1,926m (2006: £1,665m).
Net fee and commission income grew 17% (£285m) to £1,936m (2006: £1,651m). This was primarily attributable to increased management fees and securities lending. Incentive fees increased 6% (£12m) to £198m (2006: £186m). Higher asset values, driven by higher market levels and good net new inflows, contributed to the growth in income.
Operating expenses increased 25% (£241m) to £1,192m (2006: £951m) as a result of significant investment in key product and channel growth initiatives and in infrastructure as well as growth in the underlying business. Operating expenses included charges of £80m (2006: £nil) related to selective support of liquidity products managed in the US. The cost:income ratio rose five percentage points to 62% (2006: 57%).
Headcount increased 700 to 3,400 (2006: 2,700). Headcount increased in all geographical regions and across product groups and the support functions, reflecting continued investment to support further growth.
Total assets under management increased 13% (£117bn) to £1,044bn (2006: £927bn) comprising £42bn of net new assets, £12bn attributable to the acquisition of Indexchange Investment AG (Indexchange), £66bn of favourable market movements and £3bn of adverse exchange movements. In US Dollar terms assets under management increased 15% (US$265bn) to US$2,079bn (2006: US$1,814bn), comprising US$86bn of net new assets, US$23bn attributable to acquisition of Indexchange, US$127bn of favourable market movements and US$29bn of positive exchange rate movements.year.
Income statement information Net interest income/(expense) Net fee and commission income Net trading income/(loss) Net investment income/(loss) Principal transactions Other income Total income Operating expenses excluding amortisation of intangible assets Amortisation of intangible assets Operating expenses Profit on disposal of associates and joint ventures Profit/(loss) before tax and disposal of discontinued operations Profit on disposal of discontinued operations Profit/(loss) before tax Balance sheet information Total assets 2009 2008 2007 Continuing
operations
£m Discontinued
operations
£m Total
£m Continuing
operations
£m Discontinued
operations
£m Total £m Continuing
operations
£m Discontinued
operations
£m Total £m 10 33 43 (38 ) – (38 ) (20 ) 12 (8 ) (2 ) 1,759 1,757 1 1,916 1,917 (1 ) 1,937 1,936 20 1 21 (4 ) (10 ) (14 ) – 5 5 11 66 77 (29 ) – (29 ) (9 ) – (9 ) 31 67 98 (33 ) (10 ) (43 ) (9 ) 5 (4 ) 1 4 5 (2 ) 10 8 – 2 2 40 1,863 1,903 (72 ) 1,916 1,844 (30 ) 1,956 1,926 (17 ) (1,123 ) (1,140 ) (274 ) (960 ) (1,234 ) (89 ) (1,095 ) (1,184 ) – (14 ) (14 ) – (15 ) (15 ) – (8 ) (8 ) (17 ) (1,137 ) (1,154 ) (274 ) (975 ) (1,249 ) (89 ) (1,103 ) (1,192 ) (1 ) – (1 ) – – – – – – 22 726 748 (346 ) 941 595 (119 ) 853 734 – 6,331 6,331 – – – – – – 22 7,057 7,079 (346 ) 941 595 (119 ) 853 734 £ 5.4bn – £ 5.4bn £ 0.7bn £ 70.6bn £ 71.3bn £ 0.5bn £ 88.7bn £ 89.2bn
Barclays Global Investors
2008 £m | 2007 £m | 2006 £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest (expense)/income | (38 | ) | (8 | ) | 10 | |||||||||||
Net fee and commission income | 1,917 | 1,936 | 1,651 | |||||||||||||
Net trading income | (14 | ) | 5 | 2 | ||||||||||||
Net investment (expense)/income | (29 | ) | (9 | ) | 2 | |||||||||||
Principal transactions | (43 | ) | (4 | ) | 4 | |||||||||||
Other income | 8 | 2 | – | |||||||||||||
Total income | 1,844 | 1,926 | 1,665 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (1,234 | ) | (1,184 | ) | (946 | ) | ||||||||||
Amortisation of intangible assets | (15 | ) | (8 | ) | (5 | ) | ||||||||||
Operating expenses | (1,249 | ) | (1,192 | ) | (951 | ) | ||||||||||
Profit before tax | 595 | 734 | 714 | |||||||||||||
Balance sheet information | ||||||||||||||||
Total assets | £ | 71.3bn | £ | 89.2bn | £ | 80.5bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost:income ratio | 68% | 62% | 57% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk weighted assetsa | £ | 3.9bn | £ | 4.4bn | £ | 1.4bn |
Note
|
Financial review
Analysis of results by business
continued
Investment Banking and Investment Management
Barclays Wealth
Barclays Wealth focuses on high net worth, affluentprivate and intermediary clients worldwide. We are the UK’s leading wealth manager by client assets. We have 7,9007,400 staff in over 20 countries and havemanage total client assets of £145bn.£151bn. We have 101 offices in 25 countries across EMEA, Asia and the Americas following the acquisition of Lehman Brothers Private Investment Management in 2008.Americas.
What we do
Barclays Wealth provides international and private banking, fiduciary services, investment management, and brokerage.
We workBarclays Wealth works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities, for example, offering world-class investment solutions with institutional quality products and services from Barclays Capital and Barclays Global Investors.Commercial Bank.
Performance
2009/08
Barclays Wealth profit before tax reduced 78% (£526m) to £145m (2008: £671m). The reduction in profit was principally due to the sale of the closed life assurance business in 2008 (2008: profit before tax of £104m and profit on disposal of £326m). Results were also affected by the integration of Lehman Brothers North American businesses (Barclays Wealth Americas), which made a loss of £39m.
Total income net of insurance claims increased 1% (£9m) to £1,333m (2008: £1,324m). Excluding the impact of the sale of the closed life business and the integration of Barclays Wealth Americas, income grew 3% as growth in the client franchise and the product offering offset the impact of adverse economic conditions.
Net interest income increased 4% (£18m) to £504m (2008: £486m) reflecting growth in customer lending. Average lending grew 27% to £12.3bn (2008: £9.7bn). Average 2009 deposits were in line with the prior year (2008: £37.2bn).
Net fee and commission income increased by 11% (£82m) to £802m (2008: £720m) driven by Barclays Wealth Americas.
The movements in principal transactions, net premiums from insurance contracts and net claims and benefits incurred under insurance contracts were due to the sale of the closed life assurance business in October 2008.
Impairment charges increased 16% (£7m) to £51m (2008: £44m). This increase reflected the impact of the current economic environment on client liquidity and collateral values and the substantial increase in the loan book over the last four years.
Operating expenses increased 22% to £1,138m (2008: £935m) principally reflecting the impact of the acquisition of Barclays Wealth Americas partially offset by the impact of the disposal of the closed life business in 2008.
Total client assets, comprising customer accounts and client investments were £151.3bn (31st December 2008: £145.1bn) with underlying net new asset inflows of £3bn.
48 |
2008/07
Barclays Wealth profit before tax grew 119% (£364m) to £671m (2007: £307m). Profit before gains on disposal increased 12% (£38m) driven by solid income growth and tight cost control, offset by an increase in impairment charges. The closed life assurance business contributed profit before tax of £104m (2007: £110m) prior to its sale in October 2008, which generated a profit on disposal of £326m.
Income increased 3% (£37m) to £1,324m (2007: £1,287m).
Net interest income increased 13% (£55m) to £486m (2007: £431m) reflecting strong growth in both customer deposits and lending. Average deposits grew 19% to £37.2bn (2007: £31.2bn). Average lending grew 31% to £9.7bn (2007: £7.4bn).
Net fee and commission income decreased 3% (£19m) to £720m (2007: £739m) driven by falling equity markets partially offset by increased client assets.
Net investment income, net premiums from insurance contracts and net claims and benefits paid on insurance contracts related wholly to the closed life assurance business. Their overall net impact on income
increased marginally to £103m (2007: £95m). The decrease in net investment income, driven by a fall in the value of unit linked contracts and reduced premium income, were offset by reduced net claims and benefits as a result of a fall in the value of linked and non-linked liabilities.
Impairment charges increased £37m to £44m (2007: £7m) from a very low base. This increase reflected both the substantial increase in the loan book over the last three years from 2006 to 2008 and the impact of the current economic environment on client liquidity and collateral values.
Operating expenses decreased 4% to £935m (2007: £973m) with significant cost savings including a reduction in performance related costs partially offset by increased expenditure in upgrading technology and operating platforms and continued hiring of client-facing staff.
Key facts
2008 | 2007 | 2006 | |||||||
Total client assets | £ | 145.1bn | £ | 132.5bn | £ | 116.1bn |
Total client assets, comprising customer deposits and client investments, increased 10% (£12.6bn) to £145.1bn (2007: £132.5bn) with underlying net new asset inflows of £3.2bn and the acquisition of the Lehman Brothers North American businesses offsetting the impact of market and foreign exchange movements and the sale of the closed life assurance book.
2007/06
Barclays Wealth profit before tax showed very strong growth of 25% (£62m) to £307m (2006: £245m). Performance was driven by broadly based income growth, reduced redress costs and tight cost control, partially offset by additional volume-related costs and increased investment in people and infrastructure to support future growth.
Income increased 11% (£127m) to £1,287m (2006: £1,160m).
Net interest income increased 10% (£39m) to £431m (2006: £392m), reflecting strong growth in both customer deposits and lending. Average deposits grew 13% to £31.2bn (2006: £27.7bn). Average lending grew 35% to £7.4bn (2006: £5.5bn), driven by increased lending to high net worth, affluent and intermediary clients.
Net fee and commission income grew 10% (£65m) to £739m (2006: £674m). This reflected growth in client assets and higher transactional income from increased sales of investment products and solutions.
Principal transactions decreased £101m to £55m (2006: £156m) as a result of lower growth in the value of unit linked insurance contracts. Net premiums from insurance contracts reduced £15m to £195m (2006: £210m). These reductions were offset by a lower charge for net claims and benefits incurred under insurance contracts of £152m (2006: £288m).
Operating expenses increased 7% to £973m (2006: £913m) with greater volume-related costs and a significant increase in investment partially offset by efficiency gains and lower customer redress costs of £19m (2006: £67m). Ongoing investment programmes included increased hiring of client-facing staff and improvements to infrastructure with the upgrade of technology and operations platforms. The cost:income ratio improved three percentage points to 76% (2006: 79%).
Total client assets, comprising customer deposits and client investments, increased 14% (£16.4bn) to £132.5bn (2006: £116.1bn), reflecting strong net new asset inflows and the acquisition of Walbrook, an independent fiduciary services company, which completed on 18th May 2007.
Barclays Wealth
2008 £m | 2007 £m | 2006 £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 486 | 431 | 392 | |||||||||||||
Net fee and commission income | 720 | 739 | 674 | |||||||||||||
Net trading income | (11 | ) | 3 | 2 | ||||||||||||
Net investment income | (333 | ) | 52 | 154 | ||||||||||||
Principal transactions | (344 | ) | 55 | 156 | ||||||||||||
Net premiums from insurance contracts | 136 | 195 | 210 | |||||||||||||
Other income | 26 | 19 | 16 | |||||||||||||
Total income | 1,024 | 1,439 | 1,448 | |||||||||||||
Net claims and benefits incurred on insurance contracts | 300 | (152 | ) | (288 | ) | |||||||||||
Total income net of insurance claims | 1,324 | 1,287 | 1,160 | |||||||||||||
Impairment charges | (44 | ) | (7 | ) | (2 | ) | ||||||||||
Net income | 1,280 | 1,280 | 1,158 | |||||||||||||
Operating expenses excluding amortisation of intangible assets | (919 | ) | (967 | ) | (909 | ) | ||||||||||
Amortisation of intangible assets | (16 | ) | (6 | ) | (4 | ) | ||||||||||
Operating expenses | (935 | ) | (973 | ) | (913 | ) | ||||||||||
Profit on disposal of associates and joint ventures | 326 | – | – | |||||||||||||
Profit before tax | 671 | 307 | 245 | |||||||||||||
Balance sheet information | ||||||||||||||||
Loans and advances to customers | £ | 11.4bn | £ | 9.0bn | £ | 6.2bn | ||||||||||
Customer accounts | £ | 42.4bn | £ | 34.4bn | £ | 28.3bn | ||||||||||
Total assets | £ | 13.3bn | £ | 18.2bn | £ | 15.0bn | ||||||||||
Performance ratios | ||||||||||||||||
Cost:income ratio | 71% | 76% | 79% | |||||||||||||
Other financial measures | ||||||||||||||||
Risk Tendency | £ | 20m | £ | 10m | £ | 10m | ||||||||||
Risk weighted assets a | £ | 10.3bn | £ | 8.2bn | £ | 6.1bn |
Note
2009 £m | 2008 £m | 2007 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | 504 | 486 | 431 | |||||||||
Net fee and commission income | 802 | 720 | 739 | |||||||||
Net trading income | 7 | (11 | ) | 3 | ||||||||
Net investment income | 13 | (333 | ) | 52 | ||||||||
Principal transactions | 20 | (344 | ) | 55 | ||||||||
Net premiums from insurance contracts | – | 136 | 195 | |||||||||
Other income | 7 | 26 | 19 | |||||||||
Total income | 1,333 | 1,024 | 1,439 | |||||||||
Net claims and benefits incurred on insurance contracts | – | 300 | (152 | ) | ||||||||
Total income net of insurance claims | 1,333 | 1,324 | 1,287 | |||||||||
Impairment charges | (51 | ) | (44 | ) | (7 | ) | ||||||
Net income | 1,282 | 1,280 | 1,280 | |||||||||
Operating expenses excluding amortisation of intangible assets | (1,114 | ) | (919 | ) | (967 | ) | ||||||
Amortisation of intangible assets | (24 | ) | (16 | ) | (6 | ) | ||||||
Operating expenses | (1,138 | ) | (935 | ) | (973 | ) | ||||||
Profit on disposal of associates and joint ventures | 1 | 326 | – | |||||||||
Profit before tax | 145 | 671 | 307 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to customers | £ | 13.1bn | £ | 11.4bn | £ | 9.0bn | ||||||
Customer accounts | £ | 38.5bn | £ | 42.4bn | £ | 34.4bn | ||||||
Total assets | £ | 15.1bn | £ | 13.3bn | £ | 18.2bn | ||||||
Risk weighted assets | £ | 11.4bn | £ | 10.3bn | £ | 8.2bn | ||||||
Performance ratios | ||||||||||||
Cost:income ratio | 85% | 71% | 76% | |||||||||
Average net income generated per member of staff (‘000) | £169 | £176 | £188 |
|
Financial review
Analysis of results by business
continued
Head office functionsOffice Functions and other operationsOther Operations
Head office functions and other operations comprises:
– | Head office and central support functions |
– | Businesses in transition |
– | Inter-segment adjustments |
What we do
Head office functions and central support functionsother operations comprises the following areas: Executive Management, Finance, Treasury, Corporate Affairs, Human Resources, Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are recharged to them.
Businesses in transition principally relate to certain lending portfolios that are centrally managed with the objective of maximising recovery from the assets.
Performance
2009/08
Head Office Functions and Other Operations loss before tax reduced £308m to £550m (2008: loss of £858m).
Total income increased £405m to £28m (2008: loss of £377m).
Group segmental reporting is performed in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arm’s length basis. Adjustments necessary to eliminate inter-segment transactions are included in Head Office Functions and Other Operations.
Net interest income decreased £689m to a loss of £507m (2008: profit of £182m) primarily due to an increase in costs in central funding activity due to the money market dislocation, increased liquidity requirements and lower income on shareholders’ funds due to the lower interest rate environment. This was partially offset by a £170m gain from a reclassification on consolidation for hedging derivatives with the corresponding expense being recorded in principal transactions.
Net fees and commission expense decreased £68m to £418m (2008: £486m) reflecting adjustments to eliminate inter-segmental transactions, offset by increases in fees for structured capital market activities to £191m (2008: £141m) and in fees paid to Barclays Capital for debt and equity raising and risk management advice to £174m (2008: £151m).
Losses associated with principal transactions increased £107m to £325m (2008: loss of £218m) predominantly due to a £170m increase in the consolidation reclassification adjustment on hedging derivatives.
Other income increased £1,160m to £1,186m (2008: £26m). During 2009, certain upper Tier 2 perpetual debt was exchanged for new issuances
of lower Tier 2 dated loan stock resulting in a net gain of £1,164m. £1,170m of this gain was reflected in other income.
Operating expenses increased £119m to £570m (2008: £451m) reflecting a UK bank payroll tax charge of £190m (2008: £nil) in respect of 2009 cash compensation and £35m in respect of certain prior years awards which may fall within the proposed legislation, partially offset by a reduction of £55m in the costs relating to an internal review of Barclays compliance with US economic sanctions to £33m (2008: £88m).
2008/07
Head office functionsOffice Functions and other operationsOther Operations loss before tax increased £430m to £858m (2007: £428m).
Total income decreased £185m to a loss of £377m (2007: loss of £192m).
Group segmental reporting is performed in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arm’s length basis. Adjustments necessary to eliminate inter-segment transactions are included in Head office functionsOffice Functions and other operations.Other Operations. The impact of such inter-segment adjustments increased £32m to £265m (2007: £233m). These adjustments included internal fees for structured capital market activities of £141m (2007: £169m) and fees paid to Barclays Capital for debt and equity raising and risk management advice of £151m (2007: £65m), both of which reduce net fees and commission income.
Net interest income increased £54m to £182m (2007: £128m) primarily due to a consolidation adjustment between net interest income and trading income required to match the booking of certain derivative hedging transactions between different segments in the Group. This resulted in a £111m increase in net interest income to £143m (2007: £32m) with an equal and opposite decrease in principal transactions.
This was partially offset by an increase in costs in central funding activity due to the money market dislocation, in particular LIBOR resets.
Principal transactions loss increased £135m to £218m (2007: £83m) reflecting the £111m increase in consolidation reclassification adjustment on derivative hedging transactions.
Impairment charges increased £27m to £30m (2007: £3m) mainly reflecting losses on Floating Rate Notes held for hedging purposes.
Operating expenses increased £217m to £451m (2007: £234m). The main drivers of this increase were: a £101m charge for the Group’s share of levies that will be raised by the UK Financial Services Compensation Scheme; £64m increase in costs relating to an internal review of Barclays compliance with US economic sanctions; the non-recurrence of a £58m break fee relating to the ABN Amro transaction; lower rental income and lower proceeds on property sales.
2007/06
Head office functions and other operations loss before tax increased £169m to £428m (2006: £259m).
Group segmental reporting is performed in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arm’s length basis. Adjustments necessary to eliminate inter-segment transactions are included in Head office functions and other operations.
The impact of such inter-segment adjustments increased £86m to £233m (2006: £147m). These adjustments included internal fees for structured capital market activities of £169m (2006: £87m) and fees paid to Barclays Capital for debt and equity raising and risk management advice of £65m (2006: £23m), both of which increased net fee and commission expense in Head office. The impact on the inter-segment adjustments of the timing of the recognition of insurance commissions included in Barclaycard was a reduction in Head office income of £9m (2006: £44m). This net reduction was reflected in a decrease in net fee and commission income of £162m (2006: £184m) and an increase in net premium income of £153m (2006: £140m).
Principal transactions decreased to a loss of £83m (2006: £42m profit). 2006 included a £55m profit from a hedge of the expected Absa foreign currency earnings.
Operating expenses decreased £35m to £234m (2006: £269m). The primary driver of this decrease was the receipt of a break fee relating to the ABN AMRO transaction which, net of transaction costs, reduced expenses by £58m. This was partially offset by lower rental income and lower proceeds on property sales.
50 |
|
Head office functions and other operations
2008 £m | 2007 £m | 2006 £m | ||||||||||||||
Income statement information | ||||||||||||||||
Net interest income | 182 | 128 | 80 | |||||||||||||
Net fee and commission income | (486 | ) | (424 | ) | (301 | ) | ||||||||||
Net trading (loss)/income | (245 | ) | (66 | ) | 40 | |||||||||||
Net investment income/(expense) | 27 | (17 | ) | 2 | ||||||||||||
Principal transactions | (218 | ) | (83 | ) | 42 | |||||||||||
Net premiums from insurance contracts | 119 | 152 | 139 | |||||||||||||
Other income | 26 | 35 | 39 | |||||||||||||
Total income | (377 | ) | (192 | ) | (1 | ) | ||||||||||
Impairment (charges)/releases | (30 | ) | (3 | ) | 11 | |||||||||||
Net income | (407 | ) | (195 | ) | 10 | |||||||||||
Operating expenses excluding amortisation of intangible assets | (451 | ) | (233 | ) | (259 | ) | ||||||||||
Amortisation of intangible assets | – | (1 | ) | (10 | ) | |||||||||||
Operating expenses | (451 | ) | (234 | ) | (269 | ) | ||||||||||
Profit on disposal of associates and joint ventures | – | 1 | – | |||||||||||||
Loss before tax | (858 | ) | (428 | ) | (259 | ) | ||||||||||
Balance sheet information | ||||||||||||||||
Total assets | £ | 3.1bn | £ | 5.7bn | £ | 7.1bn | ||||||||||
Other financial measures | ||||||||||||||||
Risk Tendency | £ | 5m | £ | 10m | £ | 10m | ||||||||||
Risk weighted assetsa | £ | 0.4bn | £ | 1.1bn | £ | 1.9bn |
Income statement information Net interest income Net fee and commission income Net trading (loss)/income Net investment income/(expense) Principal transactions Net premiums from insurance contracts Other income Total income Impairment (charges)/releases Net income Operating expenses excluding amortisation of intangible assets Amortisation of intangible assets Operating expenses Share of post-tax results of associates and joint ventures Profit on disposal of associates and joint ventures Loss before tax Balance sheet information Total assets Risk weighted assetsNote 2009
£m 2008
£m 2007
£m (507 ) 182 128 (418 ) (486 ) (424 ) (291 ) (245 ) (66 ) (34 ) 27 (17 ) (325 ) (218 ) (83 ) 92 119 152 1,186 26 35 28 (377 ) (192 ) (16 ) (30 ) (3 ) 12 (407 ) (195 ) (570 ) (451 ) (233 ) – – (1 ) (570 ) (451 ) (234 ) 1 – – 7 – 1 (550 ) (858 ) (428 ) £ 6.4bn £ 3.1bn £ 5.7bn £ 0.9bn £ 0.4bn £ 1.1bn
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Sustainability and Barclays
At Barclays, we recognise that our sustainability values have an increased importance in the current financial climate. We are focused on: supporting our existing customers; being a bank that welcomes all potential customers; being an equal opportunity employer; our commitment to climate change; and ensuring we behave at all times as a responsible global citizen.
Doing this effectively helps us to reduce our risk and positions us well to capture commercial opportunities arising from the global transition towards a more sustainable future.
Developing our strategic framework
To measure our success in integrating sustainability into our business we have addressed the broad sustainability agenda through five key themes:
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These themes resonate in our businesses, provide a platform for action, and give us a clear purpose and direction. Implementation is driven by actionable goals and robust performance measurement.
We manage and report our progress on the sustainability topics of most significance to our business and our stakeholders. We have determined this in part through:
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Stakeholder insight and feedback on our sustainability agenda is vital, and encourages us to be open and transparent about the issues our stakeholders are concerned about.
Measuring progress
We aim to measure and monitor our sustainability progress both internally and externally. In 2008, we developed a framework for regular progress reports to the Group Executive Committee and the Board. It provides consistent tracking of our progress by sustainability theme and Business Unit.
Barclays participates in a number of external indices, forums and initiatives which help to measure our progress including the Dow Jones Sustainability Index and FTSE4Good. In 2008, Barclays ranked joint first in the Carbon Disclosure Project’s Leadership Index.
Customers and clients
In 2008, amid widespread uncertainty in financial markets and the wider global economy, it was vital to stay close to our clients and customers, who we recognise have a choice where they bank.
During the year, we worked to help our customers and clients cope with the challenging economic circumstances. Our record of lending responsibly has allowed us to continue mortgage lending in the UK, increasing our share of net new lending from 8% in 2007 to 36% in 2008.
We increased lending to UK SMEs by 6% to a total of £15bn. We also provided support to small businesses in the UK and South Africa and also made significant investment in the Barclays Business Support team which is dedicated to helping business customers in financial difficulty in the UK.
In addition, we have committed to lend an additional 10% (£1.5bn) to SMEs in the UK by the end of 2009. We continue to act on customer and client feedback to develop appropriate products and services to meet different needs.
Inclusive banking
For Barclays, inclusive banking means helping those who are excluded from the financial system to join and benefit from it.
We have dedicated accounts for people on low incomes across several countries in Africa. In 2008, these basic accounts made up 27% of our total current and savings accounts in Africa.
Absa, which has 10 million customers, is now the market leader for low income customers in South Africa – those earning less than R3,000 (£200) a month – with a market share of 33%.
We continued to support better access to financial products and services in the UK through our basic-level Cash Card Account, which is now held by more than 730,000 customers, and through partnerships with community finance organisations and charities which help excluded and vulnerable people in society.
In March 2008, Barclays launched the ‘Hello Money’ service in India which allows customers to carry out banking transactions easily and securely over their mobile phones. Hello Money is already making a significant impact in giving access to financial services for people in India’s rural areas.
Diversity and Our People
Barclays aims to provide a safe working environment in which employees are treated fairly and with respect, encouraged to develop, and rewarded on the basis of individual performance.
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In 2008, Antony Jenkins, CEO Barclaycard was appointed Diversity and Inclusion Executive Champion to drive our diversity agenda across Global Retail and Commercial Banking. Initiatives in 2008 included establishing the requirement that every senior executive has a diversity objective linked to their performance goals.
In 2009, we intend to extend our Women’s Leadership Programme, aimed at developing talented women employees, across all 15 countries in our GRCB – Emerging Markets business with secondments of between 3 and 12 months.
Environment
We seek to minimise our environmental impact through reducing Barclays energy, water and waste footprints and managing the risks and opportunities associated with climate change.
Businesses have a vital role to play in managing and mitigating climate change. At Barclays, we recognise that we have an impact on the environment both directly through our own operations, and indirectly through our supply chain and corporate lending. We monitor and manage both sets of impacts.
In 2008, Barclays set environmental targets that apply to global operations. We will measure our performance over three years from 2009 to 2011 against a 2008 baseline.
The targets are to reduce:
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We made our UK and European operations carbon neutral by offsetting emissions from energy use and travel. We are on track to make our global banking operations carbon neutral by the end of 2009.
Environmental and social risk
The majority of the environmental and social risks associated with our business are indirect. These impacts arise through business relationships, including those with our supply chain and those with our clients through financing activities.
We apply our Environmental and Social Impact Assessment policy (ESIA) to projects that we are considering financing. In 2008, a total of 31 project finance deals were assessed against the Equator Principles, a set of social and environmental criteria adopted by many banks. In addition, the Environmental Risk Management team assessed 229 non-project finance transactions.
We continue to assess our environmental and social impact beyond the project finance remit of the Equator Principles and are working to include climate change and human rights considerations in these assessments.
Responsible global citizenship
We acknowledge and accept that we have an obligation to be a responsible global citizen, and our sustainability efforts help us to achieve this. This means managing our business and supply chain to improve our social, economic and environmental impact, and doing business ethically.
Community Investment
Investing in the communities in which we operate is an integral part of Barclays sustainability strategy. During 2008, we maintained our levels of investment in communities despite the challenging conditions. We invested £52.2m and more than 57,000 colleagues in 31 countries were involved in volunteering, fundraising and regular giving. In addition, Barclays launched a three-year global community investment partnership with UNICEF, the leading children’s organisation, in which we committed to invest £5m.
Human Rights and Barclays
In June 2008, we refined our statement on human rights (first introduced in 2004) which outlines the approach we take to human rights through our three main areas of impact – as an employer, as a provider of financial services to customers and clients, and as a purchaser of goods and services from suppliers. We aim to operate in accordance with the:
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Barclays is active in developing the global business and human rights agenda through our membership of two organisations – the Business Leaders’ Initiative on Human Rights, launched in 2003 of which we are a founder member, and United Nations Environment Programme Finance Initiative (UNEP FI), for which we co-chair the Human Rights Workstream.
We extended the guidance provided to our employees on human rights in 2008 to include access to an online tool for front-line lending managers, which assists in identifying and mitigating human rights risks.
Supply chain
We work closely with our suppliers to help them manage their own impacts and ensure they share our commitment to sustainability. Our Group-wide sourcing process includes criteria for measuring and assessing our suppliers’ sustainability. Tenders for supplies deemed to have a potentially high sustainability impact or risk, such as print or corporate wear, require suppliers to complete our sustainable supply chain questionnaire on their sustainability impact, policies and management processes.
During 2008, we continued to engage directly with our suppliers on sustainability, both as part of our ongoing supplier relationships and to address specific issues such as reducing their carbon emissions.
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Barclays aims to provide a safe working environment in which employees are treated fairly and with respect, encouraged to develop, and rewarded on the basis of individual performance. We are committed to ensuring equality to all employees on the basis of merit. Discrimination, bullying or harassment of any kind is not tolerated.
Our Guiding Principles set out the values that govern how we act. They are:
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An international picture
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2008 | 2007a | |||
FTE by world region | ||||
UK | 60,700 | 61,900 | ||
Africa and Middle East | 55,700 | 51,748 | ||
Continental Europe | 13,400 | 9,750 | ||
Americas | 15,700 | 6,413 | ||
Asia Pacific | 10,800 | 5,089 | ||
Total | 156,300 | 134,900 | ||
FTE by business unit | ||||
UK Retail Banking | 30,400 | 30,700 | ||
Barclays Commercial Bank | 9,800 | 9,200 | ||
Barclaycard | 9,600 | 8,900 | ||
GRCB – Western Europe | 10,900 | 8,800 | ||
GRCB – Emerging Markets | 22,700 | 13,900 | ||
GRCB – Absa | 36,800 | 35,800 | ||
Barclays Capital | 23,100 | 16,200 | ||
Barclays Global Investors | 3,700 | 3,400 | ||
Barclays Wealth | 7,900 | 6,900 | ||
Head office and other operations | 1,400 | 1,100 | ||
Total | 156,300 | 134,900 | ||
Global employment statistics | ||||
FTE | 156,300 | 134,900 | ||
Total employee headcount | 161,000 | 141,885 | ||
Percentage of female employees | 53.1% | 56.3% | ||
Percentage of female senior executives | 15.2% | 13.7% | ||
Percentage of female senior managers | 24.6% | 20.6% | ||
Percentage working part time | 8.5% | 12.4% | ||
Turnover rate | 20.9% | 18.3% | ||
Resignation rate | 12.1% | 12.3% | ||
Sickness absence rateb | 2.3% | 3.0% |
Note
Global governanceminimum standards
Barclays manages its people through these Guiding Principles in a devolved manner. To maintain the right balance between overall control and effective local decision making we have established global governance frameworks which are overseenand minimum standards to regulate how we manage and treat our employees around the world. The key areas covered by the Group Operational Committee,minimum standards are summarised below.
Performance management and compliancecompensation
The performance and development process provides employees with themthe opportunity to have regular discussions with their line managers about their performance and to receive coaching for their personal development. The performance of employees is monitored bytypically assessed twice a year and a performance rating is agreed with the Group Human Resources Risk Committee.line manager.
We are committed to the principle of pay for performance. Compensation is based on the performance of individuals and their businesses. Our compensation philosophy is to drive a high performance culture within the appropriate risk and governance frameworks.
Employee relations
Barclays recognises and works constructively with 30 employee representative organisations throughout the world. Employee consultations on significant operational changes are carried out in accordance with local legislation.
OurRegular employee opinion surveys
Barclays businesses conduct are used to assess employee opinion surveys, to suit the needs of each business. We benchmark theengagement. The findings are benchmarked against other global financial services organisations and high-performing organisations,organisations.
Diversity and inclusion
Barclays operates across the globe and engages with employees across a wealth of diverse and rich cultures. Our mission is to create action plansconfidence and trust to address any areasdo the right thing for both our customers and employees through creating a truly inclusive environment. We will achieve this through ensuring that everything we do treats people fairly through valuing diversity. An example of concern.the progress made in this area is that currently three of our major businesses have female Chief Executive Officers who lead more than half of our employees globally.
OccupationalHealth and safety
Our commitment is to ensure the health, safety and welfare of our employees and to provide and maintain safe working conditions. Effective management of health and safety
Barclays manages health will have a positive effect on the services we provide. Good working climates will help our employees to perform better in serving our customers which in turn will create value for all our stakeholders – customers, employees, shareholders and safety at a local level under the requirements of the health and safety governance framework. Key data on health and safety is reported regularly to the Board HR and Remuneration Committee.communities that we serve.
Training and educating our people
Developing both existing and new employees is key to our future prosperity. We undertake this through formal classroom-based training and informal on-the-job training, education and education, includingcoaching. Minimum mandatory training required byis provided to all employees to ensure that our employees understand Barclays policies and procedures and their role in meeting our regulatory bodies and detailed on-the-job training and development.responsibilities.
UK employees
2008 | 2007a | |||
UK employment statistics | ||||
FTE | 60,700 | 61,900 | ||
Average length of service (years) | 9.2 | 9.7 | ||
Percentage working part time | 16.1% | 16.8% | ||
Sickness absence ratec | 3.1% | 3.0% | ||
Turnover rate | 19.3% | 16.6% | ||
Resignation rate | 12.2% | 11.1% | ||
Women in Barclays | ||||
Percentage of all employees | 56.1% | 58.0% | ||
Percentage of management grades | 28.0% | 28.4% | ||
Percentage of senior executives | 14.6% | 13.0% | ||
Ethnic minorities in Barclays | ||||
Percentage of all employees | 12.3% | 12.3% | ||
Percentage of management grades | 11.5% | 10.0% | ||
Percentage of senior executives | 8.0% | 6.6% | ||
Disabled employees in Barclays | ||||
Percentage of all employeesd | 2.0% | 3.4% | ||
Age profile | ||||
Employees under 25 | 15.5% | 16.5% | ||
Employees aged 25-29 | 18.5% | 17.0% | ||
Employees aged 30-49 | 55.8% | 54.2% | ||
Employees aged 50+ | 10.2% | 10.3% | ||
Pensions | ||||
Barclays UK Retirement Fund active members | 58,316 | 53,473 | ||
Current pensioners | 50,499 | 48,607 |
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Barclays in making progress on embedding sustainability into our business. We are ranked in the top quartile of global banks in the Dow Jones Sustainability Index. However, we realise we have a long way to go and will continue to build our programme in the year ahead. We have remained ‘open for business’ throughout the downturn, and at the same time have reinforced our commitment to be a responsible lender, providing access to credit and support while maintaining prudent lending standards. We are focused on offering a strong safe and responsible service that contributes to the economic progress of society as a whole.
As well as supporting our customers and client, and the communities in which we operate, we have:
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– | taken action on climate issues; and |
– | aimed to operate as a responsible global citizen. |
The Group Executive Committee is responsible for our overall sustainability strategy, and works to support the Chief Executive in its implementation. This Committee, along with the Board, reviews progress against sustainability objectives twice a year, using a robust reporting framework that includes over 100 performance indicators.
Environment
As part of our commitment to minimising our environment footprint, we successfully made our global banking operations carbon neutral in 2009.
Barclays Climate Action Programme continues to focus on greater energy efficiency, as well as working with suppliers to reduce the CO2 emissions and developing products and services that will help our customers to do the same.
Partnerships are also a crucial part of the programme, such as our work with the World Wildlife Fund in eastern Africa to pioneer a new era of conservation in the region where communities are supported to utilise their resources more sustainably.
Many of our major environmental and social impacts are indirect and arise through business relationship with suppliers and clients. Our Environmental and Social Impact Assessment policy focuses on any lending we carry out in sensitive sectors and is also the mechanism by which we apply the Equator Principles to our projects. The Equator Principles are based on the International Finance Corporation’s Performance standards, which form the financial services industry standard to manage environmental and social risks in project finance deals above US$10m.
Our Environmental Risk Management team operates across the Group, and in 2009 it assessed more than 290 project and non-project finance transactions.
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The following information sets forth certainthe risk factors thatwhich the Group believes could cause its actual future results to differ materially from expected results. However, other factors could also adversely affect the GroupGroup’s results and so the factors discussed in this report should not be considered to be a complete set of all potential risks and uncertainties.
The Group’s approach to identifying, assessing, managing and reporting risks is formalised in its Principal Risk framework, and definitions of the 13 Principal Risks are given below. A description of the Principal Risk framework is provided on page 62.
This summary of risk factors also includes a discussion of the impact of business conditions and the general economy, which are not Principal Risks but can impact risk factors such as credit and market risk and so influence the Group’s results.
Business conditions and general economy
Barclays operates a universal banking business model and its services range from current accounts for personal customers to inflation-risk hedging for governments and institutions. The Group also has significant activities in a large number of countries. There are, therefore, many ways in which changes in business conditions and the general economy can adversely impact Barclays profitability, be they at the level of Barclays businesses could be adversely affected by the worseningGroup, the individual business units or the specific countries in which we operate.
The Group’s stress testing framework helps it understand the impact of changes in business conditions and the general economic conditionseconomy, as well as the sensitivity of its business goals to such changes and the scope of management actions to mitigate their impact.
As the current downturn has shown, higher unemployment in the United Kingdom, globally orUK, US, Spain and South Africa has led to increased arrears in certain individual markets such asour credit card portfolios, while falls in GDP have reduced the United States, Spain or South Africa. Factors such as interest rates, inflation, investor sentiment, the availability and cost of credit foreign exchange risk, creditworthiness of counterparties, the liquidityquality of the global financial markets and the level and volatilityGroup’s corporate portfolios. In both cases, there is an increased risk that a higher proportion of equity prices could significantly affect the Group’s customers’ activity levelscustomers and financial position. For example:counterparties may be unable to meet their obligations. In addition, declines in residential and commercial property prices have reduced the value of collateral and caused mark to market losses in some of the Group’s trading portfolios.
The business conditions facing the Group in 2010 are subject to significant uncertainties, most notably:
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– | the potential for single name risk and for idiosyncratic losses in different sectors and geographies where credit positions are sensitive to economic downturn; |
– | possible additional deterioration in our remaining credit market exposures, including commercial real estate and leveraged finance; |
– | the potential impact of deteriorating sovereign credit quality; |
– | changes in the value of Sterling relative to other currencies, which could increase risk weighted assets and therefore raise the capital requirements of the Group; |
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Current market volatilityPrincipal Risk Factors
Retail and recent market developments
The global financial system has been experiencing difficulties since August 2007 and financial markets have deteriorated dramatically since the bankruptcy filing of Lehman Brothers in September 2008. Despite measures taken by the United Kingdom and United States governments and the European Central Bank and other central banks to stabilise the financial markets, the volatility and disruption of the capital and credit markets have continued. Together with the significant declines in the property markets in the United Kingdom, the United States, Spain and other countries, these events over the past two years have contributed to significant write-downs of asset values by financial institutions, including government-sponsored entities and major retail, commercial and investment banks. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions, to be nationalised and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have substantially reduced and, in some cases, stopped their funding to borrowers, including other financial institutions.
While the capital and credit markets have been experiencing difficulties for some time, the volatility and disruption reached unprecedented levels in the final months of 2008 and economic activity started to contract in many of the economies in which the Group operates. These conditions have produced downward pressure on stock prices and credit capacity for certain issuers. The resulting lack of credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could continue to materially and adversely affect the Group’s business, financial condition and results of operations.
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Wholesale Credit risk
Credit risk is the risk of suffering financial loss, should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group. The credit risk that the Group faces arises mainly from wholesale and retail loans and advances. However, credit risk may also arise where the downgrading of an entity’s credit rating causes a fall in the fair value of the Group’s investment in that entity’s financial instruments to fall.instruments.
In a recessionary environment, such as that ongoingrecently seen in the United Kingdom, the United States and other economies, credit risk increases.
Credit risk may also be manifested as country risk where difficulties may arise in the country in which the exposure is domiciled, thus impeding or reducing the value of the assets, or where the counterparty may be the country itself.
Another form of credit risk is settlement risk, which is the possibility that the Group may pay funds away to a counterparty but fail to receive the corresponding settlement in return. The Group is exposed to many different industries and counterparties in the normal course of its business, but its exposure to counterparties in the financial services industry is particularly significant. This exposure can arise through trading, lending, deposit-taking, clearance and settlement and many other activities and relationships. These counterparties include brokers andbroker dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. Many of these
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relationships expose the Group to credit risk in the event of default of a counterparty and to systemic risk affecting its counterparties. Where the Group holds collateral against counterparty exposures, it may not be able to realise it or liquidate it at prices sufficient to cover the full exposures. Many of the hedging and other risk management strategies utilised by the Group also involve transactions with financial services counterparties. The failure of these counterparties to settle, or the perceived weakness of these counterparties, may impair the effectiveness of the Group’s hedging and other risk management strategies.
The Group’s credit risk governance structure, management and measurement methodologies, together with an analysis of exposures to credit risk is detailed in the ‘Credit risk management’ section on page 6766 and the ‘Credit Risk’ noteNote 47 to the financial statements on page 250.
Barclays Capital credit market exposures243.
An analysis of Barclays Capital’s credit market exposures is detailed on pages 9381 to 105.89.
Market risk
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, credit spreads, commodity prices, equity prices and foreign exchange rates. Market risk has increased due to the volatility of the current financial markets.
The mainmajority of market risk arises from trading activities.exposure resides in Barclays Capital. Barclays is also exposed to market risk through non-traded interest rate risk and the pension fund.
The Group’s market risk governance structure, management and measurement methodologies, together with an analysis of exposures to both traded and non-traded market risk is detailed in the ‘Market risk management’ section on page 119 and the ‘Market Risk’ note to the financial statements on page 264. Pension risk is analysed in note 30 on page 220.
The Group’s future earnings could be affected by depressed asset valuations resulting from a deterioration in market conditions. Financial markets are sometimes subject to stress conditions where steep falls in asset values can occur, as demonstrated by recent events in 2007 and 2008 affecting asset backed CDOs and the US sub-prime residential mortgage market and which may occur in other asset classes during an economic downturn. Severe market events are difficult to predict and, if they continue to occur, could result in the Group incurring additional losses.
InFrom the second half of 2007, and in 2008, the Group recorded material net losses on certain credit market exposures, including ABS CDO Super Senior exposures. As market conditions change, the fair value of these exposures could fall further and result in additional losses or impairment charges, which could have a material adverse effect on the Group’s earnings. Such losses or impairment charges could derive from: a decline in the value of exposures; a decline in the ability of counterparties, including monoline insurers, to meet their obligations as they fall due; or the ineffectiveness of hedging and other risk management strategies in circumstances of severe stress.
Liquidity risk
This is the risk that the Group is unable to meet its obligations when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities. Such outflows would deplete available cash resources for client lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in balance sheet and sales of assets, or potentially an inability to fulfil lending commitments. This risk is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events including, but not limited to, credit events, merger and acquisition activity, systemic shocks and natural disasters. The Group’s liquidity risk management has several components:
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Risk management
Risk factors
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During periods of market dislocation, such as those currently ongoing, the Group’s ability to manage liquidity requirements may be impacted by a reduction in the availability of wholesale term funding as well as an increase in the cost of raising wholesale funds. Asset sales, balance sheet reductions and the increasing costs of raising funding will affect the earnings of the Group.
In illiquid markets, the Group may decide to hold assets rather than securitising, syndicating or disposing of them. This could affect the Group’s ability to originate new loans or support other customer transactions as both capital and liquidity are consumed by existing or legacy assets.
The Group’s liquiditymarket risk governance structure, management and measurement methodologies, aretogether with an analysis of exposures to both traded and non-traded market risk is detailed in the ‘Liquidity Risk Management’‘Market risk management’ section on page 11194 and the ‘Liquidity Risk’ noteNote 48 to the financial statements on page 268.257. Further details relating to the Group’s pension risk is included in Note 30 on page 210.
Capital risk
Capital risk is the risk that the Group has insufficient capital resources to:
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– | support its credit rating. A weaker credit rating would increase the Group’s cost of funds; and |
– | support its growth and strategic options. |
During periods of market dislocation, increasingRegulators assess the Group’s capital position and target levels of capital resources on an ongoing basis. Targets may prove more difficult or costly. Regulators have also recently increasedincrease in the Group’sfuture, and rules dictating the measurement of capital targets and amended the way inmay be adversely changed, which capital targets are calculated and may further do so in future. This would constrain the Group’s planned activities and contribute to adverse impacts on the Group’s earnings.
The During periods of market dislocation, increasing the Group’s capital management objectivesresources in order to meet targets may prove more difficult or costly.
In December 2009 the Basel Committee on Banking Supervision issued a consultative document that outlined proposed changes to the definition of regulatory capital. These proposals are going through a period of consultation and processes are detailed inexpected to be introduced by the ‘Capital risk management’ section on page 114.beginning of 2013, with substantial transitional arrangements. While the proposals may significantly impact the capital resources and requirements of the Group, the Group maintains sufficient Balance Sheet flexibility to adapt accordingly.
OperationalLiquidity risk
OperationalLiquidity risk is the risk that the Group is unable to meet its obligations as they fall due as a result of directa sudden, and potentially protracted, increase in net cash outflows. Such outflows would deplete available cash resources for client lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in balance sheet and sales of assets, or indirect losses resulting from human factors, external events, and inadequate or failed internal processes and
systems. Operational risks arepotentially an inability to fulfil lending commitments. This risk is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events.
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Risk management
Risk factors
continued
During periods of market dislocation the Group’s operationsability to manage liquidity requirements may be impacted by a reduction in the availability of wholesale term funding as well as an increase in the cost of raising wholesale funds. Asset sales, balance sheet reductions and the increasing costs of raising funding may have a material effect on the earnings of the Group.
In illiquid markets, the Group may decide to hold assets rather than securitising, syndicating or disposing of them. This could affect the Group’s ability to originate new loans or support other customer transactions as both capital and liquidity are typicalconsumed by existing or legacy assets.
The FSA issued its policy document on ‘strengthening liquidity standards’ on 5th October 2009 detailing the requirements for liquidity governance to be in place by 1st December 2009, and the quantitative requirements for liquidity buffers, which will be in place from 1st June 2010, although with an extended transition period of any large enterprise. Major sourcesseveral years to meet the expected standards.
In addition, the Basel Committee on Banking Supervision released a consultative document ‘International framework for liquidity risk measurement, standards and monitoring’ in December 2009. This included two new key liquidity metrics. A liquidity coverage ratio aimed at ensuring banks have sufficient unencumbered high quality assets to meet cash outflows in an acute short-term stress and a net stable funding ratio to promote longer-term structural funding of operational risk include operational process reliability, IT security, outsourcing of operations, dependence on key suppliers, implementation of strategic change, integration of acquisitions, fraud, human error, customer service quality, regulatory compliance, recruitment, trainingbank’s balance sheet and retention of staff, and social and environmental impacts.capital market activities.
The Group’s operationalliquidity risk management and measurement methodologies are detailed in the ‘Operational risk management’‘Liquidity Risk Management’ section on page 117.102 and the ‘Liquidity Risk’ note to the financial statements on page 261.
Operations risk
Operations risk is the risk of losses from inadequate or failed internal processes and systems, caused by human error or external events. Operations risk has a broad scope and for that reason, the Group’s Risk Control Frameworks are defined at a more granular level within the overall Operations Principal Risk. These risks are transaction operations, new product development, premises, external suppliers, payments process and the management of information, data quality and records.
Financial crime risk
Financial crime risk is a category of operational risk. It arises from the risk that the Group might fail to comply with financial crime legislation and industry laws on anti-money laundering or might suffersuffers losses as a result of internal orand external fraud or might failintentional damage, loss or harm to people, premises or moveable assets.
Technology risk
Technology is a key business enabler and requires an appropriate level of control to ensure that the securitymost significant technology risks are effectively managed. Such risks include the non-availability of personnel, physical premisesIT systems, inadequate design and testing of new and changed IT solutions and inadequate IT system security. Data privacy issues are covered under Regulatory Risk and external supplier issues relating to technology are covered under Operations Risk.
People risk
People risk arises from failures of the Group’s assets.
The Group’s financial crime managementGroup to manage its key risks as an employer, including lack of appropriate people resource, failure to manage performance and processes are detailed in the ‘Financial crime risk management’ section on page 120.reward, unauthorised or inappropriate employee activity and failure to comply with employment related requirements.
Regulatory compliance risk
Regulatory compliance risk arises from a failure or inability to comply fully with the laws, regulations or codes applicable specifically to the financial serviceservices industry. Non-compliance could lead to fines, public reprimands, damage to reputation, increased prudential requirements, enforced suspension of operations or, in extreme cases, withdrawal of authorisations to operate.
In addition, the Group’s businesses and earnings can be affected by the fiscal or other policies and other actions of various governmental and regulatory authorities in the United Kingdom, the European Union (‘EU’), the United States, South Africa and elsewhere. All these are subject to change, particularly in the current marketan environment where recent developments in the global markets have led to an increase in the involvement of various governmental and regulatory authorities in the financial sector and in the operations of financial institutions. In particular, governmental and regulatory authorities in the United Kingdom, the United States and elsewhere are implementing measures to increase regulatory control in their respective banking sectors, including by imposing enhanced capital requirements or by imposing conditions on direct capital injections and funding.liquidity requirements. Any future regulatory changes may potentially restrict the Group’s operations, mandate certain lending activity and impose other compliance costs. It is uncertain how the more rigorous regulatory climate will impact financial institutions, including the Group.
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Areas where changes could have an impact include:
– | 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 |
– | changes in competition and pricing environments; |
– | further developments in the financial reporting environment; |
– | differentiation amongst financial institutions by governments with respect to the extension of guarantees to customer deposits and the terms attaching to those guarantees; and |
– | implementation of, or costs related to, local customer or depositor compensation or reimbursement schemes. |
Two specific matters that directly impact the Group are the Banking Act 2009 and the Financial Services Compensation Scheme:
Banking Act 2009
On 21st February 2009, the Banking Act 2009 came into force which provides a permanent regime to allow the FSA, the UK Treasury and the Bank of England (the ‘Tripartite Authorities’) to resolve failing banks in the UK. The Banking Act aims to balance the need to protect depositors and prevent systemic failure with the potentially adverse consequences that using powers to deal with those events could have on private law rights, and, as a consequence, wider markets and investor confidence.
These powers, which apply regardless of any contractual restrictions, include: (a) power to issue share transfer orders pursuant to which there may be transferred to a commercial purchaser or Bank of England entity, all or some of the securities issued by a bank; the share transfer order can extend to a wide range of ‘securities’ including shares and bonds issued by a UK Bank (including Barclays Bank PLC) or its holding company (Barclays PLC) and warrants for such; and (b) the power to transfer all or some of the property, rights and liabilities of the UK bank to a purchaser or Bank of England entity. In certain circumstances encumbrances and trusts can be over-reached. Power also exists to over-ride any default provisions in transactions otherwise affected by these powers. Compensation may be payable in the context of both share transfer orders and property appropriation. In the case of share transfer orders any compensation
will be paid to the person who held the security immediately before the transfer, who may not be the encumbrancer.
The Banking Act also vests power in the Bank of England to over-ride, vary or impose contractual obligations between a UK bank or its holding company and its former group undertakings (as defined in the Banking Act), for reasonable consideration, in order to enable any transferee or successor bank of the UK bank to operate effectively. There is also power for the Treasury to amend the law (save for a provision made by or under the Banking Act) by order for the purpose of enabling it to use the special resolution regime powers effectively, potentially with retrospective effect.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (the ‘FSCS’) was created under the Financial Services and Markets Act 2000 and is the UK’s statutory fund of last resort for customers of authorised financial services firms. The FSCS can pay compensation to customers if a firm is unable, or likely to be unable, to pay claims against it. The FSCS is funded by levies on authorised UK firms such as Barclays Bank PLC. In the event that the FSCS raises funds from the authorised firms, raises those funds more frequently or significantly increases the levies to be paid by such firms, the associated costs to the Group may have a material impact on the Group’s results of operations and financial condition.
Further details of specific matters that impact the Group are included in the ‘CompetitionSupervision and regulatory matters’ noteRegulation section on page 117 and Note 36 to the financial statements on page 232.222.
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Financial reporting risk
Financial reporting risk arises from a failure or inability to comply fully with the laws, regulations or codes in relation to the disclosure of financial information. Non-compliance could lead to fines, public reprimands, damage to reputation, enforced suspension of operations or, in extreme cases, withdrawal of authorisations to operate. Further details of the Group’s internal controls over financial reporting are included in the Accountability and Audit Section on page 162.
Legal risk
The Group is subject to a comprehensive range of legal obligations in all countries in which it operates. As a result, the Group is exposed to many forms of legal risk, which may arise in a number of ways. Primarily:
– | the Group’s business may not be conducted in accordance with applicable laws around the world; |
– | contractual obligations may either not be enforceable as intended or may be enforced against the Group in an adverse way; |
– | the intellectual property of the Group (such as its trade names) may not be adequately protected; and |
– | the Group may be liable for damages to third parties harmed by the conduct of its business. |
The Group faces risk where legal proceedings are brought against it. Regardless of whether such claims have merit, the outcome of legal proceedings is inherently uncertain and could result in financial loss.
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Risk management
Risk factors
Defending legal proceedings can be expensive and time-consuming and there is no guarantee that all costs incurred will be recovered even if the Group is successful. Although the Group has processes and controls to manage legal risks, failure to manage these risks could impact the Group adversely, both financially and by reputation.
Further details of the Group’s legal proceedings are included in the ‘Legal proceedings’ noteNote 35 to the financial statements on page 231.
Insurance risk
Insurance risk is the risk that the Group will have to make higher than anticipated payments to settle claims arising from its long-term and short-term insurance businesses.
Further details of the Group’s insurance assets and liabilities, including a sensitivity analysis of insurance contract liabilities, are included in the ‘Insurance assets and liabilities’ note to the financial statements on page 213.
Business risk
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 are not delivered as anticipated, the Group’s earnings could grow more slowly or decline. In addition, potential sources of business risk include revenue volatility due to factors such as macroeconomic conditions, inflexible cost structures, uncompetitive products or pricing and structural inefficiencies.
Competition
The global financial services markets in which the Group operates are highly competitive. Innovative competition for corporate, institutional and retail clients and customers comes both from incumbent players and a steady stream of new market entrants, as well as recent consolidation among banking institutions in the United Kingdom, the United States and throughout Europe. The landscape is expected to remain highly competitive in all areas, which could adversely affect the Group’s profitability if the Group fails to retain and attract clients and customers.221.
TaxTaxation risk
The Group is subject to the tax laws in all countries in which it operates, including tax laws adopted at an EU level. A number of double taxation agreements entered between two countries also impact on the taxation of the Group. Tax risk is the risk associated with changes in tax law or in the interpretation of tax law. It also includes the risk of changes in tax rates and the risk of failure to comply with procedures required by tax authorities. Failure to manage tax risks could lead to an additional tax charge. It could also lead to a financial penalty for failure to comply with required tax procedures or other aspects of tax law. If, as a result of a particular tax risk materialising, the tax costs associated with particular transactions are greater than anticipated, it could affect the profitability of those transactions.
The Group takes a responsible and transparent approach to the management and control of its tax affairs and related tax risk:risk, specifically:
– | tax risks are assessed as part of the Group’s formal governance processes and are reviewed by the Executive Committee, Group Finance Director and the Board Risk Committee; |
– | the tax charge is also reviewed by the Board Audit Committee; |
– | the tax risks of proposed transactions or new areas of business are fully considered before proceeding; |
– | the Group takes appropriate advice from reputable professional firms; |
– | the Group employs high-quality tax professionals and provides ongoing technical training; |
– | the tax professionals understand and work closely with the different areas of the business; |
– | the Group uses effective, well-documented and controlled processes to ensure compliance with tax disclosure and filing obligations; and |
– | where disputes arise with tax authorities with regard to the interpretation and application of tax law, the Group is committed to addressing the matter promptly and resolving the matter with the tax authority in an open and constructive manner. |
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Risk management
Risk factors
continued
Other Risk Factors
In addition to the 13 Principal Risks, the Group’s high-level risk classification includes four other ‘Level 1’ risks. These risks are in general less amenable to formal quantification than the Principal Risks in terms of risk measurement or setting risk appetite. However, they retain the potential to impact the Group’s performance.
Strategic Risk
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 are not delivered as anticipated, the Group’s earnings could grow more slowly or decline. In addition, the Group’s strategy could be impacted by revenue volatility due to factors such as macroeconomic conditions, inflexible cost structures, uncompetitive products or pricing and structural inefficiencies.
Change risk
Change risk arises when the Group needs to make extensive changes to its operations. The cost of implementation projects may overrun, or they may fail to achieve their objectives. Examples of situations in which change risk arises include the integration of acquired businesses, significant business unit restructuring, changes in target operating models, the roll-out of new and potentially disruptive technologies, the introduction of a single currency such as the euro, and Group-wide projects to implement significant new regulation such as Basel II.
Corporate sustainability risk
Corporate sustainability risk arises from the failure to identify and manage the impact of business decisions and activities on the community and the environment, covering the following themes: customers and clients, inclusive banking, the environment, diversity and responsible global citizenship. For more information, see page 52.
Brand management risk
Barclays defines brand risk as the failure to manage the visual identity of Barclays brands in an effective manner. This is distinct from reputational impact (damage to the general brand/reputation of Barclays), which is a potential by-product of financial, strategic or operational risks.
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Risk management
Barclays approach to risk management strategy
This risk section outlines Barclays approach tohas clear risk management as exemplified by the application of the Group’s Principal Risks Policy, determination of its Risk Appetiteobjectives and governance around its Risk Methodologies, which cover its processes, measurement techniques and controls. In addition, we set out summary information and disclosure on our portfolios and positions.
Barclays approacha well-established strategy to deliver them, through core risk management involves a number of fundamental elements that drive our processes across the Group:
ThePrincipal Risks Policy covers the Group’s main risk types, assigning responsibility for the management of specific risks, and setting out the requirements for control frameworks for all of the risk types. The individual control frameworks are reinforced by a robust system of review and challenge, and a governance process of aggregation and broad review by businesses and risk across the Group (page 65).processes.
The Group’sRisk Appetite sets out the level of risk that the Board is willing to take in pursuit of its business objectives. This is expressed as the Group’s appetite for earnings volatility across all businesses from credit, market, and operational risk. It is calibrated against our broad financial targets, including income and impairment targets, dividend coverage and capital levels. It is prepared each year as part of the Group’s Medium-Term Planning process, and combines a top-down view of the Group’s risk capacity with a bottom-up view of the risk profile requested and recommended by each business. This entails making business plan adjustments as necessary to ensure that our Medium-Term Plan creates a risk profile that meets our Risk Appetite (page 65).
BarclaysRisk Methodologies include systems that enable the Group to measure, aggregate and report risk for internal and regulatory purposes. As an example, our credit grading models produce Internal Ratings through internally derived estimates of default probabilities. These measurements are used by management in an extensive range of decisions, from credit grading, pricing and approval to portfolio management, economic capital allocation and capital adequacy processes (page 66).
Risk management is a fundamental part of Barclays business activity and an essential component of its planning process. To keep risk management at the centre of the executive agenda, it is embedded in the everyday management of the business.
Barclays ensures that it has the functional capacity to manage the risk in new and existing businesses. At a strategic level, our risk management objectives are:
– | To identify the Group’s material |
– | To formulate the Group’s Risk Appetite and ensure that business profile and plans are consistent with |
– | To optimise risk/return decisions by taking them as closely as possible to the business, while establishing strong and independent review and challenge structures. |
– | To ensure that business growth plans are properly supported by effective risk infrastructure. |
– | To manage risk profile to ensure that specific financial deliverables remain possible under a range of adverse business conditions. |
– | To help executives improve the control and co-ordination of risk taking across the business. |
In pursuit of these objectives, Group Risk breaksThe Group’s strategy is to break down risk management into five discrete processes: direct, assess, control, report, and manage/challengechallenge. Each of these processes is broken down further, to establish end to end activities within the risk management process and the infrastructure needed to support it (see panel below).
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Risk management
Barclays approach to risk management
Responsibility for risk management resides at all levels within the Group, from the Board and the Executive Committee down through the organisation to each business manager and risk specialist. Barclays distributes these responsibilities so that risk/return decisions are taken at the most appropriate level; as close as possible to the business, and subject to robust and effective review and challenge.
Every business manager is accountable The responsibilities for managingeffective review and challenges reside with senior managers, risk in his or her business area; they must understand and controloversight committees, Barclays Internal Audit, the key risks inherent in the business undertaken. Each business area also employs risk specialists to provide an independent controlGroup Risk function, and to support the development of a strong risk management environment. This functional approach to risk management is built on formal control processes that rely on individual responsibility and independent oversight, as well as challenge through peer reviews.
The Board approves Risk Appetite and the Board Risk Committee and ultimately, the Board.
TheBoardis responsible for approving Risk Appetite, which is the level of risk the Group chooses to take in pursuit of its business objectives. At most of the Board’s scheduled meetings, the Chief Risk Officer presents a report summarising developments in the risk environment and performance trends in the key portfolios. The Board is also responsible for the Internal Control and Assurance Framework. It oversees the management of the most significant risks through the regular review of risk exposures and related key controls. Executive Management responsibilities relating to this are set via the Group’s Principal Risks Policy.
TheBoard Risk Committee (BRC)monitors the Group’s risk profile against thisthe agreed appetite. Business HeadsWhere actual performance differs from expectations, the actions being taken by management are responsiblereviewed to ensure that the BRC is comfortable with them. After each meeting, the Chair of the BRC prepares a report for the identification and managementnext meeting of risk in their businesses. The Group Risk Director, under delegated authority from the Group Chief Executive and Group Finance Director, has responsibility for ensuring effective risk management and control.
The Committees shown below receive regular and comprehensive reports. TheBoard. Barclays first established a separate Board Risk Committee in 1999 and all members are non-executive directors. The Finance Director and the Chief Risk Officer attend each meeting as a matter of course and the Chief Risk Officer has a dotted reporting line to the Chair. The BRC receives quarterlyregular and comprehensive reports on the Group’s risk profile, the key issues affecting each business portfolio, risk measurement methodologies and forward risk trends (for further information ontrends. The Committee also commissions in-depth analyses of significant risk topics, which are presented by the membership and activitiesChief Risk Officer or senior risk managers in the businesses. The Chair of the Board Committee prepares a statement each year on its activities (see page 141).
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Risk Committee, see page 152). management
Barclays risk management strategy
continued
TheBoard Audit Committeereceives quarterly reports on control issues of significance and a half-yearly review of the adequacy of impairment allowances, which it reviews relative to the risk inherent in the portfolios, the business environment, the Group’s policies and regulatory reports.methodologies and the performance trends of peer banks. The Chair of the Board Audit Committee also sits on the Board Risk Committee. See page 163136 for additional details on the membership and activities of the Board Audit Committee. Both
TheBoard HR and Remuneration Committeereceives advice from the Board Risk Committee on the management of remuneration risk, including advice on the setting of performance objectives in the context of incentive packages.
Summaries of the relevant business, professional and risk management experience of the Directors of the Board are given on pages 119 and 121. The terms of reference for each of the principal Board Committees are available from the Corporate Governance section at:www.aboutbarclays.com.
The Chief Risk Officer is a member of theExecutive Committeeand has overall day to day accountability for risk management under delegated authority from the Finance Director. The Finance Director must consult the Chairman of the Board Risk Committee in respect of the Chief Risk Officer’s performance appraisal and compensation as well as all appointments to or departures from the role.
Note
The | governance structure will not change following the restructure of the Group announced in November 2009. |
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The Chief Risk Officer manages the independent Group Risk function and chairs theGroup Risk Oversight Committee, which monitors the Group’s risk profile relative to established risk appetite. Reporting to the Chief Risk Officer, and working in the Group Risk function, are risk-type heads for: retail credit risk, wholesale credit risk, market risk, operational risk, financial crime risk and capital analytics. Along with their teams, the risk-type heads are responsible for establishing a Group-wide framework for risk control framework and oversight. These risk-type teams liaise with each business as part of the monitoring and management processes.
In addition, each business unit has an embedded risk management function, headed by a business risk director. Business risk directors and their teams are responsible for assisting business heads in the
identification and management of their business risk profiles and for implementing appropriate controls. These teams also assist Group Risk in the formulation of Group policies and their implementation across the businesses. The business risk directors report jointly to their respective business heads and to the Chief Risk Officer.
The risk type heads within the central Group Risk function and the business risk directors within the business units report to the Chief Risk Officer and are members of the Group Risk Oversight Committee.
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Risk management
Barclays risk management strategy
continued
Internal Auditis responsible for the independent review of risk management and the control environment. Its objective is to provide reliable, valued and timely assurance to the Board and Audit Committees also receive reports dealingExecutive Management over the effectiveness of controls, mitigating current and evolving high risks and in more depth with specific issues relevant atso doing enhancing the time. The proceedings of both Committees are reported tocontrols culture within the full Board, which also receives a concise quarterly risk report. Internal Audit supports both Committees by attendance and/or the provision of quarterly reports resulting from its work on governance, risk and control issues of significance.Group. The Board Audit Committee reviews and approves Internal Audit’s plans and resources, and evaluates the effectiveness of Internal Audit.
An assessment by external advisers is also carried out periodically.
In addition to the Committees shown in the chart, there is a Brand and Reputation Committee reviewing emerging issues with potentially significant reputational impact.
Governance structure atRisk management responsibilities are laid out in thePrincipal Risks Policy, which covers the categories of risk in which the Group levelhas its most significant actual or potential risk exposures.
The Principal Risks Framework:
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The Group Risk Director has overall day to day accountability for risk management. Reporting to the Group Risk Director are Group Risk Heads for Retail Credit Risk, Wholesale Credit Risk, Market Risk, Operational Risk, Financial Crime Risk and Capital Demand. Along with their teams, they are responsible for establishing a risk control framework and risk oversight at Group level. This core team liaises with each business as part of the monitoring and management processes.
Each business has an embedded risk management team reporting to a Business Risk Director who reports to the Group Risk Director. The risk management teams assist Group Risk in the formulation of Group Risk policy and its implementation across the businesses.
Business risk teams are responsible for assisting Business Heads in the identification and management of their business risk profiles and for implementing appropriate controls. The functional coverage of risk responsibilities is illustrated in the diagram below.
Internal Audit is responsible for the independent review of risk management and the control environment.
To support risk taking, Barclays has continued to strengthen the independent and specialised risk teams in each of its businesses, supported by matching teams at Group level, acting in both a consultancy and oversight capacity. As a prerequisite to business growth plans, it has made the recruitment, development and retention of risk professionals a priority.
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Risk management
Barclays approach to risk management
– | ensures regular reporting of both risk exposures and the operating effectiveness of controls. |
Principal Risks
The Board is responsible for the Group Internal Control and Assurance Framework (‘GICAF’). As part of the GICAF, it approves the Principal Risks Policy, which sets out responsibilities for the management of the Group’s most significant risk exposures. The Board oversees the operating effectiveness of the Principal Risks Policy through the regular review of reports on the Group’s material risk exposures and controls.
The Group’s risk categorisation comprises 17 risk categories (‘Level 1’), 13 of which are known as Principal Risks. Each Principal Risk is owned by a senior individual atwithin Barclays, known as the Group level, who liaises with Principal Risk owners within Business Units and Group Centre Functions. The 17 risk categories are shown in the panel below.
Each Group Principal Risk Owner (‘GPRO’)(PRO) who is responsible for setting minimumrequired to document, communicate and maintain a risk control framework which makes clear the mandated control requirements in managing that Principal Risk, for their risk and for overseeing the risk and control performanceevery business across the Group. Groupfirm.
These control requirements (e.g. Group Policies/Processes/Committee oversight) for each of these risks are defined, in consultation with Business Units, and communicated and maintained by the GPRO.
Implementation of the control requirements for each Principal Risk provides each Business Unit or Group Centre Function with the foundation of its system of internal control for that particular risk. This will usually be built upon in more detail,given further specification, according to the circumstances of each Business Unit,business unit or risk type, to provide a complete and appropriate system of internal control.
The specific controls for individual Principal Risks are supplemented by generic risk management requirements. These requirements are articulated as the Group’s Operational Risk Management Framework (see page 117) and include policies on:
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Business Unitunit and Group Centre Function Headscentre heads are responsible for maintainingobtaining ongoing assurance that the controls they have put in place to manage the risks to their business objectives are operating effectively. They are required to undertake a formal six-monthly review of assurance information. TheseSix-monthly reviews support the regulatory requirement for the Group to make a statement about its system of internal controlcontrols (the ‘Turnbull’ statement), in the Annual Report and Accounts.
PROs report their assessments of the risk exposure and control effectiveness to Group-level oversight committees. Their assessments form the basis of the reports that go to the Board Risk Committee.
Setting and using Risk Appetite
Risk Appetite is the level of risk the Board of BarclaysGroup chooses to take in pursuit of its strategic objectives, recognisingbusiness objectives.
As part of the yearly planning process, we add up our estimated bad debts charges and ask ourselves if that potential level of credit loss is consistent with our strategy, with our business position, and with our capital.
The starting point is the total expected credit loss, assuming the base case economic forecast. To gain a rangemore rounded understanding of possible outcomes as business plansthe risk, the Group estimates credit losses based on the kind of stressed conditions that can be expected to occur approximately once every seven years (moderate stress) and once every 25 years (severe stress). These potentially larger but increasingly less likely levels of loss are implemented. Barclays framework, approved byillustrated in the Risk Appetite concepts chart below.
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Risk Appetite is prepared for the Board, Risk Committee, combines a top-down view of its capacity to take risk with a bottom-up viewas part of the business risk profile requested and recommended by each business area.
To determine this acceptable levelformal planning process. The Board requires credible plans that show the Executive is aware of risk management estimatessensitivities and potential downside cases, and is investing capital into sustainable businesses over an economic cycle. The Chief Risk Officer leads the potential earnings volatility from different businesses under various scenarios.
This annual setting of Risk Appetite considersdiscussion at the Bank’s ability to support business growth, desired dividend payout levelsExecutive and capital ratio targets.Board levels. If the projections entail too high a level of risk, management will challenge each area to find new ways to rebalance the business mix to incur less risk on a diversified basis.overall risk. Performance against Risk Appetite is measured and reported to the Executive and Board regularly throughout the year.
As well as credit risk, the Risk Appetite framework also considers market and operational risks.
Barclays believes that this framework enables ituses Risk Appetite to:
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There is a second element to Risk Appetite setting in Barclays: the extensive system ofMandate and Scalelimits, which are set by the independent Group Risk function, formally monitored each month and subject to Board-level oversight.
The framework operates through limits and triggers, which work in tandem with clearly defined lending criteria for specific sectors, industries and products, in order to maintain asset quality.
For example, in the UK mortgage business a series of explicit mandate and scale limits have kept the average loan to value of the portfolio at conservative levels, set an upper boundary on the proportion of buy-to-let customers, and set at ‘zero’ our appetite to offer self-certified mortgages.
In our commercial property finance portfolios, a comprehensive series of limits are in place to control exposure within each business and geographic market. To ensure that limits are aligned to the underlying risk characteristics, the Mandate and Scale limits differentiate between types of exposure. There are, for example, individual limits for property investment and property development and for senior and subordinated lending. Since the onset of the global economic downturn, these limits have been reduced significantly and the frequency of review has been increased.
Barclays uses the Mandate and Scale framework to:
– | limit concentration risk; |
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The Risk Appetite framework considers credit, market and operational risk and is applied using two perspectives: ‘financial volatility’ and ‘mandate and scale’.
Financial Volatility is the level of potential deviation from expected financial performance that Barclays is prepared to sustain at relevant points on the risk profile. It is established with reference to the strategic objectives and to the business plans of the Group, including the achievement of annual financial targets, payment of dividends, funding of capital growth and maintenance of acceptable capital ratios and our credit rating. The portfolio is analysed in this way at four representative levels:
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These potentially larger but increasingly less likely levels of loss are illustrated in the Risk Appetite concepts chart below. The Mandate and Scale framework is a formal review and control of our business activities to ensure that they are within our mandate (i.e. aligned to the expectations of external stakeholders) and are of an appropriate scale (relative to the risk and reward of the underlying activities). Appropriate assurance is achieved by using limits and triggers to avoid concentrations and operational risks which could lead to unexpected losses of a scale that would result in a disproportionate fall in Barclays market capitalisation.
Taken as a whole, the Risk Appetite framework provides a basis for the allocation of risk capacity to each business. Since the level of loss at any given 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.
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Barclays risk management strategy
continued
Risk MethodologiesModelling risk
FundamentalRisk taking on any meaningful scale requires quantification. Barclays uses risk models in an extensive range of decisions, from credit grading, pricing and approval to portfolio management, risk appetite setting, economic capital allocation and regulatory capital calculations.
The key inputs into the delivery of the Group’s risk management objectives are a series of risk methodologies that allow it to measure, model, price, stress, aggregate, report and mitigate the risks that arise from its activities. Many of the most important processes relate to the internal ratings used in granting credit and are discussed separately on page 82. The specific methodologiesmodels used to manage marketquantify credit risk liquidity risk, capital risk and operational risk are also discussed in their corresponding sections. At a more general level, the Group’s approach to risk management can be illustrated through its use of stress testing and the controls around model governance.
Stress testing
As part of the annual stress testing process, Barclays estimates the impact of a severe economic downturn on the projected demand and supply of capital. This process enables the Group to assess whether it could meet its minimum regulatory capital requirements throughout a severe recession. The Risk Appetite numbers are validated by estimating the Group sensitivity to adverse changes in the business environment and to include operational events that impact the Group as a whole using stress testing and scenario analysis. For instance, changes in certain macroeconomic variables represent environmental stresses which may reveal systemic credit and market risk sensitivities in our retail and wholesale portfolios.
The recession scenarios considered incorporate changes in macroeconomic variables, including:are:
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Such Group-wide stress tests allow senior management to gainThese models are used in a better understandingrange of how portfolios are likely to react to changing economic and geopolitical conditions and how the Group can best prepare for and react to them. The stress test simulates the balance sheet and profit and loss effects of stressesapplications that measure credit risk across the Group, investigatingGroup. For example, Barclays can assign an expected loss over the impact on profitsnext 12 months to each customer by multiplying these three factors. We calculateprobability of default(PD) by assessing the credit quality of borrowers and other counterparties. For the abilitysake of illustration, suppose a customer has a 0.5% probability of defaulting over a 12-month period. Theexposure at default(EAD) is our estimate of what the outstanding balance will be, if the customer does default. Supposing the current balance is £1,000, our models might predict a rise to maintain appropriate capital ratios. Insights gained are fully integrated into the senior management process and the Risk Appetite framework. This process of analysis and senior management oversight also provides the basis for fulfilling the stress testing requirements of Basel II.
Group-wide stress testing is only one of a number of stress test analyses that are performed as£1,200 by then. Should customers default, some part of the wider risk management process. Specific stress test analysisexposure is used across all risk typesusually recovered. The part that is not recovered, together with the economic costs associated with the recovery process, comprise theloss given default(LGD), which is expressed as a percentage of EAD. Supposing the LGD in this case is estimated to gain a better understanding ofbe 30%, the risk profile and the potential effects of changes in external factors. These stress tests are performed at a range of different levels, from analysis covering specific stresses on individual sub-portfolios (e.g. the impact of higher unemployment on the US cards portfolio) to regularly assessed stress scenarios (such as the effect of a sudden rise in global interest rates on Barclays Capital’s market exposures).
Model Governanceexpected loss for this customer is: 0.5% x £1,200 x 30% or £1.80.
BarclaysThe Group has a large numberan extensive range of models in place across the Group,use, covering allestimations of PD, EAD, LGD as well as many other types of risk types.besides credit risk. The models are developed and owned by each business unit and used to measure risk in their portfolios. To minimise the risk of loss through model failure, athe Group Model Risk Policy (GMRP) has beenwas developed. This has been extensivelyIt is managed by the independent Group Risk function and was reviewed and enhancedexpanded during the course of 2008.2009.
The GMRP helps reduce the potential for model failure by setting Group-wide minimum standards aroundfor the model development and implementation process. The PolicyGMRP also sets the Group governance processes for all
models, which allows model performance and risk to be monitored, and seeks to identify and escalate any potential problems at an early stage.
To help ensure that sufficientthe governance process is effective, and that management time is spentfocused on the more material models, each model is provided with a materiality rating. The GMRP defines the materiality ranges for all model types. The materiality ranges aretypes, based on an assessment of the impact to the Group in the event of a model error. The final level of model sign-off is based on materiality, affectswith all of a business unit’s models initially being approved in business unit committees. The more material models are also approved at the approvalGroup-level Material Models Technical Committee, and reporting level for each model, with the most material models being approvedrequire further approval by the Executive Models Committee, a technical sub-committee of Group Executive Committee.
This process ensures that the most significant models are subject to the most rigorous review, and that senior management have a good understanding of the most material models in the Group. Although the final level of model sign-off will vary, depending on model materiality, the standards of model build, implementation, monitoring and maintenancerequired by the GMRP do not change with the materiality level.
DocumentationThe GMRP also sets detailed standards that a model must meet during development and subsequent use. For new models, documentation must be sufficiently detailed to allow an expert to understand all appropriate aspects of model development.development such that they could reproduce the model. It must include a description of the data used for model development, the methodology used (and the rationale for choosing such a methodology), a description of any assumptions made, as well as details of where the model works wellstrengths and areas that are known model weaknesses.weaknesses of the model.
All new models are subject to a validation and independent review process before the modelthey can be signed-offsigned off for implementation. The model validation exercise must demonstrate that the model is fit for purpose and provides accurate estimates. The independent review process will also ensure that all aspects of the model development process have been performed in a suitable manner.
The initial sign-off process ensures that the model is technically fit for purposedevelopment has followed a robust process and that the standards of the GMRP have been met, as well as ensuring that the model satisfies the business requirements and all the relevant regulatory requirements. As detailed above,In addition, the processmost material models are subject to independent review by Group Risk. Once implemented, all models are subject to post-implementation review. This confirms that the model has been implemented correctly and behaves as predicted.
The GMRP also sets the requirements for model sign-off is based on materiality, with all of a business unit’s models at least initially being approved in business-led committees,ongoing performance monitoring and Group involvement increasing as the models become more material.
annual review process. Once implemented, all models within the Group are subject to ongoing performance monitoring to ensure that any deficiencies are identified early, and that remedial action can be taken before the decision-making process is affected. As part of this process,
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model owners set performance triggers and define appropriate actions for their models in the event that a trigger level is breached.
In addition to regular monitoring, models are subject to an annual validation process to ensure that they are performingwill continue to perform as expected, and that assumptions used in model development are still appropriate. In line with initial sign-off requirements, annual validations are also formally reviewed at the appropriate technical committee.
In addition to annual validation, models are subject to quarterly performance monitoring. Model performance monitoring ensures that deficiencies are identified early, and that remedial action can be taken before the deficiency becomes serious enough to affect the decision-making process. As part of this process, model owners set performance triggers and define appropriate actions for their models in the event of breaches.
Externally developed models are subject to the same governance standards as internal models, and must be initially approved for use following the validation and independent review process. External models are also subject to the same standards for ongoing monitoring and annual validation requirements.
Within Barclays Capital, where models are used to value positions within the trading book, the positions are subject to regular independent price testing which covers all trading positions. Prices are compared towith direct external market data where possible. When this is not possible, more analytic techniques are used, such as industry consensus pricing services. These services enable Barclayspeer banks to anonymously compare structured products and model-input parameters with those of other banks engaged in the trading of the same financial products.on an anonymous basis. The conclusions and any exceptions to this exercise are communicated to senior levels of business management.
Externally developed models are subject to the same governance standards as internal models, and infrastructure management.must be approved for use following the validation and independent review process. External models are also subject to the same standards for ongoing monitoring and annual validation requirements.
Stress testing
A fundamental duty of risk management is to ensure that organisations do not neglect to prepare for the worst event as they plan for success. Stress testing helps Barclays to understand how its portfolios would react if business conditions became significantly more challenging. We generate specific forward-looking scenarios and analyse how well our profitability would hold up, whether our levels of capital would be adequate and what managers could do ahead of time to mitigate the risk.
Stress tests capture a wide range of macroeconomic variables that are relevant to the current environment, such as:
– | GDP; |
– | unemployment; |
– | asset prices; and |
– | interest rates. |
The Board Risk Committee agrees the range of scenarios to be tested and the independent Group Risk function co-ordinates the process, using bottom-up analysis performed by the businesses. The results of the stress tests are presented to the Executive Committee, the Board Risk Committee, the Strategy Board and the UK Financial Services Authority (FSA).
In 2009, the range of stress scenarios included the stress test set out by the FSA as part of its assessment of the Group’s resilience to stressed credit risk, market risk and economic conditions over a five-year period. This stress scenario took into account a wide range of factors, including:
– | the Group’s revenue generation potential given stressed GDP and interest rates assumptions; |
– | the probability of default and possible losses given default within its loan book; and |
– | possible declines in the market value of assets held in the trading books. |
Following this work and discussion with the FSA, the Group was able to confirm that its capital position and resources, after exposure to the stress, were expected to continue to meet the FSA’s capital requirements.
Barclays uses stress testing techniques at Group, portfolio and product level and across a range of risk types. For example, portfolio management in the US cards business employs stressed assumptions of unemployment to determine profitability hurdles for new accounts. And in the UK mortgage business, affordability thresholds incorporate stressed estimates of interest rates.
In the Investment Banking division, global scenario testing is used to gauge potential losses that could arise in conditions of extreme market stress. Stress testing is also conducted on our positions in particular asset classes, including interest rates, commodities, equities, credit and foreign exchange.
Further details of the Group’s stress testing relating to liquidity risk is set out on page 102.
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Risk management
Credit risk is the risk of suffering financial loss should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group.
The granting of credit is one of the Group’s major sources of income and, as itsthe most significant risk, the Group dedicates considerable resources to controlling it. The importance of credit risk is illustrated by noting that almost two-thirds of risk-based economic capital is allocated to credit risk.
The credit risk that the Group faces arises mainly from wholesale and retail loans and advances.advances together with the counterparty credit risk arising from derivative contracts entered into with our clients.
Barclays is also exposed to other credit risks arising from its trading activities, including debt securities, derivatives, settlement balances with market counterparties, available for sale assets and reverse repurchase loans.
In managing credit risk, the Group applies the five-step risk management process and internal control framework. Specific creditprocess. Credit risk management objectives are:
– | To |
– | To identify, assess and measure credit risk clearly and accurately across the Group and within each separate business, from the level of individual facilities up to the total portfolio. |
– | To control and plan |
– | To |
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– | To ensure that |
In the review of Barclays credit risk management that follows, we first explain how the Group meets its credit risk management objectives through its organisation, structure and governance, its measurement, reporting and system of internal ratings and its mechanisms for credit risk mitigation.ratings.
We then provide a summary of the Group’s total assets, including the asset types which give rise to credit risk and counterparty credit risk, namely: loans and advances, debt securities and derivatives.
On pages 7668 to 89,79, we set out a detailed analysis of the Group’s loans and advances across a number of asset classes and businesses referencing significant portfolios and including summary measures of asset quality.
We next provide disclosures and analyses of the credit risk profiles of these asset categories, beginning with Barclays Capital’s credit market exposures by asset class, covering current exposures, losses during 2008,2009, sales and paydowns, foreign exchange movements and, where appropriate, details of collateral held, geographic spread, vintage and credit quality. These are given on pages 9381 to 105.90.
Finally, additional analysis of debt securities and derivatives can be foundis provided on pages 90 and 91 to 92.93.
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Risk management
Credit risk management
Barclays has structured the responsibilities of credit risk management so that decisions are taken as close as possible to the business, whilst ensuring robust review and challenge of performance, risk infrastructure and strategic plans.
The credit risk management teams in each business are accountable to the Business Risk Directorsbusiness risk directors in those businesses who, in turn, report to the heads of their businesses and also to the Chief Risk Director. TheseOfficer.
The role of the Group Risk function is to provide Group-wide direction, oversight and challenge of credit risk-taking. Group Risk sets the Credit Risk Control Framework, which provides a structure within which credit risk management teams assistis managed together with supporting Group Credit Risk Policies.
Group Credit Risk Policies currently in the formulation of Group Risk policy and its implementation across the businesses. Examplesforce include:
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– | Repayment plans policy for setting the standards for repayment plans and restructures within retail portfolios; and |
– | Impairment and provisioning policies to ensure that measurement of impairment accurately reflects incurred losses and that clear governance procedures are in place for the calculation and approval of impairment allowances. |
The largest credit exposures are approved at the Group Risk, the Credit Risk function provides Group-wide direction of credit risk-taking. This functional team manages the resolution of all significant credit policy issues and runs the Credit Committee which is managed by Group Risk. Group Risk also manages and approves majorthe Mandate and Scale limits and triggers which mitigate concentration risk and define appetite in risk sensitive areas of the portfolio such as commercial property finance (see page 63).
Group Risk also provides technical support, review and validation of credit decisions.risk measurement models across the Group.
The principal Committees that review credit risk management, formulateapprove overall Group credit policy and resolve all significant credit policy issues are the Board Risk Committee, the Group Risk Oversight Committee, the Wholesale Credit Risk Management Committee and the Group Retail Credit Risk Management Committee. Senior Group and business risk management are represented on the Group Risk Oversight Committee, the Wholesale Credit Risk Oversight
Management Committee and the BoardRetail Credit Risk Management Committee. The Board Audit Committee also reviews the impairment allowance as part of financial reporting.
The GroupOn a semi-annual basis, the Credit Risk Impairment Committee (GCRIC), on a semi-annual basis,(CRIC) obtains assurance on behalf of the Group that all businesses are recognising impairment in their portfolios accurately, and promptly in their recommendations and in accordance with policy, accounting standards and established governance.
GCRIC exercises the authority of the Group Risk Director, as delegated by the Group Chief Executive, andCRIC is chaired by Barclaysthe Credit Risk Director. GCRICDirector and reviews the movements to impairment in the businesses, including those already agreed at Credit Committee, as well as Potential Credit Risk Loans,potential credit risk loans, loan loss rates, asset quality metrics and Risk Tendency.impairment coverage ratios.
These committees are supported by a number of Group policies including:
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GCRICCRIC makes twice-yearly recommendations to the Board Audit
Committee on the adequacy of Group impairment allowances. Impairment allowances are reviewed relative to the risk in the portfolio, business and economic trends, current policies and methodologies, and our position againstrelative to peer banks.
GCRIC has delegated the detailed review of loan impairment in the businesses to the Retail and Wholesale Credit Risk Management Committees.
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Risk management
Credit risk management
Measurement reporting and internal ratings
The principal objective of credit risk measurement is to produce the most accurate possible quantitative assessment of the credit risk to which the Group is exposed, from the level of individual facilities up to the total portfolio. Integral to this is the calculation of internal ratings, which are used in numerous aspects of credit risk management and in the calculation of regulatory and economic capital. The key building blocks inof this quantitative assessmentprocess are:
– | Probability of default (PD). |
– | Exposure |
– | Loss given default (LGD) |
Barclays first began to use internal estimates of PD in its main businesses in the 1990s. Internally derived estimates for PD, EAD and LGD have since been used in our major risk decision-making processes, enabling the application of coherent risk measurement across all credit exposures, retail and wholesale.
With the advent of the Basel II accord on banking, Barclays has been given permission to use internal rating models as an input to its regulatory capital calculations. In preparation, Barclays spent considerable time developing and upgrading a number of such models across the Group, moving towards compliance with the Basel II advanced internal ratings based approach. As part of this process, all Basel credit risk models have been assessed against the Basel II minimum requirements prior to model sign-off to ensure that they are fit to be used for regulatory purposes.
Applications of internal ratings
The three components described above – the PD, EAD and LGD – are building blocks used in a variety of applications that measure credit risk across the entire portfolio. These parameters can be calculated incorporating different aspects of the credit cycle into the estimates:
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These parameters, in suitable combination, are used in a wide range of credit risk measurement and management and as our understanding and experience have developed, we have extended the use and sophistication of internal ratings into the following:
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Calculation of internal ratings
To calculateprobability of default (PD), Barclays assesses the credit quality of borrowers and other counterparties and assigns them an internal risk rating. Multiple rating methodologies may be used to inform the overall rating decision on individual large credits, such as internal and external models, rating agency ratings, and, for wholesale assets, market information such as credit spreads. For smaller credits, a single source may suffice such as the result from an internal rating model. Barclays recognises the need for
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two different expressions of PD depending on the purpose for which it is used. For the purposes of calculating regulatory and economic capital, long-run average through-the-cycle (TTC) PDs are required. However, for the purposes of pricing, PDs should represent the best estimate of probability of default typically in the next 12 months, dependent ongiven the current position in the credit cycle. Hence, point-in-time (PIT) PDs are also required.
Each PD model outputs a point-in-time (PIT), through-the-cycle (TTC)an estimate of default probability that is PIT, TTC or a hybrid e.g.(e.g. a 50:50 blend, default estimate. Conversionblend). Bespoke conversion techniques, appropriate to the portfolio in question, are then applied to calculate bothconvert the model output to pure PIT and TTC PD estimates. IndustryIn deriving the appropriate conversion, industry and location of the counterparty and an understanding of the current and long-term credit conditions are considered in deriving the appropriate conversion. Two ratings are therefore recorded for each client, theconsidered. Both PIT and the TTC estimates.PD estimates are recorded for each client.
Within Barclays, the calculation of internal rating system also differentiatesratings differs between wholesale and retail customers. For wholesale portfolios, the rating system is constructed to ensure that eacha client receives the same rating independentregardless of the part of the business with which they areit is dealing. To achieve this, a model hierarchy is adopted which requires users to adopt a specific approach to rating each counterparty depending upon the nature of the business and its location.
A range of methods is approvedare utilised for estimating wholesale counterparty PDs. These include bespoke grading models developed within the Barclays Group (Internal Models)(internal models), vendor models such as MKMV Credit Edge and RiskCalc, and a conversion of external alphabet ratings from either S&P, Moody’s or Fitch. Retail models, especially those used for capital purposes, are almost exclusively built internally using Barclays data, although in somedata. In many cases bureau data is used to complement internal data and in rare cases models may bedeveloped by the credit bureau themselves are used in conjunction with theseinternal models. In addition, in some low data/low default environments, external developments may also be utilised for decision-making purposes.utilised.
A key element of the Barclays Wholesalewholesale framework is the probability of default distribution, which maps PDs into internal grades both for PIT (default grades) and TTC (TTC band) purposes.PD Masterscale (see below). This scale has been developed to recorddistinguish meaningful differences in the probability of default risk at meaningful levels throughout the risk range. In contrast to wholesale businesses, retail areas do notrarely bucket exposures into generic grades for account management purposes (although they may be used for reporting purposes). Instead, accounts are managed either at a more granular level or based onand bespoke segmentations.level.
Exposure at default (EAD) represents the expected level of usage of the credit facility whenshould default occurs.occur. At the point of default, the customer may not have drawnexposure can vary from the loan fully or may already have repaid somecurrent position due to the combined effects of theadditional drawings, repayment of principal
Barclays probability of default grades (wholesale) | ||||||
DG/TTC | Default Probability | |||||
Band | >=Min | Mid | <Max | |||
1 | 0.00% | 0.010% | 0.02% | |||
2 | 0.02% | 0.025% | 0.03% | |||
3 | 0.03% | 0.040% | 0.05% | |||
4 | 0.05% | 0.075% | 0.10% | |||
5 | 0.10% | 0.125% | 0.15% | |||
6 | 0.15% | 0.175% | 0.20% | |||
7 | 0.20% | 0.225% | 0.25% | |||
8 | 0.25% | 0.275% | 0.30% | |||
9 | 0.30% | 0.350% | 0.40% | |||
10 | 0.40% | 0.450% | 0.50% | |||
11 | 0.50% | 0.550% | 0.60% | |||
12 | 0.60% | 0.900% | 1.20% | |||
13 | 1.20% | 1.375% | 1.55% | |||
14 | 1.55% | 1.850% | 2.15% | |||
15 | 2.15% | 2.600% | 3.05% | |||
16 | 3.05% | 3.750% | 4.45% | |||
17 | 4.45% | 5.400% | 6.35% | |||
18 | 6.35% | 7.500% | 8.65% | |||
19 | 8.65% | 10.000% | 11.35% | |||
20 | 11.35% | 15.000% | 18.65% | |||
21 | 18.65% | 30.000% | 100.00% |
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 and interest and fees. EAD parameters are all derived from internal estimates and are determined from internal historical experience. It recognises that customers may make heavier than average usage of their facilities as they approach default.behaviour. The lower bound of EAD for regulatory capital purposes is the actual outstandingcurrent balance at calculation of EAD. For derivative instruments, exposure in the event of default is the estimated cost of replacing contracts with a positive value should counterparties fail to perform their obligations.
WhenShould a customer defaults,default, some part of the amount outstanding on the loanexposure is usually recovered. The part that is not recovered, the actual loss, together with the economic costs associated with the recovery process, comprise theloss given default(LGD), which is expressed as a percentage of EAD. Using historical information, theThe Group estimates how much is likely to be lost, onan average LGD for various typeseach type of loans in the event of default.
exposure using historical information. The level of LGD depends principally 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 length of time taken for the recovery process and the timing of all associated cash flows; and 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, whether a business can readily be refinanced or the availability of a repayment source for personal customers.
The ratings process
The term ‘internal ratings’ usually refers to internally calculated estimates For the purposes of PD. These ratings are combined with EAD and LGD in the range of applications described previously. The ‘ratings process’ refersregulatory capital an adjustment is made to the use of PD, EAD andmodelled LGD across the Group. In Barclays, the rating process is defined by each business. For central government and banks, institutions and corporate customers many of the models used in the rating process are shared across businesses as the models are customer specific. For retail exposures, the ratings models are usually unique to the business and product type e.g. mortgages, credit cards, and consumer loans.
Wholesale Approaches
A bespoke model has been built for PD and LGD forSovereign ratings. For Sovereigns where there is no externally available rating, we use an internally developed PD scorecard. The scorecard has been developed using historic data on Sovereigns from an external data provider covering a wide range of qualitative and quantitative information. Our LGD model is based on resolved recoveries in the public domain, with a significant element of conservatism added to compensateaccount for the small sample size.increased losses experienced under downturn conditions, giving a ‘downturn LGD’.
Barclays PD Masterscale
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Default grade/ TTC Band | Default Probability | |||||
>=Min | Mid | <Max | ||||
1 | 0.00% | 0.010% | 0.02% | |||
2 | 0.02% | 0.025% | 0.03% | |||
3 | 0.03% | 0.040% | 0.05% | |||
4 | 0.05% | 0.075% | 0.10% | |||
5 | 0.10% | 0.125% | 0.15% | |||
6 | 0.15% | 0.175% | 0.20% | |||
7 | 0.20% | 0.225% | 0.25% | |||
8 | 0.25% | 0.275% | 0.30% | |||
9 | 0.30% | 0.350% | 0.40% | |||
10 | 0.40% | 0.450% | 0.50% | |||
11 | 0.50% | 0.550% | 0.60% | |||
12 | 0.60% | 0.900% | 1.20% | |||
13 | 1.20% | 1.375% | 1.55% | |||
14 | 1.55% | 1.850% | 2.15% | |||
15 | 2.15% | 2.600% | 3.05% | |||
16 | 3.05% | 3.750% | 4.45% | |||
17 | 4.45% | 5.400% | 6.35% | |||
18 | 6.35% | 7.500% | 8.65% | |||
19 | 8.65% | 10.000% | 11.35% | |||
20 | 11.35% | 15.000% | 18.65% | |||
21 | 18.65% | 30.000% | 100.00% |
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Risk management
Credit risk management
Measurement, reporting and internal ratings
To construct ratings forinstitutions, corporates, specialised lending and purchased corporate receivables andequity exposures, we use external models, rating agencies and internally constructed models. The applicability of each of these approaches to our customers has been validated by us to internal rating standards. The data used in validating these primary indicators are representative of the population of the bank’s actual obligors and exposures and its long-term experience.
Internally built PD models are also widely used. We employ a range of methods in the construction of these models. The basic types of PD modelling approaches used are:
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Structural models incorporate in their specification the elements of the industry-accepted Merton framework to identify the distance to default for a counterparty. This relies upon the modeller having access to specific time series data or data proxies for the portfolio. Data samples used to build and validate these models are typically constructed by adding together data sets from internal default observations with comparable externally obtained data sets from commercial providers such as rating agencies and industry gathering consortia.
Expert lender models are used for parts of the portfolio where the risk drivers are specific to a particular counterparty, but where there is insufficient data to support the construction of a statistical model. These models utilise the knowledge of credit experts that have in depth experience of the specific customer type being modelled.
For any of the portfolios where we have a low number of default observations we adopt specific rules to ensure that the calibration of the model meets the Basel II and FSA criteria for conservatism. We have developed our own internal policy which describes specific criteria for the use of parametric and non-parametric low default portfolio calibration techniques.
Statistical models such as behavioural and application scorecards are used for our high volume portfolios such as Small/Medium Enterprises (SME). The model builds typically incorporate the use of large amounts of internal data, combined with supplemental data from external data suppliers. Where external data is sourced to validate or enhance internally-held data as part of the risk assessment process or to support model development and BAU operation, a similar approach is adopted towards ensuring data quality to that applied to the management of internal data. This entails adherence to the Group’s procurement and supplier management process, including the agreement of specifications and service level agreements.
In wholesale portfolios the main approaches to calculate LGD aim to establish the affects of drivers (including industry, collateral coverage, recovery periods, seniority and costs) by looking at Barclays historical experience, supplemented with other external information where necessary. Estimates built using historical information are reviewed to establish whether they can be expected to be representative of future loss rates, and adjusted if necessary.
In a similar fashion, wholesale EAD models estimate the potential utilisation of headroom based on historical information also considering the future outlook of client behaviour.
Typically, modellers do not manipulate external data before using it as input to the model estimation or validation procedure. Changes required in the estimation and validation process are documented in the model build papers.
For all the above asset classes we use the Basel II definition of default, utilising the 90 day past due criteria as the final trigger of default.
Derivative counterparty credit risk measurement
The magnitude of trading exposure is determined by considering the current mark to market of the contract, the historic volatility of the underlying asset and the time to maturity. This allows calculation of a credit equivalent exposure (CEE) for such exposures using a stochastic method and a 98% confidence level.
Retail Approaches
Ourretail banking operations have long and extensive experience of using credit models in assessing and managing risk in their businesses and as a result models play an integral role in customer approval and management processes.
Models used include PD models, mostly in the form of application and behavioural scorecards, as well as LGD and EAD models.
Application scorecards are derived from the historically observed performance of new clients. They are built using customer demographic and financial information, supplemented by credit bureau information where available. Through statistical techniques, the relationship between these candidate variables and the default marker is quantified to produce output scores reflecting a PD. These scores are used primarily for new customer decisioning but are, in some cases, also used to allocate PDs to new customers for the purposes of capital calculation.
Behavioural scorecards are derived from the historically observed performance of existing clients as well as being supplemented by the same data as is used for application scoring, including the use of bureau data. The techniques used to derive the output are the same as for application scoring. The output scores are used for existing customer management activities as well as for allocating PDs to existing customers for the purposes of capital calculation.
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It is Barclays philosophy to embed Basel II models as extensively as possible in the portfolio management process. This is an ongoing initiative and we expect greater convergence over time. However, in some cases there are sound business reasons for having different models for capital allocations and internal processes.
EAD models within retail portfolios are split into two main methodological categories. The less complex models derive product level credit conversion factors (CCFs) from historical balance migrations; these are frequently further segmented at a delinquency bucket level. The most sophisticated EAD models are behavioural based, determining customer level CCFs from characteristics of the individual facility.
Retail LGD models are built using bespoke methods chosen to best model the observed recovery process. In a number of secured portfolios, structural models are often used which parameterise the LGD drivers giving models which can easily be updated to reflect current market trends. Models based on historical cash collected curves are often utilised in portfolios where recoveries are not based on the recovery of a single source of collateral. Finally, in some instances regression techniques are used to generate predicted LGDs based on account characteristics. In all instances bespoke country level factors are derived to discount recovery flows to the point of default. For capital calculations, customised economic downturn adjustments are made to adjust losses to stressed conditions.
Most retail models within Barclays are built in-house, although occasionally external consultants will be contracted to build models on behalf of the businesses. Whilst most models are statistically or empirically derived, some expert lender models (similar to those described above in the wholesale context) are used, particularly where data limitations preclude a more sophisticated approach.
Where models are used in the calculation of regulatory capital, the definition of default is in line with the regulatory definition of default requirements i.e. for UK portfolios the default definition is 180 days past due whilst international regulators may have different rules. In some cases, for models not used in regulatory capital calculations, in order to maximise model suitability, different default definitions are used. However, in all cases EAD and LGD models are appropriately aligned.
The control mechanisms for the rating system
Each of the business risk teams is responsible for the design, oversight and performance of the individual credit rating models – PD, LGD and EAD – that comprise the credit rating system for a particular customer within each asset class. Group-wide standards in each of these areas are set by Group Risk and are governed through a series of committees with responsibility for oversight, modelling and credit measurement methodologies.
Through their day-to-day activities, key senior management in Group Credit Risk, the businesses and the business risk teams have a good understanding of the operation and design of the rating systems used.
For example:
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In addition,Group Model Risk Policy requires that all models be validated as part of the model build (see page 66). This is an iterative process that is carried out by the model owner. Additionally, a formal independent review is carried out after each model is built to check that it is robust, meets all internal and external standards and is documented appropriately. These reviews must be documented and conducted by personnel who are independent of those involved in the model-building process. The results of the review are required to be signed off by an appropriate authority.
In addition to the independent review, post implementation and annual reviews take place for each model. These reviews are designed to ensure compliance with policy requirements such as:
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Model performance is monitored regularly; frequency of monitoring is monthly for those models that are applicable to higher volume or volatile portfolios, and quarterly for lower volume or less volatile portfolios. Model monitoring includes coverage of the following characteristics: utility, stability, efficiency, accuracy, portfolio and data.
Model owners set performance ranges and define appropriate actions for their models. As part of the regular monitoring, the performance of the models is compared with these operational ranges. If breaches occur, the model owner reports these to the approval body appropriate for the materiality of the model. The model approver is responsible for ensuring completion of the defined action, which may ultimately be a complete rebuild of the model.
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Risk management
Credit risk management
The Group uses a wide variety of techniques to reduce credit risk on its lending. The most basic of these is performing an assessment of the ability of a borrower to service the proposed level of borrowing without distress. In addition, the Group commonly obtains security for the funds advanced, such as in the case of a retail or commercial mortgage, a reverse repurchase agreement, or a commercial loan with a floating charge over book debts and inventories. The Group ensures that the collateral held is sufficiently liquid, legally effective, enforceable and regularly valued.
Various forms of collateral are held and commonly include: cash in major currencies; fixed income products including government bonds; letters of credit; property, including residential and commercial; and other fixed assets.
The Group actively manages its credit exposures and when weaknesses in exposures are detected – either in individual exposures or in groups of exposures – action is taken to mitigate the risks. These include steps to reduce the amounts outstanding (in discussion with the customers, clients or counterparties, if appropriate), the use of credit derivatives and, sometimes, the sale of the loan assets.
The Group also uses various forms of specialised legal agreements to reduce risk, including netting agreements which permit it to offset positive and negative balances with customers in certain circumstances to minimise the exposure at default, as well as financial guarantees, and the use of covenants in commercial lending agreements.
Barclays manages the diversification of its portfolio to avoid unwanted credit risk concentrations. A concentration of credit risk exists 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.
Credit risk mitigation to address concentrations takes several dimensions. Within wholesale credit risk, maximum exposure guidelines are in place relating to the exposures to any individual counterparty. These permit higher exposures to borrowers with higher ratings. They also distinguish between types of counterparty, for example, between sovereign governments, banks and corporations. Excesses to maximum exposure guidelines 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.
‘Wrong way risk’ in a trading exposure arises when there is significant correlation between the underlying asset and the counterparty which in the event of default would lead to a significant mark to market loss.
When assessing the credit exposure of a wrong way trade, analysts take into account the correlation between the counterparty and the underlying asset as part of the sanctioning process. Adjustments to the calculated CEE are considered on a case by case basis.
The Risk Oversight Committee has delegated and apportioned responsibility for risk management to the Retail and Wholesale Credit Risk Management Committees. The Retail Credit Risk Management Committee (RCRMC) oversees exposures, which comprise unsecured personal lending (including small businesses), mortgages and credit cards. The RCRMC monitors the risk profile and performance of the retail
portfolios by receipt of key risk measures and indicators at an individual portfolio level, ensuring mitigating actions taken to address performance are appropriate and timely. Metrics reviewed will consider portfolio composition at both an overall stock and new flow level.
The Wholesale Credit Risk Management Committee (WCRMC) oversees wholesale exposures, comprising lending to businesses, banks, other financial institutions and sovereigns. The WCRMC monitors exposure by country, industry sector, individual large exposures and exposures to sub-investment grade countries.
Country concentrations are addressed through the country risk policy and utilisation of country limits which specify Risk Appetite by country and avoid excessive concentrations of credits in individual countries. Country risk grades are assigned to all countries where the Group has, or is likely to have, exposure and are reviewed regularly to ensure they remain appropriate. Country grades, which are derived from long-term sovereign foreign currency ratings, range from 1 (lowest probability of default) to 21 (highest probability of default). A ceiling is applied where a country is graded 12 or worse so that the counterparty cannot normally receive a higher risk grading than the country, unless some form of protection is available in the event of a cross-border event, such as a significant portion of a counterparty’s assets or income being held or generated in hard currency.
To manage exposure to country risk, the Group uses two country limits: the Prudential Guideline and the Country Guideline. The Prudential Guideline is identified through the strict mapping of a country grade to derive a model-driven acceptable level of country appetite. The Country Guideline for all graded countries is set by the Credit Committee based on the Prudential Guideline and the internal assessment of country risk. The Country Guideline may therefore be above or below the Prudential Guideline.
Country risk is calculated through the application of Country Loss Given Default (CLGD). All cross-border or domestic foreign currency transactions incur CLGD from the Country Guideline agreed at Credit Committee. The level of CLGD incurred by a counterparty transaction will largely depend on three main factors: the country severity, the product severity and counterparty grade. CLGD is incurred in the country of direct risk, defined as where the majority of operating assets are held. This may differ from the country of incorporation. However, where transactions are secured with collateral, the country risk can be transferred from the country of the borrower to the country of the collateral provider. This is only permitted where the collateral covers the borrowing and is not expected to decrease over time.
Country Managers are in place for all countries where the Group has exposure and they, under the direction of Credit Committee, have responsibility for allocating country risk to individual transactions. The total allocation of country limits is monitored on a daily basis by Group Credit Risk, as headed by the Credit Risk Director. Discretions exist to increase the Country Guideline above the level agreed by Credit Committee where the Country Guideline is below the Prudential Guideline. All requests to increase the Country Guideline in line with individual discretions must be submitted to and applied centrally through Group Credit Risk.
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A further mitigant against undesirable concentration of risk is the mandate and scale framework described on page 65. Mandate and scale limits, which can also be set at Group level to reflect overall Risk Appetite, can relate either to the stock of current exposures in the relevant portfolio or to the flow of new exposures into that portfolio. Typical limits include the caps on UK commercial investment property lending, the proportion of lending with maturity in excess of seven years and the proportion of new mortgage business that is buy-to-let. The mandate and scale framework also provides protection against undue concentrations within the collateral held.
Concentrations of credit exposure described in this credit risk management section and the following statistical section 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, comparatively large credit impairment charges could arise in parts of the portfolio not mentioned here.
Securitisations
In the course of its business, Barclays has traditionally undertaken securitisations of its own originated assets as well as the securitisation of third party assets via sponsored conduit vehicles and shelf programmes.
Barclays has securitised its own originated assets in order to manage the Group’s credit risk position, to obtain regulatory capital relief, and to generate term liquidity for the Group balance sheet.
For these transactions Barclays adopts the following roles in the securitisation process:
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As at the end 2008 Barclays has securitised its own originated retail and commercial mortgages, credit cards and corporate loans across both funded traditional and synthetic transactions.
Barclays acts as an administrator and manager of multi-seller conduits through which interests in third-party-originated assets are securitised and funded via the issuance of asset backed commercial paper. From a regulatory perspective, Barclays would be defined primarily as a sponsor of these conduits.
In relation to such conduit activity, Barclays may provide all or a portion of the backstop liquidity to the commercial paper, programme-wide credit enhancement and, as appropriate, interest rate and foreign currency hedging facilities. Barclays receives fees for the provision of these services.
In addition to the above, Barclays has provided swaps to securitisation vehicles, both those sponsored by Barclays and those sponsored by third
parties, in order to provide hedges against interest rate and/or currency movements. This forms part of Barclays Capital’s market making activity in interest rate and foreign exchange products.
Barclays also acts as an investor in third-party securitisations (i.e. where Barclays would not be defined as an originator or a sponsor for regulatory purposes). This includes positions in ABS CDO Super Senior, other US Sub Prime & Alt A and bonds which benefit from monoline credit protection. See ‘Barclays Capital Credit Market Exposures’ on pages 93-105 for further details.
Due to the market disruption experienced since August 2007, the volume of securitisation activity in all forms that Barclays has undertaken has been more limited than previously. In addition, the change in risk weighting of certain assets (for example residential mortgages) and of banks securitisations exposures as a result of the introduction of the Basel II regime means that the extent of regulatory relief obtainable from securitisations has changed.
As such, Barclays own asset securitisation in 2008 was limited mainly to trades where securities have been retained on balance sheet and used as required as in central bank liquidity schemes.
During 2008, Barclays launched Salisbury Receivables Corporations (‘Salisbury’), a multi-seller asset-backed commercial paper conduit modelled after Sheffield Receivables Corporation (‘Sheffield’), which was launched in December 1991. Similar to Sheffield, Salisbury has the ability to issue both US commercial paper (‘CP’) and Euro CP notes to finance client asset-backed receivable transactions. Sponsored conduits primarily fund traditional assets such as credit cards, auto loans, student loans, prime mortgages and trade receivables.
RWAs reported for securitised assets at December 2008 are calculated in line with FSA regulations as well as any individual guidance received from the FSA as at the end of the period. Barclays has approval to use the Internal Ratings Based Approach for the calculation of RWAs. Within this, the Group uses the Internal Assessment Approach and the Supervisory Formula Approach to calculate its regulatory capital requirements arising from its securitisation exposures.
Further information about securitisation activities and accounting treatment is in Note 29. The Group’s accounting policies, including those relevant to securitisation activities are on page 179.
For certain transactions, there may be a divergence between the accounting and regulatory treatment of Barclays exposure to securitisations, for example in the treatment of exposure values. This will reflect differing guidance given in the accounting and regulatory regimes which in turn reflect the areas in which the aims of each regime differ.
Barclays employs External Credit Assessment Institutions to provide ratings for its asset backed securities. Their use is dependent on the transaction or asset class involved. For existing transactions, we employ Standard & Poor’s, Moody’s and Fitch for securitisations of corporate, residential mortgage and other retail exposures and Standard & Poor’s and Moody’s for securitisations of small and medium-sized entity and revolving retail exposures.
|
Risk management
Credit risk management
Analysis of total assets and credit risk exposures
Analysis of total assets | Sub analysis | |||||||||||||||||
Assets | Loans and advancesa £m | Debt £m | Derivatives c £m | Reverse repurchase agreements d £m | Other £m | Assets £m | Assets not £m | Total assets £m | Credit market exposurese £m | |||||||||
Cash and balances at central banks | 30,019 | 30,019 | 30,019 | |||||||||||||||
Items in the course of collection from other banks | 1,695 | 1,695 | 1,695 | |||||||||||||||
Treasury and other eligible bills | 4,544 | 4,544 | 4,544 | |||||||||||||||
Debt securities | 148,686 | 148,686 | 148,686 | 4,745 | ||||||||||||||
Equity securitiesf | 30,535 | 30,535 | ||||||||||||||||
Traded loans | 1,070 | 1,070 | 1,070 | |||||||||||||||
Commoditiesg | 802 | 802 | ||||||||||||||||
Total Trading portfolio assets | 1,070 | 153,230 | 154,300 | 31,337 | 185,637 | |||||||||||||
Financial assets designated at fair value | ||||||||||||||||||
Loans and advances | 30,057 | 130 | 30,187 | 30,187 | 14,429 | |||||||||||||
Debt securities | 8,628 | 8,628 | 8,628 | |||||||||||||||
Equity securitiesf | 6,496 | 6,496 | ||||||||||||||||
Other financial assetsh | 1,469 | 7,283 | 479 | 9,231 | 9,231 | |||||||||||||
Held on own account | 31,526 | 8,628 | – | 7,283 | 609 | 48,046 | 6,496 | 54,542 | ||||||||||
Held in respect of linked liabilities under investment contractsi | 66,657 | 66,657 | ||||||||||||||||
Derivative financial instruments | 984,802 | 984,802 | 984,802 | 9,234 | ||||||||||||||
Loans and advances to banks | 47,707 | 47,707 | 47,707 | |||||||||||||||
Loans and advances to customers | 461,815 | 461,815 | 461,815 | 12,808 | ||||||||||||||
Debt securities | 58,831 | 58,831 | 58,831 | 727 | ||||||||||||||
Equity securitiesf | 2,142 | 2,142 | ||||||||||||||||
Treasury and other eligible bills | 4,003 | 4,003 | 4,003 | |||||||||||||||
Available for sale financial instruments | 62,834 | 62,834 | 2,142 | 64,976 | ||||||||||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 130,354 | 130,354 | 130,354 | |||||||||||||||
Other assets | 3,096 | 3,096 | 3,206 | 6,302 | 109 | |||||||||||||
Current tax assets | 389 | 389 | ||||||||||||||||
Investments in associates and joint ventures | 341 | 341 | ||||||||||||||||
Goodwill | 7,625 | 7,625 | ||||||||||||||||
Intangible assets | 2,777 | 2,777 | ||||||||||||||||
Property, plant and equipment | 4,674 | 4,674 | ||||||||||||||||
Deferred tax assets | 2,668 | 2,668 | ||||||||||||||||
Total on-balance sheet | 542,118 | 224,692 | 984,802 | 137,637 | 35,419 | 1,924,668 | 128,312 | 2,052,980 | ||||||||||
Off-balance sheet: | ||||||||||||||||||
Acceptances and endorsements | 585 | |||||||||||||||||
Guarantees and letters of credit pledged as collateral security and securities lending arrangements | 53,942 | |||||||||||||||||
Commitments | 260,816 | 1,030 | ||||||||||||||||
Total off-balance sheet | 315,343 | |||||||||||||||||
Total maximum exposure to credit risk | 2,240,011 |
Notes
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Risk management
Credit risk management
As the granting of credit is one of the Group’s major sources of income and its most significant risk, theReporting
The Group dedicates considerable resources to gaining a clear and accurate understanding of credit risk across the business and ensuring that its balance sheet correctly reflects the value of the assets in accordance with applicable accounting principles. This process can be summarised in the followingfive broad stages:
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Measuring exposures and concentrations
Loans and advances to customers provide the principal source of credit risk to the Group although Barclays can also be exposed to other forms of credit risk
through, for example, loans to banks, loan commitments contingent liabilities and debt securities securities.
Barclays risk management policies and processes are designed to identify and analyse risk, to set appropriate risk appetite, limits and controls, and to monitor the risks and adherence to limits by means of reliable and timely data.
One area of particular review is concentration risk. A concentration of credit risk exists 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 and other conditions.
As a result, Barclays constantly reviews its concentration in a number of areas including, for example, geography, maturity, industry and investment grade (see below).
Diversification is achieved through setting maximum exposure guidelines to individual counterparties. Excesses are reported to the Group Risk Oversight Committee and the Board Risk Committee. Mandate and Scale limits are used to limit the stock of current exposures in a loan portfolio and the flow of new exposures into a loan portfolio. Limits are typically based on the nature of the lending and the amount of the portfolio meeting certain standards of underwriting criteria.
Note
a | Total comprises all limits to cross-border counterparties (non-UK) where limits are greater than £10m. |
69 |
Monitoring weaknesses in portfolios
Whilst the basic principles for monitoring weaknesses in wholesale and retail exposures are broadly similar, they will reflect the differing nature of the assets.
As a matter of policy all facilities granted to corporate or wholesale customers are subject to a review on, at least, an annual basis, even when they are performing satisfactorily.
Corporate accounts that are deemed to contain heightened levels of risk are recorded on graded early warning lists or watchlists comprising three categories graded in line with the perceived severity of the risk attached to the lending, and its probability of default. These are updated monthly and circulated to the relevant risk control points. Once an account has been placed on watchlist (WL) or early warning list (EWL), the exposure is carefully monitored and, where appropriate, exposure reductions are effected.
Should an account become impaired, it will normally have passed through each of the three categories, which reflect the need for increasing caution and control. Where an obligor’s financial health gives grounds for concern, it is immediately placed into the appropriate category. While all obligors, regardless of financial health, are subject to a full review of all facilities on, at least, an annual basis, more frequent interim reviews may be undertaken should circumstances dictate.
Specialist recovery functions deal with clients in default, collection or insolvency. Their mandate is to maximise shareholder value via the orderly and timely recovery of impaired debts. Accounts can stay in Recoveries for up to two years unless a longer-term strategy has been agreed.
Within theretailportfolios, which tend to comprise homogeneous assets, statistical techniques more readily allow potential weaknesses to be monitored on a portfolio basis. The approach is consistent with the Group’s policy of raising a collective impairment allowance as soon as objective evidence of impairment is identified.
Retail accounts can be classified according to specified categories of arrears status (or cycle), which reflects the level of contractual payments which are overdue on a loan.
The probability of default increases with the number of contractual payments missed, thus raising the associated impairment requirement. Once a loan has passed through all six cycles it will enter recovery status, having been charged off. In most cases, charge-off will result in the account moving to a legal recovery function or debt sale. This will typically occur after an account has been treated by a collections function. However, in certain cases, an account may be charged off directly from a performing (up to date) status, such as in the case of insolvency or death.
As a general principle, charge-off marks the point at which it becomes more economically efficient to treat an account through a recovery function or debt sale rather than a collections function. Economic efficiency includes the (discounted) expected amount recovered and operational and legal costs. Whilst charge-off is considered an irreversible state, in certain cases, it may be acceptable for mortgage and vehicle finance accounts to move back from charge-off to performing or delinquent states. This is only considered acceptable where local legislation requirements are in place, or where it is deemed that the customer has a renewed willingness to pay and there is a
70 |
Risk management
Credit risk management
continued
strong chance that they will be able to meet their contractual obligations in the foreseeable future.
For the majority of products, the standard period for charging off accounts is 180 days past due of contractual obligation. However, in the case of customer bankruptcy or insolvency, the associated accounts will be charged off within 60 days.
Within UKRB Local Business, accounts that are deemed to have a heightened level of risk, or that exhibit some unsatisfactory features which could affect viability in the short to medium term, are transferred to a separate ‘caution’ stream. Accounts on the caution stream are reviewed on at least a quarterly basis, at which time consideration is given to continuing with the agreed strategy, returning the customer to a lower risk refer stream, or instigating recovery/exit action.
Identifying potential credit risk loans
In line with disclosure requirements from the Securities Exchange Commission (SEC) in the US, the Group reports potentially and actually impaired loans as Potential Credit Risk Loans (PCRLs). PCRLs comprise two categories of loans: Potential Problem Loans (PPLs) and Credit Risk Loans (CRLs).
PPLs are loans that are currently complying with repayment terms but where serious doubt exists as to the ability of the borrower to continue to comply with such terms in the near future. If the credit quality of a loan on an early warning or watch list deteriorates to the highest category (wholesale) or deteriorates to delinquency cycle 2 (retail), consideration is given to including it within the PPL category.
Should further evidence of deterioration be observed, a loan may move to theCRLcategory. Events that would trigger the transfer of a loan from the PPL to the CRL category include a missed payment or a breach of covenant. CRLs comprise three classes of loans:
– ‘Impaired loans’ comprise loans where individual identified impairment allowance has been raised and also include loans which are fully collateralised or where indebtedness has already been written down to the expected realisable value. The impaired loan category may include loans, which, while impaired, are still performing.
– The category ‘accruing past due 90 days or more’ comprises loans that are 90 days or more past due with respect to principal or interest. An impairment allowance will be raised against these loans if the expected cash flows discounted at the effective interest rate are less than the carrying value.
– The category ‘impaired and restructured loans’ comprises loans not included above where, for economic or legal reasons related to the debtor’s financial difficulties, a concession has been granted to the debtor that would not otherwise be considered. Where the concession results in the expected cash flows discounted at the effective interest rate being less than the loan’s carrying value, an impairment allowance will be raised.
Allowances for impairment and other credit provisions
Barclays establishes, through charges against profit, impairment allowances and other credit provisions for the incurred loss inherent in the lending book.
Under IFRS, impairment allowances are recognised where there is objective evidence of impairment as a result of one or more loss events that have occurred after initial recognition, and where these events have had an impact on the estimated future cash flows of the financial asset or portfolio of financial assets. Impairment of loans and receivables is measured as the difference between the carrying amount and the present value of outstandingestimated future cash flows discounted at the financial asset’s original effective interest rate. If the carrying amount is less than the discounted cash flows, then no further allowance is necessary.
Impairment allowances are measured individually for assets that are individually significant, and collectively where a portfolio comprises homogenous assets and where appropriate statistical techniques are available.
In terms of individual assessment, the trigger point for impairment is formal classification of an account as exhibiting serious financial problems and where any further deterioration is likely to lead to failure. Two key inputs to the cash flow calculation are the valuation of all security and collateral, as well as the timing of all asset realisations, after allowing for all attendant costs. This method applies mainly in the corporate portfolios.
For collective assessment, the trigger point for impairment is the missing of a contractual payment. While the impairment allowance is calculated per individual account, the calculation methodology relies on the historical experience of pools of similar assets; hence the impairment allowance is collective. The impairment calculation is based on a roll-rate approach, where the percentage of assets that move from the initial delinquency to default are derived from statistical probabilities based on historical experience. Recovery amounts and contractual interest rates are calculated using a weighted average for the relevant portfolio. This method applies mainly to the Group’s retail portfolios and is consistent with Barclays policy of raising an allowance as soon as impairment is identified.
Unidentified impairment allowances are also raised to cover losses which are judged to be incurred but not yet specifically identified in customer exposures at the balance sheet date, and which, therefore, have not been specifically reported.
The incurred but not yet reported calculation is based on the asset’s probability of moving from the performing portfolio to being specifically identified as impaired within the given emergence period and then on to default within a specified period. This is calculated on the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate.
The emergence periods vary across businesses and are based on actual experience and are reviewed on an annual basis. This methodology ensures that the Group captures the loss incurred at the correct balance sheet date.
These impairment allowances are reviewed and adjusted at least
Note
Loan loss rate for the years prior to 2005 does not reflect the application of IAS 32, IAS 39 and IFRS 4.
71 |
quarterly by an appropriate charge or release of the stock of impairment allowances based on statistical analysis and management judgement.
Where appropriate, the accuracy of this analysis is periodically assessed against actual losses (see Modelling Risk on page 64).
As one of the controls to ensure that adequate impairment allowances are held, movements in impairment allowances to individual names with total impairment of more than £10m are presented to the Credit Committee for agreement.
Monitoring the loan loss rate (LLR) provides Barclays with one way of measuring the trends in the quality of the loan portfolio at the Group, business and product levels. At Barclays, the LLR represents the annualised impairment charges on loans and advances balances, their risk profile,to customers and potential concentrationsbanks and other credit provisions as a percentage of the total, period-end loans and advances to customers and banks, gross of impairment allowances.
The impairment allowance is the aggregate of the identified and unidentified impairment balances. Impairment allowance coverage, or the coverage ratio, is reported at two levels:
– | Credit risk loans coverage ratio (Impairment allowances as a percentage of CRL balances). |
– | Potential credit risk loans coverage ratio (Impairment allowances as a percentage of total CRL & PPL balances). |
Appropriate coverage ratios will vary according to the type of product but can be broadly bracketed under three categories: secured retail home loans; unsecured and other retail products; and corporate facilities. Analysis and experience has indicated that, in general, the severity rates for these types of products are typically within them canthe following ranges:
– | Secured retail home loans: 5%-20%. |
– | Unsecured and other retail products: 65%-75%. |
– | Corporate facilities: 30%-50%. |
CRL coverage ratios would therefore be expected to be at or around these levels over a defined period of time. In principal, a number of factors may affect the Group’s coverage ratios, including:
– | The mix of products within total CRL balances. Coverage ratios will tend to be lower when there is a high proportion of secured retail and corporate balances within total CRLs. This is due to the fact that the recovery outlook on these types of exposures is typically higher than retail unsecured products with the result that they will have lower impairment requirements. |
– | The stage in the economic cycle. Coverage ratios will tend to be lower in the earlier stages of deterioration in credit conditions. At this stage, retail delinquent balances will be predominantly in the early delinquency cycles and corporate names will have only recently moved to CRL categories. As such balances attract a lower impairment requirement, the CRL coverage ratio will be lower. |
– | The balance of PPLs to CRLs. The impairment requirements for PPLs are lower than for CRLs, so the greater the proportion of PPLs, the lower the PCRL coverage ratio. |
– | Write-off policies. The speed with which defaulted assets are written off will affect coverage ratios. The more quickly assets are written off, the lower the ratios will be, since stock with 100% coverage will tend to roll out of PCRL categories more quickly. |
Writing-off of assets
After an advance has been identified as impaired and is subject to an impairment allowance, the stage may be reached whereby it is concluded that there is no realistic prospect of further recovery. Write-off will occur when, and to the extent that, the whole or part of a debt is considered irrecoverable.
The timing and extent of write-offs may involve some element of subjective judgement. Nevertheless, a write-off will often be prompted by a specific event, such as the inception of insolvency proceedings or other formal recovery action, which makes it possible to establish that some or the entire advance is beyond realistic prospect of recovery. In any event, the position of impaired loans is reviewed at least quarterly to ensure that irrecoverable advances are being written off in a prompt and orderly manner and in compliance with any local regulations.
Such assets are only written off once all the necessary procedures have a considerable influence onbeen completed and the levelamount of credit riskthe loss has been determined.
Subsequent recoveries of amounts previously written off are written back and hence decrease the amount of the reported loan impairment charge in the Group.income statement. In 2009 total write-offs of impaired financial assets increased by £461m to £3,380m (2008: £2,919m).
As at 31st December 2008, total
72 |
Risk management
Credit risk management
continued
Total assets and Barclays Capital credit market assets
Analysis of Total Assets | Accounting basis | Analysis of total assets | Sub analysis | |||||||||||||||||
Assets as at 31.12.09 | Total assets £m | Fair value £m | Cost based measure £m | Derivatives £m | Loans and advances a £m | Debt securities and other billsb £m | Reverse repurchase agreements c £m | Equity securities d £m | Other £m | Credit market assets e £m | ||||||||||
Cash and balances at central banks | 81,483 | 81,483 | 81,483 | |||||||||||||||||
Items in the course of collection from other banks | 1,593 | 1,593 | 1,593 | |||||||||||||||||
Treasury and other eligible bills | 9,926 | 9,926 | 9,926 | |||||||||||||||||
Debt securities | 116,594 | 116,594 | 116,594 | 1,186 | ||||||||||||||||
Equity securities | 19,602 | 19,602 | 19,602 | |||||||||||||||||
Traded loans | 2,962 | 2,962 | 2,962 | |||||||||||||||||
Commoditiesf | 2,260 | 2,260 | 2,260 | |||||||||||||||||
Trading portfolio assets | 151,344 | 151,344 | 2,962 | 126,520 | 19,602 | 2,260 | 1,186 | |||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||
Loans and advances | 22,390 | 22,390 | 22,390 | 6,941 | ||||||||||||||||
Debt securities | 4,007 | 4,007 | 4,007 | |||||||||||||||||
Equity securities | 6,256 | 6,256 | 6,256 | |||||||||||||||||
Other financial assetsg | 8,658 | 8,658 | 557 | 7,757 | 344 | |||||||||||||||
Held for own account | 41,311 | 41,311 | 22,947 | 4,007 | 7,757 | 6,256 | 344 | 6,941 | ||||||||||||
Held in respect of linked liabilities to customers under investment contractsh | 1,257 | 1,257 | 1,257 | |||||||||||||||||
Derivative financial instruments | 416,815 | 416,815 | 416,815 | 2,304 | ||||||||||||||||
Loans and advances to banks | 41,135 | 41,135 | 41,135 | |||||||||||||||||
Loans and advances to customers | 420,224 | 420,224 | 420,224 | 15,186 | ||||||||||||||||
Debt securities | 43,888 | 43,888 | 43,888 | 535 | ||||||||||||||||
Equity securities | 6,676 | 6,676 | 6,676 | |||||||||||||||||
Treasury and other eligible bills | 5,919 | 5,919 | 5,919 | |||||||||||||||||
Available for sale financial instruments | 56,483 | 56,483 | 49,807 | 6,676 | 535 | |||||||||||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 143,431 | 143,431 | 143,431 | |||||||||||||||||
Other assets | 23,853 | 1,207 | 22,646 | 23,853 | 1,200 | |||||||||||||||
Total assets as at 31.12.09 | 1,378,929 | 668,417 | 710,512 | 416,815 | 487,268 | 180,334 | 151,188 | 32,534 | 110,790 | 27,352 | ||||||||||
Total assets as at 31.12.08 | 2,052,980 | 1,356,614 | 696,366 | 984,802 | 542,118 | 224,692 | 137,637 | 39,173 | 124,558 | 41,208 |
Notes
a | Further analysis of loans and advances is on pages 68 to 79. |
b | Further analysis of debt securities and other bills is on page 91. |
c | Reverse repurchase agreements comprise primarily short-term cash lending with assets pledged by counterparties securing the loan. |
d | Equity securities comprise primarily equity securities determined by available quoted prices in active markets. |
e | Further analysis of Barclays Capital credit market exposures is on pages 81 to 90. Undrawn commitments of £257m (2008: £531m) are off-balance sheet and therefore not included in the table above. This is a change in presentation from 31st December 2008, which reflected certain loan facilities originated post 1st July 2007. |
f | Commodities primarily consists of physical inventory positions. |
g | These instruments consist primarily of loans with embedded derivatives and reverse repurchase agreements designated at fair value. |
h | Financial assets designated at fair value in respect of linked liabilities to customers under investment contracts have not been further analysed as the Group is not exposed to the risks inherent in these assets. |
73 |
Loans and advances to customers and banks
Total loans and advances to customers and banks net of impairment allowance were £542,118m (2007: £410,789m), a rise of 32% on the previous year.fell 10% to £487,268m (31st December 2008: £542,118m). Loans and advances at amortised cost were £509,522m (2007: £385,518m)£461,359m (31st December 2008: £509,522m) and loans and advances at fair value were £32,596m (2007: £25,271m)£25,909m (31st December 2008: £32,596m). Loans and advances were well distributed across the retail and wholesale portfolios.
Loans and advances were also well spread across industry classifications. Barclays largest sectoral exposure is to home loans which, combined with other personal and business services sectors ,comprise 48% of totalTotal loans and advances (2007: 53%). These categories are generally comprisedto customers and banks gross of small loans, have low volatility of credit risk outcomes, and are intrinsically highly diversified. Growthimpairment allowances fell by £43,941m (9%) to £472,155m (31st December 2008: £516,096m) due to an 18% reduction in the wholesale portfolios, principally in:
– | Barclays Capital, due to a decrease in the cash collateral held against derivative trades, a reduction in non-UK lending and a decrease in the value of other currencies relative to Sterling. This was partially offset by increases in lending due to restructuring of credit market assets and a reclassification of previously held for trading assets to loans and advances; and |
– | Barclays Commercial Bank, due to reduced customer demand. |
This was partially offset by a rise in loans and advances to the financial services sector reflected an increased client base in the fund management business and increases in cash collateral. Loans and advances are further diversifiedcustomers across a number of geographical regions,
Table 1: Loans and advances at amortised cost
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As at 31st December 2008 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk Loans £m | CRLs % of gross loans and advances % | Impairment £m | Loan loss rates basis points | |||||||||
Wholesale – customers | 266,750 | 2,784 | 263,966 | 8,144 | 3.1 | 2,540 | 95 | |||||||||
Wholesale – banks | 47,758 | 51 | 47,707 | 48 | 0.1 | 40 | 8 | |||||||||
Total wholesale | 314,508 | 2,835 | 311,673 | 8,192 | 2.6 | 2,580 | 82 | |||||||||
Retail – customers | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 | |||||||||
Total retail | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 | |||||||||
Total | 516,096 | 6,574 | 509,522 | 15,700 | 3.0 | 4,913 | 95 | |||||||||
As at 31st December 2007 | ||||||||||||||||
Wholesale – customers | 187,086 | 1,309 | 185,777 | 5,157 | 2.8 | 1,190 | 64 | |||||||||
Wholesale – banks | 40,123 | 3 | 40,120 | – | – | (13 | ) | (3 | ) | |||||||
Total wholesale | 227,209 | 1,312 | 225,897 | 5,157 | 2.3 | 1,177 | 52 | |||||||||
Retail – customers | 162,081 | 2,460 | 159,621 | 4,484 | 2.8 | 1,605 | 99 | |||||||||
Total retail | 162,081 | 2,460 | 159,621 | 4,484 | 2.8 | 1,605 | 99 | |||||||||
Total | 389,290 | 3,772 | 385,518 | 9,641 | 2.5 | 2,782 | 71 |
|
Risk Management
Credit Risk Management
Loans and advances
based on location of customers. Thethe majority of Barclays exposure is now outside theretail business units, notably in UK reflecting higher rates ofRetail Bank due to growth in the international portfolios as well as the effects of currency movements in 2008.
Barclays also actively monitors exposure and concentrations to sub-investment grade countries (see country risk policy, page 73). Details of the 15 largest sub-investment grade countries, by limit, are shown in figure 3.
Contractual maturity represents a further area of potential concentration. The analysis shown in figure 4 indicates that just over 40% of loans to customers have a maturity of more than five years; the majority of this segment comprises secured home loans.
Barclays risk is therefore spread across a large number of industries and customers and in the case of home loans, for example, well secured. 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 through the parent’s predominant sphere of activity may be in a different industry.
Corporate and wholesale loans and advances
Gross loans and advances to wholesale customers and banks grew 38% to £314,508m (31st December 2007: £227,209m), largely due to Barclays Capital where loans and advances increased £72,514m (53%).
Credit Risk Loans (CRLs) rose 59% to £8,192m (31st December 2007: £5,157m). As a percentage of gross loans and advances, CRLs increased 13% to 2.6% (31st December 2007: 2.3%). CRL balances were higher in all businesses, reflecting the downturn in economic conditions, with some deterioration across default grades, higher levels of Early Warning List balances and a rise in impairment and loan loss rates in most wholesale portfolios. The largest rises were in Barclays Capital and GRCB – Western Europe.
Impairment charges on loans and advances rose 119% (£1,403m) to £2,580m (31st December 2007: £1,177m), primarily in Barclays Capital, although all other businesses were higher than the previous year. Impairment in Barclays Commercial Bank rose in both the Larger and
Table 2: Wholesale loans and advances to customers and banks
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As at 31st December 2008 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk £m | CRLs % of gross loans and advances % | Impairment £m | Loan loss rates basis points | |||||||
Barclays Commercial Bank | 68,904 | 504 | 68,400 | 1,181 | 1.70 | 414 | 60 | |||||||
Barclaycard | 301 | 2 | 299 | 20 | 6.60 | 11 | 365 | |||||||
GRCB – Western Europe | 15,432 | 232 | 15,200 | 578 | 3.70 | 125 | 81 | |||||||
GRCB – Emerging Markets | 7,551 | 122 | 7,429 | 191 | 2.50 | 36 | 48 | |||||||
GRCB – Absa | 8,648 | 140 | 8,508 | 304 | 3.50 | 19 | 22 | |||||||
Barclays Capital | 208,596 | 1,796 | 206,800 | 5,743 | 2.80 | 1,936 | 93 | |||||||
Barclays Global Investors | 834 | – | 834 | – | – | – | – | |||||||
Barclays Wealth | 3,282 | 28 | 3,254 | 174 | 5.30 | 28 | 85 | |||||||
Head office | 960 | 11 | 949 | 1 | 0.10 | 11 | 115 | |||||||
Total | 314,508 | 2,835 | 311,673 | 8,192 | 2.60 | 2,580 | 82 | |||||||
As at 31st December 2007 | ||||||||||||||
Barclays Commercial Bank | 65,535 | 483 | 65,052 | 956 | 1.50 | 292 | 45 | |||||||
Barclaycard | 295 | 3 | 292 | 17 | 5.80 | 9 | 305 | |||||||
GRCB – Western Europe | 10,927 | 63 | 10,864 | 93 | 0.90 | 19 | 17 | |||||||
GRCB – Emerging Markets | 4,833 | 79 | 4,754 | 119 | 2.50 | 10 | 21 | |||||||
GRCB – Absa | 5,321 | 112 | 5,209 | 97 | 1.80 | 11 | 21 | |||||||
Barclays Capital | 136,082 | 514 | 135,568 | 3,791 | 2.80 | 833 | 61 | |||||||
Barclays Global Investors | 211 | – | 211 | – | – | – | – | |||||||
Barclays Wealth | 2,745 | 7 | 2,738 | 47 | 1.70 | – | – | |||||||
Head office | 1,260 | 51 | 1,209 | 37 | 2.90 | 3 | 24 | |||||||
Total | 227,209 | 1,312 | 225,897 | 5,157 | 2.30 | 1,177 | 52 |
Medium Business divisions. Deterioration in the Spanish commercial and residential property markets led to higher impairment in GRCB –Western Europe, while in GRCB – Absa, wholesale credit impairment began to rise from a low base and credit indicators began to show deterioration. The loan loss rate on the wholesale and corporate portfolio rose to 82bp (2007: 52bp).
In the wholesale and corporate portfolios impairment allowances increased 116% to £2,835m (31st December 2007: £1,312m).
Barclays largest corporate loan portfolios continue to be in Barclays Capital and Barclays Commercial Bank. Barclays Capital’s corporate loan book grew 43% to £72,796m in 2008, driven by the decline in the value of Sterling relative to other currencies as well as drawdowns on existing loan facilities and the extension of new loans at current terms to financial and manufacturing institutions. Loans and advances at amortised cost grew 5% in Barclays Commercial Bank and was focused in lower-risk portfolios in Larger Business.
Portfolio growth rates were higher in the international businesses, where Global Retail and Commercial Banking’s wholesale portfolios in Western Europe, Emerging Markets and Absa grew by 40%, 56% and 63%, respectively.
Analysis of Barclays Capital wholesale loans and advances net of impairment allowances
Barclays Capital wholesale loans and advances increased 53% to £208,596m (2007: £136,082m). This was driven by a decline in the value of Sterling relative to other currencies, increased drawdowns on existing corporate lending facilities and the extension of new loans to corporate clients at current terms. Additionally, continuing market volatility resulted in increased cash collateral being placed with clients relating to OTC derivatives.
The corporate lending portfolio, including leveraged finance, increased 47% to £76,556m (2007: £52,258) primarily due to drawdowns on existing loan facilities and the extension of new loans at current terms to financial and manufacturing institutions.
Included within corporate lending and other wholesale lending portfolios are £7,674m of loans backed by retail mortgage collateral.UK Home Finance portfolio.
Barclays Capital loansLoans and advances held at fair value
Barclays Capital loans and advances held at fair value were £19,630m (2007: £18,259m)£12,835m (31st December 2008: £19,630m). These assetsIncluded within this balance is £6,941m relating to credit market exposures, the majority of which are primarily made up of US RMBS whole loans and commercial real estate loans, £14,429mloans. The balance of which is discussed within the credit market exposures.
£5,894m primarily comprises financial institutions and manufacturing loans.
Table 3: Analysis of wholesale loans and advances net of impairment allowances
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Corporate | Government | Settlement balance and cash collateral | Other wholesale | Total wholesale | ||||||||||||||||
Wholesale | 2008 £m | 2007 £m | 2008 £m | 2007 £m | 2008 £m | 2007 £m | 2008 £m | 2007 £m | 2008 £m | 20 07 £m | ||||||||||
BCB | 67,741 | 64,773 | 659 | 279 | – | – | – | – | 68,400 | 65,052 | ||||||||||
Barclaycard | 299 | 292 | – | – | – | – | – | – | 299 | 292 | ||||||||||
GRCB – Western Europe | 15,017 | 10,721 | 32 | 4 | – | – | 151 | 139 | 15,200 | 10,864 | ||||||||||
GRCB – Emerging Markets | 5,283 | 3,276 | 1,709 | 1,193 | – | – | 437 | 285 | 7,429 | 4,754 | ||||||||||
GRCB – Absa | 8,480 | 5,204 | 28 | 5 | – | – | – | – | 8,508 | 5,209 | ||||||||||
Barclays Capital | 72,796 | 51,038 | 3,760 | 1,220 | 79,418 | 46,639 | 50,826 | 36,671 | 206,800 | 135,568 | ||||||||||
BGI | 834 | 211 | – | – | – | – | – | – | 834 | 211 | ||||||||||
Barclays Wealth | 3,254 | 2,738 | – | – | – | – | – | – | 3,254 | 2,738 | ||||||||||
Head office | 949 | 1,209 | – | – | – | – | – | – | 949 | 1,209 | ||||||||||
Total | 174,653 | 139,462 | 6,188 | 2,701 | 79,418 | 46,639 | 51,414 | 37,095 | 311,673 | 225,897 |
Table 4: Analysis of Barclays Capital’s loans and advances at amortised cost
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As at 31st December 2008 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk £m | CRLs % of gross loans and advances % | Impairment £m | Loan loss rates basis points | |||||||
Loans and advances bank | ||||||||||||||
Cash collateral and settlement balances | 19,264 | – | 19,264 | – | – | – | – | |||||||
Interbank lending | 24,086 | 51 | 24,035 | 48 | 0.2 | 40 | 17 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate lending | 77,042 | 486 | 76,556 | 1,100 | 1.4 | 305 | 40 | |||||||
ABS CDO Super Senior | 4,117 | 1,013 | 3,104 | 4,117 | 100.0 | 1,383 | 3,359 | |||||||
Other wholesale lending | 23,933 | 246 | 23,687 | 478 | 2.0 | 208 | 87 | |||||||
Cash collateral and settlement balances | 60,154 | – | 60,154 | – | – | – | – | |||||||
Total | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 |
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Risk Management
Credit Risk Management
Loans and advances
Analysis of Barclays Commercial Bank loans and advances
The tables below analyse the industry split of Barclays Commercial Bank loans and advances after impairment allowance of £504m. The loan book consists of both loans and advances held at amortised cost and loans and advances held at fair value.
Loans and advances held at fair value split between property, business and services and Government sectors, were £12,966m as at 31st£13,074m (31st December 2008. Of2008: £12,966m). The fair value of these £12,360m related to government, local authorityloans and social housing. Fair value exceeds amortised cost by £3,018m. Fair value is calculated using a valuation model with reference
to observable market inputs and isany movements are matched by offsetting fair value movements on hedging instruments. The underlying nominal portfolio increased 47% in 2008.
Property balances within loans and advances at amortised cost and held at fair value totalled £16,351m, of which £8,795m related to social housing.
The weighted average of the drawn balance loss given default, for all of the above loans and advances, was 31%.
Table 5: Analysis of Barclays Commercial Bank loansLoans and advances at amortised cost
As at 31st December 2009 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans and advances % | Impairment charge £m | Loan loss rates basis points | |||||||
Wholesale – customers | 218,110 | 4,604 | 213,506 | 10,990 | 5.0 | 3,430 | 157 | |||||||
Wholesale – banks | 41,196 | 61 | 41,135 | 57 | 0.1 | 11 | 3 | |||||||
Total wholesale | 259,306 | 4,665 | 254,641 | 11,047 | 4.3 | 3,441 | 133 | |||||||
Retail – customers | 212,849 | 6,131 | 206,718 | 11,341 | 5.3 | 3,917 | 184 | |||||||
Total retail | 212,849 | 6,131 | 206,718 | 11,341 | 5.3 | 3,917 | 184 | |||||||
Total | 472,155 | 10,796 | 461,359 | 22,388 | 4.7 | 7,358 | 156 | |||||||
As at 31st December 2008 | ||||||||||||||
Wholesale – customers | 266,750 | 2,784 | 263,966 | 8,144 | 3.1 | 2,540 | 95 | |||||||
Wholesale – banks | 47,758 | 51 | 47,707 | 48 | 0.1 | 40 | 8 | |||||||
Total wholesale | 314,508 | 2,835 | 311,673 | 8,192 | 2.6 | 2,580 | 82 | |||||||
Retail – customers | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 | |||||||
Total retail | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 | |||||||
Total | 516,096 | 6,574 | 509,522 | 15,700 | 3.0 | 4,913 | 95 |
Loans and advances held at fair value | As at 31.12.09 £m | As at a 31.12.08 £m | ||
Government | 5,024 | 5,143 | ||
Financial Institutions | 3,543 | 7,354 | ||
Transport | 177 | 218 | ||
Postal and Communications | 179 | 37 | ||
Business and other services | 2,793 | 2,882 | ||
Manufacturing | 1,561 | 238 | ||
Wholesale and retail distribution and leisure | 664 | 1,110 | ||
Construction | 237 | 412 | ||
Property | 11,490 | 14,944 | ||
Energy and Water | 241 | 258 | ||
Total | 25,909 | 32,596 |
Note
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Barclays Commercial Bank financial sponsor leveraged finance
As at 31st December 2008, the exposure relating to financial sponsor related leveraged finance loans in Barclays Commercial Bank was £2,445m, of which £1,875m related to drawn amounts recorded in loans and advances.
Table 6: Barclays Commercial Bank financial sponsor leveraged finance
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As at 31st December 2008 | Drawn £m | Undrawn £m | Total £m | |||
Business and other services | 1,083 | 288 | 1,371 | |||
Construction | 12 | 5 | 17 | |||
Energy and water | 43 | 17 | 60 | |||
Financial institutions and services | 58 | 10 | 68 | |||
Manufacturing | 307 | 130 | 437 | |||
Postal and communications | 35 | 2 | 37 | |||
Property | 26 | 5 | 31 | |||
Transport | 14 | 43 | 57 | |||
Wholesale and retail distribution and leisure | 297 | 70 | 367 | |||
Total exposure | 1,875 | 570 | 2,445 |
Risk management
Credit risk management
continued
Impairment Charges
Impairment charges on loans and advances increased 50% (£2,445m) to £7,358m (2008: £4,913m). The increase was primarily due to economic deterioration and portfolio maturation, currency movements and methodology enhancements, partially offset by a contraction in loan balances. As a result of this increase in impairment and the fall in loans and advances, the impairment charges as a percentage of period end Group total loans and advances (loan loss rate) increased to 156bps (31st December 2008: 95bps). When measured against constant 2008 year-end loans and advances balances and impairment at average 2008 foreign exchange rates, the loan loss rate for the period was 135bps.
The impairment charge in Global Retail and Commercial Banking increased by 85% (£2,473m) to £5,395m (2008: £2,922m) as charges rose in all portfolios, reflecting deteriorating credit conditions across all regions. The loan loss rate for 2009 was 185bps (2008: 99bps).
In Investment Banking and Investment Management, impairment was broadly unchanged at £1,949m (2008: £1,980m). The loan loss rate for 2009 was 109bps (2008: 90bps).
The impairment charge against available for sale assets and reverse repurchase agreements increased by 41% (£207m) to £713m (2008: £506m), driven by impairment against credit market exposures.
Impairment Charges and Other Credit Provisions | Year Ended 31.12.09 £m |
Year Ended | ||
Impairment charges on loans and advances | 7,330 | 4,584 | ||
Charges in respect of undrawn facilities and guarantees | 28 | 329 | ||
Impairment charges on loans and advances | 7,358 | 4,913 | ||
Impairment charges on reverse repurchase agreements | 43 | 124 | ||
Impairment charges on available for sale assets | 670 | 382 | ||
Impairment charges and other credit provisions | 8,071 | 5,419 |
Impairment Charges by Business | Loans and advances £m | Available for sale assets £m |
Reverse | Total £m | ||||
Year Ended 31.12.2009 | ||||||||
Global Retail and Commercial Banking | 5,395 | 18 | – | 5,413 | ||||
UK Retail Banking | 936 | – | – | 936 | ||||
Barclays Commercial Bank | 960 | 14 | – | 974 | ||||
Barclaycard | 1,798 | – | – | 1,798 | ||||
GRCB – Western Europe | 663 | 4 | – | 667 | ||||
GRCB – Emerging Markets | 471 | – | – | 471 | ||||
GRCB – Absa | 567 | – | – | 567 | ||||
Investment Banking and Investment Management | 1,949 | 650 | 43 | 2,642 | ||||
Barclays Capitala | 1,898 | 650 | 43 | 2,591 | ||||
Barclays Wealth | 51 | – | – | 51 | ||||
Head Office Functions and Other Operations | 14 | 2 | – | 16 | ||||
Total Impairment charges | 7,358 | 670 | 43 | 8,071 | ||||
Year Ended 31.12.2008 | ||||||||
Global Retail and Commercial Banking | 2,922 | – | – | 2,922 | ||||
UK Retail Banking | 602 | – | – | 602 | ||||
Barclays Commercial Bank | 414 | – | – | 414 | ||||
Barclaycard | 1,097 | – | – | 1,097 | ||||
GRCB – Western Europe | 297 | – | – | 297 | ||||
GRCB – Emerging Markets | 165 | – | – | 165 | ||||
GRCB – Absa | 347 | – | – | 347 | ||||
Investment Banking and Investment Management | 1,980 | 363 | 124 | 2,467 | ||||
Barclays Capitala | 1,936 | 363 | 124 | 2,423 | ||||
Barclays Wealth | 44 | – | – | 44 | ||||
Head Office Functions and Other Operations | 11 | 19 | – | 30 | ||||
Total Impairment charges | 4,913 | 382 | 124 | 5,419 |
Note
a | Credit market related impairment charges within Barclays
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75 |
Credit Risk Loans
The Group’s Credit Risk Loans (CRLs) rose 43% to £22,388m (31st December 2008: £15,700m) in 2009. Balances were higher across Retail Home Loans, Retail Unsecured and Other and Corporate and Wholesale exposures reflecting the deterioration in credit conditions in the past year across Barclays areas of operations. The most notable increases were in the international businesses in Global Retail and Commercial Banking, with GRCB – Western Europe increasing the most as credit conditions deteriorated in Spain, Italy and Portugal. However, the rate of increase to the Group numbers has fallen during each quarter of 2009 from 17% in Q1 09 to 5% in Q4 09.
CRLs in Retail Home Loans increased by £1,076m (43%) to £3,604m (31st December 2008: £2,528m) and in Retail Unsecured and Other portfolios by £2,757m (55%) to £7,737m (31st December 2008: £4,980m) as credit conditions deteriorated and arrears balances rose in a number of regions, notably in: Absa Home Finance and Cards, GRCB – Western Europe, particularly in Spain and Italy; Barclaycard US cards; and in UK Retail Banking unsecured lending. CRLs also increased in GRCB – Western Europe following the purchase of the Citigroup cards portfolio in Portugal in December 2009.
CRLs in the Corporate and Wholesale portfolios rose 35% to £11,047m (31st December 2008: £8,192m). CRL balances were higher in all businesses, as economic conditions led to deterioration across default grades and a rise in impairment in most wholesale portfolios. The largest increases were in GRCB – Western Europe, Barclays Capital and Barclays Commercial Bank.
Potential Problem Loans
Balances within the Group’s Potential Problem Loans (PPLs) category rose by 37% to £3,368m (31st December 2008: £2,456m). The principal movements were in the Corporate and Wholesale portfolios, where PPLs rose £715m to £2,674m (31st December 2008: £1,959m). PPL balances increased in the retail portfolios to £694m (31st December 2008: £497m) as balances increased in the Retail Unsecured and Other portfolios. This was partially offset by a fall in PPL balances in Retail Home Loans.
Potential Credit Risk Loans
As a result of the increases in CRLs and PPLs, Group Potential Credit Risk Loan (PCRL) balances rose 42% to £25,756m (31st December 2008: £18,156m).
PCRL balances rose in Retail Home Loans by 34% to £3,739m (31st December 2008: £2,795m) and in Retail Unsecured and Other portfolios by 59% to £8,296m (31st December 2008: £5,210m) as delinquency rates rose across a number of portfolios, particularly in the UK, US, Spain and South Africa.
Total PCRL balances in the Corporate and Wholesale portfolios increased by 35% to £13,721m (31st December 2008: £10,151m) after a number of customers migrated into the CRL and PPL categories, reflecting higher default probabilities in the deteriorating global wholesale environment.
Impairment Allowances and Coverage Ratios
Impairment allowances increased 64% to £10,796m (31st December 2008: £6,574m), reflecting increases across the majority of businesses as credit conditions deteriorated during the year.
Retail impairment allowances rose by 99% in Retail Home Loans to £639m (31st December 2008: £321m) and by 61% in Retail Unsecured and Other portfolios to £5,492m (31st December 2008: £3,418m). The CRL coverage ratio in Retail Home Loans increased to 17.7% (31st December 2008: 12.7%), and the PCRL coverage ratio increased to 17.1% (31st December 2008: 11.5%). The CRL coverage ratio in Retail Unsecured and Others portfolios increased to 71.0% (31st December 2008: 68.6%). The PCRL coverage ratio increased to 66.2% (31st December 2008: 65.6%).
In the Corporate and Wholesale portfolios, impairment allowances increased 65% to £4,665m (31st December 2008: £2,835m). The CRL coverage ratio rose to 42.2% (31st December 2008: 34.6%), and the PCRL coverage ratio rose to 34.0% (31st December 2008: 27.9%).
The CRL coverage ratios in Retail Home Loans, Retail Unsecured and Other and Corporate and Wholesale portfolios remain within the ranges which are the typical severity rates for these types of products. As a result of the movements across these three portfolios, the Group’s CRL coverage ratio increased to 48.2% (31st December 2008: 41.9%), and its PCRL coverage ratio also increased to 41.9% (31st December 2008: 36.2%).
Potential Credit Risk Loans and Coverage Ratios
| CRLs | PPLs | PCRLs | |||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | |||||||
Home Loans | 3,604 | 2,528 | 135 | 267 | 3,739 | 2,795 | ||||||
Unsecured and other | 7,737 | 4,980 | 559 | 230 | 8,296 | 5,210 | ||||||
Retail | 11,341 | 7,508 | 694 | 497 | 12,035 | 8,005 | ||||||
Corporate/Wholesale | 11,047 | 8,192 | 2,674 | 1,959 | 13,721 | 10,151 | ||||||
Group | 22,388 | 15,700 | 3,368 | 2,456 | 25,756 | 18,156 | ||||||
Impairment allowance | CRL coverage | PCRL coverage | ||||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 % | 31.12.08 % | 31.12.09 % | 31.12.08 % | |||||||
Home Loans | 639 | 321 | 17.7 | 12.7 | 17.1 | 11.5 | ||||||
Unsecured and other | 5,492 | 3,418 | 71.0 | 68.6 | 66.2 | 65.6 | ||||||
Retail | 6,131 | 3,739 | 54.1 | 49.8 | 50.9 | 46.7 | ||||||
Corporate/Wholesale | 4,665 | 2,835 | 42.2 | 34.6 | 34.0 | 27.9 | ||||||
Group | 10,796 | 6,574 | 48.2 | 41.9 | 41.9 | 36.2 |
76 |
Risk Managementmanagement
Credit risk management
continued
Wholesale Credit Risk Management
Loans and Advances to customers and banks in the wholesale portfolios decreased by £55,202m (18%) to £259,306m, primarily as a result of a £42,972m (21%) fall in Barclays Capital to £165,624m, due to a decrease in the cash collateral held against derivative trades, a reduction in non-UK lending and a decrease in the value of Sterling relative to other currencies. This was partially offset by increases in lending due to restructuring of credit market assets and a reclassification of previously held for trading assets to loans and advances.
The corporate and government lending portfolio declined 30% to £53,305m (31st December 2008: £76,556m) primarily due to reductions in non-UK lending, a decrease in the value of other currencies relative to Sterling and the repayment of leveraged finance loans.
Included within corporate and government lending and other wholesale lending portfolios are £5,646m (31st December 2008: £7,674m) of loans backed by retail mortgage collateral classified within financial institutions.
Loans and advances fell in Barclays Commercial Bank by £8,064m (12%) to £60,840m, due to reduced customer demand. Balances fell in both GRCB – Western Europe and GRCB – Emerging Markets, which was due, in part, to the depreciation of various currencies across the regions against Sterling. The increase of £1,429m (17%) of balances in GRCB –Absa was due to the appreciation of the Rand against Sterling during 2009. In Rand terms, balances were stable.
In the wholesale portfolios, the impairment charge against loans and advances rose by £861m (33%) to £3,441m (2008: £2,580m) mainly due to increases in:
– | Barclays Commercial Bank, reflecting rising default rates and lower asset values; |
Wholesale loans and advances at amortised cost
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As at 31.12.09 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans and advances loans % | Impairment charge £m | Loan rates loss bps | |||||||
BCB | 60,840 | 679 | 60,161 | 1,837 | 3.0 | 960 | 158 | |||||||
Barclaycard | 322 | 4 | 318 | 10 | 3.1 | 17 | 528 | |||||||
GRCB WE | 12,690 | 466 | 12,224 | 1,435 | 11.3 | 328 | 258 | |||||||
GRCB EM | 5,228 | 227 | 5,001 | 358 | 6.8 | 140 | 268 | |||||||
GRCB Absa | 10,077 | 195 | 9,882 | 690 | 6.8 | 67 | 66 | |||||||
Barclays Capital | 165,624 | 3,025 | 162,599 | 6,411 | 3.9 | 1,898 | 115 | |||||||
BGI | 5 | – | 5 | – | – | – | – | |||||||
Barclays Wealth | 3,495 | 43 | 3,452 | 179 | 5.1 | 17 | 49 | |||||||
Head office | 1,025 | 26 | 999 | 127 | 12.4 | 14 | 137 | |||||||
Total | 259,306 | 4,665 | 254,641 | 11,047 | 4.3 | 3,441 | 133 | |||||||
As at 31.12.08 | ||||||||||||||
BCB | 68,904 | 504 | 68,400 | 1,181 | 1.7 | 414 | 60 | |||||||
Barclaycard | 301 | 2 | 299 | 20 | 6.6 | 11 | 365 | |||||||
GRCB WE | 15,750 | 232 | 15,518 | 579 | 3.7 | 125 | 79 | |||||||
GRCB EM | 7,233 | 122 | 7,111 | 190 | 2.6 | 36 | 50 | |||||||
GRCB Absa | 8,648 | 140 | 8,508 | 304 | 3.5 | 19 | 22 | |||||||
Barclays Capital | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 | |||||||
BGI | 834 | – | 834 | – | – | – | – | |||||||
Barclays Wealth | 3,282 | 28 | 3,254 | 174 | 5.3 | 28 | 85 | |||||||
Head office | 960 | 11 | 949 | 1 | 0.1 | 11 | 115 | |||||||
Total | 314,508 | 2,835 | 311,673 | 8,192 | 2.6 | 2,580 | 82 |
Analysis of wholesale loans and advances at amortised cost net of impairment allowances
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Corporate | Government | Settlement balances & cash collateral | Other wholesale | Total wholesale | ||||||||||||||||
Wholesale | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | ||||||||||
BCB | 59,979 | 67,741 | 182 | 659 | – | – | – | – | 60,161 | 68,400 | ||||||||||
Barclaycard | 318 | 299 | – | – | – | – | – | – | 318 | 299 | ||||||||||
GRCB WE | 12,184 | 15,226 | 14 | 32 | – | – | 26 | 260 | 12,224 | 15,518 | ||||||||||
GRCB EM | 4,044 | 5,074 | 170 | 1,709 | – | – | 787 | 328 | 5,001 | 7,111 | ||||||||||
GRCB Absa | 8,695 | 8,480 | 263 | 28 | – | – | 924 | – | 9,882 | 8,508 | ||||||||||
Barclays Capital | 49,849 | 72,796 | 3,456 | 3,760 | 55,672 | 79,418 | 53,622 | 50,826 | 162,599 | 206,800 | ||||||||||
BGI | 5 | 834 | – | – | – | – | – | – | 5 | 834 | ||||||||||
Barclays Wealtha | 2,818 | 2,691 | 162 | 105 | – | – | 472 | 458 | 3,452 | 3,254 | ||||||||||
Head office | 999 | 949 | – | – | – | – | – | – | 999 | 949 | ||||||||||
Total | 138,891 | 174,090 | 4,247 | 6,293 | 55,672 | 79,418 | 55,831 | 51,872 | 254,641 | 311,673 |
Note
a | 2008 Barclays Wealth analysis of Wholesale loans and advances has been reanalysed to reflect changes in the reclassification of assets. |
77 |
– | GRCB – Western Europe, reflecting the economic deterioration in Spain which has impacted the commercial, construction and SME portfolios in particular, together with the appreciation of the average value of the Euro against Sterling; and |
– | GRCB – Emerging Markets as credit conditions continued to deteriorate resulting in a small number of higher value single name charges and the appreciation of the average value of a number of currencies against Sterling. |
Impairment in Barclays Capital of £1,898m (2008: £1,936m) was broadly in line with 2008, as a fall in the impairment charge against credit market exposures was partially offset by a rise in the impairment charge against non-credit market exposures.
The loan loss rate across the Group’s wholesale portfolios for 2009 was 133bps (2008: 82bps), reflecting the rise in impairment and the 18% reduction in wholesale loans and advances.
As we enter 2010, the principal uncertainties relating to the performance of the wholesale portfolios are:
– | the extent and sustainability of economic recovery and asset prices in the UK, US, Spain and South Africa as governments consider how and when to withdraw stimulus packages; |
– | the potential for single name risk and for idiosyncratic losses in different sectors and geographies where credit positions are sensitive to economic downturn; |
– | possible additional deterioration in our remaining credit market exposures, including commercial real estate and leveraged finance; and |
– | the potential impact of deteriorating sovereign credit quality. |
Analysis of Barclays capital wholesale loans and advances at amortised cost
| ||||||||||||||
As at 31.12.09 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk Loans £m | CRLs % of gross loans and advance % | Impairment Charge £m | Loan loss rates basis points | |||||||
Loans and advances to banks | ||||||||||||||
Cash collateral and settlement balances | 15,893 | – | 15,893 | – | – | – | – | |||||||
Interbank lending | 21,722 | 61 | 21,661 | 57 | 0.3 | 14 | 6 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate and Government lending | 54,342 | 1,037 | 53,305 | 2,198 | 4.0 | 1,115 | 205 | |||||||
ABS CDO Super Senior | 3,541 | 1,610 | 1,931 | 3,541 | 100.0 | 714 | 2,016 | |||||||
Other wholesale lending | 30,347 | 317 | 30,030 | 615 | 2.0 | 55 | 18 | |||||||
Cash collateral and settlement balances | 39,779 | – | 39,779 | – | – | – | – | |||||||
Total | 165,624 | 3,025 | 162,599 | 6,411 | 3.9 | 1,898 | 115 | |||||||
As at 31.12.08 | ||||||||||||||
Cash collateral and settlement balances | 19,264 | – | 19,264 | – | – | – | – | |||||||
Interbank lending | 24,086 | 51 | 24,035 | 48 | 0.2 | 40 | 17 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate and Government lending | 77,042 | 486 | 76,556 | 1,100 | 1.4 | 305 | 40 | |||||||
ABS CDO Super Senior | 4,117 | 1,013 | 3,104 | 4,117 | 100.0 | 1,383 | 3,359 | |||||||
Other wholesale lending | 23,933 | 246 | 23,687 | 478 | 2.0 | 208 | 87 | |||||||
Cash collateral and settlement balances | 60,154 | – | 60,154 | – | – | – | – | |||||||
Total | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 |
78 |
Risk management
Credit risk management
continued
Retail Credit Risk
Loans and advances to customers in the retail portfolios increased by £11,261m (6%) to £212,849m. Balances grew in most businesses with the largest increase in UK Retail Banking, which increased by £4,981m (5%) to £101,064m primarily in the UK Home Finance portfolio. There was modest growth in balances to local businesses but a moderate decline in balances relating to unsecured loans and advances
Gross Loans and Advances to retail customers grew 24% to £201,588m (31st December 2007: £162,081m). The principal drivers wereoverdrafts. GRCB – Western Europe UK Retail Banking,increased by £2,517m (6%), which primarily reflected growth in Italy and Barclaycard. The GRCB – Western Europe retail portfolio grewPortugal following the expansion of the franchise, principally across mortgages and cards. This growth was partially offset by £14,436m (59%) to £38,918m, largely driven by home loans in Spain and Italy, and the appreciation of the Euro against Sterling. The UK Retail Banking portfolio increasedincrease of £2,611m (11%) of balances in GRCB – Absa was due to the appreciation of the Rand against Sterling during 2009. In Rand terms, balances fell by £12,319m (15%3%. Balances in GRCB –Emerging Markets were £483m (12%) to £96,083m, primarily driven by UK home loans. The Barclaycard Retail portfolios grew by £8,866m (43%) to £29,390m, with growth across the US, UK and Barclaycard’s other European card portfolios.lower, in part reflecting movements in Sterling against local currencies.
Total home loans to retail customers grewrose by 27%£9,254m (7%) to £135,077m, driven by the 58% rise in GRCB – Western Europe, reflecting currency movements and book growth.£149,099m (31st December 2008: £139,845m). The UK home financeHome Finance portfolios within UK Retail Banking grew 18%7% to £82,303m£87,943m (31st December 2007: £69,805m)2008: £82,303m).
Unsecured retail credit (credit card and unsecured loans) portfolios grew 43%fell 7% to £38,856m£37,733m (31st December 2007: £27,256m), principally2008: £40,437m).
In the retail portfolios, the impairment charge against loans and advances rose by £1,584m (68%) to £3,917m (2008: £2,333m) as economic
conditions, particularly unemployment, deteriorated across all regions. Policy and methodology enhancements, currency movements and portfolio maturation also had an impact. The largest increase was in Barclaycard, which increased by £695m (64%) to £1,781m, mainly driven by higher delinquencies and deteriorating economic conditions in the United Kingdom and the United States as well as portfolio maturation. The increase of £334m (55%) to £936m in UK Retail Banking was primarily due to lower recoveries and policy and methodology enhancements. Impairment charges in GRCB – Western Europe and GRCB – Emerging Markets were impacted by increased delinquency rates as credit conditions deteriorated particularly in Spain and India. Impairment increased in GRCB – Absa as a result of growth in Barclaycard UShigh delinquency levels due to consumer indebtedness and GRCB – Western Europe as well asincreased debt counselling balances following the acquisitionenactment of Goldfish in the UK.2007 National Credit Act.
The loan loss rate across the Group’s retail portfolios for 2009 was 184bps (2008: 116bps).
As we enter 2010, the principal uncertainties relating to the performance of the Group’s retail portfolios are:
– | the extent and sustainability of economic recovery in the UK, US, Spain and South Africa as governments consider how and when to withdraw stimulus packages; |
– | the dynamics of unemployment in those markets and the impact on delinquency and charge-off rates; |
Table 7: Retail loans and advances net of impairment allowances
As at 31st December 2008 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk £m | CRLs % of gross loans and advances % | Impairment £m | Loan loss rates basis points | |||||||
UK Retail Banking | 96,083 | 1,134 | 94,949 | 2,403 | 2.50 | 602 | 63 | |||||||
Barclaycard | 29,390 | 1,677 | 27,713 | 2,566 | 8.70 | 1,086 | 370 | |||||||
GRCB – Western Europe | 38,918 | 302 | 38,616 | 794 | 2.00 | 171 | 44 | |||||||
GRCB – Emerging Markets | 4,083 | 191 | 3,892 | 179 | 4.40 | 130 | 318 | |||||||
GRCB – Absa | 24,677 | 411 | 24,266 | 1,518 | 6.20 | 328 | 133 | |||||||
Barclays Wealth | 8,437 | 24 | 8,413 | 48 | 0.60 | 16 | 19 | |||||||
Total | 201,588 | 3,739 | 197,849 | 7,508 | 3.70 | 2,333 | 116 | |||||||
As at 31st December 2007 | ||||||||||||||
UK Retail Banking | 83,764 | 1,005 | 82,759 | 2,063 | 2.50 | 559 | 67 | |||||||
Barclaycard | 20,524 | 1,093 | 19,431 | 1,601 | 7.80 | 818 | 399 | |||||||
GRCB – Western Europe | 24,482 | 81 | 24,401 | 250 | 1.00 | 57 | 23 | |||||||
GRCB – Emerging Markets | 1,881 | 44 | 1,837 | 67 | 3.60 | 29 | 154 | |||||||
GRCB – Absa | 24,994 | 235 | 24,759 | 499 | 2.00 | 135 | 54 | |||||||
Barclays Wealth | 6,436 | 2 | 6,434 | 4 | 0.10 | 7 | 11 | |||||||
Total | 162,081 | 2,460 | 159,621 | 4,484 | 2.80 | 1,605 | 99 |
Retail loans and advances to customers at amortised cost | ||||||||||||||
As at 31.12.09 | Gross loans & advances £m | Impairment allowance £m | Loans & advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans & advances % | Impairment charge £m | Loan loss rates bp | |||||||
UKRB | 101,064 | 1,587 | 99,477 | 3,108 | 3.1 | 936 | 93 | |||||||
Barclaycard | 29,460 | 2,670 | 26,790 | 3,392 | 11.5 | 1,781 | 605 | |||||||
GRCB WE | 41,514 | 689 | 40,825 | 1,411 | 3.4 | 335 | 81 | |||||||
GRCB EM | 3,521 | 474 | 3,047 | 551 | 15.6 | 331 | 940 | |||||||
GRCB Absa | 27,288 | 655 | 26,633 | 2,573 | 9.4 | 500 | 183 | |||||||
Barclays Wealth | 10,002 | 56 | 9,946 | 306 | 3.1 | 34 | 34 | |||||||
Total | 212,849 | 6,131 | 206,718 | 11,341 | 5.3 | 3,917 | 184 | |||||||
As at 31.12.08 | ||||||||||||||
UKRB | 96,083 | 1,134 | 94,949 | 2,403 | 2.5 | 602 | 63 | |||||||
Barclaycard | 29,390 | 1,677 | 27,713 | 2,566 | 8.7 | 1,086 | 370 | |||||||
GRCB WE | 38,997 | 306 | 38,691 | 798 | 2.0 | 172 | 44 | |||||||
GRCB EM | 4,004 | 187 | 3,817 | 175 | 4.4 | 129 | 322 | |||||||
GRCB Absa | 24,677 | 411 | 24,266 | 1,518 | 6.2 | 328 | 133 | |||||||
Barclays Wealth | 8,437 | 24 | 8,413 | 48 | 0.6 | 16 | 19 | |||||||
Total | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 |
Home loans | Cards and unsecured loans | Other retail | Total retail | |||||||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | |||||||||
UK Retail Banking | 87,943 | 82,303 | 7,329 | 8,294 | 4,205 | 4,352 | 99,477 | 94,949 | ||||||||
Barclaycard | – | – | 21,564 | 23,224 | 5,226 | 4,489 | 26,790 | 27,713 | ||||||||
GRCB – Western Europe | 34,592 | 33,807 | 3,513 | 4,423 | 2,720 | 461 | 40,825 | 38,691 | ||||||||
GRCB – Emerging Markets | 452 | 556 | 2,502 | 2,872 | 93 | 389 | 3,047 | 3,817 | ||||||||
GRCB – Absa | 20,492 | 18,411 | 1,003 | 43 | 5,138 | 5,812 | 26,633 | 24,266 | ||||||||
Barclays Wealth a | 5,620 | 4,768 | 1,822 | 1,581 | 2,504 | 2,064 | 9,946 | 8,413 | ||||||||
Total | 149,099 | 139,845 | 37,733 | 40,437 | 19,886 | 17,567 | 206,718 | 197,849 |
Table 8: Analysis of retail loans and advances net of impairment allowancesNote
Home loans | Cards and unsecured loans | Other retail | Total retail | |||||||||||||
2008 £m | 2007 £m | 2008 £m | 2007 £m | 2008 £m | 2007 £m | 2008 £m | 2007 £m | |||||||||
UK Retail Banking | 82,303 | 69,805 | 8,294 | 8,297 | 4,352 | 4,657 | 94,949 | 82,759 | ||||||||
Barclaycard | – | – | 23,224 | 14,930 | 4,489 | 4,501 | 27,713 | 19,431 | ||||||||
GRCB – Western Europe | 33,760 | 21,393 | 4,395 | 2,660 | 461 | 348 | 38,616 | 24,401 | ||||||||
GRCB – Emerging Markets | 603 | 285 | 2,900 | 1,369 | 389 | 183 | 3,892 | 1,837 | ||||||||
GRCB – Absa | 18,411 | 15,136 | 43 | – | 5,812 | 9,623 | 24,266 | 24,759 | ||||||||
Barclays Wealth | – | – | – | – | 8,413 | 6,434 | 8,413 | 6,434 | ||||||||
Total | 135,077 | 106,619 | 38,856 | 27,256 | 23,916 | 25,746 | 197,849 | 159,621 |
a | 2008 Barclays Wealth analysis of retail loans and advances to customers has been reanalysed to reflect changes in the classification of assets. |
79 |
– |
|
– | the possibility of any further falls in residential property prices in the UK, South Africa and Spain. |
Home Loans
The Group’s principal home loans portfolios continuecontinued largely to be in the UK Retail Banking Home Finance business (61%(59% of the Group’s total), GRCB – Western Europe (25%(23%) primarily Spain and Italy, and South Africa (14%). During the year, the Group managed the risk profile of these portfolios by strengthening underwriting criteria and reducing the maximum loan to value (LTV) ratios, with greater discrimination between purchases and remortgages and, within the UK buy to let (BTL) segment, between portfolio customers and single property investors.
CreditThe credit quality of the principal home loan portfolios reflected relatively low levels of high LTV lending. The LTVs onUsing current valuations, the Group’s principal home loan portfolios are shown in table 9. Using recent valuations, theaverage LTV of the portfolios as at 31st December 20082009 was 40%43% for UK Retail Banking’s mortgage business,Home Finance (31st December 2008: 40%), 51% for Spain (31st December 2008: 48%) and 42% for the Spanish mortgage portfolio within GRCB – Western Europe andSouth Africa (31st December 2008: 41% for GRCB – Absa’s mortgage portfolio in South Africa.). The average LTV for new mortgage business during 20082009 at origination was 48% for these portfolios wasUK Home Finance (31st December 2008: 47% for the UK, 63%), 55% for Spain (31st December 2008: 63%) and 58%53% for South Africa.Africa (31st December 2008: 58%). The percentage of balances with an LTV of over 85% based on current values was 10%14% for the UK 5%Home Finance (31st December 2008: 10%), 7% for Spain (31st December 2008: 5%) and 25%27% for South Africa.Africa (31st December 2008: 25%). In the UK, BTLbuy-to-let mortgages comprised 6.8%6% of the total stock.stock as at 31st December 2009.
Impairment charges rose across the home loanloans portfolios, reflecting the impact of lower house prices as well as some increaseincreases in arrears rates.
Three-month arrears as at 31st December 20082009 were 0.91%1.04% for UK
mortgages 0.76%(31st December 2008: 0.91%), 0.63% for Spain (31st December 2008: 0.51%), as credit conditions deteriorated and 2.11%4.07% for South Africa. To supportAfrica (31st December 2008: 2.11%), due to consumer indebtedness and increased debt counselling balances following the Group’s risk profile, we increased collections staff acrossenactment of the businesses and improved operational practices to boost effectiveness.2007 National Credit Act.
Repossessions
The number of properties in repossession in UK Home Loans remained very low during 2009. At the end of 2009 there were 196 properties in repossession, 40 higher than the previous year (31st December 2008: 156).
Credit Cards and UnsecuredRisk Loans
The Group’s Credit Risk Loans (CRLs) rose 43% to £22,388m (31st December 2008: £15,700m) in 2009. Balances were higher across Retail Home Loans, Retail Unsecured and Other and Corporate and Wholesale exposures reflecting the deterioration in credit conditions in the past year across Barclays areas of operations. The most notable increases were in the international businesses in Global Retail and Commercial Banking, with GRCB – Western Europe increasing the most as credit conditions deteriorated in Spain, Italy and Portugal. However, the rate of increase to the Group numbers has fallen during each quarter of 2009 from 17% in Q1 09 to 5% in Q4 09.
CRLs in Retail Home Loans increased by £1,076m (43%) to £3,604m (31st December 2008: £2,528m) and in Retail Unsecured and Other portfolios by £2,757m (55%) to £7,737m (31st December 2008: £4,980m) as credit conditions deteriorated and arrears balances rose in a number of regions, notably in: Absa Home Finance and Cards, GRCB – Western Europe, particularly in Spain and Italy; Barclaycard US cards; and in UK Retail Banking unsecured lending. CRLs also increased in GRCB – Western Europe following the purchase of the Citigroup cards portfolio in Portugal in December 2009.
CRLs in the Corporate and Wholesale portfolios rose 35% to £11,047m (31st December 2008: £8,192m). CRL balances were higher in all businesses, as economic conditions led to deterioration across default grades and a rise in impairment in most wholesale portfolios. The largest cardincreases were in GRCB – Western Europe, Barclays Capital and unsecured loanBarclays Commercial Bank.
Potential Problem Loans
Balances within the Group’s Potential Problem Loans (PPLs) category rose by 37% to £3,368m (31st December 2008: £2,456m). The principal movements were in the Corporate and Wholesale portfolios, arewhere PPLs rose £715m to £2,674m (31st December 2008: £1,959m). PPL balances increased in the retail portfolios to £694m (31st December 2008: £497m) as balances increased in the Retail Unsecured and Other portfolios. This was partially offset by a fall in PPL balances in Retail Home Loans.
Potential Credit Risk Loans
As a result of the increases in CRLs and PPLs, Group Potential Credit Risk Loan (PCRL) balances rose 42% to £25,756m (31st December 2008: £18,156m).
PCRL balances rose in Retail Home Loans by 34% to £3,739m (31st December 2008: £2,795m) and in Retail Unsecured and Other portfolios by 59% to £8,296m (31st December 2008: £5,210m) as delinquency rates rose across a number of portfolios, particularly in the UK, (47%US, Spain and South Africa.
Total PCRL balances in the Corporate and Wholesale portfolios increased by 35% to £13,721m (31st December 2008: £10,151m) after a number of Group total)customers migrated into the CRL and PPL categories, reflecting higher default probabilities in the deteriorating global wholesale environment.
Impairment Allowances and Coverage Ratios
Impairment allowances increased 64% to £10,796m (31st December 2008: £6,574m), reflecting increases across the majority of businesses as credit conditions deteriorated during the year.
Retail impairment allowances rose by 99% in Retail Home Loans to £639m (31st December 2008: £321m) and by 61% in Retail Unsecured and Other portfolios to £5,492m (31st December 2008: £3,418m). The US accounts for 19%CRL coverage ratio in Retail Home Loans increased to 17.7% (31st December 2008: 12.7%), where Barclaycard’s portfolio is largely Prime credit quality (FICO score of 660 or more). To address the impact of economic deterioration and the impact of weaker labour markets on the unsecuredPCRL coverage ratio increased to 17.1% (31st December 2008: 11.5%). The CRL coverage ratio in Retail Unsecured and Others portfolios in 2008, the Group used a range of measuresincreased to improve new customer quality and control the risk profile of existing customers.71.0% (31st December 2008: 68.6%). The PCRL coverage ratio increased to 66.2% (31st December 2008: 65.6%).
In the UK Cards portfolio, initial credit lines were made more conservative, followed by selective credit limit increases using more accurately assessed customer behaviour.Corporate and Wholesale portfolios, impairment allowances increased 65% to £4,665m (31st December 2008: £2,835m). The overall numberCRL coverage ratio rose to 42.2% (31st December 2008: 34.6%), and the PCRL coverage ratio rose to 34.0% (31st December 2008: 27.9%).
The CRL coverage ratios in Retail Home Loans, Retail Unsecured and Other and Corporate and Wholesale portfolios remain within the ranges which are the typical severity rates for these types of credit limit increases were reduced by strengthening qualification criteria and a proportion of higher-risk dormant accounts were closed. Arrears rates in the UK Cards portfolio fell slightly during the year, reflecting measures taken to improve customer quality in 2007 and 2008. Repayment Plan balances grew to support government initiatives to supply relief to customers experiencing financial difficulty. Payment rates in repayment plans remained relatively stable.
products. As a percentageresult of the portfolio, three-month arrears rates rose during 2008movements across these three portfolios, the Group’s CRL coverage ratio increased to 1.87% for UK Loans48.2% (31st December 2008: 41.9%), and 2.15% for US Cards. The rate reducedits PCRL coverage ratio also increased to 1.28% for UK Cards.41.9% (31st December 2008: 36.2%).
Potential Credit Risk Loans and Coverage Ratios CRLs PPLs PCRLs Home Loans Unsecured and other Retail Corporate/Wholesale Group Home Loans Unsecured and other Retail Corporate/Wholesale Group 31.12.09
£m 31.12.08
£m 31.12.09
£m 31.12.08
£m 31.12.09
£m 31.12.08
£m 3,604 2,528 135 267 3,739 2,795 7,737 4,980 559 230 8,296 5,210 11,341 7,508 694 497 12,035 8,005 11,047 8,192 2,674 1,959 13,721 10,151 22,388 15,700 3,368 2,456 25,756 18,156 Impairment allowance CRL coverage PCRL coverage 31.12.09
£m 31.12.08
£m 31.12.09
% 31.12.08
% 31.12.09
% 31.12.08
% 639 321 17.7 12.7 17.1 11.5 5,492 3,418 71.0 68.6 66.2 65.6 6,131 3,739 54.1 49.8 50.9 46.7 4,665 2,835 42.2 34.6 34.0 27.9 10,796 6,574 48.2 41.9 41.9 36.2
Table 9: Home loans – distribution of balances by loan to value (mark to market)a
UK | Spain | South Africa | ||||||||||
2008 % | 2007 % | 2008 % | 2007 % | 2008 % | 2007 % | |||||||
<= 75% | 78.2 | 90.1 | 86.7 | 92.2 | 60.5 | 68.6 | ||||||
> 75% and <= 80% | 6.1 | 4.7 | 4.8 | 4.2 | 7.5 | 7.2 | ||||||
> 80% and <= 85% | 5.5 | 2.5 | 3.7 | 1.6 | 7.2 | 7.1 | ||||||
> 85% and <= 90% | 4.5 | 1.5 | 1.6 | 0.7 | 7.6 | 5.9 | ||||||
> 90% and <= 95% | 2.5 | 0.9 | 1.3 | 0.6 | 6.7 | 6.1 | ||||||
> 95% | 3.1 | 0.3 | 1.9 | 0.7 | 10.5 | 5.1 | ||||||
Portfolio loan-to-value (mark to market) | 40 | 34 | 48 | 45 | 41 | 38 | ||||||
Average loan-to-value on new mortgages during the year | 47 | 49 | 63 | 63 | 58 | 59 |
Table 10: Home loans three-month arrearsa, b
| ||||||
As at 31.12.08 % | As at 30.06.08 % | As at 31.12.07 % | ||||
UK | 0.91 | 0.70 | 0.63 | |||
Spain | 0.76 | 0.46 | 0.24 | |||
South Africa | 2.11 | 0.96 | 0.25 |
Table 11: Unsecured lending three-month arrearsc
| ||||||
As at 31.12.08 % | As at 30.06.08 % | As at 31.12.07 % | ||||
UK Cards | 1.28 | 1.36 | 1.36 | |||
UK Loans | 1.87 | 1.40 | 1.35 | |||
US Cards | 2.15 | 2.08 | 1.83 |
Note
|
Risk Managementmanagement
Credit risk management
continued
Wholesale Credit Risk Management
Loans and Advances to customers and banks in the wholesale portfolios decreased by £55,202m (18%) to £259,306m, primarily as a result of a £42,972m (21%) fall in Barclays Capital to £165,624m, due to a decrease in the cash collateral held against derivative trades, a reduction in non-UK lending and a decrease in the value of Sterling relative to other currencies. This was partially offset by increases in lending due to restructuring of credit market assets and a reclassification of previously held for trading assets to loans and advances.
The corporate and government lending portfolio declined 30% to £53,305m (31st December 2008: £76,556m) primarily due to reductions in non-UK lending, a decrease in the value of other currencies relative to Sterling and the repayment of leveraged finance loans.
Included within corporate and government lending and other wholesale lending portfolios are £5,646m (31st December 2008: £7,674m) of loans backed by retail mortgage collateral classified within financial institutions.
Loans and advances
Monitoring weaknesses fell in exposures
Barclays actively manages its credit exposures. When weaknessesCommercial Bank by £8,064m (12%) to £60,840m, due to reduced customer demand. Balances fell in exposures are detectedboth GRCB – eitherWestern Europe and GRCB – Emerging Markets, which was due, in individual exposures or in groups of exposures – the Group takes action to mitigate the risks. Such actions may, for example, include: reducing the amounts outstanding (in discussion with the customers, clients or counterparties if appropriate); using credit derivatives securitising the assets; and, on occasion, selling them.
Corporate accounts that are deemed to contain heightened levels of risk are recorded on graded early warning or watch lists comprising three categories graded in line with the perceived severity of the risk attachedpart, to the lending, and its probabilitydepreciation of default. These are updated monthly and circulated to the relevant risk control points. Once listing has taken place, exposure is very carefully monitored and, where appropriate, exposure reductions are effected.
Should an account become impaired, it will normally, but not necessarily, have passed through all three categories, which reflect the need for ever-increasing caution and control. Where an obligor’s financial health gives grounds for concern, it is immediately placed into the appropriate
category. All obligors, regardless of financial health, are subject to a full review of all facilities on, at least, an annual basis. More frequent interim reviews may be undertaken should circumstances dictate.
Warning list balances rose throughout the year as wholesale credit conditions deterioratedvarious currencies across the regions against Sterling. The increase of £1,429m (17%) of balances in which Barclays operates.GRCB –Absa was due to the appreciation of the Rand against Sterling during 2009. In Rand terms, balances were stable.
Within Local Business, accounts that are deemedIn the wholesale portfolios, the impairment charge against loans and advances rose by £861m (33%) to have a heightened level of risk, or that exhibit some unsatisfactory features which could affect viability in the short/medium term, are transferred£3,441m (2008: £2,580m) mainly due to a separate ‘Caution’ stream. Accounts on the Caution stream are reviewed on at least a quarterly basis, at which time consideration is given to continuing with the agreed strategy, returning the customer to a lower risk refer stream, or instigating recovery/exit action.
Within the personal portfolios, which tend to comprise homogeneous assets, statistical techniques more readily allow potential weaknesses to be monitored on a portfolio basis. This applies in parts of UK Retail Banking, Barclays Wealth, GRCB’s international retail portfolios and Barclaycard. The approach is consistent with the Group’s policy of raising a collective impairment allowance as soon as objective evidence of impairment is identified.
CRLs and PPLs balances by UK and non-UK
Notesincreases in:
|
Wholesale loans and advances at amortised cost
| ||||||||||||||
As at 31.12.09 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans and advances loans % | Impairment charge £m | Loan rates loss bps | |||||||
BCB | 60,840 | 679 | 60,161 | 1,837 | 3.0 | 960 | 158 | |||||||
Barclaycard | 322 | 4 | 318 | 10 | 3.1 | 17 | 528 | |||||||
GRCB WE | 12,690 | 466 | 12,224 | 1,435 | 11.3 | 328 | 258 | |||||||
GRCB EM | 5,228 | 227 | 5,001 | 358 | 6.8 | 140 | 268 | |||||||
GRCB Absa | 10,077 | 195 | 9,882 | 690 | 6.8 | 67 | 66 | |||||||
Barclays Capital | 165,624 | 3,025 | 162,599 | 6,411 | 3.9 | 1,898 | 115 | |||||||
BGI | 5 | – | 5 | – | – | – | – | |||||||
Barclays Wealth | 3,495 | 43 | 3,452 | 179 | 5.1 | 17 | 49 | |||||||
Head office | 1,025 | 26 | 999 | 127 | 12.4 | 14 | 137 | |||||||
Total | 259,306 | 4,665 | 254,641 | 11,047 | 4.3 | 3,441 | 133 | |||||||
As at 31.12.08 | ||||||||||||||
BCB | 68,904 | 504 | 68,400 | 1,181 | 1.7 | 414 | 60 | |||||||
Barclaycard | 301 | 2 | 299 | 20 | 6.6 | 11 | 365 | |||||||
GRCB WE | 15,750 | 232 | 15,518 | 579 | 3.7 | 125 | 79 | |||||||
GRCB EM | 7,233 | 122 | 7,111 | 190 | 2.6 | 36 | 50 | |||||||
GRCB Absa | 8,648 | 140 | 8,508 | 304 | 3.5 | 19 | 22 | |||||||
Barclays Capital | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 | |||||||
BGI | 834 | – | 834 | – | – | – | – | |||||||
Barclays Wealth | 3,282 | 28 | 3,254 | 174 | 5.3 | 28 | 85 | |||||||
Head office | 960 | 11 | 949 | 1 | 0.1 | 11 | 115 | |||||||
Total | 314,508 | 2,835 | 311,673 | 8,192 | 2.6 | 2,580 | 82 |
Analysis of wholesale loans and advances at amortised cost net of impairment allowances
| ||||||||||||||||||||
Corporate | Government | Settlement balances & cash collateral | Other wholesale | Total wholesale | ||||||||||||||||
Wholesale | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | ||||||||||
BCB | 59,979 | 67,741 | 182 | 659 | – | – | – | – | 60,161 | 68,400 | ||||||||||
Barclaycard | 318 | 299 | – | – | – | – | – | – | 318 | 299 | ||||||||||
GRCB WE | 12,184 | 15,226 | 14 | 32 | – | – | 26 | 260 | 12,224 | 15,518 | ||||||||||
GRCB EM | 4,044 | 5,074 | 170 | 1,709 | – | – | 787 | 328 | 5,001 | 7,111 | ||||||||||
GRCB Absa | 8,695 | 8,480 | 263 | 28 | – | – | 924 | – | 9,882 | 8,508 | ||||||||||
Barclays Capital | 49,849 | 72,796 | 3,456 | 3,760 | 55,672 | 79,418 | 53,622 | 50,826 | 162,599 | 206,800 | ||||||||||
BGI | 5 | 834 | – | – | – | – | – | – | 5 | 834 | ||||||||||
Barclays Wealtha | 2,818 | 2,691 | 162 | 105 | – | – | 472 | 458 | 3,452 | 3,254 | ||||||||||
Head office | 999 | 949 | – | – | – | – | – | – | 999 | 949 | ||||||||||
Total | 138,891 | 174,090 | 4,247 | 6,293 | 55,672 | 79,418 | 55,831 | 51,872 | 254,641 | 311,673 |
Note
a | 2008 Barclays Wealth analysis of Wholesale loans and advances has been reanalysed to reflect changes in the reclassification of assets. |
77 |
– |
|
Potential credit risk loans
In line with disclosure requirements from the Securities Exchange Commission (SEC) in the US, if the credit quality of a loan on an early warning or watch list deteriorates to the highest category, consideration is given to including it within the Potential Problem Loan (PPL) list. PPLs are loans where payment of principal and interest is up to date but where serious doubt exists as to the ability of the borrowers to continue to comply with repayment terms in the near future.
Should further evidence of deterioration be observed, a loan may move to the Credit Risk Loan (CRL) category as required by the SEC. Events that would trigger the transfer of a loan from the PPL to the CRL category could include a missed payment or a breach of covenant.
CRLs comprise three classes of loans:
GRCB – |
– | GRCB – Emerging Markets as credit conditions continued to |
Impairment in Barclays Capital of £1,898m (2008: £1,936m) was broadly in line with 2008, as a fall in the impairment charge against credit market exposures was partially offset by a rise in the impairment charge against non-credit market exposures.
The loan loss rate across the Group’s wholesale portfolios for 2009 was 133bps (2008: 82bps), reflecting the rise in impairment and the 18% reduction in wholesale loans and advances.
As we enter 2010, the principal uncertainties relating to the performance of the wholesale portfolios are:
– | the |
– | the potential for single name risk and |
– | possible additional deterioration in our remaining credit market exposures, including commercial real estate and leveraged finance; and |
– | the potential impact of deteriorating sovereign credit quality. |
Analysis of Barclays capital wholesale loans and advances at amortised cost
| ||||||||||||||
As at 31.12.09 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk Loans £m | CRLs % of gross loans and advance % | Impairment Charge £m | Loan loss rates basis points | |||||||
Loans and advances to banks | ||||||||||||||
Cash collateral and settlement balances | 15,893 | – | 15,893 | – | – | – | – | |||||||
Interbank lending | 21,722 | 61 | 21,661 | 57 | 0.3 | 14 | 6 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate and Government lending | 54,342 | 1,037 | 53,305 | 2,198 | 4.0 | 1,115 | 205 | |||||||
ABS CDO Super Senior | 3,541 | 1,610 | 1,931 | 3,541 | 100.0 | 714 | 2,016 | |||||||
Other wholesale lending | 30,347 | 317 | 30,030 | 615 | 2.0 | 55 | 18 | |||||||
Cash collateral and settlement balances | 39,779 | – | 39,779 | – | – | – | – | |||||||
Total | 165,624 | 3,025 | 162,599 | 6,411 | 3.9 | 1,898 | 115 | |||||||
As at 31.12.08 | ||||||||||||||
Cash collateral and settlement balances | 19,264 | – | 19,264 | – | – | – | – | |||||||
Interbank lending | 24,086 | 51 | 24,035 | 48 | 0.2 | 40 | 17 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate and Government lending | 77,042 | 486 | 76,556 | 1,100 | 1.4 | 305 | 40 | |||||||
ABS CDO Super Senior | 4,117 | 1,013 | 3,104 | 4,117 | 100.0 | 1,383 | 3,359 | |||||||
Other wholesale lending | 23,933 | 246 | 23,687 | 478 | 2.0 | 208 | 87 | |||||||
Cash collateral and settlement balances | 60,154 | – | 60,154 | – | – | – | – | |||||||
Total | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 |
78 |
Risk management
Credit risk management
continued
Retail Credit Risk
Loans and advances to customers in the retail portfolios increased by £11,261m (6%) to £212,849m. Balances grew in most businesses with the largest increase in UK Retail Banking, which increased by £4,981m (5%) to £101,064m primarily in the UK Home Finance portfolio. There was modest growth in balances to local businesses but a moderate decline in balances relating to unsecured loans and overdrafts. GRCB – Western Europe increased by £2,517m (6%), which primarily reflected growth in Italy and Portugal following the expansion of the franchise, principally across mortgages and cards. This growth was partially offset by the appreciation of the Euro against Sterling. The increase of £2,611m (11%) of balances in GRCB – Absa was due to the appreciation of the Rand against Sterling during 2009. In Rand terms, balances fell by 3%. Balances in GRCB –Emerging Markets were £483m (12%) lower, in part reflecting movements in Sterling against local currencies.
Total home loans to retail customers rose by £9,254m (7%) to £149,099m (31st December 2008: £139,845m). The UK Home Finance portfolios within UK Retail Banking grew 7% to £87,943m (31st December 2008: £82,303m).
Unsecured retail credit (credit card and unsecured loans) portfolios fell 7% to £37,733m (31st December 2008: £40,437m).
In the retail portfolios, the impairment charge against loans and advances rose by £1,584m (68%) to £3,917m (2008: £2,333m) as economic
conditions, particularly unemployment, deteriorated across all regions. Policy and methodology enhancements, currency movements and portfolio maturation also had an impact. The largest increase was in Barclaycard, which increased by £695m (64%) to £1,781m, mainly driven by higher delinquencies and deteriorating economic conditions in the United Kingdom and the United States as well as portfolio maturation. The increase of £334m (55%) to £936m in UK Retail Banking was primarily due to lower recoveries and policy and methodology enhancements. Impairment charges in GRCB – Western Europe and GRCB – Emerging Markets were impacted by increased delinquency rates as credit conditions deteriorated particularly in Spain and India. Impairment increased in GRCB – Absa as a result of high delinquency levels due to consumer indebtedness and increased debt counselling balances following the enactment of the 2007 National Credit Act.
The loan loss rate across the Group’s retail portfolios for 2009 was 184bps (2008: 116bps).
As we enter 2010, the principal uncertainties relating to the performance of the Group’s retail portfolios are:
– | the extent and sustainability of economic recovery in the UK, US, Spain and South Africa as governments consider how and when to withdraw stimulus packages; |
– | the dynamics of unemployment in those markets and the impact on delinquency and charge-off rates; |
Retail loans and advances to customers at amortised cost | ||||||||||||||
As at 31.12.09 | Gross loans & advances £m | Impairment allowance £m | Loans & advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans & advances % | Impairment charge £m | Loan loss rates bp | |||||||
UKRB | 101,064 | 1,587 | 99,477 | 3,108 | 3.1 | 936 | 93 | |||||||
Barclaycard | 29,460 | 2,670 | 26,790 | 3,392 | 11.5 | 1,781 | 605 | |||||||
GRCB WE | 41,514 | 689 | 40,825 | 1,411 | 3.4 | 335 | 81 | |||||||
GRCB EM | 3,521 | 474 | 3,047 | 551 | 15.6 | 331 | 940 | |||||||
GRCB Absa | 27,288 | 655 | 26,633 | 2,573 | 9.4 | 500 | 183 | |||||||
Barclays Wealth | 10,002 | 56 | 9,946 | 306 | 3.1 | 34 | 34 | |||||||
Total | 212,849 | 6,131 | 206,718 | 11,341 | 5.3 | 3,917 | 184 | |||||||
As at 31.12.08 | ||||||||||||||
UKRB | 96,083 | 1,134 | 94,949 | 2,403 | 2.5 | 602 | 63 | |||||||
Barclaycard | 29,390 | 1,677 | 27,713 | 2,566 | 8.7 | 1,086 | 370 | |||||||
GRCB WE | 38,997 | 306 | 38,691 | 798 | 2.0 | 172 | 44 | |||||||
GRCB EM | 4,004 | 187 | 3,817 | 175 | 4.4 | 129 | 322 | |||||||
GRCB Absa | 24,677 | 411 | 24,266 | 1,518 | 6.2 | 328 | 133 | |||||||
Barclays Wealth | 8,437 | 24 | 8,413 | 48 | 0.6 | 16 | 19 | |||||||
Total | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 |
Home loans | Cards and unsecured loans | Other retail | Total retail | |||||||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | |||||||||
UK Retail Banking | 87,943 | 82,303 | 7,329 | 8,294 | 4,205 | 4,352 | 99,477 | 94,949 | ||||||||
Barclaycard | – | – | 21,564 | 23,224 | 5,226 | 4,489 | 26,790 | 27,713 | ||||||||
GRCB – Western Europe | 34,592 | 33,807 | 3,513 | 4,423 | 2,720 | 461 | 40,825 | 38,691 | ||||||||
GRCB – Emerging Markets | 452 | 556 | 2,502 | 2,872 | 93 | 389 | 3,047 | 3,817 | ||||||||
GRCB – Absa | 20,492 | 18,411 | 1,003 | 43 | 5,138 | 5,812 | 26,633 | 24,266 | ||||||||
Barclays Wealth a | 5,620 | 4,768 | 1,822 | 1,581 | 2,504 | 2,064 | 9,946 | 8,413 | ||||||||
Total | 149,099 | 139,845 | 37,733 | 40,437 | 19,886 | 17,567 | 206,718 | 197,849 |
Note
a | 2008 Barclays Wealth analysis of retail loans and advances to customers has been reanalysed to reflect changes in the classification of assets. |
79 |
– |
|
– | the possibility of any further falls in residential property prices in the UK, South Africa and Spain. |
Home Loans
The Group’s principal home loans portfolios continued largely to be in the UK Retail Banking Home Finance business (59% of the Group’s total), GRCB – Western Europe (23%) primarily Spain and Italy, and South Africa (14%). The credit quality of the principal home loan portfolios reflected low LTV lending. Using current valuations, the average LTV of the portfolios as at 31st December 2009 was 43% for UK Home Finance (31st December 2008: 40%), 51% for Spain (31st December 2008: 48%) and 42% for South Africa (31st December 2008: 41%). The average LTV for new mortgage business during 2009 at origination was 48% for UK Home Finance (31st December 2008: 47%), 55% for Spain (31st December 2008: 63%) and 53% for South Africa (31st December 2008: 58%). The percentage of balances with an LTV of over 85% based on current values was 14% for UK Home Finance (31st December 2008: 10%), 7% for Spain (31st December 2008: 5%) and 27% for South Africa (31st December 2008: 25%). In 2007, the term Credit Risk Loans replaced the term Non-Performing Loans (NPLs) as the collective term forUK, buy-to-let mortgages comprised 6% of the total of these three classes to recognisestock as at 31st December 2009.
Impairment charges rose across the fact that the impaired loan category may includehome loans which, while impaired, are still performing. This category includes drawn ABS CDO Super Senior positions.
Potential Credit Risk Loans (PCRLs) comprise PPLs and CRLs. Figures 5 and 6 show CRL and PPL balances by UK and non-UK. The amounts are shown before deduction of value of security held, impairment allowances (from 2005 onwards) and provisions or interest suspense (2004), all of which might reduceportfolios, reflecting the impact of an eventual loss, should it occur. The significant increase to non-UK CRLlower house prices as well as some increases in arrears rates.
Three-month arrears as at 31st December 2009 were 1.04% for UK mortgages (31st December 2008: 0.91%), 0.63% for Spain (31st December 2008: 0.51%), as credit conditions deteriorated and PPL balances, in 2007 and 2008, is principally4.07% for South Africa (31st December 2008: 2.11%), due to consumer indebtedness and increased debt counselling balances following the inclusionenactment of US-located ABS CDO Super Senior positions and other credit market exposures.the 2007 National Credit Act.
Repossessions
The number of properties in repossession in UK Home Loans remained very low during 2009. At the end of 2009 there were 196 properties in repossession, 40 higher than the previous year (31st December 2008: 156).
Credit Risk Loans
In 2008, The Group’s Credit Risk Loans (CRLs) rose 43% to £22,388m (31st December 2008: £15,700m) in 2009. Balances were higher across Retail Home Loans, Retail Unsecured and Other and Corporate and Wholesale exposures reflecting the deterioration in credit conditions in the past year across Barclays areas of operations. The most notable increases were in the international businesses in Global Retail and Commercial Banking, with GRCB – Western Europe increasing the most as credit conditions deteriorated in Spain, Italy and Portugal. However, the rate of increase to the Group numbers has fallen during each quarter of 2009 from 17% in Q1 09 to 5% in Q4 09.
CRLs in Retail Home Loans increased by £1,076m (43%) to £3,604m (31st December 2008: £2,528m) and in Retail Unsecured and Other portfolios by £2,757m (55%) to £7,737m (31st December 2008: £4,980m) as credit conditions deteriorated and arrears balances rose 63%in a number of regions, notably in: Absa Home Finance and Cards, GRCB – Western Europe, particularly in Spain and Italy; Barclaycard US cards; and in UK Retail Banking unsecured lending. CRLs also increased in GRCB – Western Europe following the purchase of the Citigroup cards portfolio in Portugal in December 2009.
CRLs in the Corporate and Wholesale portfolios rose 35% to £15,700m (2007: £9,641m)£11,047m (31st December 2008: £8,192m). BalancesCRL balances were higher in all businesses, as crediteconomic conditions deterioratedled to deterioration across Barclays areas of operationsdefault grades and total loans and advances grew.a rise in impairment in most wholesale portfolios. The most notablelargest increases were in GRCB – Western Europe, Barclays Capital and the non-UK businesses in Global Retail and Commercial Banking.
CRLs and PPLs as a percentage of Loans and Advances
Notes
|
|
Risk management
Credit risk management
Loans and advances
CRLs in retail secured mortgage products increased by £1,309m (89%) to £2,783m (2007: £1,474m). The key driver was Absa Home Finance where balances increased significantly as a result of higher interest rates and increasing consumer indebtedness. Increases were also seen in UK Home Finance, reflecting weakening UK house prices and the slowing economy, and in Spain, as economic conditions deteriorated.
CRLs in the unsecured and other retail portfolios increased by £1,715m (57%) to £4,725m (2007: £3,010m). The key drivers for this increase were: Absa, which was impacted by higher interest rates and increasing consumer indebtedness, Barclaycard US, due to deteriorating credit conditions which resulted in rising delinquency rates, asset growth and exchange rate movements, and Spain, as economic conditions deteriorated and consumer indebtedness increased.
Corporate/Wholesale CRLs, excluding ABS CDO Super Senior positions, increased by £2,262m (125%) to £4,075m (2007: £1,813m). The key drivers were: Barclays Capital following a number of credit downgrades; increasing default probabilities; and Spain, primarily due to increases to the property-related names. Balances also increased in Barclays Commercial Bank and Absa Commercial and Banking Business as corporate credit conditions deteriorated, particularly in the last quarter of 2008.Bank.
CRLs on ABS CDO Super Senior positions increased £773m (23%) to £4,117m (2007: £3,344m). The majority of this increase resulted from a migration of assets, totalling £801m, from potential problem loans (PPLs) to CRLs.
Potential Problem Loans
Balances within the Group’s potential problem loansPotential Problem Loans (PPLs) category rose by £659m37% to £2,456m£3,368m (31st December 2007: £1,797m)2008: £2,456m). The principal movements were in the corporateCorporate and wholesaleWholesale portfolios, where PPLs rose £1,463m£715m to £1,959m£2,674m (31st December 2007: £496m)2008: £1,959m). PPL balances increased in the retail portfolios to £694m (31st December 2008: £497m) as credit conditions deteriorated.balances increased in the Retail Unsecured and Other portfolios. This rise was partially offset by a fall in PPLs relating to ABS CDO positions, as thosePPL balances moved into the CRL category. Broadly flat PPLs from retail portfolios reflected methodology alignments affecting GRCB – Absa which transferred balances of just over £200m previously reported as PPLs to CRLs. This was offset by rises in UK Retail Banking, GRCB – Western Europe and GRCB – Emerging Markets.Home Loans.
Potential Credit Risk Loans
CombiningAs a result of the increases in CRLs and PPLs, total potential credit risk loansGroup Potential Credit Risk Loan (PCRL) balances rose 42% to £25,756m (31st December 2008: £18,156m).
PCRL balances rose in Retail Home Loans by 34% to £3,739m (31st December 2008: £2,795m) and in Retail Unsecured and Other portfolios by 59% to £8,296m (31st December 2008: £5,210m) as delinquency rates rose across a number of portfolios, particularly in the UK, US, Spain and South Africa.
Total PCRL balances in the corporateCorporate and wholesaleWholesale portfolios increased by 161% in 200835% to £6,034m£13,721m (31st December 2007: £2,309m) as2008: £10,151m) after a number of namescustomers migrated into the CRL and PPL categories, reflecting higher default probabilities in the deteriorating global wholesale environment. PCRLs relating to ABS CDO positions remained stable at £4,117m (31st December 2007: £4,145m).
Total retail PCRL balances increased 61% to £8,005m (31st December 2007: £4,984m) as delinquency rates rose across a number of secured and unsecured portfolios following a deterioration in credit conditions, particularly in the UK, US, Spain and South Africa.
Group PCRL balances rose 59% to £18,156m (31st December 2007: £11,438m). Excluding ABS CDO Super Senior positions, PCRLs increased 92% to £14,039m (31st December 2007: £7,293m).
Table 12: Potential credit risk loans and coverage ratios | ||||||||||||
CRLs | PPLs | PCRLs | ||||||||||
31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | |||||||
Retail Secured | 2,783 | 1,474 | 280 | 317 | 3,063 | 1,791 | ||||||
Retail Unsecured and other | 4,725 | 3,010 | 217 | 183 | 4,942 | 3,193 | ||||||
Retail | 7,508 | 4,484 | 497 | 500 | 8,005 | 4,984 | ||||||
Corporate/Wholesale (excl ABS) | 4,075 | 1,813 | 1,959 | 496 | 6,034 | 2,309 | ||||||
Group (excl ABS) | 11,583 | 6,297 | 2,456 | 996 | 14,039 | 7,293 | ||||||
ABS CDO Super Senior | 4,117 | 3,344 | – | 801 | 4,117 | 4,145 | ||||||
Group | 15,700 | 9,641 | 2,456 | 1,797 | 18,156 | 11,438 | ||||||
Impairment allowance | CRL coverage | PCRL cove rage | ||||||||||
31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | |||||||
Retail Secured | 561 | 320 | 20.2% | 21.7% | 18.3% | 17.9% | ||||||
Retail Unsecured and other | 3,178 | 2,140 | 67.3% | 71.1% | 64.3% | 67.0% | ||||||
Retail | 3,739 | 2,460 | 49.8% | 54.9% | 46.7% | 49.4% | ||||||
Corporate/Wholesale (excl ABS) | 1,822 | 1,022 | 44.7% | 56.4% | 30.2% | 44.3% | ||||||
Group (excl ABS) | 5,561 | 3,482 | 48.0% | 55.3% | 39.6% | 47.7% | ||||||
ABS CDO Super Senior | 1,013 | 290 | 24.6% | 8.7% | 24.6% | 7.0% | ||||||
Group | 6,574 | 3,772 | 41.9% | 39.1% | 36.2% | 33.0% |
|
Impairment Allowances and Coverage Ratios
In 2008, impairmentImpairment allowances increased 74%64% to £6,574m£10,796m (31st December 2007: £3,772m). Excluding ABS CDO Super Senior positions, allowances increased by 60% to £5,561m (31st December 2007: £3,482m). Allowances increased in all2008: £6,574m), reflecting increases across the majority of businesses as credit conditions deteriorated but most notablyduring the year.
Retail impairment allowances rose by 99% in Barclays CapitalRetail Home Loans to £639m (31st December 2008: £321m) and GRCB’s international portfolios.by 61% in Retail Unsecured and Other portfolios to £5,492m (31st December 2008: £3,418m). The CRL coverage ratio in Retail Home Loans increased to 17.7% (31st December 2008: 12.7%), and the PCRL coverage ratio increased to 17.1% (31st December 2008: 11.5%). The CRL coverage ratio in Retail Unsecured and Others portfolios increased to 71.0% (31st December 2008: 68.6%). The PCRL coverage ratio increased to 66.2% (31st December 2008: 65.6%).
Reflecting this 74% riseIn the Corporate and Wholesale portfolios, impairment allowances increased 65% to £4,665m (31st December 2008: £2,835m). The CRL coverage ratio rose to 42.2% (31st December 2008: 34.6%), and the PCRL coverage ratio rose to 34.0% (31st December 2008: 27.9%).
The CRL coverage ratios in impairment allowance compared withRetail Home Loans, Retail Unsecured and Other and Corporate and Wholesale portfolios remain within the 63% rise in total CRLs,ranges which are the typical severity rates for these types of products. As a result of the movements across these three portfolios, the Group’s CRL coverage ratio roseincreased to 48.2% (31st December 2008: 41.9%), and its PCRL coverage ratio also increased to 41.9% (31st December 2007: 39.1%2008: 36.2%). Coverage ratios
Potential Credit Risk Loans and Coverage Ratios
| CRLs | PPLs | PCRLs | |||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | |||||||
Home Loans | 3,604 | 2,528 | 135 | 267 | 3,739 | 2,795 | ||||||
Unsecured and other | 7,737 | 4,980 | 559 | 230 | 8,296 | 5,210 | ||||||
Retail | 11,341 | 7,508 | 694 | 497 | 12,035 | 8,005 | ||||||
Corporate/Wholesale | 11,047 | 8,192 | 2,674 | 1,959 | 13,721 | 10,151 | ||||||
Group | 22,388 | 15,700 | 3,368 | 2,456 | 25,756 | 18,156 | ||||||
Impairment allowance | CRL coverage | PCRL coverage | ||||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 % | 31.12.08 % | 31.12.09 % | 31.12.08 % | |||||||
Home Loans | 639 | 321 | 17.7 | 12.7 | 17.1 | 11.5 | ||||||
Unsecured and other | 5,492 | 3,418 | 71.0 | 68.6 | 66.2 | 65.6 | ||||||
Retail | 6,131 | 3,739 | 54.1 | 49.8 | 50.9 | 46.7 | ||||||
Corporate/Wholesale | 4,665 | 2,835 | 42.2 | 34.6 | 34.0 | 27.9 | ||||||
Group | 10,796 | 6,574 | 48.2 | 41.9 | 41.9 | 36.2 |
76 |
Risk management
Credit risk management
continued
Wholesale Credit Risk
Loans and Advances to customers and banks in the wholesale portfolios decreased by £55,202m (18%) to £259,306m, primarily as a result of a £42,972m (21%) fall in Barclays Capital to £165,624m, due to a decrease in the cash collateral held against derivative trades, a reduction in non-UK lending and a decrease in the value of Sterling relative to other currencies. This was partially offset by increases in lending due to restructuring of credit market assets and a reclassification of previously held for PCRLs rosetrading assets to 36.2%loans and advances.
The corporate and government lending portfolio declined 30% to £53,305m (31st December 2007: 33.0%).
The largest driver for these increases was the near four-fold increase2008: £76,556m) primarily due to reductions in non-UK lending, a decrease in the impairment held against ABS CDO Super Senior positions asvalue of other currencies relative to Sterling and the LGDrepayment of these assets increased.leveraged finance loans.
Allowance coverage ratios of CRLs
Included within corporate and PCRLs excluding the drawn ABS CDO Super Senior positions decreased to 48.0%government lending and other wholesale lending portfolios are £5,646m (31st December 2007: 55.3%2008: £7,674m) of loans backed by retail mortgage collateral classified within financial institutions.
Loans and advances fell in Barclays Commercial Bank by £8,064m (12%) to £60,840m, due to reduced customer demand. Balances fell in both GRCB – Western Europe and 39.6% (31st December 2007: 47.7%), respectively. These movementsGRCB – Emerging Markets, which was due, in coverage ratios reflected:part, to the depreciation of various currencies across the regions against Sterling. The increase of £1,429m (17%) of balances in GRCB –Absa was due to the appreciation of the Rand against Sterling during 2009. In Rand terms, balances were stable.
In the wholesale portfolios, the impairment charge against loans and advances rose by £861m (33%) to £3,441m (2008: £2,580m) mainly due to increases in:
– | Barclays Commercial Bank, reflecting rising default rates and |
Wholesale loans and advances at amortised cost
| ||||||||||||||
As at 31.12.09 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans and advances loans % | Impairment charge £m | Loan rates loss bps | |||||||
BCB | 60,840 | 679 | 60,161 | 1,837 | 3.0 | 960 | 158 | |||||||
Barclaycard | 322 | 4 | 318 | 10 | 3.1 | 17 | 528 | |||||||
GRCB WE | 12,690 | 466 | 12,224 | 1,435 | 11.3 | 328 | 258 | |||||||
GRCB EM | 5,228 | 227 | 5,001 | 358 | 6.8 | 140 | 268 | |||||||
GRCB Absa | 10,077 | 195 | 9,882 | 690 | 6.8 | 67 | 66 | |||||||
Barclays Capital | 165,624 | 3,025 | 162,599 | 6,411 | 3.9 | 1,898 | 115 | |||||||
BGI | 5 | – | 5 | – | – | – | – | |||||||
Barclays Wealth | 3,495 | 43 | 3,452 | 179 | 5.1 | 17 | 49 | |||||||
Head office | 1,025 | 26 | 999 | 127 | 12.4 | 14 | 137 | |||||||
Total | 259,306 | 4,665 | 254,641 | 11,047 | 4.3 | 3,441 | 133 | |||||||
As at 31.12.08 | ||||||||||||||
BCB | 68,904 | 504 | 68,400 | 1,181 | 1.7 | 414 | 60 | |||||||
Barclaycard | 301 | 2 | 299 | 20 | 6.6 | 11 | 365 | |||||||
GRCB WE | 15,750 | 232 | 15,518 | 579 | 3.7 | 125 | 79 | |||||||
GRCB EM | 7,233 | 122 | 7,111 | 190 | 2.6 | 36 | 50 | |||||||
GRCB Absa | 8,648 | 140 | 8,508 | 304 | 3.5 | 19 | 22 | |||||||
Barclays Capital | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 | |||||||
BGI | 834 | – | 834 | – | – | – | – | |||||||
Barclays Wealth | 3,282 | 28 | 3,254 | 174 | 5.3 | 28 | 85 | |||||||
Head office | 960 | 11 | 949 | 1 | 0.1 | 11 | 115 | |||||||
Total | 314,508 | 2,835 | 311,673 | 8,192 | 2.6 | 2,580 | 82 |
Analysis of wholesale loans and advances at amortised cost net of impairment allowances
| ||||||||||||||||||||
Corporate | Government | Settlement balances & cash collateral | Other wholesale | Total wholesale | ||||||||||||||||
Wholesale | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | ||||||||||
BCB | 59,979 | 67,741 | 182 | 659 | – | – | – | – | 60,161 | 68,400 | ||||||||||
Barclaycard | 318 | 299 | – | – | – | – | – | – | 318 | 299 | ||||||||||
GRCB WE | 12,184 | 15,226 | 14 | 32 | – | – | 26 | 260 | 12,224 | 15,518 | ||||||||||
GRCB EM | 4,044 | 5,074 | 170 | 1,709 | – | – | 787 | 328 | 5,001 | 7,111 | ||||||||||
GRCB Absa | 8,695 | 8,480 | 263 | 28 | – | – | 924 | – | 9,882 | 8,508 | ||||||||||
Barclays Capital | 49,849 | 72,796 | 3,456 | 3,760 | 55,672 | 79,418 | 53,622 | 50,826 | 162,599 | 206,800 | ||||||||||
BGI | 5 | 834 | – | – | – | – | – | – | 5 | 834 | ||||||||||
Barclays Wealtha | 2,818 | 2,691 | 162 | 105 | – | – | 472 | 458 | 3,452 | 3,254 | ||||||||||
Head office | 999 | 949 | – | – | – | – | – | – | 999 | 949 | ||||||||||
Total | 138,891 | 174,090 | 4,247 | 6,293 | 55,672 | 79,418 | 55,831 | 51,872 | 254,641 | 311,673 |
Note
a | 2008 Barclays Wealth analysis of Wholesale loans and advances has been reanalysed to reflect changes in the |
77 |
– | GRCB – Western Europe, reflecting the economic deterioration in Spain which has impacted the commercial, construction and SME portfolios in particular, together with the appreciation of the average value of the Euro against Sterling; and |
– | GRCB – Emerging Markets as credit conditions continued to deteriorate resulting in a small number of higher value single name charges and |
Impairment in Barclays Capital of £1,898m (2008: £1,936m) was broadly in line with 2008, as a fall in the impairment charge against credit market exposures was partially offset by a rise in the impairment charge against non-credit market exposures.
The loan loss rate across the Group’s wholesale portfolios for 2009 was 133bps (2008: 82bps), reflecting the rise in impairment and the 18% reduction in wholesale loans and advances.
As we enter 2010, the principal uncertainties relating to the performance of the wholesale portfolios are:
– | the extent and sustainability of economic recovery and asset prices in the |
– | the potential for single name risk and for idiosyncratic losses in |
The decrease
– | possible additional deterioration in our remaining credit market exposures, including commercial real estate and leveraged finance; and |
– | the potential impact of deteriorating sovereign credit quality. |
Analysis of Barclays capital wholesale loans and advances at amortised cost
| ||||||||||||||
As at 31.12.09 | Gross loans and advances £m | Impairment allowance £m | Loans and advances net of impairment £m | Credit risk Loans £m | CRLs % of gross loans and advance % | Impairment Charge £m | Loan loss rates basis points | |||||||
Loans and advances to banks | ||||||||||||||
Cash collateral and settlement balances | 15,893 | – | 15,893 | – | – | – | – | |||||||
Interbank lending | 21,722 | 61 | 21,661 | 57 | 0.3 | 14 | 6 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate and Government lending | 54,342 | 1,037 | 53,305 | 2,198 | 4.0 | 1,115 | 205 | |||||||
ABS CDO Super Senior | 3,541 | 1,610 | 1,931 | 3,541 | 100.0 | 714 | 2,016 | |||||||
Other wholesale lending | 30,347 | 317 | 30,030 | 615 | 2.0 | 55 | 18 | |||||||
Cash collateral and settlement balances | 39,779 | – | 39,779 | – | – | – | – | |||||||
Total | 165,624 | 3,025 | 162,599 | 6,411 | 3.9 | 1,898 | 115 | |||||||
As at 31.12.08 | ||||||||||||||
Cash collateral and settlement balances | 19,264 | – | 19,264 | – | – | – | – | |||||||
Interbank lending | 24,086 | 51 | 24,035 | 48 | 0.2 | 40 | 17 | |||||||
Loans and advances to customers | ||||||||||||||
Corporate and Government lending | 77,042 | 486 | 76,556 | 1,100 | 1.4 | 305 | 40 | |||||||
ABS CDO Super Senior | 4,117 | 1,013 | 3,104 | 4,117 | 100.0 | 1,383 | 3,359 | |||||||
Other wholesale lending | 23,933 | 246 | 23,687 | 478 | 2.0 | 208 | 87 | |||||||
Cash collateral and settlement balances | 60,154 | – | 60,154 | – | – | – | – | |||||||
Total | 208,596 | 1,796 | 206,800 | 5,743 | 2.8 | 1,936 | 93 |
78 |
Risk management
Credit risk management
continued
Retail Credit Risk
Loans and advances to customers in the PCRL coverage ratio, excludingretail portfolios increased by £11,261m (6%) to £212,849m. Balances grew in most businesses with the drawn ABS CDO Super Senior positions,largest increase in UK Retail Banking, which increased by £4,981m (5%) to £101,064m primarily in the UK Home Finance portfolio. There was modest growth in balances to local businesses but a moderate decline in balances relating to unsecured loans and overdrafts. GRCB – Western Europe increased by £2,517m (6%), which primarily reflected growth in Italy and Portugal following the expansion of the franchise, principally across mortgages and cards. This growth was partially offset by the appreciation of the Euro against Sterling. The increase of £2,611m (11%) of balances in GRCB – Absa was due to the appreciation of the Rand against Sterling during 2009. In Rand terms, balances fell by 3%. Balances in GRCB –Emerging Markets were £483m (12%) lower, in part reflecting movements in Sterling against local currencies.
Total home loans to retail customers rose by £9,254m (7%) to £149,099m (31st December 2008: £139,845m). The UK Home Finance portfolios within UK Retail Banking grew 7% to £87,943m (31st December 2008: £82,303m).
Unsecured retail credit (credit card and unsecured loans) portfolios fell 7% to £37,733m (31st December 2008: £40,437m).
In the retail portfolios, the impairment charge against loans and advances rose by £1,584m (68%) to £3,917m (2008: £2,333m) as economic
conditions, particularly unemployment, deteriorated across all regions. Policy and methodology enhancements, currency movements and portfolio maturation also had an impact. The largest increase was in Barclaycard, which increased by £695m (64%) to £1,781m, mainly driven by higher delinquencies and deteriorating economic conditions in the overallUnited Kingdom and the United States as well as portfolio maturation. The increase of £334m (55%) to £936m in PPLs as a proportion of total PCRLs. Since, by definition, PPLs attract lower
levels of impairment than CRLs, a higher proportion of PPLs in total PCRLs will tendUK Retail Banking was primarily due to lower the overall coverage ratio.
Allowances for impairmentrecoveries and otherpolicy and methodology enhancements. Impairment charges in GRCB – Western Europe and GRCB – Emerging Markets were impacted by increased delinquency rates as credit provisions
Barclays establishes, through charges against profit, impairment allowancesconditions deteriorated particularly in Spain and other credit provisions for the incurred loss inherentIndia. Impairment increased in the lending book.
Under IFRS, impairment allowances are recognised where there is objective evidence of impairmentGRCB – Absa as a result of one or more loss events that have occurred after initial recognition,high delinquency levels due to consumer indebtedness and where these events have had an impact onincreased debt counselling balances following the estimated future cash flowsenactment of the financial asset or portfolio2007 National Credit Act.
The loan loss rate across the Group’s retail portfolios for 2009 was 184bps (2008: 116bps).
As we enter 2010, the principal uncertainties relating to the performance of financial assets. Impairmentthe Group’s retail portfolios are:
– | the extent and sustainability of economic recovery in the UK, US, Spain and South Africa as governments consider how and when to withdraw stimulus packages; |
– | the dynamics of unemployment in those markets and the impact on delinquency and charge-off rates; |
Retail loans and advances to customers at amortised cost | ||||||||||||||
As at 31.12.09 | Gross loans & advances £m | Impairment allowance £m | Loans & advances net of impairment £m | Credit risk loans £m | CRLs % of gross loans & advances % | Impairment charge £m | Loan loss rates bp | |||||||
UKRB | 101,064 | 1,587 | 99,477 | 3,108 | 3.1 | 936 | 93 | |||||||
Barclaycard | 29,460 | 2,670 | 26,790 | 3,392 | 11.5 | 1,781 | 605 | |||||||
GRCB WE | 41,514 | 689 | 40,825 | 1,411 | 3.4 | 335 | 81 | |||||||
GRCB EM | 3,521 | 474 | 3,047 | 551 | 15.6 | 331 | 940 | |||||||
GRCB Absa | 27,288 | 655 | 26,633 | 2,573 | 9.4 | 500 | 183 | |||||||
Barclays Wealth | 10,002 | 56 | 9,946 | 306 | 3.1 | 34 | 34 | |||||||
Total | 212,849 | 6,131 | 206,718 | 11,341 | 5.3 | 3,917 | 184 | |||||||
As at 31.12.08 | ||||||||||||||
UKRB | 96,083 | 1,134 | 94,949 | 2,403 | 2.5 | 602 | 63 | |||||||
Barclaycard | 29,390 | 1,677 | 27,713 | 2,566 | 8.7 | 1,086 | 370 | |||||||
GRCB WE | 38,997 | 306 | 38,691 | 798 | 2.0 | 172 | 44 | |||||||
GRCB EM | 4,004 | 187 | 3,817 | 175 | 4.4 | 129 | 322 | |||||||
GRCB Absa | 24,677 | 411 | 24,266 | 1,518 | 6.2 | 328 | 133 | |||||||
Barclays Wealth | 8,437 | 24 | 8,413 | 48 | 0.6 | 16 | 19 | |||||||
Total | 201,588 | 3,739 | 197,849 | 7,508 | 3.7 | 2,333 | 116 |
Home loans | Cards and unsecured loans | Other retail | Total retail | |||||||||||||
31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | 31.12.09 £m | 31.12.08 £m | |||||||||
UK Retail Banking | 87,943 | 82,303 | 7,329 | 8,294 | 4,205 | 4,352 | 99,477 | 94,949 | ||||||||
Barclaycard | – | – | 21,564 | 23,224 | 5,226 | 4,489 | 26,790 | 27,713 | ||||||||
GRCB – Western Europe | 34,592 | 33,807 | 3,513 | 4,423 | 2,720 | 461 | 40,825 | 38,691 | ||||||||
GRCB – Emerging Markets | 452 | 556 | 2,502 | 2,872 | 93 | 389 | 3,047 | 3,817 | ||||||||
GRCB – Absa | 20,492 | 18,411 | 1,003 | 43 | 5,138 | 5,812 | 26,633 | 24,266 | ||||||||
Barclays Wealth a | 5,620 | 4,768 | 1,822 | 1,581 | 2,504 | 2,064 | 9,946 | 8,413 | ||||||||
Total | 149,099 | 139,845 | 37,733 | 40,437 | 19,886 | 17,567 | 206,718 | 197,849 |
Note
a | 2008 Barclays Wealth analysis of retail loans and advances to customers has been reanalysed to reflect changes in the classification of assets. |
79 |
– | the speed and extent of possible rises in interest rates in the UK, US and eurozone; and |
– | the possibility of any further falls in residential property prices in the UK, South Africa and Spain. |
Home Loans
The Group’s principal home loans portfolios continued largely to be in the UK Retail Banking Home Finance business (59% of loansthe Group’s total), GRCB – Western Europe (23%) primarily Spain and receivables is measuredItaly, and South Africa (14%). The credit quality of the principal home loan portfolios reflected low LTV lending. Using current valuations, the average LTV of the portfolios as at 31st December 2009 was 43% for UK Home Finance (31st December 2008: 40%), 51% for Spain (31st December 2008: 48%) and 42% for South Africa (31st December 2008: 41%). The average LTV for new mortgage business during 2009 at origination was 48% for UK Home Finance (31st December 2008: 47%), 55% for Spain (31st December 2008: 63%) and 53% for South Africa (31st December 2008: 58%). The percentage of balances with an LTV of over 85% based on current values was 14% for UK Home Finance (31st December 2008: 10%), 7% for Spain (31st December 2008: 5%) and 27% for South Africa (31st December 2008: 25%). In the difference betweenUK, buy-to-let mortgages comprised 6% of the carrying amount and the present value of estimated future cash flows discountedtotal stock as at the financial asset’s original effective interest rate. If the carrying amount is less than the discounted cash flows, then no further allowance is necessary.31st December 2009.
Impairment is measured individually for assets that are individually significant, and collectively where a portfolio comprises homogenous assets and where appropriate statistical techniques are available.
In termscharges rose across the home loans portfolios, reflecting the impact of individual assessment, the trigger point for impairment is formal classification of an account as exhibiting serious financial problems and where any further deterioration is likely to lead to failure. Two key inputs to the cash flow calculation are the valuation of all security and collateral,lower house prices as well as some increases in arrears rates.
Three-month arrears as at 31st December 2009 were 1.04% for UK mortgages (31st December 2008: 0.91%), 0.63% for Spain (31st December 2008: 0.51%), as credit conditions deteriorated and 4.07% for South Africa (31st December 2008: 2.11%), due to consumer indebtedness and increased debt counselling balances following the timingenactment of all asset realisations, after allowing for all attendant costs. This method appliesthe 2007 National Credit Act.
Repossessions
The number of properties in repossession in UK Home Loans remained very low during 2009. At the end of 2009 there were 196 properties in repossession, 40 higher than the previous year (31st December 2008: 156).
Credit Cards and Unsecured Loans
The Group’s largest card and unsecured loan portfolios are in the corporate portfolios – Barclays Commercial Bank, Barclays Capital and certain areas within GRCB’s international portfolios and Barclaycard.UK (56% Group total). The US cards portfolio accounts for 20% of the total exposure, where Barclaycard’s portfolio is largely prime credit quality (FICO score of 660 or more).
For collective assessment,Arrears rates in the trigger point for impairment isUK Cards portfolio rose during the missingyear to 1.79% (31st December 2008: 1.57%), reflecting the impact of the economic downturn. Repayment Plan balances grew to support government initiatives to supply relief to customers experiencing financial difficulty. As a contractual payment. The impairment calculation is based on a roll-rate approach, where the percentage of assets that move from the initial delinquencyportfolio, three-month arrears rates rose during 2009 to default are derived from statistical probabilities based on experience. Recovery amounts2.74% for UK Loans (31st December 2008: 2.28%) and contractual interest rates are3.31% for US Cards (31st December 2008: 2.32%).
Number of Repossessions in UK Home Finance
As at 31.12.09 | As at 31.12.08 | |||
Residential and buy-to-let mortgage portfolios | 196 | 156 |
Home loans – distribution of balances by loan to value (current valuations)a
UK | Spainb | South Africac | ||||||||||
31.12.09 % | 31.12.08 % | 31.12.09 % | 31.12.08 % | 31.12.09 % | 31.12.08 % | |||||||
<= 75% | 74.5 | 78.3 | 83.2 | 86.7 | 57.8 | 60.5 | ||||||
> 75% and <= 80% | 6.3 | 6.1 | 5.6 | 4.8 | 7.1 | 7.5 | ||||||
> 80% and <= 85% | 5.4 | 5.5 | 4.4 | 3.7 | 7.7 | 7.2 | ||||||
> 85% and <= 90% | 4.6 | 4.5 | 3.2 | 1.6 | 7.6 | 7.6 | ||||||
> 90% and <= 95% | 3.4 | 2.5 | 1.7 | 1.3 | 7.8 | 6.7 | ||||||
> 95% | 5.8 | 3.1 | 1.9 | 1.9 | 12.0 | 10.5 | ||||||
Mark to market LTV % | 43 | 40 | 51 | 48 | 42 | 41 | ||||||
Average LTV on new mortgages | 48 | 47 | 55 | 63 | 53 | 58 |
Home loans – 3 month arrearsd
| ||||
As at 31.12.09 % | As at 31.12.08 % | |||
UK | 1.04 | 0.91 | ||
Spain | 0.63 | 0.51 | ||
South Africa | 4.07 | 2.11 |
| ||||
Unsecured lending 3 month arrearse
| ||||
As at 31.12.09 % | As at 31.12.08 % | |||
UK Cardsf | 1.79 | 1.57 | ||
UK Loansg | 2.74 | 2.28 | ||
US Cardsh | 3.31 | 2.32 |
Notes
a |
b | Spain mark to market methodology as per Bank of |
c | South Africa mark to market methodology will be revised in 2010 to incorporate additional granularity. |
d | Defined as total 90 day + delinquent balances as a percentage of outstandings. |
e | Defined as total 90 day + delinquent balances as a percentage of outstandings. Includes accounts on repayment plans but excludes the balances in the legal book. |
f | UK Cards includes Branded Cards and Goldfish. |
g | UK Loans based on Barclayloans and Personal Loans from Barclaycard. |
h | Excludes Business Card; December 2009 includes US Airways. |
|
Risk Managementmanagement
Credit Risk Managementrisk management
Loans and advancescontinued
Expected loss
Basel II, introduced in 2008, includes, for those aspects of an entity’s exposures that are on an Internal Ratings Based (IRB) approach, a statistical measure of credit losses known as Expected Loss (EL). EL is an estimate of the average loss amount from:
– defaulted and past due items at the reported date (i.e. incurred losses); and
– modelled default events over a 12-month forward period for performing exposures.
On the performing portfolios, EL is calculated usingas the product of Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD).
– EL is assessed against both the performing and non-performing parts of the Group’s portfolios.
– EL considers average credit conditions, generally uses a weighted average‘through-the-cycle’ PD and incorporates an adjustment to LGD which represents economic conditions in a downturn.
The aspect of an entity’s exposures that are not on an IRB approach will continue to be measured on the standardised approach, against which Basel II does not assess EL. For this purpose, the regulatory impairment allowance on IRB and standardised portfolios gives an indication of credit losses on the standardised book.
EL is reflected in the calculation of capital supply, such that, for IRB portfolios, 50% of the excess of EL over total impairment allowances and valuation adjustments is deducted from each of Tier 1 and Tier 2 capital. If total impairment allowances and valuation adjustments exceed EL, then this excess can be added to Tier 2 capital. As at 31st December 2009, EL exceeded total impairment allowances and valuation adjustments by £50m (2008: £317m).
There are several differences in the calculation of the regulatory impairment allowance and EL, with these measures representing different views of losses and, as such, they are not directly comparable. These differences include the fact that regulatory impairment allowance reflects defaulted and past due items at the reporting date (i.e. incurred losses), whereas EL includes both the best estimate of
losses in the non-performing portfolio and the expected losses over the coming 12 months in the performing portfolio. EL for the relevant portfolio. This method applies to parts of GRCB’s international portfolios, Barclaycardperforming portfolio is also based on Exposure at Default (EAD) and UK Retail Banking anddownturn LGD. For these reasons, EL will generally exceed regulatory impairment allowance. As noted above, this excess is consistent with Barclays policy of raising andeducted from capital.
In addition, whilst the regulatory impairment allowance as soon as impairment is identified.
Unidentified impairment allowances, albeit significantly lower in amount than those reported above, are also raised to cover losses which are judged to be incurred but not yet specifically identified in customer exposures at the balance sheet date, and which, therefore, have not been specifically reported.
The incurred but not yet reported calculation is based on the asset’s probability of moving fromimpairment allowance for loans and advances, there are differences between these amounts in two main respects. Firstly, the performing portfolio to being specifically identified as impaired within the given emergence period and then on to default within a specified period. This is calculated on the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate.
The emergence periods vary across businesses and are based on actual experience and are reviewed on an annual basis. This methodology ensures that the Group only captures the loss incurred at the balance sheet date.
Theseregulatory impairment allowances are reviewed and adjusted at least quarterly by an appropriate charge or release of the stock of impairment allowances based on statistical analysis and management judgement.
Where appropriate, the accuracy of this analysis is periodically assessed against actual losses.
As one of the controls of ensuring that adequate impairment allowances are held, movements in impairment allowances to individual names above £10m are presented to the Credit Committee for agreement.
Impairment charges and other credit provisions in 2008
In 2008, total impairment charges increased 94% (£2,624m) to £5,419m (2007: £2,795m). This figure included impairment charges of £506m
(2007: £13m)allowance includes valuation adjustments on available for sale assets and reverse repurchase agreements.
Impairment charges on loans and advances and other credit provisions increased 77% (£2,131m) to £4,913m (2007: £2,782m) (see table 1 on page 76) reflecting charges of £1,763m against ABS CDO Super Senior and other credit market exposures and increasedexposures designated at fair value. Secondly, it excludes impairment in the international portfolios within Global Retail and Commercial Banking. Total loans and advances grew 33% to £516,096m (31st December 2007: £389,290m). As a result, impairment charges on loans and advances and other credit provisions as a percentage of period end Group total loans and advances increased to 0.95% (2007: 0.71%).held against securitisation exposures.
In the retail portfolios, impairment charges on loans and advances and other credit provisions rose 45% (£728m) to £2,333m (2007: £1,605m) (see table 1 on page 76) principally as a consequence of increased impairment in the international portfolios, whilst total loans and advances increased 24% to £201,588m (31st December 2007: £162,081m). As a result, impairment charges as a percentage of period end total loans and advances increased to 1.16% (2007: 0.99%).
In the wholesale and corporate portfolios, impairment charges on loans and advances and other credit provisions rose by 119% (£1,403m) to £2,580m (2007: £1,177m) (see table 1 on page 76) whilst total loans and advances increased 38% to £314,508m (31st December 2007: £227,209m). As a result, impairment charges as a percentage of period end total loans and advances increased to 0.82% (2007: 0.52%).
Global Retail and Commercial Banking
Impairment charges in UK Retail Banking increased £43m to £602m (2007: £559m), reflecting growth in the book and deteriorating economic conditions. In UK Home Finance, whilst three month arrears increased from 0.63% to 0.91%, the qualityThe principal drivers of the book and conservative loanincrease in EL during the year ended 31st December 2009 are as follows:
– | UK Retail Banking EL increased £445m due to a deteriorating economic environment coupled with methodology enhancements. |
– | Barclays Commercial Bank EL decreased by £43m, driven by the change in treatment of defaulted assets partially offset by an increase in the non-performing book. |
– | Barclaycard EL increase of £351m was driven by the combination of an additional roll-out of IRB during the period and increased levels of retained non-performing assets during the recovery period. |
– | GRCB – Western Europe EL increased to £243m following the migration of Spanish card portfolio and Italian and Portuguese mortgage portfolios onto the IRB approach. |
– | GRCB – Absa EL increased by £466m, mostly due to exchange rate movements, higher delinquency levels and a deterioration in credit quality of the performing book. |
– | Barclays Capital EL increase of £910m was primarily driven by defaulted counterparties and an increase in IRB coverage, partially offset by a reduction in exposures due to foreign exchange movements. |
Further exposures will be moved onto the IRB approach during 2010. Additional information with respect to value ratios meant thatExpected Loss will be provided as part of our Pillar 3 disclosures, available at the impairment charges and amounts charged off remained low at £24m (2007: £3m release). Impairment charges in Consumer Lending increased 3% reflecting the current economic environment and loan growth.end of March 2010.
Total EL on IRB portfolios | ||||
As at 31.12.09 £m | As at 31.12.08 £m | |||
UK Retail Banking | 1,703 | 1,258 | ||
Barclays Commercial Bank | 776 | 819 | ||
Barclaycard | 1,261 | 910 | ||
GRCB – Western Europe | 243 | – | ||
GRCB – Emerging Marketsa | – | – | ||
GRCB – Absa | 1,158 | 692 | ||
Barclays Capital | 2,467 | 1,557 | ||
Barclays Wealth | 23 | – | ||
Head Office Functions & Other Operations | 11 | 1 | ||
Total EL on IRB portfolios | 7,642 | 5,237 | ||
Total regulatory impairment allowance on IRB portfolios | 7,592 | 4,672 | ||
Total regulatory impairment allowance on standardised portfolios | 4,693 | 2,560 |
Note
a |
Table 13: Impairment Charges and Other Credit Provisions
| ||||
Year Ended 31.12.08 £m | Year Ended 31.12.07 £m | |||
UK Retail Banking | 602 | 559 | ||
Barclays Commercial Bank | 414 | 292 | ||
Barclaycard | 1,097 | 827 | ||
GRCB – Western Europe | 296 | 76 | ||
GRCB – Emerging Markets | 166 | 39 | ||
GRCB – Absa | 347 | 146 | ||
Barclays Capital | 419 | 64 | ||
Barclays Wealth | 44 | 7 | ||
Head office functions and other operations | 11 | 3 | ||
Group Total | 3,396 | 2,013 | ||
ABS CDO Sub-Prime and other credit | ||||
Market Provisions | 1,763 | 782 | ||
Group Total (Including ABS CDO) | 5,159 | 2,795 | ||
Other AFS Assets and Reverse Repos | 260 | – | ||
Group Total | ||||
(Including ABS CDO and AFS/Reverse Repos) | 5,419 | 2,795 |
The impairment charge in Barclays Commercial Bank increased £122m to £414m (2007: £292m), primarily reflecting higher impairment losses in Larger Business, particularly in the final quarter as the UK corporate credit environment deteriorated.
The impairment charge in Barclaycard increased £270m (33%) to £1,097m (2007: £827m), reflecting higher charges in Barclaycard International portfolios, particularly Barclaycard US which was driven by loan growth, rising delinquency due to deteriorating economic conditions and exchange rate movements; and £68m from the inclusion of Goldfish. These factors were partially offset by lower charges in UK Cards and secured consumer lending.
Impairment charges in GRCB – Western Europe increased £220m to £296m (2007: £76m) principally due to deteriorating economic trends and asset growth in Spain, where there were higher charges in the commercial portfolios as a consequence of the slowdown in the property and construction sectors. In addition higher household indebtedness and rising unemployment has driven up delinquency and charge-offs in the personal sector.
Impairment charges in GRCB – Emerging Markets increased £127m to £166m (2007: £39m), reflecting: weakening credit conditions which adversely impacted delinquency trends in the majority of the retail portfolios; asset growth, particularly in India; and increased wholesale impairment in Africa.
Impairment charges in GRCB – Absa increased £201m to £347m (2007: £146m) as a result of rising delinquency levels in the retail portfolios, which have been impacted by rising interest and inflation rates and increasing consumer indebtedness.
Investment Banking and Investment Management
Barclays Capital impairment charges of £2,423m (2007: £846m) included a charge of £1,763m (2007: £782m) against ABS CDO Super Senior and other credit market positions. Further impairment charges of £241m were incurred in respect of available for sale assets and reverse repurchase
agreements (2007: £nil). Other impairment charges increased £355m to £419m (2007: £64m) and primarily related to charges in the private equity and other loans business.
The impairment charge in Barclays Wealth increased £37m to £44m (2007: £7m) from a very low base. This increase reflected both the substantial increase in the loan book over the last three years and the impact of the current economic environment on client liquidity and collateral values.
The impairment charge in Head Office Functions and Other Operations increased £8m to £11m (2007: £3m) mainly reflecting losses on Floating Rate Notes held for hedging purposes. An additional £19m (2007: £nil) of impairment charges were incurred on available for sale assets.
Writing-off of assets
After an advance has been identified as impaired and is subject to an impairment allowance, the stage may be reached whereby it is concluded that there is no realistic prospect of further recovery. Write-off will occur when, and to the extent that, the whole or part of a debt is considered irrecoverable.
The timing and extent of write-offs may involve some element of subjective judgement. Nevertheless, a write-off will often be prompted by a specific event, such as the inception of insolvency proceedings or other formal recovery action, which makes it possible to establish that some or the entire advance is beyond realistic prospect of recovery. In any event, the position of impaired loans is reviewed at least quarterly to ensure that irrecoverable advances are being written off in a prompt and orderly manner and in compliance with any local regulations.
Such assets are only written off once all the necessary procedures have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off are written back and hence decrease the amount of the reported loan impairment charge in the income statement.
Total write-offs of impaired financial assets increased by £956m to £2,919m (2007: £1,963m).
Note
81 |
Barclays Capital credit market exposures
Barclays Capital’s credit market exposures as at 31st December 2009 primarily relate to commercial real estate and leveraged finance. These include positions subject to fair value movements in the income statement and positions that are classified as loans and advances and as available for sale.
The balances at and gross writedowns to 31st December 2009 are set out below:
During the year ended 31st December 2009, these positions have been reduced by £14,130m to £27,609m (31st December 2008: £41,739m), including net sales and paydowns of £6,590m, gross writedowns of £6,086m
and a decrease of £4,226m due to currency and other movements. In addition, on 16th September 2009, £5,087m credit market assets and £2,367m other assets were sold to Protium Finance LP, funded by a £7,669m loan extended by Barclays. The loan balance at 31st December 2009 of £7,859m includes accrued interest.
In the year ended 31st December 2009, gross writedowns comprised £4,417m (2008: £6,290m) of fair value losses through income and £1,669m (2008: £1,763m) of impairment charges. Gross writedowns included £2,082m (2008: £5,584m) against US residential mortgage positions, £3,007m (2008: £1,488m) against commercial mortgage positions, and £997m (2008: £981m) against other credit market positions.
Barclays Capital credit market exposuresa | As at 31st December | Year ended 31.12.09 | ||||||||||||||
US Residential Mortgages | Notes | 2009 $m | 2008 $m | 2009 £m | 2008 £m | Fair value losses £m | Impairment charge £m | Gross losses £m | ||||||||
ABS CDO Super Senior | A1 | 3,127 | 4,526 | 1,931 | 3,104 | – | 714 | 714 | ||||||||
Other US sub-prime & Alt-A | A2 | 2,254 | 11,269 | 1,392 | 7,729 | 531 | 555 | 1,086 | ||||||||
Monoline wrapped US RMBS | A3 | 9 | 2,389 | 6 | 1,639 | 282 | – | 282 | ||||||||
Commercial Mortgages | ||||||||||||||||
Commercial real estate loans and properties | B1 | 12,525 | 16,882 | 7,734 | 11,578 | 2,466 | – | 2,466 | ||||||||
Commercial mortgage-backed securities | B1 | 762 | 1,072 | 471 | 735 | 44 | – | 44 | ||||||||
Monoline wrapped CMBS | B2 | 49 | 2,703 | 30 | 1,854 | 497 | – | 497 | ||||||||
Other Credit Market | ||||||||||||||||
Leveraged Financeb | C1 | 8,919 | 13,193 | 5,507 | 9,048 | – | 396 | 396 | ||||||||
SIVs, SIV-Lites and CDPCs | C2 | 896 | 1,622 | 553 | 1,113 | 69 | 4 | 73 | ||||||||
Monoline wrapped CLO and other | C3 | 3,443 | 7,202 | 2,126 | 4,939 | 528 | – | 528 | ||||||||
Total exposures | 31,984 | 60,858 | 19,750 | 41,739 | ||||||||||||
Total gross writedowns | 4,417 | 1,669 | 6,086 | |||||||||||||
Loan to Protium | D | 12,727 | – | 7,859 | – |
Notes
| As the majority of positions are denominated in US Dollars, the positions above are shown in both US Dollars and Sterling. |
b | Includes undrawn commitments of £257m (2008: £531m). |
82 |
Risk management
Credit risk management
Loans and advancescontinued
Risk Tendency
In 2008, Risk Tendency increased 58% (£1,355m) to £3,710m (31st December 2007: £2,355m), compared with 32% growth in the Group’s loans and advances balances. This was reflective of the higher credit risk profile, weakening credit conditions across our main businesses, and changing mix, as a consequence of planned growth, in a number of businesses and portfolios. Risk Tendency in 2008 also increased as a result of the weakening of Sterling against a number of other foreign currencies, including the US Dollar and the Euro.
UK Retail Banking Risk Tendency increased £50m to £520m (31st December 2007: £470m). This reflected a higher risk profile in the unsecured and secured loans portfolios, weakening UK credit conditions, and asset growth, primarily in the Home Finance portfolio.
Risk Tendency in Barclays Commercial Bank increased £95m to £400m (31st December 2007: £305m). This reflected the deteriorating UK corporate credit environment and asset growth.
Barclaycard Risk Tendency increased £520m to £1,475m (31st December 2007: £955m) primarily reflecting the inclusion of new business acquisitions (£260m) as well as asset growth, exchange rate movements, and the economic conditions in the US. Risk Tendency in the UK Cards portfolio remained stable as improvements in portfolio quality were offset by deterioration in the UK economic environment.
Risk Tendency at GRCB – Western Europe increased £135m to £270m (31st December 2007: £135m) principally reflecting weakening credit conditions across Europe, particularly in Spain, asset growth and movements in the Euro/Sterling exchange rate.
Risk Tendency at GRCB – Emerging Markets increased £210m to £350m (31st December 2007: £140m) reflecting weakening credit conditions across the majority of regions, a change in the risk profile following a broadening of the product offering through new product launches and new market entry in India and UAE, and asset growth.
Risk Tendency at GRCB – Absa increased £65m to £255m (31st December 2007: £190m) reflecting weakening retail and, to a lesser extent, corporate credit conditions in South Africa and asset growth and movements in the Rand/Sterling exchange rate.
Risk Tendency in Barclays Capital increased £275m to £415m (31st December 2007: £140m) reflecting credit downgrades and asset growth. The drawn liquidity facilities on ABS CDO Super Senior positions are classified as credit risk loans and therefore no Risk Tendency is calculated on them.
Risk Tendency at Barclays Wealth increased £10m to £20m (31st December 2007: £10m) reflecting a weakening credit risk profile and asset growth.
Analysis of Barclays Capital credit market assets by asset class
| |||||||||||||||||
Trading portfolio assets – debt securities £m | Financial assets designated at fair value – loans and advances £m | Derivative financial instruments £m | Loans and advances to customers £m | Available for sale – debt securities £m | Other assets £m | Total as at 31.12.09 £m | Total as at 31.12.08 £m | ||||||||||
ABS CDO Super Senior | 1,931 | 1,931 | 3,104 | ||||||||||||||
Other US sub-prime | 3 | 52 | 244 | 24 | 209 | 532 | 3,441 | ||||||||||
Alt-A | 323 | 211 | 326 | 860 | 4,288 | ||||||||||||
RMBS monoline wrapped US RMBS | 6 | 6 | 1,639 | ||||||||||||||
Commercial real estate loans | 6,534 | 6,534 | 11,578 | ||||||||||||||
Commercial real estate properties | 1,200 | 1,200 | – | ||||||||||||||
Commercial mortgage backed securities | 860 | (389 | ) | 471 | 735 | ||||||||||||
Monoline wrapped CMBS | 30 | 30 | 1,854 | ||||||||||||||
Leveraged financea | 5,250 | 5,250 | 8,517 | ||||||||||||||
SIVs and SIV-lites | 355 | 53 | 122 | 530 | 963 | ||||||||||||
CDPCs | 23 | 23 | 150 | ||||||||||||||
Monoline wrapped CLO and other | 2,126 | 2,126 | 4,939 | ||||||||||||||
Loan to Protium | 7,859 | 7,859 | – | ||||||||||||||
Total | 1,186 | 6,941 | 2,304 | 15,186 | 535 | 1,200 | 27,352 | 41,208 |
NotesNote
a |
| 83 |
A. US Residential Mortgages
A1. ABS CDO Super Senior
As at 31.12.09 Total £m | As at 31.12.08 Total £ m | As at 31.12.09 Marksa % | As at 31.12.08 Marksa % | |||||||
2005 and earlier | 1,048 | 1,226 | 77 | 90 | ||||||
2006 | 422 | 471 | 7 | 37 | ||||||
2007 and 2008 | 22 | 25 | 34 | 69 | ||||||
Sub-prime | 1,492 | 1,722 | 57 | 75 | ||||||
2005 and earlier | 761 | 891 | 43 | 77 | ||||||
2006 | 230 | 269 | 59 | 75 | ||||||
2007 and 2008 | 55 | 62 | 14 | 37 | ||||||
Alt-A | 1,046 | 1,222 | 45 | 74 | ||||||
Prime | 421 | 520 | 83 | 100 | ||||||
RMBS CDO | 351 | 402 | 6 | – | ||||||
Sub-prime second lien | 110 | 127 | – | – | ||||||
Total US RMBS | 3,420 | 3,993 | 49 | 68 | ||||||
CMBS | 37 | 44 | 89 | 100 | ||||||
Non-RMBS CDO | 400 | 453 | 35 | 56 | ||||||
CLOs | 32 | 35 | 100 | 100 | ||||||
Other ABS | 37 | 51 | 100 | 100 | ||||||
Total Other ABS | 506 | 583 | 48 | 66 | ||||||
Total notional collateral | 3,926 | 4,576 | ||||||||
Subordination | (385 | ) | (459 | ) | ||||||
Gross exposure pre-impairment | 3,541 | 4,117 | ||||||||
Impairment allowances | (1,610 | ) | (1,013 | ) | ||||||
Total | 1,931 | 3,104 | 49 | 68 |
ABS CDO Super Senior positions at 31st December 2009 comprised five high grade liquidity facilities which were fully drawn and classified within loans and receivables (31st December 2008: five facilities).
During the year, ABS CDO Super Senior positions reduced by £1,173m to £1,931m (31st December 2008: £3,104m). Positions are stated after writedowns and charges of £714m incurred in 2009 (2008: £1,461m). There was a decline of £290m resulting from depreciation in the value of the US Dollar against Sterling and amortisation of £169m in the year.
Note
a |
84 |
Risk management
Credit risk management
continued
A2. Other US Sub-Prime and Alt-A
Other US Sub-prime | As at 31.12.09 £m | As at 31.12.08 £m | Marks at 31.12.09 % | Marks at 31.12.08 % | ||||
Whole loans | – | 1,565 | – | 72 | ||||
Sub-prime securities (net of hedges) | 212 | 929 | 38 | 25 | ||||
Other positions with underlying sub-prime collateral: | ||||||||
– Derivatives | 244 | 643 | 96 | 87 | ||||
– Loans | 76 | 195 | 22 | 70 | ||||
– Real Estate | – | 109 | – | 46 | ||||
Total Other US Sub-Prime | 532 | 3,441 | ||||||
Alt-A | ||||||||
Whole Loans | – | 776 | – | 67 | ||||
Alt-A Securities | 649 | 3,112 | 40 | 16 | ||||
Residuals | – | 2 | – | 6 | ||||
Derivative positions with underlying Alt-A collateral | 211 | 398 | 99 | 100 | ||||
Total | 860 | 4,288 | ||||||
Total Other US Sub-Prime and Alt-A | 1,392 | 7,729 |
The majority of Other US sub-prime and Alt-A positions are measured at fair value through profit and loss. The balance reduced by £6,337m to £1,392m (31st December 2008: £7,729m), driven by the Protium sale of £2,319m, other net sales, paydowns and other movements of £2,398m and gross losses of £1,086m. Depreciation of the US Dollar against Sterling resulted in a decline of £534m.
Counterparty derivative positions relating to vehicles which hold sub-prime collateral was £455m (31st December 2008: £1,041m). These positions largely comprise the most senior obligation of the vehicles.
A3. US Residential Mortgage Backed Securities Wrapped by Monoline Insurers
The table below shows RMBS assets where Barclays Capital held protection from monoline insurers at 31st December 2009. These are measured at fair value through profit or loss.
By rating of the monoline | |||||||||||
As at 31.12.09 | |||||||||||
Notional £m | Fair Value of Underlying Asset £m | Fair Value Exposure £m | Credit Valuation Adjustment £m | Net Exposure £m | |||||||
Non-investment grade | 56 | 6 | 50 | (44 | ) | 6 | |||||
Total | 56 | 6 | 50 | (44 | ) | 6 | |||||
As at 31.12.08 | |||||||||||
A/BBB | 2,567 | 492 | 2,075 | (473 | ) | 1,602 | |||||
Non-investment grade | 74 | 8 | 66 | (29 | ) | 37 | |||||
Total | 2,641 | 500 | 2,141 | (502 | ) | 1,639 |
85 |
A3. US Residential Mortgage Backed Securities Wrapped by Monoline Insurers continued
The balance reduced by £1,633m to £6m (31st December 2008: £1,639m), reflecting the Protium sale of £1,164m, a credit valuation adjustment of £282m, and currency and other movements of £187m.
Barclays would review claims in the event of default of the underlying assets. There have been no claims under the monoline insurance contracts as none of the underlying assets defaulted in the year.
The notional value of the assets split by the rating of the underlying asset is shown below.
As at 31.12.09 | As at 31.12.08 | |||||||||||||
By rating of underlying asset | A/BBB £m | Non- investment Grade £ m | Total £m | AAA/AA £m | A/BBB £m | Non- investment Grade £m | Total £m | |||||||
2005 and earlier | – | – | – | 143 | – | – | 143 | |||||||
2006 | – | – | – | – | – | 1,240 | 1,240 | |||||||
2007 and 2008 | – | – | – | – | – | 510 | 510 | |||||||
High Grade | – | – | – | 143 | – | 1,750 | 1,893 | |||||||
Mezzanine – 2005 and earlier | – | 56 | 56 | 31 | 330 | 338 | 699 | |||||||
CDO2– 2005 and earlier | – | – | – | – | – | 49 | 49 | |||||||
US RMBS | – | 56 | 56 | 174 | 330 | 2,137 | 2,641 |
B. Commercial Mortgages
B1. Commercial Real Estate and Mortgage-Backed Securities
Commercial mortgages held at fair value include commercial real estate loans of £6,534m (31st December 2008: £11,578m), commercial real estate properties of £1,200m (31st December 2008: £nil), and commercial mortgage-backed securities of £471m (31st December 2008: £735m).
Commercial Real Estate Loans and Properties
In the year ended 31st December 2009, the commercial real estate loans and properties balance reduced by £3,844m to £7,734m (31st December 2008: £11,578m). There were gross losses of £2,466m, of which £1,541m related to the US, £843m to UK and Europe, and £82m to Asia. There were gross sales and paydowns of £661m comprising £345m in the UK and Europe, £307m in the US, and £9m in Asia, and currency and other movements of £717m.
The commercial real estate loan balances comprised 51% UK and Europe, 44% US and 5% Asia.
One large transaction comprises 25% of the total US commercial real estate loan balance. The remaining 75% of the US balance comprises 64 transactions. The remaining weighted average number of years to initial maturity of the US portfolio is 1.2 years (31st December 2008: 1.4 years).
The UK and Europe portfolio is well diversified with 56 transactions at 31st December 2009. In Europe protection is provided by loan covenants and periodic LTV retests, which cover 83% of the portfolio. 50% of the German balance relates to one transaction secured on residential assets.
Commercial Real Estate Loans by Region | As at 31.12.09 £m | As at 31.12.08 £m | Marks at 31.12.09 % | Marks at 31.12.08 % | ||||
US | 2,852 | 6,329 | 62 | 88 | ||||
Germany | 1,959 | 2,467 | 84 | 95 | ||||
Sweden | 201 | 265 | 81 | 96 | ||||
France | 189 | 270 | 70 | 94 | ||||
Switzerland | 141 | 176 | 85 | 97 | ||||
Spain | 72 | 106 | 56 | 92 | ||||
Other Europe | 370 | 677 | 57 | 90 | ||||
UK | 429 | 831 | 61 | 89 | ||||
Asia | 321 | 457 | 77 | 97 | ||||
Total | 6,534 | 11,578 |
86 |
Risk management
Credit risk management
continued
B1. Commercial Real Estate and Mortgage-Backed Securities continued
Commercial Real Estate Loans by Industry | As at 31.12.09 | As at 31.12.08 | ||||||||||||
US £m | Germany £m | Other Europe £m | UK £m | Asia £m | Total £m | Total £m | ||||||||
Residential | 1,132 | 1,053 | – | 152 | 102 | 2,439 | 3,582 | |||||||
Office | 372 | 251 | 557 | 79 | 79 | 1,338 | 3,656 | |||||||
Hotels | 614 | – | 223 | 8 | 1 | 846 | 1,633 | |||||||
Retail | 54 | 507 | 73 | 30 | 73 | 737 | 957 | |||||||
Industrial | 383 | 105 | 103 | 20 | 11 | 622 | 887 | |||||||
Leisure | – | – | – | 140 | – | 140 | 233 | |||||||
Land | 128 | – | – | – | – | 128 | 232 | |||||||
Mixed/Others | 169 | 43 | 17 | – | 55 | 284 | 398 | |||||||
Total | 2,852 | 1,959 | 973 | 429 | 321 | 6,534 | 11,578 | |||||||
Commercial Real Estate Properties by Industry | As at 31.12.09 £m | As at 31.12.08 £m | ||||||||||||
Residential | 56 | – | ||||||||||||
Office | 927 | – | ||||||||||||
Hotels | 126 | – | ||||||||||||
Industrial | 25 | – | ||||||||||||
Leisure | 33 | – | ||||||||||||
Land | 31 | – | ||||||||||||
Mixed/Others | 2 | – | ||||||||||||
Total | 1,200 | – |
Included within the commercial real estate properties balance are properties held by Crescent Real Estate Holdings LLC (Crescent) with a carrying value of £1,001m. On 19th November 2009, Barclays Capital assumed ownership of Crescent following the completion of a debt restructuring transaction.
Commercial Mortgage Backed Securities | As at 31.12.09 £m | As at 31.12.08 £m | Marks ata 31.12.09 % | Marks ata 31.12.08 % | ||||
Commercial Mortgage Backed Securities (Net of Hedges) | 471 | 735 | 20 | 21 |
Note
a | Marks are based on gross collateral. |
87 |
B2. CMBS Wrapped by Monoline Insurers
The table below shows commercial mortgage backed security assets where Barclays Capital held protection from monoline insurers at 31st December 2009. These are measured at fair value through profit and loss.
By rating of the monoline | As at 31.12.09 | ||||||||||
Notional £m | Fair value of underlying asset £m | Fair value exposure £m | Credit valuation adjustment £m | Net exposure £m | |||||||
AAA/AA | 54 | 21 | 33 | (3 | ) | 30 | |||||
Non-investment grade | 383 | 160 | 223 | (223 | ) | – | |||||
Total | 437 | 181 | 256 | (226 | ) | 30 | |||||
As at 31.12.08 | |||||||||||
AAA/AA | 69 | 27 | 42 | (4 | ) | 38 | |||||
A/BBB | 3,258 | 1,301 | 1,957 | (320 | ) | 1,637 | |||||
Non-investment grade | 425 | 181 | 244 | (65 | ) | 179 | |||||
Total | 3,752 | 1,509 | 2,243 | (389 | ) | 1,854 |
The balance reduced by £1,824m to £30m (31st December 2008: £1,854m), reflecting the Protium sale of £1,208m, a credit valuation adjustment of £497m, and currency and other movements of £119m.
Claims would become due in the event of default of the underlying assets. There have been no claims under the monoline insurance contracts as none of the underlying assets defaulted in the year.
The notional value of the assets split by the current rating of the underlying asset is shown below.
By rating of the underlying asset | As at 31.12.09 | As at 31.12.08 | ||||||||
AAA/AA £m | A/BBB £m | Total £m | AAA/ AA £m | Total £m | ||||||
2005 and earlier | – | – | – | 437 | 437 | |||||
2006 | 54 | – | 54 | 613 | 613 | |||||
2007 and 2008 | – | 383 | 383 | 2,702 | 2,702 | |||||
CMBS | 54 | 383 | 437 | 3,752 | 3,752 |
88 |
Risk management
Credit risk management
continued
C. Other Credit Market
C1. Leveraged Finance
Leveraged Finance Loans by Region | ||||||
As at 31.12.09 £m | As at 31.12.08 £m | |||||
UK | 4,530 | 4,519 | ||||
Europe | 1,051 | 1,291 | ||||
Asia | 165 | 140 | ||||
US | 35 | 3,213 | ||||
Total lending and commitments | 5,781 | 9,163 | ||||
Impairment | (274 | ) | (115 | ) | ||
Net lending and commitments at period enda | 5,507 | 9,048 |
Leveraged finance loans are classified within loans and advances and are stated at amortised cost less impairment. The table above includes certain loan facilities originated prior to 1st July 2007, the start of the dislocation in the credit marketb.
At 31st December 2009, net lending and commitments reduced £3,541m to £5,507m (31st December 2008: £9,048m), following a repayment of £3,056m at par in January 2009, impairment of £396m, and other movements of £89m.
The overall credit performance of the assets remained satisfactory with the majority of the portfolio performing to plan or in line with original stress tolerances. There were a small number of deteriorating positions on which higher impairment was charged.
C2. SIVs, SIV-Lites and CDPCs
SIV and SIV-lite positions comprise liquidity facilities and derivatives. At 31st December 2009 SIVs and SIV-Lites positions reduced by £433m to £530m (31st December 2008: £963m) with a reduced number of counterparties. There were £72m of gross writedowns in the year.
Credit Derivative Product Companies (CDPCs) positions at 31st December 2009 reduced by £127m to £23m (31st December 2008: £150m).
C3. CLO and Other Assets Wrapped by Monoline Insurers
The table below shows Collateralised Loan Obligations (CLOs) and other assets where we held protection from monoline insurers at 31st December 2009.
By Rating of the Monoline | |||||||||||
As at 31.12.09 | |||||||||||
Notional £m | Fair value of underlying asset £m | Fair value exposure £m | Credit valuation adjustment £m | Net exposure £m | |||||||
AAA/AA | 7,336 | 5,731 | 1,605 | (91 | ) | 1,514 | |||||
A/BBB | – | – | – | – | – | ||||||
Non-investment grade: | |||||||||||
– Fair value through profit and loss | 1,052 | 824 | 228 | (175 | ) | 53 | |||||
– Loans and receivables | 9,116 | 7,994 | 1,122 | (563 | ) | 559 | |||||
Total | 17,504 | 14,549 | 2,955 | (829 | ) | 2,126 | |||||
As at 31.12.08 | |||||||||||
AAA/AA | 8,281 | 5,854 | 2,427 | (55 | ) | 2,372 | |||||
A/BBB | 6,446 | 4,808 | 1,638 | (204 | ) | 1,434 | |||||
Non-investment grade | 6,148 | 4,441 | 1,707 | (574 | ) | 1,133 | |||||
Total | 20,875 | 15,103 | 5,772 | (833 | ) | 4,939 |
The balance reduced by £2,813m to £2,126m (31st December 2008: £4,939m), reflecting increases in the fair value of the underlying assets of £1,321m, credit valuation adjustments of £528m, the Protium sale of £396m, and currency and other movements of £568m.
Claims would become due in the event of default of the underlying assets. There have been no claims under the monoline insurance contracts as none of the underlying assets defaulted in the year.
On 25th November 2009, £8,027m of the CLO assets wrapped by non-investment grade rated monolines were reclassified to loans and receivables (as discussed in Note 51). At 31st December 2009, the fair value of the transferred assets was £7,994m and the net exposure to monoline insurers was £559m. The remaining non-investment grade exposure continues to be measured at fair value through profit and loss.
Notes
a | Includes undrawn commitments of £257m (2008: £531m). |
b | This is a change of presentation from 31st December 2008, which reflected certain loan facilities originated post 1st July 2007. |
89 |
The notional value of the assets split by the current rating of the underlying asset is shown below.
By rating of underlying asset | As at 31.12.09 | As at 31.12.08 | ||||||||||||||||
AAA/AA | A/BBB | Non- investment grade fair value £m | Total £m | AAA/AA Fair value £m | A/BBB Fair value £m | Total £m | ||||||||||||
Fair value £m | Loans and receivables £m | Fair value £m | Loans and receivables £m | |||||||||||||||
2005 and earlier | 1,518 | 2,209 | 294 | 815 | – | 4,836 | 6,037 | – | 6,037 | |||||||||
2006 | 1,972 | 2,952 | – | 458 | – | 5,382 | 5,894 | – | 5,894 | |||||||||
2007 and 2008 | 2,452 | 2,199 | 548 | 483 | – | 5,682 | 6,295 | – | 6,295 | |||||||||
CLOs | 5,942 | 7,360 | 842 | 1,756 | – | 15,900 | 18,226 | – | 18,226 | |||||||||
2005 and earlier | – | – | 55 | – | 55 | 110 | 862 | – | 862 | |||||||||
2006 | 118 | – | 90 | – | 125 | 333 | 535 | – | 535 | |||||||||
2007 and 2008 | 441 | – | – | – | 720 | 1,161 | 785 | 467 | 1,252 | |||||||||
Other | 559 | – | 145 | – | 900 | 1,604 | 2,182 | 467 | 2,649 | |||||||||
Total | 6,501 | 7,360 | 987 | 1,756 | 900 | 17,504 | 20,408 | 467 | 20,875 |
D. Protium
On 16th September 2009, Barclays Capital sold assets of £7,454m, including £5,087m in credit market assets, to Protium Finance LP (Protium), a newly established fund. The impact of the sale on each class of credit market asset is detailed in each relevant category in sections A to C.
As part of the transaction, Barclays extended a £7,669m 10-year loan to Protium, which will be repaid during the term from cash generated by the fund. The principal terms of the loan are as follows:
– The loan has a final maturity of ten years, with a rate of return fixed at USD LIBOR plus 2.75%.
– Protium is obliged to pay principal and interest equal to the amount of available cash generated by the fund after payment of fund expenses and certain payments to the fund’s partners.
– The loan is secured by a charge over the assets of Protium.
The loan is classified as loans and receivables. The difference between the size of the loan and assets sold relates to cash and US Treasuries held by Protium. The increase in the loan balance between 16th September 2009 and 31st December 2009 reflects accrued interest which was received from Protium in January 2010.
The fair value of assets sold to Protium is set out below. The balances at 31st December 2009 include cash realised from subsequent sales and paydowns.
Protium assets | As at 31.12.09 $m | As at 16.09.09 $m | As at 30.06.09 $m | As at 31.12.09 £m | As at 16.09.09 £m | As at 30.06.09 £m | ||||||
US Residential Mortgages | ||||||||||||
Other US sub-prime whole loans and real estate | 1,038 | 1,124 | 1,256 | 641 | 682 | 764 | ||||||
Other US sub-prime securities | 578 | 513 | 508 | 357 | 311 | 309 | ||||||
Total other US sub-prime | 1,616 | 1,637 | 1,764 | 998 | 993 | 1,073 | ||||||
Alt-A | 2,112 | 2,185 | 2,342 | 1,304 | 1,326 | 1,424 | ||||||
Monoline wrapped US RMBS | 1,447 | 1,919 | 2,081 | 893 | 1,164 | 1,266 | ||||||
Commercial Mortgages | ||||||||||||
Monoline wrapped CMBS | 1,378 | 1,991 | 2,450 | 851 | 1,208 | 1,490 | ||||||
Other Credit market | ||||||||||||
Monoline wrapped CLO and other | 475 | 652 | 752 | 294 | 396 | 457 | ||||||
Credit market related exposure | 7,028 | 8,384 | 9,389 | 4,340 | 5,087 | 5,710 | ||||||
Fair value of underlying assets wrapped by monoline insurers | 4,095 | 3,592 | 2,728 | 2,529 | 2,179 | 1,659 | ||||||
Other assets | 1,230 | 309 | 285 | 759 | 188 | 173 | ||||||
Total | 12,353 | 12,285 | 12,402 | 7,628 | 7,454 | 7,542 | ||||||
Loan to Protium | 12,727 | 12,641 | – | 7,859 | 7,669 | – |
90 |
Risk management
Credit risk management
continued
DBRS Inc. (DBRS), a nationally recognised statistical rating organisation, was engaged to provide a private, point-in-time rating reflecting the specific terms and conditions of the Protium loan as a whole. In addition point-in-time ratings with respect to gross cumulative cash flows due to Barclays under the loan to Protium, considered in sequential instalments, were also sought (Tranched Ratings).
On the transaction date, the loan fair value was assessed as equal to its notional amount. Subsequently, the obtained ratings were incorporated into an updated transaction date valuation. This valuation discounted the cash flows at appropriate discount rates determined by Barclays based on the Tranched Ratings. The calculation produced a value of £7,651m ($12,611m). The difference to the original valuation was £18m ($30m), which has been recorded as a loss on sale in the period. The Tranched Ratings and loan valuation are summarised in the table below:
Tranched Rating | Cash flows £m | Weighted average life (years) | Spread to LIBOR (bps) | Net present value £m | ||||
AAA | 2,092 | 3.8 | 52 | 2,015 | ||||
AA+ | 1,464 | 4.3 | 80 | 1,385 | ||||
AA/AA- | 354 | 4.3 | 108/128 | 330 | ||||
A | 642 | 2.6 | 169 | 606 | ||||
BBB/BBB- | 1,098 | 4.7 | 260/355 | 955 | ||||
BB+/BB | 1,021 | 2.1 | 451/546 | 915 | ||||
B/B-/CCC | 1,886 | 3.4 | 700/785/870 | 1,445 | ||||
Total | 8,557 | 282 | 7,651 |
The loan valuation was performed by Barclays and, of the information disclosed above, only the Tranched Ratings were provided by DBRS. The Tranched Ratings are as of 15th September 2009 and are based on a scenario in which the portfolio of assets sold to Protium is static, with no subsequent sales or additional purchases.
A single rating of CCC (low), being the Tranched Rating for the lowest rated cash flows, has been assigned to the loan as a whole by DBRS. This rating addresses the ultimate payment of cumulative principal and interest under the terms and conditions of the Protium loan and it being advanced as a single loan, as opposed to being structurally tranched. The single rating of CCC (low) is also as of 15th September 2009 and is based on a scenario in which the portfolio of assets sold to Protium is static, with no subsequent sales or additional purchases.
The loan to Protium was assessed for impairment by the Group as at 31st December 2009 in line with its impairment policy. This analysis found that there was no impairment as at 31st December 2009.
91 |
Debt securities and other bills
The following table presents an analysis of the credit quality of debt and similar securities, other than loans held within the Group. Securities rated as investment grade amounted to 91.6%91.8% of the portfolio (2007: 88.0%(2008: 91.6%).
Treasury AAA to BBB- (investment grade) BB+ to B B- or lower Total Of which issued by: – governments and other public bodies – US agency – mortgage and asset-backed securities – corporate and other issuers – bank and building society certificates of deposit Total Of which classified as: – trading portfolio assets – financial instruments designated at fair value – available for sale securities Total AAA to BBB- (investment grade) BB+ to B B- or lower Total Of which issued by: – governments and other public bodies – US agency – mortgage and asset-backed securities – corporate and other issuers – bank and building society certificates of deposit Total Of which classified as: – trading portfolio assets – financial instruments designated at fair value – available for sale securities TotalAs at 31.12.09
and other
eligible bills
£m Debt
securities
£m Total
£m % 13,950 151,621 165,571 91.8 1,895 10,297 12,192 6.8 – 2,571 2,571 1.4 15,845 164,489 180,334 100.0 15,845 72,238 88,083 48.8 – 23,924 23,924 13.3 – 17,826 17,826 9.9 – 41,641 41,641 23.1 – 8,860 8,860 4.9 15,845 164,489 180,334 100.0 9,926 116,594 126,520 70.2 – 4,007 4,007 2.2 5,919 43,888 49,807 27.6 15,845 164,489 180,334 100.0 As at 31.12.08 7,314 198,493 205,807 91.6 1,233 15,309 16,542 7.4 – 2,343 2,343 1.0 8,547 216,145 224,692 100.0 8,547 73,881 82,428 36.7 – 34,180 34,180 15.2 – 34,844 34,844 15.5 – 55,244 55,244 24.6 – 17,996 17,996 8.0 8,547 216,145 224,692 100.0 4,544 148,686 153,230 68.2 – 8,628 8,628 3.8 4,003 58,831 62,834 28.0 8,547 216,145 224,692 100.0
As at 31.12.08 | Treasury and other eligible bills £m | Debt securities £m | Total £m | % | ||||
AAA to BBB– (investment grade) | 7,314 | 198,493 | 205,807 | 91.6 | ||||
BB+ to B | 1,233 | 15,309 | 16,542 | 7.4 | ||||
B– or lower | – | 2,343 | 2,343 | 1.0 | ||||
Total | 8,547 | 216,145 | 224,692 | 100.0 | ||||
Of which issued by: | ||||||||
– governments and other public bodies | 8,547 | 73,881 | 82,428 | 36.7 | ||||
– US agency | – | 34,180 | 34,180 | 15.3 | ||||
– mortgage and asset-backed securities | – | 34,844 | 34,844 | 15.5 | ||||
– corporate and other issuers | – | 55,244 | 55,244 | 24.6 | ||||
– bank and building society certificates of deposit | – | 17,996 | 17,996 | 7.9 | ||||
Total | 8,547 | 216,145 | 224,692 | 100.0 | ||||
Of which classified as: | ||||||||
– trading portfolio assets | 4,544 | 148,686 | 153,230 | 68.2 | ||||
– financial instruments designated at fair value | – | 8,628 | 8,628 | 3.8 | ||||
– available-for-sale securities | 4,003 | 58,831 | 62,834 | 28.0 | ||||
Total | 8,547 | 216,145 | 224,692 | 100.0 | ||||
As at 31.12.07 | Treasury and other eligible bills £m | Debt securities £m | Total £m | % | ||||
AAA to BBB– (investment grade) | 4,114 | 189,794 | 193,908 | 88.0 | ||||
BB+ to B | 703 | 24,693 | 25,396 | 11.5 | ||||
B– or lower | – | 1,181 | 1,181 | 0.5 | ||||
Total | 4,817 | 215,668 | 220,485 | 100.0 | ||||
Of which issued by: | ||||||||
– governments and other public bodies | 4,817 | 63,798 | 68,615 | 31.1 | ||||
– US agency | – | 13,956 | 13,956 | 6.3 | ||||
– mortgage and asset-backed securities | – | 28,928 | 28,928 | 13.1 | ||||
– corporate and other issuers | – | 88,207 | 88,207 | 40.0 | ||||
– bank and building society certificates of deposit | – | 20,779 | 20,779 | 9.5 | ||||
Total | 4,817 | 215,668 | 220,485 | 100.0 | ||||
Of which classified as: | ||||||||
– trading portfolio assets | 2,094 | 152,778 | 154,872 | 70.2 | ||||
– financial instruments designated at fair value | – | 24,217 | 24,217 | 11.0 | ||||
– available-for-sale securities | 2,723 | 38,673 | 41,396 | 18.8 | ||||
Total | 4,817 | 215,668 | 220,485 | 100.0 |
|
Risk management
Credit risk management
Derivatives
The use of derivatives and their sale to customers as risk management products are 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, exchange rates and commodity and equity prices 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 106-110.94 to 101.
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, net trading income, net fee and commission income and derivative assets and liabilities. Notional amounts of the contracts are not recorded on the balance sheet.
The Group participates both in exchange traded and over the counter derivatives markets.
Exchange traded 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 derivatives
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.
Foreign exchange 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 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.
Credit derivatives
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, or 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.
Equity derivatives
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. 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. The Group also enters into fund-linked derivatives, being swaps and options whose underlyings include mutual funds, hedge funds, indices and multi-asset portfolios.
Commodity derivatives
The Group’s principal commodity-related derivative contracts are swaps, options, forwards and futures. The main commodities transacted are base metals, precious metals, oil and oil-related products, power and natural gas.
|
The tables below set out the fair values of the derivative assets together with the value of those assets subject to enforceable counterparty netting arrangements for which the Group holds offsetting liabilities and eligible collateral.
Derivative assets – As at 31.12.08 | Gross assets £m | Counterparty £m | Net exposure £m | |||||||||
Derivative assets | Gross assets £m | Counterparty netting £m |
Net | |||||||||
As at 31.12.09 | ||||||||||||
Foreign exchange | 107,730 | 91,572 | 16,158 | 51,775 | 45,391 | 6,384 | ||||||
Interest rate | 615,321 | 558,985 | 56,336 | 261,211 | 213,446 | 47,765 | ||||||
Credit derivatives | 184,072 | 155,599 | 28,473 | 56,295 | 48,774 | 7,521 | ||||||
Equity and stock index | 28,684 | 20,110 | 8,574 | 17,784 | 13,330 | 4,454 | ||||||
Commodity derivatives | 48,995 | 35,903 | 13,092 | 29,750 | 21,687 | 8,063 | ||||||
984,802 | 862,169 | 122,633 | 416,815 | 342,628 | 74,187 | |||||||
Total collateral held | 54,905 | 31,471 | ||||||||||
Net exposure less collateral | 67,728 | 42,716 | ||||||||||
Derivative assets – As at 31.12.07 | Gross assets £m | Counterparty £m | Net exposure | |||||||||
As at 31.12.08 | ||||||||||||
Foreign exchange | 30,824 | 22,066 | 8,758 | 107,730 | 91,572 | 16,158 | ||||||
Interest rate | 140,504 | 117,292 | 23,212 | 615,321 | 558,985 | 56,336 | ||||||
Credit derivatives | 38,696 | 31,307 | 7,389 | 184,072 | 155,599 | 28,473 | ||||||
Equity and stock index | 13,296 | 12,151 | 1,145 | 28,684 | 20,110 | 8,574 | ||||||
Commodity derivatives | 24,768 | 15,969 | 8,799 | 48,995 | 35,903 | 13,092 | ||||||
248,088 | 198,785 | 49,303 | 984,802 | 862,169 | 122,633 | |||||||
Total collateral held | 16,700 | 54,905 | ||||||||||
Net exposure less collateral | 32,603 | 67,728 |
Gross derivative assets of £985bn (2007: £248bn)£417bn (2008: £985bn) cannot be netted down under IFRS. Derivative assets would be £917bn (2007: £215bn)£374bn (2008: £917bn) lower than reported under IFRS if counterparty or collateral netting were allowed.
Exposure relating to derivatives, repurchase agreements, reverse repurchase agreements, stock borrowing and loan transactions is calculated using internal, FSA approved models. These are used as the basis to assess both regulatory capital and capital appetite and are managed on a daily basis. The methodology encompasses all relevant factors to enable the current value to be calculated and the future value to be estimated, for example: current market rates, market volatility and legal documentation (including collateral rights).
|
Risk management
Credit risk management
Barclays Capital credit market exposures
Barclays Capital’s credit market exposures primarily relate to US residential mortgages, commercial mortgages and leveraged finance businesses that have been significantly impacted by the continued deterioration in the global credit markets. The exposures include both significant positions subject to fair value movements in the profit and loss account and positions that are classified as loans and advances and available for sale. None of the exposure disclosed below has been reclassified to loans and advances under the amendments to IAS 39.
The exposures are set out by asset class in US Dollars and Sterling below:
$ma | £ma | |||||||||
US Residential Mortgages | Notes | As at 31.12.08 | As at 31.12.07 | As at 31.12 .08 | As at 31.12.07 | |||||
ABS CDO Super Senior | A1 | 4,526 | 9,356 | 3,104 | 4,671 | |||||
Other US sub- prime | A2 | 5,017 | 10,089 | 3,441 | 5,037 | |||||
Alt-A | A3 | 6,252 | 9,847 | 4,288 | 4,916 | |||||
US RMBS exposure wrapped by monoline insurers | A4 | 2,389 | 1,462 | 1,639 | 730 | |||||
Commercial mortgages | ||||||||||
Commercial real estate | B1 | 16,882 | 22,239 | 11,578 | 11,103 | |||||
Commercial mortgage-backed securities | B1 | 1,072 | 2,596 | 735 | 1,296 | |||||
CMBS exposure wrapped by monoline insurers | B2 | 2,703 | 395 | 1,854 | 197 | |||||
Other Credit Market Exposures | ||||||||||
Leveraged financeb | C1 | 15,152 | 18,081 | 10,391 | 9,027 | |||||
SIVs and SIV-Lites | C2 | 1,404 | 1,570 | 963 | 784 | |||||
CDPCs | C3 | 218 | 39 | 150 | 19 | |||||
CLO and other exposure wrapped by monoline insurers | C4 | 7,202 | 817 | 4,939 | 408 |
These exposures have been actively managed during the year in an exceptionally challenging market environment and have been reduced by net sales and paydowns of £6,311m, offset by the 37% appreciation of the US Dollar against Sterling. In January 2009, there was an additional sale of £3,056m of leveraged finance exposure which was repaid at par. Exposures at 31st December 2008 included £1,060m of securities from the acquisition of Lehman Brothers North American businesses. Exposures wrapped by monolines have increased during the course of 2008 as a result of declines in the fair value of the underlying assets.
Analysis of Barclays Capital credit market exposures by asset class
ABS CDO Super Senior £m | Other US sub -prime £m | Alt-A £m | RMBS £m | Commercial £m | Commercial mortgage backed securities £m | CMBS wrapped by monoline insurers £m | Leveraged finance £m | SIVs and SIV-Lites £m | CDPCs £m | CLO and other exposure wrapped by monoline insurers £m | As at 31.12.08 £m | ||||||||||||||
Debt securities | 782 | 2,532 | 1,420 | 11 | 4,745 | ||||||||||||||||||||
Trading portfolio assets | 782 | 2,532 | 1,420 | 11 | 4,745 | ||||||||||||||||||||
Loans and advances | 1,565 | 778 | 11,555 | 531 | 14,429 | ||||||||||||||||||||
Financial assets designated at fair value | 1,565 | 778 | 11,555 | 531 | 14,429 | ||||||||||||||||||||
Derivative financial instruments | 643 | 398 | 1,639 | 23 | (685 | ) | 1,854 | 273 | 150 | 4,939 | 9,234 | ||||||||||||||
Loans and advances to customers | 3,104 | 195 | 9,361 | 148 | 12,808 | ||||||||||||||||||||
Debt securities | 147 | 580 | 727 | ||||||||||||||||||||||
Available for sale financial instruments | 147 | 580 | 727 | ||||||||||||||||||||||
Other assets | 109 | 109 | |||||||||||||||||||||||
Exposure on balance sheet | 3,104 | 3,441 | 4,288 | 1,639 | 11,578 | 735 | 1,854 | 9,361 | 963 | 150 | 4,939 |
Notes
|
There were gross losses of £8,053m (2007: £2,999m) in the year to 31st December 2008. These losses were partially offset by related income and hedges of £1,433m (2007: £706m), and gains of £1,663m (2007: £658m) from the general widening of credit spreads on issued notes measured at fair value through the profit and loss account.
The gross losses, which included £1,763m (2007: £782m) in impairment charges, comprised: £5,584m (2007: £2,811m) against US RMBS exposures; £1,488m (2007: £14m) against commercial mortgage exposures; and £981m (2007: £174m) against other credit market exposures.
Fair Value |
Impairment £m |
Gross | |||||||
ABS CDO super senior | (78 | ) | (1,383 | ) | (1,461 | ) | |||
Other US sub-prime | (1,560 | ) | (168 | ) | (1,728 | ) | |||
Alt-A | (1,858 | ) | (125 | ) | (1,983 | ) | |||
US RMBS wrapped by monoline insurers | (412 | ) | – | (412 | ) | ||||
Total US residential mortgages | (3,908 | ) | (1,676 | ) | (5,584 | ) | |||
US | (671 | ) | – | (671 | ) | ||||
Europe | (350 | ) | – | (350 | ) | ||||
Total commercial real estate | (1,021 | ) | – | (1,021 | ) | ||||
Commercial mortgage-backed securities | (127 | ) | – | (127 | ) | ||||
CMBS wrapped by monoline insurers | (340 | ) | – | (340 | ) | ||||
Total commercial mortgages | (1,488 | ) | – | (1,488 | ) | ||||
SIVs and SIV-Lites | (143 | ) | (87 | ) | (230 | ) | |||
CDPCs | (14 | ) | – | (14 | ) | ||||
CLO and other assets wrapped by monoline insurers | (737 | ) | – | (737 | ) | ||||
Total other credit market | (894 | ) | (87 | ) | (981 | ) | |||
Total | (6,290 | ) | (1,763 | ) | (8,053 | ) |
|
Risk management
Credit risk management
Barclays Capital credit market exposures
A. US Residential Mortgages
US residential mortgage exposures have reduced by 41% in US Dollar terms, and 19% in Sterling terms, since 31st December 2007.
A1. ABS CDO Super Senior
During the year ABS CDO Super Senior exposures reduced by £1,567m to £3,104m (31st December 2007: £4,671m). Net exposures are stated after write-downs and charges of £1,461m incurred in 2008 (2007: £1,816m) and hedges of £nil (31st December 2007: £1,347m). There were no hedges in place at 31st December 2008 as the corresponding liquidity facilities had been terminated. There were liquidations and paydowns of £2,318m in the year; weaker Sterling and a reduction in hedges increased exposure by £865m and £1,347m respectively.
The remaining ABS CDO Super Senior exposure at 31st December 2008 comprised five high grade liquidity facilities which were fully drawn and classified within loans and receivables, and no remaining mezzanine exposure. At 31st December 2007 there were 15 facilities of which nine were high grade and six mezzanine.
The impairment assessment of remaining super senior positions is based on cash flow methodology using standard market assumptions such as default curves and remittance data to calculate the net present value of the future losses for the collateral pool over time. As a result, future potential impairment charges depend on changes in these assumptions.
We have included all ABS CDO Super Senior exposure in the US residential mortgages section as nearly 90% of the underlying collateral relates to US RMBS. The impairment applied to the notional collateral is set out in the table below.
As at 31.12.08 |
As at 31.12.07 |
As at |
As at | ||||||||||||||||
High Grade £m | Total £m | High Grade £m | Mezzanine £m | Total £m | Marksa | Marksa | |||||||||||||
2005 and earlier | 1,226 | 1,226 | 1,458 | 1,152 | 2,610 | 90% | 69% | ||||||||||||
2006 | 471 | 471 | 1,654 | 314 | 1,968 | 37% | 47% | ||||||||||||
2007 and 2008 | 25 | 25 | 176 | 87 | 263 | 69% | 53% | ||||||||||||
Sub-prime | 1,722 | 1,722 | 3,288 | 1,553 | 4,841 | 75% | 60% | ||||||||||||
2005 and earlier | 891 | 891 | 714 | 102 | 816 | 77% | 96% | ||||||||||||
2006 | 269 | 269 | 594 | 68 | 662 | 75% | 90% | ||||||||||||
2007 and 2008 | 62 | 62 | 163 | 13 | 176 | 37% | 80% | ||||||||||||
Alt-A | 1,222 | 1,222 | 1,471 | 183 | 1,654 | 74% | 92% | ||||||||||||
Prime | 520 | 520 | 662 | 123 | 785 | 100% | 100% | ||||||||||||
RMBS CDO | 402 | 402 | 842 | 445 | 1,287 | – | 19% | ||||||||||||
Sub-prime second lien | 127 | 127 | 158 | – | 158 | – | 32% | ||||||||||||
Total RMBS | 3,993 | 3,993 | 6,421 | 2,304 | 8,725 | 68% | 63% | ||||||||||||
CMBS | 44 | 44 | 189 | 110 | 299 | 100% | 96% | ||||||||||||
Non-RMBS CDO | 453 | 453 | 429 | 80 | 509 | 56% | 49% | ||||||||||||
CLOs | 35 | 35 | 26 | – | 26 | 100% | 100% | ||||||||||||
Other ABS | 51 | 51 | 136 | 4 | 140 | 100% | 100% | ||||||||||||
Total other ABS | 583 | 583 | 780 | 194 | 974 | 66% | 72% | ||||||||||||
Total notional collateral | 4,576 | 4,576 | 7,201 | 2,498 | 9,699 | 68% | 64% | ||||||||||||
Subordination | (459 | ) | (459 | ) | (1,001 | ) | (864 | ) | (1,865 | ) | |||||||||
Gross exposure pre impairment | 4,117 | 4,117 | 6,200 | 1,634 | 7,834 | ||||||||||||||
Impairment allowances | (1,013 | ) | (1,013 | ) | (290 | ) | (432 | ) | (722 | ) | |||||||||
Trading losses gross of Hedges | – | – | (1,041 | ) | (53 | ) | (1,094 | ) | |||||||||||
Hedges | – | – | (960 | ) | (387 | ) | (1,347 | ) | |||||||||||
Net exposure | 3,104 | 3,104 | 3,909 | 762 | 4,671 | ||||||||||||||
Collateral marks including liquidated structures | 32% | 62% |
Note
|
Consolidated collateral of £8.4bn relating to the ten CDOs that were liquidated in 2008 has been sold or are stated at fair value net of hedges within Other US sub-prime, Alt-A and CMBS exposures. The notional collateral remaining at 31st December 2008 is marked at approximately 12%. The collateral valuation for all ABS CDO Super Senior deals, including those liquidated and consolidated in 2008, is approximately 32% (31st December 2007: 62%).
The collateral for the outstanding ABS CDO Super Senior exposures primarily comprises residential mortgage backed securities (RMBS). At 31st December 2008 the residual exposure contains a higher proportion of collateral originated in 2005 and earlier than at 31st December 2007. There is minimal exposure to collateral originated in 2007 or later. The vintages of the sub-prime, Alt-A and US RMBS collateral are set out in the table below.
As at |
As at | |||
Sub-prime Collateral by Vintage | ||||
2005 and earlier | 71% | 54% | ||
2006 | 27% | 41% | ||
2007 and 2008 | 2% | 5% | ||
Alt-A Collateral by Vintage | ||||
2005 and earlier | 73% | 49% | ||
2006 | 22% | 40% | ||
2007 and 2008 | 5% | 11% | ||
US RMBS Collateral by Vintage | ||||
2005 and earlier | 72% | 53% | ||
2006 | 25% | 40% | ||
2007 and 2008 | 3% | 7% |
RMBS collateral for the ABS CDO Super Senior exposures is subject to public ratings. The ratings of sub-prime, Alt-A and total US RMBS CDO collateral are set out in the table below.
31.12.08 |
31.12.07 |
31.12.07 |
31.12.07 | |||||
Sub-prime US RMBS Ratings | ||||||||
AAA/AA | 42% | 43% | 2% | 30% | ||||
A/BBB | 21% | 51% | 82% | 60% | ||||
Non-investment Grade | 37% | 6% | 16% | 10% | ||||
Alt-A RMBS Ratings | ||||||||
AAA/AA | 66% | 89% | 47% | 85% | ||||
A/BBB | 7% | 8% | 45% | 12% | ||||
Non-investment Grade | 27% | 3% | 8% | 3% | ||||
Total US RMBS Ratings | ||||||||
AAA/AA | 50% | 63% | 14% | 50% | ||||
A/BBB | 13% | 31% | 70% | 41% | ||||
Non-investment Grade | 37% | 6% | 16% | 9% |
|
Risk management
Credit risk management
Barclays Capital credit market exposures
A2. Other US Sub-Prime
As at |
As at |
Marks at 31.12.08 |
Marks at | ||||||
Whole loans – performing | 1,290 | 2,805 | 80% | 100% | |||||
Whole loans – more than 60 days past due | 275 | 372 | 48% | 65% | |||||
Total whole loans | 1,565 | 3,177 | 72% | 94% | |||||
AAA securities | 111 | 735 | 40% | 92% | |||||
Other sub-prime securities | 818 | 525 | 23% | 61% | |||||
Total securities gross of hedges | 929 | 1,260 | 25% | 76% | |||||
Hedges | – | (369 | ) | ||||||
Securities (net of hedges) | 929 | 891 | |||||||
Residuals | – | 233 | – | 24% | |||||
Other exposures with underlying sub-prime collateral: | |||||||||
– Derivatives | 643 | 333 | 87% | 100% | |||||
– Loans | 195 | 346 | 70% | 100% | |||||
– Real Estate | 109 | 57 | 46% | 68% | |||||
Total other direct and indirect exposure | 1,876 | 1,860 | |||||||
Total | 3,441 | 5,037 |
The majority of Other US sub-prime exposures are measured at fair value through profit and loss. US sub-prime securities held in conduits and a collateralised debt obligation (CDO) are categorised as available for sale and are recognised in equity.
Exposure declined from £5,037m to £3,441m driven by gross losses of £1,728m and net sales, paydowns and other movements of £1,649m. Weaker Sterling resulted in an increase in exposure of £1,086m. Exposures at 31st December 2008 included assets acquired from Lehman Brothers North American businesses of £83m in AAA securities and £124m in other US sub-prime securities.
At 31st December 2008, 82% of the whole loan exposure was performing. Whole loans included £1,422m (31st December 2007: £2,843m) acquired on or originated since the acquisition of EquiFirst in March 2007. Of this balance, £281m of new sub-prime loans were originated in 2008. At 31st December 2008, the average loan to value at origination of all the sub-prime whole loans was 79%. Loans guaranteed by Federal Housing Administration (FHA) are not included in the exposure above. An FHA loan is a mortgage loan fully insured by the US Federal Housing Administration and therefore not considered to be a credit sensitive product. EquiFirst has only originated FHA eligible loans since April 2008, and held £132m of these loans at 31st December 2008.
Securities included £37m held by consolidated conduits and £110m held in a CDO on which impairment charges of £16m and £53m respectively have been recorded.
Other exposures with underlying sub-prime collateral include counterparty derivative exposures to vehicles which hold sub-prime collateral. Derivatives of £643m (31st December 2007: £333m) relate to US Dollar denominated interest rate swaps. The increase in the balance principally relates to the decline in interest rates globally and the 37% depreciation of Sterling relative to the US Dollar, especially in the second half of 2008. The majority of all other exposures with underlying sub-prime collateral was the most senior obligation of the vehicle.
|
A3. Alt-A
As at |
As at |
Marks at |
Marks at | |||||
AAA securities | 1,847 | 3,553 | 43% | 87% | ||||
Other Alt-A securities | 1,265 | 208 | 9% | 75% | ||||
Whole Loans | 776 | 909 | 67% | 97% | ||||
Residuals | 2 | 25 | 6% | 66% | ||||
Derivative exposure with underlying Alt-A collateral | 398 | 221 | 100% | 100% | ||||
Total | 4,288 | 4,916 |
Alt-A securities, whole loans and residuals are measured at fair value through profit and loss. Alt-A securities held in conduits and a collateralised debt obligation (CDO) are categorised as available for sale and are recognised in equity.
Net exposure to the Alt-A market was £4,288m (31st December 2007: £4,916m), through a combination of whole loans, securities and residuals, including those held in consolidated conduits. There were gross losses of £1,983m in the year and net sales, paydowns and other movements of £181m. Weaker Sterling resulted in an increase in exposure of £1,190m. Exposures at 31st December 2008 included assets acquired from Lehman Brothers North American businesses of £300m in AAA securities and £324m in other Alt-A securities.
Securities included £491m held by consolidated conduits and £89m held in a CDO on which impairment charges of £65m and £58m respectively have been recorded.
At 31st December 2008, 75% of the Alt-A whole loan exposure was performing, and the average loan to value ratio at origination was 81%.
Other exposures with underlying Alt-A collateral include counterparty derivative exposures to vehicles which hold Alt-A collateral. Derivative exposures with underlying Alt-A collateral of £398m (31st December 2007: £221m) relate to US Dollar denominated interest rate swaps. The increase in the balance principally relates to the decline in interest rates globally and the 37% depreciation of Sterling relative to the US Dollar, especially in the second half of 2008. The majority of this exposure was the most senior obligation of the vehicle.
A4. US Residential Mortgage Backed Securities Exposure Wrapped by Monoline Insurers
The deterioration in the US residential mortgage market has resulted in exposure to monoline insurers and other financial guarantors that provide credit protection.
The table below shows RMBS assets where we held protection from monoline insurers at 31st December 2008. These are measured at fair value through profit and loss. Declines in fair value of the underlying assets are reflected in increases in the value of potential claims against monoline insurers. Such declines have resulted in net exposure to monoline insurers under these contracts increasing to £1,639m by 31st December 2008 (2007: £730m).
Claims would become due in the event of default of the underlying assets and losses would only be realised if both the underlying asset and monoline defaulted. At 31st December 2008 while 81% of the underlying assets were non-investment grade, 97% are wrapped by monolines with investment grade ratings.
There is some uncertainty whether all of the monoline insurers would be able to meet all liabilities if such claims were to arise: certain monoline insurers have been subject to downgrades in 2008. Consequently, a fair value loss of £412m has been recognised in the year. There have been no claims due under these contracts as none of the underlying assets were in default at 31st December 2008.
The fair value is determined by a credit valuation adjustment calculation which incorporates stressed cash flow shortfall projections, current market valuations, stressed Probability of Default (PDs) and a range of Loss Given Default (LGD) assumptions. The cash flow shortfall projections are stressed to ensure that we consider the potential for further market deterioration and resultant additional cash flow shortfall in underlying collateral. Monoline ratings are based on external ratings analysis and where appropriate significant internal analysis conducted by the independent Credit Risk function. In addition, we reflect the potential for further deterioration of monolines by using stressed PDs which results in all monolines having an implied sub-investment grade rating. LGDs range from 45% to 100% depending on the monoline.
Exposure by Credit Rating of Monoline Insurer
As at 31.12.08 | |||||||||||
Notional £m | Fair Value £m | Fair Value Exposure £m | Credit Valuation Adjustment £m | Net Exposure £m | |||||||
AAA/AA | – | – | – | – | – | ||||||
A/BBB | 2,567 | 492 | 2,075 | (473 | ) | 1,602 | |||||
Non-investment grade | 74 | 8 | 66 | (29 | ) | 37 | |||||
Total | 2,641 | 500 | 2,141 | (502 | ) | 1,639 | |||||
As at 31.12.07 | |||||||||||
AAA/AA | 2,807 | 2,036 | 771 | (41 | ) | 730 |
|
Risk management
Credit risk management
Barclays Capital credit market exposures
The notional value of the assets, split by the current rating of the monoline insurer, is shown below.
Rating of Monoline Insurers – As at 31.12.08 | ||||||||
AAA/AA £m | A/BBB £m | Non- £m | Total £m | |||||
2005 and earlier | – | 143 | – | 143 | ||||
2006 | – | 1,240 | – | 1,240 | ||||
2007 and 2008 | – | 510 | – | 510 | ||||
High Grade | – | 1,893 | – | 1,893 | ||||
Mezzanine – 2005 and earlier | – | 625 | 74 | 699 | ||||
CDO2– 2005 and earlier | – | 49 | – | 49 | ||||
US RMBS | – | 2,567 | 74 | 2,641 | ||||
The notional value of the assets, split by the current rating of the underlying asset, is shown below.
| ||||||||
Rating of Underlying Asset – As at 31.12.08 | ||||||||
AAA/AA £m | A/BBB £m | Non- £m | Total £m | |||||
2005 and earlier | 143 | – | – | 143 | ||||
2006 | – | – | 1,240 | 1,240 | ||||
2007 and 2008 | – | – | 510 | 510 | ||||
High Grade | 143 | – | 1,750 | 1,893 | ||||
Mezzanine – 2005 and earlier | 31 | 330 | 338 | 699 | ||||
CDO2– 2005 and earlier | – | – | 49 | 49 | ||||
US RMBS | 174 | 330 | 2,137 | 2,641 |
|
B. Commercial Mortgages
Commercial mortgages reduced 18% in US Dollar terms. In Sterling terms these increased by 12%.
B1. Commercial Mortgages
Exposures in Barclays Capital’s commercial mortgages portfolio, all of which are measured at fair value, comprised commercial real estate loan exposure of £11,578m (31st December 2007: £11,103m) and commercial mortgage-backed securities (CMBS) of £735m (31st December 2007: £1,296m). During the year there were gross losses of £1,148m. Gross sales and paydowns of £1,034m in the UK and Continental Europe and £2,167m in the US were partially offset by additional drawdowns. Weaker Sterling increased exposure by £3,058m.
The commercial real estate loan exposure comprised 55% US, 41% UK and Europe and 4% Asia. 5% of the total relates to land or property under construction.
The US exposure included two large transactions which comprised 42% of the total US exposure and have paid down approximately £789m in the year. The remaining 58% of the US exposure comprised 76 transactions. The remaining weighted average number of years to initial maturity of the US portfolio is 1.4 years.
The UK and Europe portfolio is well diversified with 64 transactions in place as at 31st December 2008. In Europe protection is provided by loan covenants and periodic LTV retests, which cover 90% of the portfolio. 47% of the German exposure relates to one transaction secured on multifamily residential assets. Exposure to the Spanish market represents less than 1% of global exposure at 31st December 2008.
Commercial Real Estate Exposure by Region
| ||||||||
As at 31.12.08 £m | As at 31.12.07 £m | Marks at 31.12.08 | Marks at 31.12.07 | |||||
US | 6,329 | 5,947 | 88% | 99% | ||||
Germany | 2,467 | 1,783 | 95% | 100% | ||||
Sweden | 265 | 250 | 96% | 100% | ||||
France | 270 | 289 | 94% | 100% | ||||
Switzerland | 176 | 127 | 97% | 100% | ||||
Spain | 106 | 89 | 92% | 100% | ||||
Other Continental Europe | 677 | 779 | 90% | 100% | ||||
UK | 831 | 1,422 | 89% | 100% | ||||
Asia | 457 | 417 | 97% | 100% | ||||
Total | 11,578 | 11,103 |
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
|
Commercial Real Estate Exposure by Industry
| ||||||||||||
As at 31.12.08 | ||||||||||||
US £m | Germany £m | Other Europe £m | UK £m | Asia £m | Total £m | |||||||
Office | 2,081 | 436 | 802 | 192 | 145 | 3,656 | ||||||
Residential | 1,957 | 1,268 | – | 229 | 128 | 3,582 | ||||||
Retail | 66 | 567 | 96 | 110 | 118 | 957 | ||||||
Hotels | 1,145 | – | 441 | 29 | 18 | 1,633 | ||||||
Leisure | – | – | – | 233 | – | 233 | ||||||
Land | 232 | – | – | – | – | 232 | ||||||
Industrial | 582 | 126 | 131 | 38 | 10 | 887 | ||||||
Mixed/Others | 243 | 70 | 24 | – | 38 | 375 | ||||||
Hedges | 23 | – | – | – | – | 23 | ||||||
Total | 6,329 | 2,467 | 1,494 | 831 | 457 | 11,578 |
Notes
|
Risk management
Credit risk management
Barclays Capital credit market exposures
B1. Commercial Mortgages (continued)
Commercial Mortgage Backed Securities (net of hedges)
| ||||||||
As at 31.12.08 £m | As at £m | Marksa at 31.12.08 | Marksa at 31.12.07 | |||||
AAA securities | 588 | 1,008 | ||||||
Other securities | 147 | 288 | ||||||
Total | 735 | 1,296 | 21% | 98% |
Exposure is stated net of hedges traded in the liquid index swap market with market counterparties. The counterparty exposure is managed through a standard derivative collateralisation process and none of the hedge counterparties are monoline insurers.
Exposures at 31st December 2008 included assets acquired from Lehman Brothers North American businesses of £143m in AAA securities and £86m in other securities.
B2. CMBS Exposure Wrapped by Monoline Insurers
The deterioration in the commercial mortgage market has resulted in exposure to monoline insurers and other financial guarantors that provide credit protection.
The table below shows Commercial Mortgage Backed Security (CMBS) assets where we held protection from monoline insurers at 31st December 2008. These are measured at fair value through profit and loss. Declines in fair value of the underlying assets are reflected in increases in the value of potential claims against monoline insurers. Such declines have resulted in net exposure to monoline insurers under these contracts increasing to £1,854m by 31st December 2008 (31st December 2007: £197m).
Claims would become due in the event of default of the underlying assets and losses would only be realised if both the underlying asset and monoline defaulted. At 31st December 2008 all underlying assets were rated AAA/AA and 89% are wrapped by monolines with investment grade ratings.
There is some uncertainty whether all of the monoline insurers would be able to meet all liabilities if such claims were to arise: certain monoline insurers have been subject to downgrades in 2008. Consequently, a fair value loss of £340m has been recognised in the year. There have been no claims due under these contracts as none of the underlying assets were in default at 31st December 2008.
The fair value is determined by a credit valuation adjustment calculation which incorporates stressed cash flow shortfall projections, current market valuations, stressed Probability of Default (PDs) and a range of Loss Given Default (LGD) assumptions. The cash flow shortfall projections are stressed to ensure that we consider the potential for further market deterioration and resultant additional cash flow shortfall in underlying collateral. Monoline ratings are based on external ratings analysis and where appropriate significant internal analysis conducted by the independent Credit Risk function. In addition, we reflect the potential for further deterioration of monolines by using stressed PDs which results in all monolines having an implied sub-investment grade rating. LGDs range from 45% to 100% depending on the monoline.
Exposure by credit rating of monoline insurer
| |||||||||||
As at 31.12.08 | |||||||||||
Notional £m | Fair value £m | Fair value exposure £m | Credit valuation adjustment £m | Net exposure £m | |||||||
AAA/AA | 69 | 27 | 42 | (4 | ) | 38 | |||||
A/BBB | 3,258 | 1,301 | 1,957 | (320 | ) | 1,637 | |||||
Non-investment grade | 425 | 181 | 244 | (65 | ) | 179 | |||||
Total | 3,752 | 1,509 | 2,243 | (389 | ) | 1,854 | |||||
As at 31.12.07 | |||||||||||
AAA/AA | 3,614 | 3,408 | 206 | (9 | ) | 197 |
The notional value of the assets, split by the current rating of the monoline insurer, is shown below.
Rating of monoline insurers – As at 31.12.08 | ||||||||
AAA/AA £m | A/BBB £m | Non- £m | Total £m | |||||
2005 and earlier | – | 437 | – | 437 | ||||
2006 | 69 | 544 | – | 613 | ||||
2007 and 2008 | – | 2,277 | 425 | 2,702 | ||||
CMBS | 69 | 3,258 | 425 | 3,752 |
Note
|
The notional value of the assets split by the current rating of the underlying asset, is shown below. All CMBS assets were rated AAA/AA at 31st December 2008.
Rating of Underlying Asset – As at 31.12.08 | ||||||||
AAA/AA £m | A/BBB £m | Non- Investment £m | Total £m | |||||
2005 and earlier | 437 | – | – | 437 | ||||
2006 | 613 | – | – | 613 | ||||
2007 and 2008 | 2,702 | – | – | 2,702 | ||||
CMBS | 3,752 | – | – | 3,752 |
C . Other credit market exposures
In the year ended 31st December 2008 these exposures increased by 17% in US Dollar terms, and 61% in Sterling terms.
C1. Leveraged Finance
Leveraged loans are classified within loans and advances and are stated at amortised cost less impairment. The overall credit performance of the assets remains satisfactory.
At 31st December 2008, the gross exposure relating to leveraged finance loans was £10,506m (31st December 2007: £9,217m). Barclays Capital expects to hold these leveraged finance positions until redemption. Material movements since 31st December 2007 reflect exchange rate changes rather than changes in loan positions.
The net exposure relating to leverage finance loans of £10,391m (31st December 2007: £9,027m) was reduced to £7,335m following a repayment of £3,056m at par in January 2009.
Leveraged Finance Exposure by Region
| ||||||
As at 31.12.08 £m | As at 31.12.07 £m | |||||
UK | 4,810 | 4,401 | ||||
US | 3,830 | 3,037 | ||||
Europe | 1,640 | 1,568 | ||||
Asia | 226 | 211 | ||||
Total lending and commitments | 10,506 | 9,217 | ||||
Identified and unidentified impairmenta | (115 | ) | (190 | ) | ||
Net lending and commitments | 10,391 | 9,027 |
Leveraged finance exposure by industry
| ||||||||||||
As at 31.12.08 | As at 31.12.07 | |||||||||||
Drawn £m | Undrawn £m | Total £m | Drawn £m | Undrawn £m | Total £m | |||||||
Insurance | 2,546 | 31 | 2,577 | 2,456 | 78 | 2,534 | ||||||
Telecoms | 2,998 | 211 | 3,209 | 2,259 | 240 | 2,499 | ||||||
Retail | 904 | 128 | 1,032 | 828 | 132 | 960 | ||||||
Health care | 659 | 144 | 803 | 577 | 141 | 718 | ||||||
Media | 655 | 89 | 744 | 469 | 127 | 596 | ||||||
Services | 568 | 131 | 699 | 388 | 134 | 522 | ||||||
Manufacturing | 500 | 102 | 602 | 371 | 125 | 496 | ||||||
Chemicals | 317 | 26 | 343 | 46 | 286 | 332 | ||||||
Other | 329 | 168 | 497 | 233 | 327 | 560 | ||||||
Total | 9,476 | 1,030 | 10,506 | 7,627 | 1,590 | 9,217 |
New leveraged finance commitments originated after 30th June 2007 comprised £573m (31st December 2007: £1,148m).
Note
|
Risk management
Credit risk management
Barclays Capital credit market exposures
C2. SIVs and SIV-Lites
SIVs/SIV-Lites
| ||||||||
As at 31.12.08 £m | As at 31.12.07 £m | Marks at 31.12.08 | Marks at 31.12.07 | |||||
Liquidity facilities | 679 | 466 | 62% | 100% | ||||
Bond inventory | 11 | 52 | 7% | 37% | ||||
Derivatives | 273 | 266 | ||||||
Total | 963 | 784 |
SIV exposure increased from £784m to £963m during the year. There were £230m of gross losses against SIVs and SIV lites in the year. Weaker Sterling resulted in an increase in exposure of £281m.
At 31st December 2008 liquidity facilities of £679m (31st December 2007: £466m) include £531m designated at fair value through profit and loss relating to a SIV-lite which had previously been hedged with Lehman Brothers. Following the Lehman Brothers bankruptcy this facility was reflected as a new exposure to the underlying assets. The remaining £148m represented drawn liquidity facilities in respect of SIV-lites and other structured investment vehicles classified as loans and advances stated at cost less impairment.
Bond inventory and derivatives are fair valued through profit and loss.
Movement in derivative exposure primarily related to CDS exposure due to general spread widening. At 31st December 2008 exposure was broadly in line with the prior year.
C3. CDPC exposure
Credit derivative product companies (‘CDPCs’) are specialist providers of credit protection principally on corporate exposures in the form of credit derivatives. The Group has purchased protection from CDPCs against a number of securities with a notional value of £1,772m. The fair value of the exposure to CDPCs at 31st December 2008 was £150m. A fair value loss of £14m has been recognised in the year.
Of the notional exposure, 45% related to AAA/AA rated counterparties, with the remainder rated A/BBB.
Exposure by credit rating of CDPC
| |||||||||
As at 31.12.08 | |||||||||
Notional £m | Gross exposure £m | Credit valuation adjustment £m | Net exposure £m | ||||||
AAA/AA | 796 | 77 | (14 | ) | 63 | ||||
A/BBB | 976 | 87 | – | 87 | |||||
Total | 1,772 | 164 | (14 | ) | 150 | ||||
As at 31.12.07 | |||||||||
AAA/AA | 1,262 | 19 | – | 19 |
|
C4. CLO and other exposure wrapped by monoline insurers
The table below shows Collateralised Loan Obligations (CLOs) and other assets where we held protection from monoline insurers at 31st December 2008. The deterioration in markets for these assets has resulted in exposure to monoline insurers and other financial guarantors that provide credit protection. These are measured at fair value through profit and loss. Declines in fair value of the underlying assets are reflected in increases in the value of potential claims against monoline insurers. Such declines have resulted in net exposure to monoline insurers under these contracts increasing to £4,939m by 31st December 2008 (31st December 2007: £408m).
Claims would become due in the event of default of the underlying assets and losses would only be realised if both the underlying asset and monoline defaulted. At 31st December 2008 all of the underlying assets have investment grade ratings and 39% are wrapped by monolines rated AAA/AA. 87% of the underlying assets were CLOs, all of which were rated AAA/AA.
There is some uncertainty whether all of the monoline insurers would be able to meet all liabilities if such claims were to arise: certain monoline insurers have been subject to downgrades in 2008. Consequently, a fair value loss of £737m, has been recognised in the year. There have been no claims due under these contracts as none of the underlying assets were in default at 31st December 2008.
The fair value is determined by a credit valuation adjustment calculation which incorporates stressed cash flow shortfall projections, current market valuations, stressed Probability of Default (PDs) and a range of Loss Given Default (LGD) assumptions. The cash flow shortfall projections are stressed to ensure that we consider the potential for further market deterioration and resultant additional cash flow shortfall in underlying collateral. Monoline ratings are based on external ratings analysis and where appropriate significant internal analysis conducted by the independent Credit Risk function. In addition, we reflect the potential for further deterioration of monolines by using stressed PDs for non-AAA rated monolines, which results in all other monolines having an implied sub-investment grade rating. LGDs range from 45% to 100% depending on the monoline.
Exposure by credit rating of monoline in surer | |||||||||||
As at 31.12.08 | |||||||||||
Notional £m | Fair value £m | Fair value exposure £m | Credit valuation adjustment £m | Net exposure £m | |||||||
AAA/AA | 8,281 | 5,854 | 2,427 | (55 | ) | 2,372 | |||||
A/BBB | 6,446 | 4,808 | 1,638 | (204 | ) | 1,434 | |||||
Non-investment grade | 6,148 | 4,441 | 1,707 | (574 | ) | 1,133 | |||||
Total | 20,875 | 15,103 | 5,772 | (833 | ) | 4,939 | |||||
As at 31.12.07 | |||||||||||
AAA/AA | 15,152 | 14,735 | 417 | (9 | ) | 408 | |||||
The notional value of the assets, split by the current rating of the monoline insurer, is shown below.
| |||||||||||
Rating of monoline insurers – As at 31.12.08 | |||||||||||
AAA/AA £m | A/BBB £m | Non- grade £m | Total £m | ||||||||
2005 and earlier | 2,064 | 1,647 | 2,326 | 6,037 | |||||||
2006 | 1,803 | 2,173 | 1,918 | 5,894 | |||||||
2007 and 2008 | 3,324 | 1,369 | 1,602 | 6,295 | |||||||
CLOs | 7,191 | 5,189 | 5,846 | 18,226 | |||||||
2005 and earlier | 131 | 661 | 70 | 862 | |||||||
2006 | 145 | 158 | 232 | 535 | |||||||
2007 and 2008 | 814 | 438 | – | 1,252 | |||||||
Other | 1,090 | 1,257 | 302 | 2,649 | |||||||
Total | 8,281 | 6,446 | 6,148 | 20,875 |
|
Risk Management
Credit risk management
Barclays Capital credit market exposures
The notional value of the assets split by the current rating of the underlying asset is shown below. All of the underlying assets had investment grade ratings as at 31st December 2008.
Rating of Underlying Asset – As at 31.12. 08 | ||||||||
AAA/AA £m | A/BBB £m | Non- Investment £m | Total £m | |||||
2005 and earlier | 6,037 | – | – | 6,037 | ||||
2006 | 5,894 | – | – | 5,894 | ||||
2007 and 2008 | 6,295 | – | – | 6,295 | ||||
CLOs | 18,226 | – | – | 18,226 | ||||
2005 and earlier | 862 | – | – | 862 | ||||
2006 | 535 | – | – | 535 | ||||
2007 and 2008 | 785 | 467 | – | 1,252 | ||||
Other | 2,182 | 467 | – | 2,649 | ||||
Total | 20,408 | 467 | – | 20,875 |
Own credit
The carrying amount of issued notes that are designated under the IAS 39 fair value option is adjusted to reflect the effect of changes in own credit spreads. The resulting gain or loss is recognised in the income statement.
At 31st December 2008, the own credit adjustment arose from the fair valuation of £54.5bn of Barclays Capital structured notes (31st December 2007: £40.7bn). The widening of Barclays credit spreads in the year affected the fair value of these notes and as a result revaluation gains of £1,663m were recognised in trading income (2007: £658m).
|
Risk management
Market riskRisk is the risk that Barclays 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, credit spreads, commodity prices, equity prices and foreign exchange rates. MarketThe majority of market risk mainly arises from trading activities.exposure resides in Barclays Capital. Barclays is also exposed to market risk through non-traded interest rate risk and the pension fund.
Barclays market risk objectives are to:
– Understand and control market risk by robust measurement and the setting of position limits.
– | Understand and control market risk by robust measurement and the setting of limits. |
– Facilitate business growth within a controlled and transparent risk management framework.
– | Facilitate business growth within a controlled and transparent risk management framework. |
– Ensure traded market risk resides primarily in Barclays Capital.
– | Ensure traded market risk resides primarily in Barclays Capital. |
–
– | Minimise non-traded market risk. |
Organisation and structure
The Board approves market risk appetite for trading and non-trading activities. The Market Risk Director is responsible for the Market Risk Control Framework and, under delegated authority from the GroupChief Risk Director,Officer, sets a limit framework within the context of the approved market risk appetite. A daily market risk report summarises Barclays market risk exposures against agreed limits. This daily report is sent to the GroupChief Risk Director,Officer, the Market Risk Director, the Group Finance Director and the appropriate Business Risk Directors.
The head of each business, assisted by the business risk management team, is accountable for all market risks associated with its activities. Each business is responsible for the identification, measurement,
management, control and reporting of market risk as outlined in the Barclays Market Risk Control Framework. Oversight and
support is provided to the business by the Market Risk Director, assisted by the central market riskGroup Market
Risk team. The Market Risk Committee reviews, approves, and makes recommendations concerning the market risk profile across Barclays including risk appetite, limits and utilisation. The Committee meets monthly and is chaired by the Market Risk Director. Attendees include the GroupChief Risk Director,Officer, respective business risk managers and senior managers from the central market risk team.Group Market Risk.
In Barclays Capital, the Head of Market Risk is responsible for implementing the market risk control framework.Market Risk Control Framework. Day to day responsibility for market risk lies with the senior management of Barclays Capital, supported by the Market Risk Management team that operates independently of the trading areas. Oversight is provided by Group Market Risk.
Daily market risk reports are produced for Barclays Capital as a whole as well as for the main business areas. These are sent to Group Market Risk for review and inclusion in the daily market risk report. The risks covered include interest rate, credit spread, commodity, equity and foreign exchange. A more detailed trading market risk presentation is produced fortnightly and discussed at the Barclays Capital Traded Positions Risk Review meeting. The attendees at this meeting include the Group Risk Directorsenior trading and seniorrisk managers from Barclays Capital and the central market risk team.Group Market Risk.
In each of the six main Global Retail and Commercial Banking each of the six main business areasbusinesses (UK Retail Banking, Barclays Commercial Bank, Barclaycard, Western Europe, Emerging Markets and Absa) has its own, Group Treasury and Wealth, there is a dedicated market risk department. The head of each department is responsible for implementing the Market Risk Control Framework, with oversight provided by the central market risk team.Group Market Risk. A combination of daily and monthly risk reports are sent to Group Market Risk for review and inclusion in the centraldaily market risk team.report. A risk summary is also presented at Market Risk Committee and the respective Asset and Liability Committees.
Global Retail and Commercial Banking is responsible for non-structural non-trading interest rate risk and Group Treasury is responsible for structural risk (interest rate and foreign exchange). The chart below gives an overview of the business control structure.
|
Risk management
Traded market risk
Barclays policy is to concentrate trading activities in Barclays Capital. This includes transactions where Barclays Capital acts as principal with clients or with the market. For maximum efficiency, client and market activities are managed together. In Barclays Capital, trading risk occurs in bothis measured for the trading book and the banking book, as defined for regulatory purposes.purposes, and certain banking books.
Risk measurementMeasurement and controlControl
The measurement techniques used to measure and control traded market risk include Daily Value at Risk (DVaR), Expected Shortfall, (ES)average of the three worst hypothetical losses from the DVaR simulation (3W), Global Asset Class stress testing and scenarioGlobal Scenario stress testing. Book limits such as foreign exchange and interest rate delta limits are also in place.
Daily Value at RiskDVaR is an estimate of the potential loss arising from unfavourable market movements, if the current positions were to be held unchanged for one business day. Barclays Capital uses the historical simulation methodmethodology with a two yeartwo-year unweighted historical period.
In 2008,period at the 95% confidence level was changed to 95% from 98% as an increasing incidence of significant market movements made the existing measure more volatile and less effective for risk management purposes. Switching to 95% made DVaR more stable and consequently improved management, transparency and control of the market risk profile.level.
The historical simulation calculationmethodology can be split into three parts:
–
– | Calculate hypothetical daily profit or loss for each position over the most recent
|
– | Sum all hypothetical profits or losses for day one across all positions, giving one total profit or loss. Repeat for all other days in the two-year history. |
– | DVaR is the 95th percentile selected from the two-year history of daily hypothetical total profit or loss. |
Market volatility decreased from the extreme levels observed in the second half of 2008, but remained above pre-crisis 2007 levels. As a consequence of the unweighted DVaR historical simulation methodology, the extreme 2008 volatility will continue to impact DVaR until late 2010.
The DVaR model has been approved by the FSA to calculate regulatory capital for the trading book. The approval covers general market risk in interest rate, foreign exchange, commodities and equity products, and issuer specific risk for the majority of single name and portfolio traded credit products. Internally, as noted before, DVaR is calculated for both the trading book and certain banking books.
When reviewing DVaR estimates, a number of considerations should be taken into account. These are:
– Historical simulation uses the recent past to generate possible future market moves but the past may not be a good indicator of the future
– | Historical simulation uses the recent past to generate possible future market moves but the past may not be a good indicator of the future. |
– The one day time horizon does not fully capture the market risk of positions that cannot be closed out or hedged within one day
– | The one-day time horizon does not fully capture the market risk of positions that cannot be closed out or hedged within one day. |
– Intra-day risk is not captured
– | Intra-day risk is not captured. |
– DVaR does not indicate the potential loss beyond the 95th percentile.
– | DVaR does not indicate the potential loss beyond the 95th percentile. |
DVaR is an important market risk measurement and control tool and consequently the model is regularly assessed. The main approach employed is the technique known asback-testing which counts the
The daily average, maximum and minimum values of DVaR, 95% and 98%, were calculated as below.
DVaR (95%) | ||||||||||||||
12 months to 31st December 2008 | 12 months to 31st December 2007 | |||||||||||||
Average £m | High £m | Low £m | Average £m | High £m | Low £m | |||||||||
Interest rate risk | 28.9 | 47.8 | 15.1 | 15.3 | 26.5 | 10.0 | ||||||||
Credit spread risk | 31.1 | 71.7 | 15.4 | 17.3 | 28.0 | 10.8 | ||||||||
Commodity risk | 18.1 | 25.4 | 12.5 | 15.3 | 19.0 | 10.7 | ||||||||
Equity risk | 9.1 | 21.0 | 4.8 | 8.0 | 12.1 | 4.5 | ||||||||
Foreign exchange risk | 5.9 | 13.0 | 2.1 | 3.8 | 7.2 | 2.1 | ||||||||
Diversification effecta | (39.7 | ) | n/a | n/a | (27.2 | ) | n/a | n/a | ||||||
Total DVaR | 53.4 | 95.2 | 35.5 | 32.5 | 40.9 | 25.2 | ||||||||
DVaR (98%) | ||||||||||||||
12 months to 31st December 2008 | 12 months to 31st December 2007 | |||||||||||||
Average £m | High £m | Low £m | Average £m | High £m | Low £m | |||||||||
Interest rate risk | 45.0 | 80.9 | 21.0 | 20.0 | 33.3 | 12.6 | ||||||||
Credit spread risk | 54.0 | 143.4 | 30.1 | 24.9 | 43.3 | 14.6 | ||||||||
Commodity risk | 23.9 | 39.6 | 16.5 | 20.2 | 27.2 | 14.8 | ||||||||
Equity risk | 12.8 | 28.9 | 6.7 | 11.2 | 17.6 | 7.3 | ||||||||
Foreign exchange risk | 8.1 | 21.0 | 2.9 | 4.9 | 9.6 | 2.9 | ||||||||
Diversification effecta | (67.3 | ) | n/a | n/a | (39.2 | ) | n/a | n/a | ||||||
Total DVaR | 76.5 | 158.8 | 47.5 | 42.0 | 59.3 | 33.1 |
Note
|
number of days when a loss (as defined by the FSA in BIPRU 7.10)FSA) exceeds the corresponding DVaR estimate, measured at the 99% confidence level.
The FSA categorises a DVaR model as green, amber or red. A green model is consistent with a good working DVaR model and is achieved for models that have four or less back-testing exceptions in a 12-month period. For Barclays Capital’s trading book, green model status was maintained for 20082009 and 2007.2008.
Expected Shortfall is the average of all hypothetical losses from the historical simulation beyond DVaR. To further improve the control framework, formal daily monitoring ofExpected Shortfall (ES) 3W (average of the three worst observations from the DVaR historical simulation) was started. This metric isstarted in the averagefirst half of all the hypothetical losses beyond DVaR.2009.
96 |
Risk management
continued
Stress testing provides an indication of the potential size of losses that could arise in extreme conditions. It helps to identify risk concentrations across business lines and assist senior management in capital planning decisions. A variety of different types ofGlobal Asset Class stress tests are performed in order to fulfil the objectives of stress testing. The global asset class stress tests havetesting has been designed to cover major asset classes including interest rate, credit spread, commodity, equity and foreign exchange ratesrates. They are based on past stress moves in respective asset class prices and emerging markets.
Stress results are produced at least fortnightly. If a potentialrates. Global Scenario stress loss exceeds the corresponding trigger limit, the positions captured by the stress test are reviewed and discussed by Barclays Capital market risk management and the respective Barclays Capital business heads. 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.
Scenario tests aretesting is based on hypothetical events which could lead to extreme yet plausible stress type moves, under which profitability is seriously challenged. The scenarios
Market Risk is controlled through the use of limits where appropriate on the above risk measures. Limits are devisedset at the total Barclays Capital level, risk factor level e.g. interest rate risk, and business line level e.g. Emerging Markets. Book limits such as foreign exchange and interest rate sensitivity limits are also in place.
Risk exposures are monitored by seniorBarclays Capital’s risk managers with oversight provided by Group Market Risk. The total DVaR limit is approved by the Board. Risk Factor DVaR limits and economists andGlobal Asset Class stress testing limits are reviewed quarterly. Examples include ‘Global pandemic’, ‘Problems with GBP sovereign issuances’ and ‘Liquidity crisis’. The scenarios are calculated at least fortnightly and the results are included in the Traded Positionsapproved by Market Risk Review meeting information pack.Committee.
Analysis of traded market risk exposures
The tables and graph show the time series forBarclays Capital’s market risk exposure, as measured by average total DVaR, with commentary. Further analysisincreased by 45% to £77m (2008: £53m). The rise was mainly due to volatility considerations, increased interest rate and credit spread exposure, and the Lehman Brothers North American businesses acquisition. Volatility impacted average DVaR because 2008’s extreme
volatility impacted DVaR throughout 2009 but only impacted 2008 DVaR in the last four months of 2008. More commentary is given under the total DVaR graph below.
Expected Shortfall and 3W averaged £121m and £209m respectively representing increases of £51m (73%) and £93m (80%) compared to 2008.
As we enter 2010, the principal uncertainties which may impact Barclays market risk relate to volatility in Note 48.interest rates, commodities, credit spreads, equity prices and foreign exchange rates. While these markets exhibit improved liquidity and reduced volatility following Central Bank support, price instability and higher volatility may still arise as government policy seeks to target future economic growth while controlling inflation risk.
Analysis of trading revenue
The histogramshistogram below showshows the distribution of daily trading revenue for Barclays Capital in 20082009 and 2007. Revenue includes net trading2008.
Trading revenue reflects top-line income net interestg, excluding income net feesfrom Private Equity and commissions relating to primary trading, and the effects of gains or losses on own credit. Principal Investments.
The average daily revenue in 2009 was £71m, 87% more than recorded for 2008 was £19.5m (2007: £26.2m)(£38m). There were 247 positive days, 5 negative days and there were 203one flat day (2008: 206 positive, revenue days out of 254 (2007: 224 out of 253). The number of47 negative, revenue days increased in 2008, largely a result of volatile markets especially in the fourth quarter. The number of positive revenue days greater than £45m also increased but these were spread across the year.one flat).
The daily average, maximum and minimum values of DVaR, Expected Shortfall and 3W were calculated as below:
DVaR (95%) | ||||||||||||||
Year ended 31st December 2009 | Year ended 31st December 2008 | |||||||||||||
Average £m | High £m | Low £m | Average £m | High £m | Low £m | |||||||||
Interest rate risk | 44 | 83 | 23 | 29 | 48 | 15 | ||||||||
Credit Spread risk | 58 | 102 | 35 | 31 | 72 | 15 | ||||||||
Commodity risk | 14 | 20 | 11 | 18 | 25 | 13 | ||||||||
Equity risk | 13 | 27 | 5 | 9 | 21 | 5 | ||||||||
Foreign exchange risk | 8 | 15 | 3 | 6 | 13 | 2 | ||||||||
Diversification effect | (60 | ) | (40 | ) | ||||||||||
Total DVaR | 77 | 119 | 50 | 53 | 95 | 36 | ||||||||
Expected Shortfall | 121 | 188 | 88 | 70 | 146 | 41 | ||||||||
3W | 209 | 301 | 148 | 116 | 282 | 61 |
Notes
a |
Barclays acquires Lehman Brothers North American businesses during a period of extreme market volatility. The Lehman positions are subsequently reduced. |
DVaR increases significantly due to the extreme market volatility |
c | Total DVaR peaked at £119m in March 2009. |
d | Before trending down mainly due to a decrease in credit spread exposure and interest rate exposure, reaching £58m in August 2009. |
e | DVaR subsequently increased as markets began to recover and new positions were added to facilitate client trades. |
f | DVaR decreased towards year end driven by a reduction in exposure and an increase in diversification. Total DVaR as at 31st December 2009 was £55m (31st December 2008: £87m). |
g | Defined on page 319. |
|
Risk management
Market risk management
Non-traded marketinterest rate risk
Non-traded interest rate risk arises from the provision of retail and wholesale (non-traded) banking products and services, and resides mainly in Global Retail and Commercial Banking, and Group Treasury.
Barclays objective is to minimise non-traded market risks.risk. This is achieved by transferring interest rate risk from the business to a local treasury or Group Treasury, which in turn hedges the net exposure with the external market. Limits exist to ensure no material risk is retained within any business or product area. The majority of exposures are within Global RetailTrading activity is not permitted outside Barclays Capital.
Risk measurement and Commercial Banking.
Non-traded interest rate riskcontrol
Non-traded interest rate risk arises from the provision of retail and wholesale (non-traded) banking products and services.
The techniques used to measurerisk in each business is measured and control non-traded interest rate risk include Annualcontrolled using both an income metric (Annual Earnings at Risk) and a present value metric (Daily Value at Risk DVaRor stress testing). In addition, scenario stress analysis is carried out by the business and Stress Testing. Book limits such as foreign exchangereviewed by senior management and interest position limits are also in place.business-level asset and liability committees, when required.
Annual Earnings at Risk (AEaR) measures the sensitivity of net interest income (NII) over the next 12 months. It is calculated on a monthly basis as the difference between the estimated income using the current yield curve and the lowest estimated income following a 100 basis points increase or decrease in interest rates.rates, subject to a minimum interest rate of 0%. Balances are adjusted for an assumed behavioural profiles. This includes the treatment of non-maturity deposits.
To complement AEaR, the Group also uses a simplified version of theDVaR approach used by Barclays Capital.
Stress testing is also carried out by the business centresDaily Value at Risk and is reviewed by senior management and business-level asset and liability committees. The stress testing is tailoredcalculated using a Barclays Capital consistent approach. Both these metrics are calculated by each respective business area with oversight provided by Group Market Risk.
Risk exposures are monitored by respective business risk managers with oversight provided by Group Market Risk. The main business limits are approved by Market Risk Committee. Book limits such as foreign exchange and interest rate sensitivity limits are also in place where appropriate.
To further improve the market risk control framework, Group Market Risk initiated an ongoing programme of conformance visits to non-traded Treasury operations. These visits review both the businesscurrent market risk profile and typically incorporates scenario analysispotential market risk developments, as well as verifying conformance with Barclays policies and historical stress movements applied to respective portfolios.standards as detailed in the Market Risk Control Framework.
Analysis of Net Interest Income sensitivity
The analysistable below shows the pre-tax net interest income sensitivity for the non-trading financial assets and financial liabilities held at 31st December 2009 and 31st December 2008. The sensitivity has been measured using AEaR methodology as described above. The benchmark interest rate for each currency is set as at 31st December 2009. The figures include the effect of non-tradedhedging instruments but exclude exposures held or issued by Barclays Capital as these are measured and managed using DVaR.
Net interest income sensitivity (AEaR) by currency | ||||||||||||
31st December 2009 | 31st December 2008 | |||||||||||
+100 £m | -100 basis points £m | +100 basis points £m | -100 basis points £m | |||||||||
GBP | 30 | (360 | ) | 3 | (273 | ) | ||||||
USD | (43 | ) | 14 | (25 | ) | 7 | ||||||
EUR | (34 | ) | – | (34 | ) | 30 | ||||||
ZAR | 29 | (27 | ) | 13 | (13 | ) | ||||||
Others | (1 | ) | 4 | – | (8 | ) | ||||||
Total | (19 | ) | (369 | ) | (43 | ) | (257 | ) | ||||
As percentage of totalnet interest income | (0.16 | %) | (3.10 | %) | (0.37 | %) | (2.24 | %) |
Non-traded interest rate risk, as measured by AEaR, was £369m as at 31st December 2009, an increase of £112m compared to 31st December 2008. The increase mainly reflects the reduced spread generated on retail and commercial banking liabilities in the lower interest rate environment. If the interest rate hedges had not been in place then the AEaR for 2009 would have been £704m (2008: £670m).
DVaR is givenalso used to control market risk in Note 48.Global Retail and Commercial Banking – Western Europe and in Group Treasury. The indicative average 2009 DVaRs for 2009 are £1.4m (2008: £1.3m) for Western Europe and £1.0m (2008: £0.6m) for Group Treasury.
Other market risks
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 and regular Bankbank contributions.Pension risk arises because:because the estimated market value of the pension fund assets might decline; or their investment returns might reduce; or the estimated value of the pension liabilities might increase. In these circumstances, Barclays could be required or might choose to make extra contributions to the pension fund.
During 2009 a risk reducing programme was conducted. This entailed increasing the holding of index-linked gilts to better match the liabilities and reducing the net exposure to equities. Financial details of the pension fund are in Note 30.
Investment risk is the risk of financial volatility arising from changes in the market value of investments, principally occurring in Barclays insurance companies and Barclays Global Investors.companies. A change in the fair value of these investments may give rise to a liability which may have to be funded by the Group. It is Barclays policy to hedge such exposures in line with a defined risk appetite.
Barclays policy is for foreign exchange traded risk to be concentrated and managed in Barclays Capital. Some transactionalforeign exchange riskexposure arises within the local treasury operations in Global Retail and Commercial Bankingoutside Barclays Capital to support and facilitate client activity. This is minimised in accordance with modest risk limits and was not material as at 31st December 2008.2009. Other non-Barclays Capitalcapital foreign exchange exposure is covered in Note 48.
Asset management structural market risk arises where the fee and commission income earned by asset management products and businesses is affected by a change in market levels, primarily through the link between income and the value of assets under management.
It is Barclays policy that businesses monitor and report this risk against a defined risk appetite and regularly assess potential hedging strategies.
98 |
|
Risk management
Market risk management
Disclosures about certain trading activitiescontinued
Disclosures about certain trading activities including non-exchange traded commodity contracts
The Group provides a fully integrated service to clients for base metals, precious metals, oil, power, natural gas, coal, freight, emission credits, structured products and other related commodities. This service offering continues to expand, as market conditions allow, through the addition of new products and markets.
The Group offers both over the counter (OTC) and exchange tradedexchange-traded derivatives, including swaps, options, forwards and futures and enters into physically settled contracts in base metals, power and gas, oil and related products. Physical commodity positions are held at fair value and reported under the Trading Portfolio in Note 12 on page 215.191.
Fair value measurement
The fair values of physical and derivative positions are primarily determined through a combination of recognised market observable
prices, exchange prices, and established inter-commodity relationships.
Further information on fair value measurement of financial instruments can be found in Note 50 on page 287.267.
Credit risk
Credit risk exposures are actively managed by the Group. Refer to Note 47 on page 264243 for more information on the Group’s approach to credit risk management and the credit quality of derivative assets.
Fair value of the commodity derivative contracts
The tables below analyse the overall fair value of the OTC commodity derivative contracts by movement over time and contractual maturity. As at
31st December 20082009 the fair value of the commodity derivative contracts reflects a gross positive fair value of £44,881m (2007: £23,571m)£27,134m (2008: £44,881m) and a gross negative value of £45,817m (2007: £22,759m)£26,227m (2008: £45,817m).
Movement in fair value of commodity derivative positions | ||||||||||||
2008 £m | 2007 £m | 2009 £m | 2008 £m | |||||||||
Fair value of contracts outstanding at the beginning of the period | 812 | 1,561 | (936 | ) | 812 | |||||||
Contracts realised or otherwise settled during the period | 241 | (764 | ) | 1,521 | 241 | |||||||
Fair value of new contracts entered into during the period | (1,245 | ) | 243 | (181 | ) | (1,245 | ) | |||||
Other changes in fair values | (744 | ) | (228 | ) | 503 | (744 | ) | |||||
Fair value of contracts outstanding at the end of the period | (936 | ) | 812 | 907 | (936 | ) |
Maturity analysis of commodity derivative fair value | ||||||||||||
2008 £m | 2007 £m | 2009 £m | 2008 £m | |||||||||
Not more than one year | (2,022 | ) | (279 | ) | (75 | ) | (2,022 | ) | ||||
Over one year but not more than five years | 999 | 773 | 620 | 999 | ||||||||
Over five years | 87 | 318 | 362 | 87 | ||||||||
Total | (936 | ) | 812 | 907 | (936 | ) |
99 |
Risk management
Capital risk is the risk that the Group has insufficient capital resources to:
– |
|
– | Support its credit rating. A weaker credit rating would increase the Group’s cost of funds. |
– | Support its growth and strategic options. |
Organisation and structure
Barclays operates a centralised capital management model, considering both regulatory and economic capital. The Group’s capital management objectives are to:
– | maintain sufficient capital resources to meet the minimum regulatory capital requirements set by the FSA and the US Federal Reserve Bank’s requirements that a financial holding company be ‘well capitalised’; |
– | maintain sufficient capital resources to support the Group’s risk appetite and economic capital requirements; |
– | support the Group’s credit rating; |
– | ensure locally regulated subsidiaries can meet their minimum capital requirements; and |
– | allocate capital to support the Group’s strategic objectives including optimising returns on economic and regulatory capital. |
Treasury Committee manages compliance with the Group’s capital management objectives. The Committee reviews actual and forecast capital demand and resources on a monthly basis. The processes in place for delivering the Group’s capital management objectives are:
– | establishment of internal targets for capital demand and ratios; |
– | managing capital ratio sensitivity to foreign exchange movement; |
– | ensuring local entity regulatory capital adequacy; |
– | allocating capital in the Group’s strategic medium-term plan; and |
– | economic Capital management. |
In addition to the processes above, the Group Risk Oversight Committee and the Board Risk Committee annually review and set risk appetite (see page 242) and analyse the impacts of stress scenarios on the Group capital forecast (see page 65) in order to understand and manage the Group’s projected capital adequacy.
Internal targets
To support its capital management objectives, the Group sets internal targets for its key capital ratios. Internal targets are reviewed regularly by Treasury Committee to take account of:
– | changes in forecast demand for capital caused by accessing new business opportunities, including mergers and acquisitions; |
– | flexibility in debt capital issuance and securitisation plans; |
– | the possible impact of stress scenarios including: |
– | changes in forecast demand for capital from unanticipated drawdown of committed facilities or as a result of deterioration in the credit quality of the Group’s assets; |
– | changes in forecast profits and other capital resources; and |
– | changes to capital resources and forecast demand due to foreign exchange rate movements. |
Managing capital ratio sensitivity to foreign exchange rate movements
The Group has capital resources and risk weighted assets denominated in foreign currencies. Changes in foreign exchange rates result in changes in the sterling equivalent value of foreign currency denominated capital resources and risk weighted assets. As a result, the Group’s regulatory capital ratios are sensitive to foreign currency movements.
The Group’s capital ratio hedge strategy is to minimise the volatility of the capital ratios caused by foreign exchange rate movements. To achieve this, the Group aims to maintain the ratio of foreign currency Core Tier 1, Tier 1 and Total Capital resources to foreign currency RWAs the same as the Group’s capital ratios.
The Group’s foreign currency capital resources include investments in subsidiaries and branches, intangible assets, non-controlling interest, deductions from capital and debt capital instruments.
The Group’s investments in foreign currency subsidiaries and branches create Core Tier 1 capital resources denominated in foreign currencies. Changes in the sterling value of the investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in Core Tier 1 capital.
To create foreign currency Tier 1 and Total Capital resources additional to the Core Tier 1 capital resources, the Group issues, where possible, debt capital in non-sterling currencies. This is primarily achieved by the issuance of debt capital from Barclays Bank PLC, but can also be achieved by subsidiaries issuing capital in local currencies.
In some circumstances, investments in foreign currency subsidiaries and branches are hedged. In these circumstances, foreign currency capital resources are not created. Hedging decisions take into account the impact on capital ratios, the strategic nature of the investment, the cost of hedging, the availability of a suitable foreign exchange market and prevailing foreign exchange rates. Depending on the value of foreign currency net investments, it is not always possible to maintain the ratio of Core Tier 1 capital to RWAs consistent with the Group’s Core Tier 1 ratio in all currencies, leaving some capital ratio sensitivity to foreign currency movements.
The investment of proceeds from the issuance of equity accounted foreign currency preference shares also contributes to foreign currency capital resources. If a preference share issuance is redeemed, the cumulative movement from the date of issuance in the currency translation reserve will be offset by an equal and opposite movement in reserves reflecting the revaluation of the preference shares to prevailing foreign exchange rates. Issuance of a replacement Tier 1 instrument in the same currency will maintain the hedge of the Tier 1 ratio.
Local entity regulatory capital adequacy
The Group manages its capital resources to ensure that those Group entities that are subject to local capital adequacy regulation in individual jurisdictions meet their minimum capital requirements. Local management manages compliance with entities minimum regulatory capital requirements by reporting to local Asset and Liability Committees with oversight by The Treasury Committee, as required.
Injections of capital resources into Group entities are centrally controlled by The Treasury Committee, under authorities delegated from the Group Executive Committee. The Group’s policy is for surplus capital held in Group entities to be repatriated to Barclays Bank PLC in the form of dividends and/or capital repatriation, subject to local regulatory requirements, exchange controls and tax implications.
Other than as indicated above, the Group is not aware of any material impediments to the prompt transfer of capital resources or repayment of intra-group liabilities when due.
100 |
Risk management
Capital risk management
continued
Allocating capital in the Group’s strategic medium-term plan
Capital adequacy and returns on regulatory and economic capital form a key part of the Group’s annual strategic medium-term planning process. Amongst other strategic objectives, the Group seeks to optimise returns on economic and regulatory capital through the planning process. To achieve this, executive management consider returns on risk weighted assets and economic capital when setting limits for business capital demand. Executive management will also review the forecast capital ratios to ensure internal targets continue to be met over the medium-term plan.
The Treasury Committee reviews the limits on capital demand on a monthly basis taking into account actual performance.
Economic capital
Economic capital is an internal measure of the minimum equity and preference capital required for the Group to maintain its credit rating based upon its risk profile.
Barclays assesses capital requirements by measuring the Group’s risk profile using both internally and externally developed models. The Group assigns economic capital primarily within the following risk categories: credit risk, market risk, operational risk, private equity and pension risk.
The Group regularly reviews its economic capital methodology and benchmarks outputs to external reference points. The framework uses default probabilities during average credit conditions, rather than those prevailing at the balance sheet date, thus seeking to remove cyclicality from the economic capital calculation. The economic capital framework takes into consideration time horizon, correlation of risks and risk concentrations.
Economic capital is allocated on a consistent basis across all of Barclays businesses and risk activities. A single cost of equity is applied to calculate the cost of risk.
The total average economic capital required by the Group is compared with the supply of economic capital to evaluate economic capital utilisation. The supply of economic capital is based on the available shareholders’ equity adjusted for certain items (e.g. retirement benefit liability, cash flow hedging reserve) and including preference shares.
Economic capital forms the basis of the Group’s submission for the Basel II Internal Capital Adequacy Assessment Process (ICAAP).
Economic Capital Demand a
UK Retail Banking economic capital allocation decreased £200m to £3,750m (2008: £3,950m) mainly reflecting a revised measurement of economic capital for business risk. In addition, small reductions were seen in the economic capital allocation for overdrafts and local businesses that were offset by growth in mortgages and consumer lending.
Barclays Commercial Bank economic capital allocation decreased £50m to £3,450m (2008: £3,500m) driven primarily by a reduction in exposure offset by an increase in non-performing loans due to economic conditions.
Barclaycard economic capital allocation increased £650m to £3,350m (2008: £2,700m), reflecting asset growth and appreciation of US Dollar against Sterling in 2008 and modest asset growth in 2009.
GRCB – Western Europe economic capital allocation increased £600m to £2,500m (2008: £1,900m), due to deteriorating wholesale credit conditions, acquisition activity, additional fixed assets as a result of branch expansion and exchange rate movements.
GRCB – Emerging Markets economic capital allocation increased £100m to £1,200m (2008: £1,100m). This reflects asset growth in 2008 versus a relatively slower contraction in 2009.
GRCB – Absa economic capital allocation increased £100m to £1,200m (2008: £1,100m), driven primarily by exchange rate movements offset by a reduction in exposure.
Barclays Capital average economic capital allocation increased £2,500m to £10,750m (2008: £8,250m). This primarily reflects deterioration in credit quality that resulted in growth in the economic capital allocation towards the end of 2008 and a further modest increase in 2009.
Barclays Global Investors investment economic capital allocation of £1,000m (2008: £400m) includes BGI assets up to disposal on 1st December 2009, and BGI related exposures post-disposal, mainly the BlackRock, Inc equity investment.
Barclays Wealth economic capital allocation increased £50m to £550m (2008: £500m), reflecting growth in loans and advances and increased measure of economic capital for other risk types.
Average economic capital | ||||
Average year £m | Average year £m | |||
UK Retail Banking | 3,750 | 3,950 | ||
Barclays Commercial Bank | 3,450 | 3,500 | ||
Barclaycard | 3,350 | 2,700 | ||
GRCB – Western Europe | 2,500 | 1,900 | ||
GRCB – Emerging Markets | 1,200 | 1,100 | ||
GRCB – Absa | 1,200 | 1,100 | ||
Barclays Capital | 10,750 | 8,250 | ||
Barclays Global Investors | 1,000 | 400 | ||
Barclays Wealth | 550 | 500 | ||
Head Office Functions and Other Operations | 100 | 50 | ||
Economic capital requirement | ||||
(excluding goodwill) | 27,850 | 23,450 | ||
Average historic goodwill and intangible assetsb | 11,000 | 9,450 | ||
Total economic capital requirementc | 38,850 | 32,900 |
Notes
a | Calculated using an adjusted average over the year and rounded to the nearest £50m for presentation purposes. Economic capital demand excludes the economic capital calculated for pension risk. |
b | Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. |
c | Total period end economic capital requirement as at 31st December 2009 stood at £40,750m (31st December 2008: £39,200m). |
101 |
2009 £m | | 2008 £m | | |||
The average supply of capital to support the economic capital frameworka | ||||||
Shareholders’ equity excluding non-controlling interests less goodwillb | 28,000 | 17,650 | ||||
Retirement benefits liability | 800 | 1,050 | ||||
Cash flow hedging reserve | (300 | ) | 100 | |||
Available for sale reserve | 600 | 400 | ||||
Cumulative gains on own credit | (1,150 | ) | (1,250 | ) | ||
Preference shares | 5,850 | 5,500 | ||||
Available funds for economic capital excluding goodwill | 33,800 | 23,450 | ||||
Average historic goodwill and intangible assetsb | 11,000 | 9,450 | ||||
Available funds for economic capital including goodwillc | 44,800 | 32,900 |
Notes
a | Averages for the period will not correspond to period-end balances disclosed on the balance sheet. Numbers are rounded to the nearest £50m for presentational purposes only. |
b | Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. |
c | Available funds for economic capital as at 31st December 2009 stood at £40,650m (2008:£39,200m). |
d | Average EC charts exclude the EC calculated for pension risk (average pension risk for 2009 is £2,500m compared with £650m in 2008). |
e | Includes Transition Businesses and capital for central function risks. |
f | Includes credit risk loans. |
g | Includes investments in associates, private equity risk, insurance risk, residual value and business risk. Also includes BGI related exposures post-disposal, mainly the BlackRock equity. |
102 |
Risk management
Liquidity risk is the risk that the Group is unable to meet its obligations when they fall due as a result of customer deposits being withdrawn,a sudden, and potentially protracted, increase in net cash requirements from contractual commitments, or other cash outflows, such as debt maturities.outflows. Such outflows would deplete available cash resources for client lending, trading activities, investments and investments.deposits. In extreme circumstances lack of liquidity could result in reductions in balance sheet and sales of assets, or potentially an inability to fulfil lending commitments. The risk that it will be unable to do so is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events including, but not limited to, credit events, mergerevents.
Organisation and acquisition activity, systemic shocks and natural disasters.structure
Barclays Treasury operates a centralised governance and control process that covers all of the Group’s liquidity risk management activities. Businesses assist Barclays Treasury in policy formation and limit setting by providing relevant and expert input for their local markets and customers.
Execution of the Group’s liquidity risk management strategy is carried out at country level within agreed policies, controls and limits, with the Country Treasurer providing reports directly to Barclays Treasury to evidence conformance with the agreed risk profile. Liquidity risk is a standing agenda item at Country and Cluster Asset and Liability Committees and on a consolidated basis is reported to the Group’s Treasury Committee.
The objective of the Group’s liquidity risk management strategy is to ensure that the funding profile of individual businesses and the Group as a whole is appropriate to underlying market conditions and the profile of our business in each given country. Liquidity risk limits and controls are flexed to achieve that profile and are based on regular qualitative and quantitative assessments of conditions and abilities under both normal and stressed conditions. Businesses are only allowed to have funding exposure to wholesale markets where they can demonstrate that their market is sufficiently deep and liquid and then only relative to the size and complexity of their business.
Liquidity limits reflect both local regulatory requirements as well as the behavioural characteristics of their balance sheets. Breaches of limits are reported to Treasury Committee together with details of the requirements to return to compliance.
Liquidity risk framework
Barclays has a comprehensive Liquidity Risk Management Framework (the Liquidity Framework) for managing the Group’s liquidity risk. The objective of the Liquidity Framework is for the Group to have sufficient liquidity to continue to operate for at least the minimum period specified by the FSA in the event that the wholesale funding markets are neither open to Barclays nor to the market as a whole. Many of the stress tests currently applied under the Liquidity Framework will also be applied under the FSA’s new regime, although the precise calibration may differ in Barclays final Individual Liquidity Guidance to be set by the FSA. The Framework considers a range of possible wholesale and retail factors leading to loss of financing including:
– | maturing of wholesale liabilities; |
– | loss of secured financing and widened haircuts on remaining book; |
– | retail and commercial outflows from savings and deposit accounts; |
– | drawdown of loans and commitments; |
– | potential impact of a two-notch ratings downgrade; and |
– | withdrawal of initial margin amounts by counterparties. |
These stressed scenarios are used to assess the appropriate level for the Group’s liquidity pool, which comprises unencumbered assets and cash. Barclays regularly uses these assets to access secured funding markets, thereby testing the liquidity assumptions underlying pool composition. The Group does not presume the availability of central bank facilities to monetise the liquidity pool in any of the stress scenarios under the Liquidity Framework.
Liquidity Pool
The Group liquidity pool as at 31st December 2009 was £127bn gross (31st December 2008: £43bn) and comprised cash and unencumbered assets.
The cost of maintaining the liquidity pool is a function of the source of funding for the buffer and the reinvestment spread. The cost of funding the liquidity pool is estimated to have been approximately £650m for 2009.
Composition of the Group liquidity pool | ||||||||||
Cash and £bn | Government £bn | Government £bn | Other £bn | Total £bn | ||||||
As at 31st December 2009a | 81 | 3 | 31 | 12 | 127 | |||||
As at 31st December 2008a | 30 | – | 2 | 11 | 43 |
103 |
Term Financing
Raising term funding is important in meeting the risk appetite of the Barclays Liquidity Framework. Barclays has continued to increase the term of issued liabilities during 2009 by issuing:
– |
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– | £1.8bn equivalent of public covered bonds; and |
– | £21bn equivalent of structured notes. |
Risk management
Liquidity risk management
Liquidity management within theThe Group has several components.£4bn of publicly issued debt and £11bn of structured notes maturing in 2010.
Intraday liquidity
The need to monitor, manage and control intraday liquidity in real time is recognised by the Group as a critical process: any failure to meet specific intraday commitments would have significant consequences, such as a visible market disruption.
The Group policy is that each operation must ensure that it has access to sufficient intraday liquidity to meet any obligations it may have to clearing and settlement systems. Major currency payment flows and payment system collateral are monitored and managed in real time to ensure that at all times there is sufficient collateral to make payments. In practice, the Group maintains a significant buffer of surplus intraday liquidity to ensure that payments are made on a timely basis. The Group actively engages in payment system development to help ensure that new payment systems are robust.
Day to day funding
Day to day funding is managed through limits on wholesale borrowings, secured borrowings and funding mismatches. These ensure that on any day and over any period there is a limited amount of refinancing required.requirement. These requirements include replenishment of funds as they mature or are borrowed by customers. The Retail and Commercial Bank together with Wealth maintain no reliance on wholesale funding. The Group maintains an active presence in global money markets through Barclays Capital and monitors and manages the wholesale money market capacity for the Group’s name to enable that to happen.
In addition to cash flow management, Treasury also monitors term mismatches between assets and liabilities, as well as 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.
Liquid assets
The Group maintains a portfolio of highly marketable assets including UK, US and Euro-area government bonds that can be sold or funded on a secured basis as protection against any unforeseen interruption to cash flow. The Group accesses secured funding markets in these assets on a regular basis. The Group does not rely on committed funding lines for protection against unforeseen interruptions to cash flow.
Diversification of liquidity sources
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider, product and term. In addition, 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 strength of relationshipscompetitive rates and the maintenance of depositors’ confidence. Such confidence is based on a number of factors including the Group’s reputation and relationship with those clients, the strength of earnings and the Group’s financial position.
Structural liquidityFunding Structure
Global Retail and Commercial Banking, Barclays Wealth and Head Office Functions are structured to be self-funded through customer deposits and Barclays equity and other long-term capital. The Barclays Capital and Absa businesses are funded through the wholesale secured and unsecured funding markets.
The ratio of customer loans to customer deposits and long-term funding has improved to 81% at 31st December 2009, from 93% at 31st December 2008.
Global Retail and Commercial Banking, Barclays Wealth and Head Office Functions
An important source of structural liquidity is provided by our core retail deposits in the UK, Europe and Africa,Africa; mainly current accounts and savings accounts. Although contractually current accounts are repayable on demand and savings accounts at short notice, the Group’s broad base of customers – numerically–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.
The
Wholesale depositor split by counterparty type – Barclays Capital | ||||||||||||
Banks % | Corporates % | Governments % | Other central banks % | Other financial institutions % | Total % | |||||||
As at 31st December 2009 | 36 | 15 | 2 | 16 | 31 | 100 | ||||||
As at 31st December 2008 | 32 | 15 | 11 | 9 | 33 | 100 |
Wholesale depositor split by geography – Barclays Capital | ||||||||||||||
US % | UK % | Other EU % | Japan % | Africa % | Rest of World % | Total % | ||||||||
As at 31st December 2009 | 9 | 25 | 23 | 3 | 16 | 24 | 100 | |||||||
As at 31st December 2008 | 13 | 22 | 16 | 9 | 17 | 23 | 100 |
GRCB, Barclays Wealth and Head Officea Behavioural maturity profile of assets and liabilities | Cash inflow/(outflow) | |||||||||||||||
Funding surplus £bn | Not more than 1 year £bn | Over 1 year but not more than 2 years £bn | Over 2 years but not more than 3 years £bn | Over 3 years but not more than 4 years £bn | Over 4 years but not more than 5 years £bn | Over 5 years £bn | ||||||||||
As at 31st December 2009 | 94.5 | (10.2 | ) | 17.8 | 21.2 | 7.8 | 1.8 | (132.9 | ) |
Note
a | Prior year figures have not been provided as these measures have not previously been reported on a comparable basis. |
104 |
Risk management
Liquidity risk management
continued
Group policy is to fundensure that the balance sheetassets of the Retailretail, wealth and Commercial Bankcorporate bank, together with Wealth and Head officeOffice functions, on a global basis, withdo not exceed customer deposits and capital without recourse to thesubordinated funding so that these businesses place no reliance on wholesale markets. This provides protection from the liquidity risk of wholesale market funding. The exception to this policy is Absa, which has a large portion of wholesale funding due to the structural naturestructure of the South African financial sector.
Scenario analysis and stress testing
Stress testing is undertakenIn order to assess and plan for the impact of various scenarios which may put the Group’s liquidity at risk.
Treasury develops and monitors a range of stress tests on the Group’s projected cash flows. These stress scenarios include Barclays-specific scenarios such as an unexpected rating downgrade and operational problems, and external scenarios such as Emerging Market crises, payment system disruption and macro-economic shocks. The output informs both the liquidity mismatch limits and the Group’s contingency funding plan.
This is maintained by Treasury and is 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.
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Risk management
Liquidity risk management
Key elements
The ability to raise funds is in part dependent on maintaining the Bank’s credit rating. The funding impact of a credit downgrade is closely tracked. 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.
For further details see contractual obligations and commercial commitments of the Group on page 19.
Year end assessment of liquidity
Barclays maintained a strong liquidity profile in 2008, sufficient to absorb the impact of a stressed funding environment. The Group has access to a substantial pool of liquidity both in secured markets and from unsecured depositors including numerous foreign governments and central banks. In addition, our limited reliance on securitisations as a source of funding has meant that the uncertainty in securitisation markets has not impacted our liquidity risk, profile.
Whilst funding markets were extremely difficult in the latter half of 2008, and particularly since September 2008, Barclays was able to increase available liquidity, extend the term of unsecured liabilities, and reduce reliance on unsecured funding. Barclays has participated in various government and central bank liquidity facilities, both to aid central banks implementation of monetary policy and support central bank initiatives, where participation has enabled the lengthening of the term of our refinancing. These facilities have improved access to term funding, and helped moderate money market rates.
For the Group, loans and advances to customers and banks are more than covered by the combination of customer deposits and longer term debt at 112% at 31st December 2008 (2007: 125%).
Global Retail and Commercial Banking
The sum of liabilities in Global Retail and Commercial Banking, Barclays Wealth and Head office functions exceeds assets in those businesses. As a result they have no reliance on wholesale funding. The balance sheet is modelled to reflect behavioural experience in both assets and liabilities and is managed to maintain a positive cash surplus. The maturity profile, (table 1).
Throughout 2008 Global Retailexcluding Absa, resulting from this behavioural modelling is set out above. This shows that there is a funding surplus of £94.5bn, and Commercial Banking continuedthat there are expected outflows of £10.2bn within one year from asset repayments being less than liability attrition. For subsequent years the expected repayments on assets are larger than the roll off of liabilities resulting in cash inflows. Maturities of net liabilities are, therefore, behaviourally expected to grow the amount of deposits despite competitive pressures (table 2).occur after five years.
Barclays Capital
Barclays Capital manages its liquidity to be self-fundingprimarily funded through wholesale sources, managing access to liquidity to ensure that potential cash outflows in a stressed environment are covered.
Funding reliability73% of the inventory is maintained by accessingfunded on a wide varietysecured basis (31st December 2008: 50%). Additionally, much of investors and geographies and by building and maintaining strong relationships with these providers of liquidity.
Unsecured funding
Additionally, unsecuredthe short-term funding is managed within specific term limits. The term of unsecured liabilities has been extended, with average life improving by four months from eight months atinvested in highly liquid assets and central bank cash and therefore contributes towards the end of December 2007 to 12 months at the end of December 2008.
Our capital markets debt issuance includes issues of senior and subordinated debt in US registered offerings and medium term note programmes and European medium term note programs. Substantially all of our unsecured senior issuance is without covenants that trigger increased cost or accelerate maturity. Furthermore, between September and December 2008 we issued £11bn in government guaranteed debt, £9bn in maturities of one to three years and £2bn in under one-year maturities.
Secured fundingGroup liquidity pool.
Barclays funds securitiesCapital undertakes secured funding in the repo markets based on liquidity characteristics. Limits are in place for each security asset class reflecting liquidity in the cash and financing markets for these assets. Approximately 80%The percentage of assets fundedsecured funding using each asset class as collateral is set out below.
Unsecured wholesale funding for the Group (excluding Absa) is managed by Barclays Capital within specific term limits. Excluding short-term deposits that are included within the Group’s liquidity pool, the term of unsecured liabilities has been extended, with average life improving from at least 14 months aat 31st December 2008 to at least 26 months at 31st December 2009.
The extension of the term of the wholesale financing has meant that, as at 31st December 2009, 81% of net wholesale funding had remaining maturity of greater than one year and, as at the same date, there was no net wholesale unsecured re-financing required within six months.
Regulatory Changes in repurchase and stock loan transactions are fundable within central bank facilities (excluding Bank of England Emergency facilities2009
The FSA issued its policy document on ‘strengthening liquidity standards’ on 5th October detailing the requirements for liquidity governance to be in place by 1st December 2009, and the Federal Reserve Primary Dealer Credit Facility).quantitative requirements for liquidity buffers, which will be in place from 1st June 2010, although with an extended transition period of several years to meet the expected standards.
LiquidityThis is the most comprehensive liquidity regime imposed by any regulator globally, requiring increased quantitative reporting from June 2010 and additional evidential reporting to demonstrate adherence to new qualitative requirements. In addition, the Basel Committee on Banking Supervision released a consultative document ‘International framework for liquidity risk measurement, standards and monitoring’ in December 2009. This included two new key liquidity metrics. A liquidity coverage ratio aimed at ensuring banks have sufficient unencumbered high quality assets to securedmeet cash outflows in an acute short-term stress and a Net Stable Funding Ratio to promote longer-term structural funding is also mitigated by:of the Bank’s balance sheet and capital market activities.
Secured funding by asset class | Government | Agency | MBS | ABS | Corporate | Equity | Other | |||||||
% | % | % | % | % | % | % | ||||||||
As at 31st December 2009 | 59 | 7 | 7 | 6 | 10 | 8 | 3 | |||||||
As at 31st December 2008 | 49 | 9 | 11 | 9 | 15 | 4 | 3 | |||||||
Contractual maturity of unsecured liabilitiesb (Net of assets available from the Group Liquidity pool) | Not more than 1 month | Not more than 2 months | Not more than 3 months | Not more than 6 months | Not more than 1 year | Over 1 year | ||||||||
% | % | % | % | % | % | |||||||||
As at 31st December 2009 | – | – | – | – | 19 | 81 |
Notes
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Readily available liquidity
Substantial resources are maintained to offset maturing deposits and debt. These readily available assets are sufficient to absorb stress level losses of liquidity from unsecured as well as contingent cash outflows, such as collateral requirementsPrior years’ figures have not been provided as these measures have not previously been reported on ratings downgrades. The sources of liquidity and contingent liquidity are from a wide variety of sources, including deposits held with central banks and unencumbered securities.
In addition, the Group maintains significant pools of securitisable assets.
Table 1: Expected Net Cash Inflows/(Outflows) on a Behavioural Basis |
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Up to 1 yr £bn | 1-3yrs £bn | 3-5yrs £bn | Over 5 yrs £bn | ||||||
As at 31.12.08 | 20 | 34 | 14 | (95 | ) |
Note
a |
Table 2: Global Retail and Commercial Banking Deposit Balances | ||||||||||
As at 31.12.08 £bn | As at 30.06.08 £bn | As at 31.12.07 £bn | As at 30.06.07 £bn | As at 31.12.06 £bn | ||||||
Total customer deposits | 235 | 218 | 211 | 200 | 190 |
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Risk management
Barclays operates a centralised capital management model, considering both regulatory and economic capital.
The Group’s capital management objectives are to:
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Treasury Committee manages compliance with the Group’s capital management objectives. The Committee reviews actual and forecast capital demand and resources on a monthly basis. The processes in place for delivering the Group’s capital management objectives are:
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In addition to the processes above, the Risk Oversight Committee and the Board Risk Committee annually review and set risk appetite (see page 65) and analyse the impacts of stress scenarios (see page 66) in order to understand and manage the Group’s projected capital adequacy.
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Risk management
Capital risk management
Internal targets
To support its capital management objectives, the Group sets internal targets for its key capital ratios. Internal targets are reviewed regularly by Treasury Committee to take account of:
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Managing capital ratio sensitivity to foreign exchange rate movements
The Group has capital resources (capturing investments in subsidiaries and branches, intangible assets, minority interests and debt capital) and risk weighted assets denominated in non-Sterling currencies. Changes in foreign exchange rates result in changes in the Sterling equivalent value of non-Sterling denominated capital resources and risk weighted assets. As a result, the Group’s regulatory capital ratios are sensitive to foreign exchange rate movements.
The Group’s hedge strategy is to minimise the volatility of all capital ratios whilst taking into account the impact on hedging of non-Sterling net investments, the cost of hedging, the availability of a suitable foreign exchange market and prevailing foreign exchange rates.
To minimise volatility in the equity ratio, the Group aims over time to maintain the ratio of foreign currency equity capital resources to RWAs the same as the Group’s equity ratio. To create equity capital resources denominated in non-Sterling currencies, the Group leaves some investments in core non-Sterling subsidiaries and branches unhedged. The resultant change in the Sterling value of the investments is captured in the currency translation reserve, resulting in an equity capital movement.
Depending on the value of non-Sterling net investments, it may not always be possible to maintain the ratio, leaving some capital ratio sensitivity to foreign exchange movements.
The proceeds from equity accounted foreign currency preference shares are also used in the equity ratio hedge. If a preference share is redeemed, the cumulative movement in the currency translation reserve will be offset by an equal and opposite movement in other reserves reflecting the revaluation of the preference shares to prevailing foreign exchange rates.
The exposure of the Tier 1 and total capital ratios to foreign exchange rate movements is managed by issuing, where possible, debt capital in non-Sterling currencies such that the ratio of Tier 1 and total capital resources to risk weighted assets is the same as the Group’s Tier 1 and total capital ratios. This is primarily achieved by the issuance of debt capital from Barclays Bank PLC in major currencies, but can also be achieved by subsidiaries issuing capital in local currencies.
Local entity regulatory capital adequacy
The Group manages its capital resources to ensure that those Group entities that are subject to local capital adequacy regulation in individual jurisdictions meet their minimum capital requirements. Local management manages compliance with entities minimum regulatory
capital requirements by reporting to local Asset and Liability Committees with oversight by Treasury Committee, as required.
Injections of capital resources into Group entities are centrally controlled by Treasury Committee, under authorities delegated from the Group Executive Committee. The Group’s policy is for surplus capital held in Group entities to be repatriated to Barclays Bank PLC in the form of dividends and/or capital repatriation, subject to local regulatory requirements, exchange controls and tax implications.
Other than as indicated above, the Group is not aware of any material impediments to the prompt transfer of capital resources or repayment of intra-group liabilities when due.
Allocating capital in the Group’s strategic medium-term plan
Capital adequacy and returns on regulatory and economic capital form a key part of the Group’s annual strategic medium-term planning process. Amongst other strategic objectives, the Group seeks to optimise returns on economic and regulatory capital through the planning process. To achieve this, executive management consider returns on risk weighted assets and economic capital when setting limits for business capital demand. Executive management will also review the forecast capital ratios to ensure internal targets continue to be met over the medium-term plan.
Treasury Committee reviews the limits on capital demand on a monthly basis taking into account actual performance.
Economic capital management
Economic capital is an internal measure of the minimum equity and preference capital required for the Group to maintain its credit rating based upon its risk profile.
Barclays assesses economic capital requirements by measuring the Group risk profile using both internally and externally developed models. The Group assigns economic capital primarily within the following risks: Credit Risk, Market Risk, Operational Risk, Fixed Assets, Private Equity and Pension Risk. Group Risk owns the methodology and policy for economic capital while the businesses are primarily responsible for the calculation.
The Group regularly enhances its economic capital methodology and benchmarks outputs to external reference points. The framework reflects default probabilities during average credit conditions, rather than those prevailing at the balance sheet date, thus removing some of the cyclicality from the economic capital calculation. Economic capital for wholesale credit risk includes counterparty credit risk arising as a result of credit risk on traded market exposures. The framework also adjusts economic capital to reflect time horizon, correlation of risks and risk concentrations.
Economic capital is allocated on a consistent basis across all of Barclays businesses and risk activities. A single cost of equity is applied to calculate the cost of risk. Economic capital allocations reflect varying levels of risk.
The total average economic capital required by the Group, as determined by risk assessment models and after considering the Group’s estimated portfolio effects, is compared with the average supply of capital resources to evaluate economic capital utilisation.
The Group’s economic capital calculations form the basis of its Internal Capital Adequacy Assessment Process (‘ICAAP’) submission to the FSA under Pillar 2 of Basel II.
Capital Allocation
In 2008, UK Retail Banking economic capital allocation increased £550m to £3,950m (2007: £3,400m), reflecting mortgage asset growth and movements in benchmark house price indices.
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Risk management
Capital risk management
Barclays Commercial Bank economic capital allocation increased £300m to £3,500m (2007: £3,200m), primarily as a consequence of asset growth with some mitigation from portfolio management activity.
Barclaycard economic capital allocation increased £650m to £2,700m (2007: £2,050m), driven by acquisitions, the redemption of securitisation deals and exposure growth, predominantly in the US.
GRCB – Western Europe economic capital allocation increased £650m to £1,900m (2007: £1,250m), primarily reflecting the weakening of Sterling and underlying lending growth.
GRCB – Emerging Markets economic capital allocation increased £650m to £1,100m (2007: £450m), reflecting broad-based retail and wholesale asset growth across the business, especially in India, UAE and the new markets of Russia and Pakistan.
GRCB – Absa economic capital allocation increased £200m to £1,100m (2007: £900m), reflecting balance sheet growth.
Barclays Capital economic capital allocation increased £3,050m to £8,250m (2007: £5,200m). This was driven by growth in the investment portfolio, deterioration in credit quality, exposure to drawn leveraged finance underwriting positions and an increase in market volatility.
Barclays Global Investors economic capital allocation increased £200m to £400m (2007: £200m). This was primarily driven by an increase in the support for selected cash funds and some increase in proprietary investments.
Barclays Wealth economic capital allocation in 2008 remained unchanged at £500m, despite strong growth on the balance sheet. This was due to the impact of greater geographical diversification and increased levels of collateralisation.
2008 £m | | 2007 £m | | |||
The average supply of capital to support the economic capital frameworka | ||||||
Shareholders’ equity excluding minority interests less goodwillb | 17,650 | 14,150 | ||||
Retirement benefits liability | 1,050 | 1,150 | ||||
Cash flow hedging reserve | 100 | 250 | ||||
Available for sale reserve | 400 | (150 | ) | |||
Gains on own credit | (1,250 | ) | (100 | ) | ||
Preference shares | 5,500 | 3,700 | ||||
Available funds for economic capital excluding goodwill | 23,450 | 19,000 | ||||
Average historic goodwill and intangible assetsb | 9,450 | 8,400 | ||||
Available funds for economic capital including goodwillc | 32,900 | 27,400 |
Notes
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Risk management
Operational risk is the risk of direct or indirect losses resulting from human factors, external events, and inadequate or failed internal processes and systems. Operational risks are inherent in the Group’s operations and are typical of any large enterprise. 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, human error, customer service quality, regulatory compliance, recruitment, training and retention of staff, and social and environmental impacts. Barclays is committed to the advanced measurement and management of operational risks. In particular, it has implemented improved management and measurement approaches for operational risk to strengthen control, improve customer service and minimise operating losses. Barclays was granted a Waiver to operate an Advanced Measurement Approach (AMA) under Basel II, which commenced in January 2008.
The Group’s operational risk management framework aims to:
– | Understand and report the operational risks being taken by the Group. |
– | Capture and report operational errors made. |
– | Understand and minimise the frequency and impact, on a cost benefit basis, of operational risk events. |
– | Manage residual exposures using insurance. |
Organisation and structure
Barclays works closely with peer banks to benchmark our internal operationaloperation risk practices with peer banks and to drive the development of advanced operational risk techniques across the industry. It is not cost effective to attempt to eliminate all operational 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;part of the normal course of business; events of material significance are rare and the Group seeks to reduce the risk from these in a framework consistentaccordance with its agreed Risk Appetite.
Barclays has a Group Operational Risk Framework, which is consistent with and part of the Group Internal Control and Assurance Framework. Minimum control requirements have been established for all key areas of identified risk by ‘Principal Risk’ owners (see page 65)54). The risk categories relevant to operational risks are Financial Crime, Financial Reporting, Taxation, Legal, Operations, People, Regulatory and Technology. In addition, the following risk categories are used for business risk: Brand Management, Corporate Responsibility, Strategic and Major Change. Responsibility for implementing and overseeing these policies is positioned with Group Principal Risk Owners. The prime
responsibility for the management of operational risk and the compliance with control requirements 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 Group Governance and Control Committee receives reports from the committees in the businesses and considers Group-significant control issues and their remediation. In the Group Centre, each Principal Risk is owned by a senior individual who liaises with Principal Risk owners within the businesses. In addition, the Operational Risk Director oversees the range of operational risks across the Group in accordance with the Group Operational Risk Framework. Business units are required to report on both a regular and an event-driven basis. The reports include a profile of the material 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 Group Risk Oversight Committee, the Board Risk Committee and the Board Audit Committee. The Internal Audit function provides further assurance for operational risk control across the organisation and reports to the Board and senior management.
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Risk management
Operational risk management
Measurement and capital modelling
Barclays applies a consistent approach to the identification and assessment of key risks and controls across all business units. Managers in the businesses use self-assessment techniques to identify risks, evaluate control effectiveness and monitor performance. Business management determines whether particular risks are effectively managed within business Risk Appetite and otherwise takes remedial action. The risk assessment process is consistent with the principles in the integrated framework published by the Committee of Sponsoring Organisations of the Treadway Commission (COSO).
A standard process is used Group-wide for the recognition, capture, assessment, analysis and reporting of risk events. This process is used to help identify where process and control requirements are needed to reduce the recurrence of risk events. Risk events are loaded ontocaptured in a central database and reported monthly to the Group Operational Risk Executive Committee.
Barclays also uses a database of external public risk events and is a member of the Operational Risk Data Exchange (ORX), an association of international banks that share anonymised loss data information to assist in risk identification, assessment and modelling.
106 |
Risk management
Operational risk management
continued
By combining internal data, including internal loss experience, risk and control assessments, key indicators and audit findings, with external loss data and expert management judgement, Barclays is able to generate Key Risk Scenarios (KRSs), which identify the most significant operational risks across the Group. The KRSs are validated at business unit and at Group level to ensure that they appropriately reflect the level of operational risk. These are the main input to our capital model. Distributions of the potential frequency and severity of operational risk losses are calculated and aggregated to provide a distribution of potential losses over a year for Barclays as a whole. The aggregation process takes into account potential correlations between risk events. The regulatory capital requirement is determined to a soundness standard of 99.9% confidence. Operational risk capital is allocated, on a risk sensitive basis, to business units, in the form of economic capital charges, providing an incentive to manage these risks within appetite levels.
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Risk management
Operational risk management
A high proportion of Barclays operational risk events have a low financial cost associated with them and a very small proportion of operational risk events have a material impact. In 2008, 73%2009, 73.3% of reported operational loss eventslosses had a value of £50,000 or less (2007: 79%(2008: 72.8%) but accounted for 8%3.4% of the overall impact (2007: 15%(2008: 7.8%). In contrast, 2%4% of the operational risk events had a value of £1m or greater (2007:(2008: 2%) but accounted for 66%87% of the overall impact (2007: 50%(2008: 66%).
Analysis ofThe Group monitors trends in operational losses by size, business unit and internal risk categories (including Principal Risk). For comparative purposes, the analysis below presents Barclays operational risk events in 2008 by Basel II category, as shown in figure 1, highlights thatcategory. In 2009, the highest frequency of events occurred in External Fraud (46%) and Execution, Delivery and Process Management (42%(45.3%) and External Fraud (35.8%). These two areas also accounted for the majority of losses by value, (figure 2), with Execution, Delivery and Process Management accounting for 81%comprising 50.5% of total operational risk losses and External Fraud accounting for 10%making up a further 38.1%. Compared with 2007 weThe growth in impact of external fraud year on year was caused by stressed market conditions which have seenbrought to light fraudulent activity by a reduction in External Fraud and an increase in Execution, Delivery and Process Management events, driven mainly by market volatility.
Barclays has been granted a waiver by the FSA to apply an Advanced Measurement Approach (AMA) for Group-wide consolidated and solus regulatory capital reporting. Barclays has applied the AMA Group-wide. Areas where roll-outnumber of AMA is still continuing and where the Standardised approach is currently applied are Barclays Bank Mozambique, National Bank of Commerce (Tanzania) and the US Airways card portfolio purchased from Bank of America. Areas where roll-out of AMA is ongoing and where the Basic Indicator approach is applied are Banco Comercial Angolano, Woolworths Financial Services in South Africa, Barclays Bank PLC Pakistan, Barclays Investment and Loans India Limited, Barclays Bank LLC Russia and the Cash Equity, Municipal Bonds and M&A business acquired from Lehman Brothers. In certain joint ventures and associates, Barclays may not be able to apply the Advanced Operational Risk Framework.
Barclays does not currently offset the expected loss or mitigating effect of insurances against its regulatory capital requirement. However, Barclays has applied to the FSA to offset expected loss.clients.
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Risk management
Financial crime risk management
Anti-money laundering and sanctions risk
Financial crime risk is a category of operational risk. It arises from the risk that the Group might fail to comply with financial crime legislation and industry laws on anti-money laundering or might suffer losses as a result of internal or external fraud, or might fail to ensure the security of personnel, physical premises and the Group’s assets.
Barclays adopts an integrated approach to financial crime risk management. In line with the five-step risk management model, Group Financial Crime Management (GFCM) has the responsibility to direct, assess, control, report and manage/challenge financial crime risks, which are structured into three strands: anti-money laundering (AML) and sanctions; fraud; and security.
Each business unit within Barclays develops its own capability to tackle financial crime, providing regular reporting on performance, incidents and the latest trends impacting business. This integrated model allows us to:
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Anti-money laundering and sanctions risk
The Group assesses the implications of all emerging legal and regulatory requirements that impact it and establishes and operates an AML Risk control framework and associated policies and minimum standards in respect of AML, terrorist financing, sanctions and bribery and corruption.
The Group operates an AML oversight programme to ensure a system of effective controls comply with the overarching policies, providing technical guidance and support to each business unit. This is monitored via conformance testing both at the business units and the Group level. In 2008, Barclays Internal Audit completed a combined global audit of Know Your Customer, AML and Sanctions procedures.
GFCM collates and oversees the preparation of Group-wide management information on AML and sanctions. This information includes risk indicators, such as volumes of suspicious activity reports (SARs) and is supplemented by trend analysis, which highlights high-risk or emerging issues so that prompt action can be taken to address them.
Three committees (the AML Steering Committee, the Sanctions Cross-Cluster Operational Review Board and the Policy Review Forum), review business performance, share intelligence, develop and agree controls, and discuss emerging themes and the implementation status of policies and procedures.
All businesses contribute towards the Group Money Laundering Reporting Officers Annual Report, which is provided to Group senior executive management and is available to the FSA. Together with regular management information and conformance testing, this report updates senior management with evidence that the Group’s money laundering and terrorist financing risks are being appropriately, proportionally and effectively managed.
During 2008, the Group augmented its sanctions capability by issuing a revised Sanctions Policy. This enhances certain areas of control such as screening.
Barclays continues to upgrade its sanctions screening capabilities, in line with best international practice and changing regulatory requirements and has invested substantial resources to further enhance its monitoring capabilities in this area and will continue to do so.
Representatives of the Group attend industry fora such as the Wolfsberg Group, the British Bankers Association’s Money Laundering Policy Group (MLPG) and the Money Laundering Advisory Panel (MLAP), to ensure that Barclays is influential in discussing and interpreting new legislation.
In 2008, the Group continued to follow developments in the Single European Payments Area (SEPA), with a view to developing its payments systems accordingly.
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Risk management
Financial crime risk management
Fraud risk and security risk
The Group establishes and operates a fraud risk framework which measures overall fraud risk exposure and controls. Together with the Group-wide policies and reporting, this structure directs how fraud is managed.
GFCM is responsible for delivering the overall Group Fraud Strategy by providing oversight to Group and business units in the management of fraud risk.
The Group Fraud Strategy is designed to:
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GFCM assesses fraud risk across existing and emerging products, channels, and jurisdictions. It has embedded a robust fraud reporting framework which tracks current exposure to identify risk and ensure adequate risk management capability and controls.
The Group’s business units identify their appetite for fraud loss which informs and determines the overall fraud plan. Objectives are set around these plans and performance is monitored through reporting and oversight via appropriate Governance Committees at both business unit and Group level.
Barclays undertakes regular benchmarking performance reviews with relevant peer groups and maintains a conduit to ensure a two-way exchange of information and intelligence at government, trade and industry levels.
The Barclays Group Fraud Risk profile is tracked regularly through the review and challenge of the net losses and key risk metrics; these are then viewed against the overall Fraud Risk Profile (at the Fraud Risk Oversight Committee).
Aggregated fraud data is reported monthly to senior management. The performance of the business in combating fraud losses is measured against plan in line with the Principal Risk Policy. Key Risk Indicators are embedded in order that overall exposure can be established. As a result of this process, fraud can be measured and appropriate action taken to minimise or track significant issues.
Barclays overall reported fraud losses increased in 2008 in line with industry trends. Whilst industry and proprietary initiatives (online and Chip/PIN) have continued to pay dividends and reduce exposure in some areas, fraud increased in other areas and in geographies that do not have Chip and PIN technology.
In 2008, the Group implemented a new global fraud application system aimed at preventing first-party fraud.
Compromised customer details continue to be a significant threat globally. GFCM continues to work closely with industry and other associated bodies to:
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GFCM manages security risk. Its fundamental objective is to allow Barclays to operate in a safe and secure manner in all existing and potential future markets.
In pursuit of this objective, the security risk team gathers and shares current threat assessments across business areas, using intelligence from security and government agencies and in-country teams. It ensures that suitable policies and control systems are in place to protect Group business and high-risk personnel.
Barclays has developed and continues to improve a robust Group-wide people-screening process to protect the Group from those people who want to harm the organisation, by either joining as staff members or becoming involved with its operations.
Security risk is regularly reported by the businesses and reviewed via the Security Risk Management Committee, whose objectives are to:
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Risk management
Statistical and other risk information
This section of the report contains supplementary information that is more detailed or contains longer histories than the data presented in the discussion. For commentary on this information, please refer to the preceding text (pages 6766 to 105)93).
Credit risk management
Table 1: Risk Tendency by business | ||||
2008 £m | 2007 £m | |||
UK Retail Banking | 520 | 470 | ||
Barclays Commercial Bank | 400 | 305 | ||
Barclaycard | 1,475 | 955 | ||
GRCB – Western Europe | 270 | 135 | ||
GRCB – Emerging Markets | 350 | 140 | ||
GRCB – Absa | 255 | 190 | ||
Barclays Capital | 415 | 140 | ||
Barclays Wealth | 20 | 10 | ||
Head office functions and other operationsa | 5 | 10 | ||
Risk Tendency by business | 3,710 | 2,355 |
Table 1: Maturity analysis of loans and advances to banks | ||||||||||||||||||
At 31st December 2009 | On demand £m | Not more than three months £m | Over three months but not more than six months £m | Over six £m | Over one but not | Over three but not | Over five but not | Over ten years | Total £m | |||||||||
United Kingdom | 403 | 3,234 | 64 | 625 | 405 | – | – | 398 | 5,129 | |||||||||
Other European Union | 1,262 | 10,803 | 44 | 394 | 184 | 8 | 2 | – | 12,697 | |||||||||
United States | 1,257 | 10,926 | 77 | 619 | 157 | – | 38 | 63 | 13,137 | |||||||||
Africa | 565 | 465 | 221 | 98 | 974 | 6 | 41 | 18 | 2,388 | |||||||||
Rest of the World | 1,275 | 5,111 | 88 | 98 | 708 | 530 | 17 | 18 | 7,845 | |||||||||
4,762 | 30,539 | 494 | 1,834 | 2,428 | 544 | 98 | 497 | 41,196 | ||||||||||
At 31st December 2008 | ||||||||||||||||||
United Kingdom | 127 | 6,474 | 193 | 163 | 232 | – | – | 343 | 7,532 | |||||||||
Other European Union | 1,210 | 10,458 | 54 | 415 | 407 | 50 | 5 | 1 | 12,600 | |||||||||
United States | 1,310 | 11,215 | 7 | 676 | 324 | – | – | 84 | 13,616 | |||||||||
Africa | 584 | 595 | 51 | 1 | 51 | 861 | 8 | 38 | 2,189 | |||||||||
Rest of the World | 1,652 | 6,957 | 201 | 666 | 884 | 943 | 39 | 479 | 11,821 | |||||||||
Loans and advances to banks | 4,883 | 35,699 | 506 | 1,921 | 1,898 | 1,854 | 52 | 945 | 47,758 |
Table 2: Loans and advances | ||||
2008 £m | 2007 £m | |||
Retail businesses | ||||
Customers | 201,588 | 162,081 | ||
Total retail businesses | 201,588 | 162,081 | ||
Wholesale businesses | ||||
Banks | 47,758 | 40,123 | ||
Customers | 266,750 | 187,086 | ||
Total wholesale businesses | 314,508 | 227,209 | ||
Loans and advances | 516,096 | 389,290 |
Fixed rate £m Variable £m Total £m Fixed £m Variable £m Total £m Banks CustomersNoteTable 2: Interest rate sensitivity of loans and advances 2009 2008 At 31st December
rate
rate
rate 15,898 25,298 41,196 12,101 35,657 47,758 94,470 336,489 430,959 98,404 369,934 468,338
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Risk management
Statistical information
Table 3: Maturity analysis of loans and advances to banks | ||||||||||||||||||
At 31st December 2008 | On demand £m | Not more than three months £m | Over three months but not more than six months £m | Over six not more than one year £m | Over one but not | Over three but not | Over five years but not more than ten years £m | Over ten years £m | Total £m | |||||||||
United Kingdom | 127 | 6,474 | 193 | 163 | 232 | – | – | 343 | 7,532 | |||||||||
Other European Union | 1,210 | 10,458 | 54 | 415 | 407 | 50 | 5 | 1 | 12,600 | |||||||||
United States | 1,310 | 11,215 | 7 | 676 | 324 | – | – | 84 | 13,616 | |||||||||
Africa | 584 | 595 | 51 | 1 | 51 | 861 | 8 | 38 | 2,189 | |||||||||
Rest of the World | 1,652 | 6,957 | 201 | 666 | 884 | 943 | 39 | 479 | 11,821 | |||||||||
4,883 | 35,699 | 506 | 1,921 | 1,898 | 1,854 | 52 | 945 | 47,758 |
At 31st December 2007 | On demand £m | Not more £m | Over three more than £m | Over six £m | Over one but not £m | Over three but not £m | Over five £m | Over £m | Total £m | |||||||||
United Kingdom | 796 | 4,069 | 56 | 92 | 114 | 20 | 1 | 370 | 5,518 | |||||||||
Other European Union | 2,977 | 7,745 | 74 | 88 | 95 | 116 | 7 | – | 11,102 | |||||||||
United States | 321 | 5,736 | 95 | 1,255 | 343 | 98 | 5,498 | 97 | 13,443 | |||||||||
Africa | 283 | 1,260 | 131 | 114 | 196 | 439 | 158 | – | 2,581 | |||||||||
Rest of the World | 1,505 | 3,336 | 90 | 1,640 | 512 | 362 | 15 | 19 | 7,479 | |||||||||
Loans and advances to banks | 5,882 | 22,146 | 446 | 3,189 | 1,260 | 1,035 | 5,679 | 486 | 40,123 |
Table 4: Interest rate sensitivity of loans and advances | ||||||||||||
2008 | 2007 | |||||||||||
At 31st December | Fixed rate £m | Variable rate £m | Total £m | Fixed rate £m | Variable rate £m | Total £m | ||||||
Banks | 12,101 | 35,657 | 47,758 | 16,447 | 23,676 | 40,123 | ||||||
Customers | 98,404 | 369,934 | 468,338 | 77,861 | 271,306 | 349,167 |
Table 5: Loans and advances to customers by industry | ||||||||||
At 31st December | 2008 £m | 2007 7£m | 2006 £m | 2005 £m | 2004a £m | |||||
Financial services | 114,069 | 71,160 | 45,954 | 43,102 | 25,132 | |||||
Agriculture, forestry and fishing | 3,281 | 3,319 | 3,997 | 3,785 | 2,345 | |||||
Manufacturing | 26,374 | 16,974 | 15,451 | 13,779 | 9,044 | |||||
Construction | 8,239 | 5,423 | 4,056 | 5,020 | 3,278 | |||||
Property | 22,155 | 17,018 | 16,528 | 16,325 | 8,992 | |||||
Government | 5,301 | 2,036 | 2,426 | 1,718 | – | |||||
Energy and water | 14,101 | 8,632 | 6,810 | 6,891 | 3,709 | |||||
Wholesale and retail, distribution and leisure | 20,208 | 18,216 | 15,490 | 17,760 | 11,099 | |||||
Transport | 8,612 | 6,258 | 5,586 | 5,960 | 3,742 | |||||
Postal and communication | 7,268 | 5,404 | 2,180 | 1,313 | 834 | |||||
Business and other services | 37,373 | 30,363 | 26,999 | 22,529 | 23,223 | |||||
Home loansb | 135,384 | 106,751 | 92,477 | 85,206 | 79,164 | |||||
Other personal | 53,087 | 46,423 | 37,535 | 39,866 | 29,293 | |||||
Finance lease receivables | 12,886 | 11,190 | 10,142 | 9,088 | 6,938 | |||||
Loans and advances to customers excluding reverse repurchase agreements | 468,338 | 349,167 | 285,631 | 272,342 | 206,793 | |||||
Reverse repurchase agreements | n/a | n/a | n/a | n/a | 58,304 | |||||
Loans and advances to customers | 468,338 | 349,167 | 285,631 | 272,342 | 265,097 |
Notescontinued
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Table 6: Loans and advances to customers in the UK | ||||||||||||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||||||||||||
Table 3: Loans and advances to customers by industry
At 31st December | ||||||||||||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||||||||||||
Financial services | 26,091 | 21,131 | 14,011 | 11,958 | 8,774 | 95,839 | 114,069 | 71,160 | 45,954 | 43,102 | ||||||||||
Agriculture, forestry and fishing | 2,245 | 2,220 | 2,307 | 2,409 | 1,963 | 4,321 | 3,281 | 3,319 | 3,997 | 3,785 | ||||||||||
Manufacturing | 11,340 | 9,388 | 9,047 | 8,469 | 5,684 | 18,855 | 26,374 | 16,974 | 15,451 | 13,779 | ||||||||||
Construction | 4,278 | 3,542 | 2,761 | 3,090 | 2,285 | 6,303 | 8,239 | 5,423 | 4,056 | 5,020 | ||||||||||
Property | 12,091 | 10,203 | 10,010 | 10,547 | 7,912 | 23,468 | 22,155 | 17,018 | 16,528 | 16,325 | ||||||||||
Government | 20 | 201 | 6 | 6 | – | 4,801 | 5,301 | 2,036 | 2,426 | 1,718 | ||||||||||
Energy and water | 3,040 | 2,203 | 2,360 | 2,701 | 802 | 10,735 | 14,101 | 8,632 | 6,810 | 6,891 | ||||||||||
Wholesale and re tail distribution and leisure | 14,421 | 13,800 | 12,951 | 12,747 | 9,356 | |||||||||||||||
Wholesale and retail, distribution and leisure | 19,746 | 20,208 | 18,216 | 15,490 | 17,760 | |||||||||||||||
Transport | 3,467 | 3,185 | 2,745 | 2,797 | 1,822 | 7,284 | 8,612 | 6,258 | 5,586 | 5,960 | ||||||||||
Postal and communication | 1,491 | 1,416 | 899 | 455 | 440 | 3,427 | 7,268 | 5,404 | 2,180 | 1,313 | ||||||||||
Business and other services | 19,589 | 20,485 | 19,260 | 15,397 | 13,439 | 30,277 | 37,373 | 30,363 | 26,999 | 22,529 | ||||||||||
Home loansb | 82,544 | 69,874 | 62,621 | 57,382 | 61,348 | |||||||||||||||
Home loans | 149,738 | 140,166 | 106,751 | 92,477 | 85,206 | |||||||||||||||
Other personal | 31,490 | 28,691 | 27,617 | 30,598 | 26,872 | 44,971 | 48,305 | 46,423 | 37,535 | 39,866 | ||||||||||
Finance lease receivables | 3,911 | 4,008 | 3,923 | 5,203 | 5,551 | 11,194 | 12,886 | 11,190 | 10,142 | 9,088 | ||||||||||
Loans and advances to customers in the UK | 216,018 | 190,347 | 170,518 | 163,759 | 146,248 | |||||||||||||||
Loans and advances to customers | 430,959 | 468,338 | 349,167 | 285,631 | 272,342 |
Table 4: Loans and advances to customers in the UK
At 31st December | ||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||
Financial services | 21,975 | 26,091 | 21,131 | 14,011 | 11,958 | |||||
Agriculture, forestry and fishing | 2,192 | 2,245 | 2,220 | 2,307 | 2,409 | |||||
Manufacturing | 8,549 | 11,340 | 9,388 | 9,047 | 8,469 | |||||
Construction | 3,544 | 4,278 | 3,542 | 2,761 | 3,090 | |||||
Property | 13,514 | 12,091 | 10,203 | 10,010 | 10,547 | |||||
Government | 496 | 20 | 201 | 6 | 6 | |||||
Energy and water | 2,447 | 3,040 | 2,203 | 2,360 | 2,701 | |||||
Wholesale and retail distribution and leisure | 12,792 | 14,421 | 13,800 | 12,951 | 12,747 | |||||
Transport | 2,784 | 3,467 | 3,185 | 2,745 | 2,797 | |||||
Postal and communication | 1,098 | 1,491 | 1,416 | 899 | 455 | |||||
Business and other services | 16,577 | 19,589 | 20,485 | 19,260 | 15,397 | |||||
Home loans | 90,903 | 85,672 | 69,874 | 62,621 | 57,382 | |||||
Other personal | 27,687 | 28,362 | 28,691 | 27,617 | 30,598 | |||||
Finance lease receivables | 3,021 | 3,911 | 4,008 | 3,923 | 5,203 | |||||
Loans and advances to customers in the UK | 207,579 | 216,018 | 190,347 | 170,518 | 163,759 |
Loans and advances included in the above table for the years 2004 to 2007year 2008 have been reanalysed between wholesale and retail distribution and leisure, Home loans and Other personal to reflect changes in classification of assets.
The industry classifications in Tables 7-93-7 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’sParent’s predominant business may be in a different industry.
Table 7: Loans and advances to customers in other European Union countries | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||
Financial services | 14,218 | 7,585 | 5,629 | 3,982 | 2,419 | |||||
Agriculture, forestry and fishing | 216 | 141 | 786 | 155 | 280 | |||||
Manufacturing | 8,700 | 4,175 | 3,147 | 2,254 | 2,021 | |||||
Construction | 1,786 | 1,159 | 639 | 803 | 716 | |||||
Property | 4,814 | 2,510 | 2,162 | 3,299 | 344 | |||||
Government | 1,089 | – | 6 | – | – | |||||
Energy and water | 5,313 | 2,425 | 2,050 | 1,490 | 940 | |||||
Wholesale and retail distribution and leisure | 2,653 | 1,719 | 776 | 952 | 810 | |||||
Transport | 2,603 | 1,933 | 1,465 | 1,695 | 640 | |||||
Postal and communication | 962 | 662 | 580 | 432 | 111 | |||||
Business and other services | 5,490 | 3,801 | 2,343 | 3,594 | 3,795 | |||||
Home loansb | 33,644 | 21,405 | 18,202 | 16,114 | 11,828 | |||||
Other personal | 7,247 | 6,615 | 4,086 | 2,283 | 1,369 | |||||
Finance lease receivables | 3,328 | 2,403 | 1,559 | 1,870 | 937 | |||||
Loans and advances to customers in other European Union countries | 92,063 | 56,533 | 43,430 | 38,923 | 26,210 |
See note under Table 6.
Notes
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Risk management
Statistical information
Table 8: Loans and advances to customers in the United States | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||
Financial services | 56,006 | 29,342 | 17,516 | 16,229 | 9,942 | |||||
Agriculture, forestry and fishing | – | 2 | 2 | 1 | – | |||||
Manufacturing | 2,171 | 818 | 519 | 937 | 388 | |||||
Construction | 21 | 18 | 13 | 32 | 139 | |||||
Property | 549 | 568 | 1,714 | 329 | 394 | |||||
Government | 336 | 221 | 153 | 300 | – | |||||
Energy and water | 3,085 | 1,279 | 1,078 | 1,261 | 891 | |||||
Wholesale and retail distribution and leisure | 1,165 | 846 | 403 | 794 | 466 | |||||
Transport | 415 | 137 | 128 | 148 | 186 | |||||
Postal and communication | 3,343 | 2,446 | 36 | 236 | 63 | |||||
Business and other services | 2,279 | 1,053 | 1,432 | 885 | 1,565 | |||||
Home loansb | 17 | 10 | 349 | 2 | 5,768 | |||||
Other personal | 7,702 | 3,256 | 2,022 | 1,443 | 845 | |||||
Finance lease receivables | 298 | 304 | 312 | 328 | 335 | |||||
Loans and advances to customers in the United States | 77,387 | 40,300 | 25,677 | 22,925 | 20,982 |
See note under Table 6.
Table 9: Loans and advances to customers in Africa | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||
Financial services | 1,956 | 3,472 | 2,821 | 4,350 | 186 | |||||
Agriculture, forestry and fishing | 817 | 956 | 889 | 1,193 | 102 | |||||
Manufacturing | 1,082 | 1,351 | 1,747 | 1,501 | 313 | |||||
Construction | 2,053 | 637 | 591 | 1,068 | 76 | |||||
Property | 3,485 | 2,433 | 1,987 | 1,673 | 87 | |||||
Government | 1,741 | 967 | 785 | 625 | – | |||||
Energy and water | 118 | 356 | 156 | 193 | 184 | |||||
Wholesale and re tail distribution and leisure | 1,012 | 1,326 | 1,050 | 2,774 | 165 | |||||
Transport | 739 | 116 | 354 | 394 | 137 | |||||
Postal and communication | 293 | 231 | 241 | 27 | 52 | |||||
Business and other services | 4,699 | 1,285 | 2,631 | 1,258 | 1,012 | |||||
Home loansb | 19,018 | 15,393 | 11,223 | 11,630 | 214 | |||||
Other personal | 3,087 | 6,287 | 2,976 | 4,955 | 190 | |||||
Finance lease receivables | 5,130 | 4,357 | 4,240 | 1,580 | 41 | |||||
Loans and advances to customers in Africa | 45,230 | 39,167 | 31,691 | 33,221 | 2,759 |
See note under Table 6.
Table 10: Loans and advances to customers in the Rest of the World | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||
Loans and advances | 37,421 | 22,702 | 14,207 | 13,407 | 10,520 | |||||
Finance lease receivables | 219 | 118 | 108 | 107 | 74 | |||||
Loans and advances to customers in the Rest of the World | 37,640 | 22,820 | 14,315 | 13,514 | 10,594 |
Notes
Table 5: Loans and advances to customers in other European Union countries
At 31st December | ||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||
Financial services | 14,475 | 14,218 | 7,585 | 5,629 | 3,982 | |||||
Agriculture, forestry and fishing | 187 | 216 | 141 | 786 | 155 | |||||
Manufacturing | 5,754 | 8,700 | 4,175 | 3,147 | 2,254 | |||||
Construction | 1,610 | 1,786 | 1,159 | 639 | 803 | |||||
Property | 4,224 | 4,814 | 2,510 | 2,162 | 3,299 | |||||
Government | 575 | 1,089 | – | 6 | – | |||||
Energy and water | 3,882 | 5,313 | 2,425 | 2,050 | 1,490 | |||||
Wholesale and retail distribution and leisure | 2,428 | 2,653 | 1,719 | 776 | 952 | |||||
Transport | 1,905 | 2,603 | 1,933 | 1,465 | 1,695 | |||||
Postal and communication | 649 | 962 | 662 | 580 | 432 | |||||
Business and other services | 4,878 | 5,490 | 3,801 | 2,343 | 3,594 | |||||
Home loans | 35,752 | 34,451 | 21,405 | 18,202 | 16,114 | |||||
Other personal | 7,403 | 6,440 | 6,615 | 4,086 | 2,283 | |||||
Finance lease receivables | 2,636 | 3,328 | 2,403 | 1,559 | 1,870 | |||||
Loans and advances to customers in other European Union countries | 86,358 | 92,063 | 56,533 | 43,430 | 38,923 |
Table 6: Loans and advances to customers in the United States
At 31st December | ||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||
Financial services | 46,132 | 56,006 | 29,342 | 17,516 | 16,229 | |||||
Agriculture, forestry and fishing | 1 | – | 2 | 2 | 1 | |||||
Manufacturing | 797 | 2,171 | 818 | 519 | 937 | |||||
Construction | 7 | 21 | 18 | 13 | 32 | |||||
Property | 428 | 549 | 568 | 1,714 | 329 | |||||
Government | 303 | 336 | 221 | 153 | 300 | |||||
Energy and water | 2,336 | 3,085 | 1,279 | 1,078 | 1,261 | |||||
Wholesale and retail distribution and leisure | 720 | 1,165 | 846 | 403 | 794 | |||||
Transport | 383 | 415 | 137 | 128 | 148 | |||||
Postal and communication | 355 | 3,343 | 2,446 | 36 | 236 | |||||
Business and other services | 1,721 | 2,279 | 1,053 | 1,432 | 885 | |||||
Home loans | 19 | 28 | 10 | 349 | 2 | |||||
Other personal | 7,410 | 7,691 | 3,256 | 2,022 | 1,443 | |||||
Finance lease receivables | 318 | 298 | 304 | 312 | 328 | |||||
Loans and advances to customers in the United States | 60,930 | 77,387 | 40,300 | 25,677 | 22,925 |
Table 7: Loans and advances to customers in Africa
At 31st December | ||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||
Financial services | 3,600 | 1,956 | 3,472 | 2,821 | 4,350 | |||||
Agriculture, forestry and fishing | 1,936 | 817 | 956 | 889 | 1,193 | |||||
Manufacturing | 1,419 | 1,082 | 1,351 | 1,747 | 1,501 | |||||
Construction | 903 | 2,053 | 637 | 591 | 1,068 | |||||
Property | 4,154 | 3,485 | 2,433 | 1,987 | 1,673 | |||||
Government | 1,449 | 1,741 | 967 | 785 | 625 | |||||
Energy and water | 158 | 118 | 356 | 156 | 193 | |||||
Wholesale and retail distribution and leisure | 1,789 | 1,012 | 1,326 | 1,050 | 2,774 | |||||
Transport | 368 | 739 | 116 | 354 | 394 | |||||
Postal and communication | 715 | 293 | 231 | 241 | 27 | |||||
Business and other services | 4,319 | 4,699 | 1,285 | 2,631 | 1,258 | |||||
Home loans | 22,057 | 19,036 | 15,393 | 11,223 | 11,630 | |||||
Other personal | 964 | 3,069 | 6,287 | 2,976 | 4,955 | |||||
Finance lease receivables | 5,018 | 5,130 | 4,357 | 4,240 | 1,580 | |||||
Loans and advances to customers in Africa | 48,849 | 45,230 | 39,167 | 31,691 | 33,221 |
110 |
|
Statistical information
continued
Table 11: Maturity analysis of loans and advances to customers | ||||||||||||||||||
At 31st December 2008 | On demand £m | Not more than three months £m | Over three months but not more than six months £m | Over six £m | Over one £m | Over three but not | Over five but not | Over £m | Total £m | |||||||||
United Kingdom | ||||||||||||||||||
Corporate lending | 24,790 | 14,715 | 1,574 | 3,259 | 10,585 | 12,372 | 10,495 | 15,876 | 93,666 | |||||||||
Other lending to customers in the | ||||||||||||||||||
United Kingdom | 4,560 | 6,264 | 2,495 | 4,477 | 16,604 | 10,541 | 21,913 | 55,498 | 122,352 | |||||||||
Total United Kingdom | 29,350 | 20,979 | 4,069 | 7,736 | 27,189 | 22,913 | 32,408 | 71,374 | 216,018 | |||||||||
Other European Union | 5,254 | 17,618 | 2,707 | 5,681 | 11,808 | 10,272 | 10,138 | 28,585 | 92,063 | |||||||||
United States | 6,298 | 39,754 | 2,737 | 5,413 | 8,767 | 3,447 | 4,238 | 6,733 | 77,387 | |||||||||
Africa | 8,428 | 2,247 | 1,143 | 1,852 | 4,560 | 4,557 | 5,674 | 16,769 | 45,230 | |||||||||
Rest of the World | 3,832 | 8,150 | 2,167 | 1,545 | 9,267 | 4,008 | 5,666 | 3,005 | 37,640 | |||||||||
Total | 53,162 | 88,748 | 12,823 | 22,227 | 61,591 | 45,197 | 58,124 | 126,466 | 468,338 |
At 31st December 2007 | On demand £m | Not more than three months £m | Over three more than | Over six not more £m | Over one £m | Over three but not | Over five but not | Over ten years £m | Total £m | |||||||||
United Kingdom | ||||||||||||||||||
Corporate lending | 26,557 | 15,737 | 2,453 | 3,834 | 8,474 | 8,358 | 10,718 | 11,643 | 87,774 | |||||||||
Other lending to customers in the | ||||||||||||||||||
United Kingdom | 4,384 | 4,717 | 2,106 | 3,597 | 11,517 | 8,699 | 19,325 | 48,228 | 102,573 | |||||||||
Total United Kingdom | 30,941 | 20,454 | 4,559 | 7,431 | 19,991 | 17,057 | 30,043 | 59,871 | 190,347 | |||||||||
Other European Union | 4,016 | 7,665 | 2,229 | 3,284 | 5,842 | 4,883 | 8,842 | 19,772 | 56,533 | |||||||||
United States | 3,053 | 20,205 | 3,430 | 5,938 | 1,904 | 2,498 | 2,658 | 614 | 40,300 | |||||||||
Africa | 6,806 | 4,243 | 881 | 1,969 | 5,568 | 4,124 | 2,285 | 13,291 | 39,167 | |||||||||
Rest of the World | 1,085 | 9,733 | 1,695 | 859 | 2,223 | 2,586 | 3,685 | 954 | 22,820 | |||||||||
Loans and advances to customers | 45,901 | 62,300 | 12,794 | 19,481 | 35,528 | 31,148 | 47,513 | 94,502 | 349,167 |
Table 12: Foreign outstandings in currencies other than the local currency of the borrower for countries where this exceeds 1% of total Group assets | ||||||||||
As % of assets | Total £m | Banks and other financial institutions £m | Governments and official institutions £m | Commercial £m | ||||||
At 31st December 2008 | ||||||||||
United States | 3.1 | 63,614 | 16,724 | 2 | 46,888 | |||||
Cayman Islands | 1.2 | 23,765 | 271 | – | 23,494 | |||||
At 31st December 2007 | ||||||||||
United States | 2.1 | 26,249 | 7,151 | 6 | 19,092 | |||||
At 31st December 2006 | ||||||||||
United States | 1.7 | 16,579 | 7,307 | 89 | 9,183 |
Table 8: Loans and advances to customers in the Rest of the World
At 31st December | ||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||
Loans and advances | 27,042 | 37,421 | 22,702 | 14,207 | 13,407 | |||||
Finance lease receivables | 201 | 219 | 118 | 108 | 107 | |||||
Loans and advances to customers in the Rest of the World | 27,243 | 37,640 | 22,820 | 14,315 | 13,514 |
Table 9: Maturity analysis of loans and advances to customers | ||||||||||||||||||
At 31st December 2009 | On demand £m | Not more than three months £m | Over three months but not more than six months £m | Over six months but not more than one year £m | Over one but not £m | Over three but not | Over five years but not more than ten years £m | Over ten | Total £m | |||||||||
United Kingdom | ||||||||||||||||||
Corporate lending | 21,369 | 14,941 | 1,568 | 2,856 | 13,057 | 10,071 | 9,759 | 14,626 | 88,247 | |||||||||
Other lending to customers in the United Kingdom | 5,862 | 3,802 | 2,092 | 3,809 | 15,201 | 10,404 | 23,302 | 54,860 | 119,332 | |||||||||
Total United Kingdom | 27,231 | 18,743 | 3,660 | 6,665 | 28,258 | 20,475 | 33,061 | 69,486 | 207,579 | |||||||||
Other European Union | 4,094 | 16,113 | 1,976 | 3,278 | 11,088 | 9,247 | 10,137 | 30,425 | 86,358 | |||||||||
United States | 4,887 | 25,296 | 2,265 | 3,637 | 4,876 | 1,251 | 11,485 | 7,233 | 60,930 | |||||||||
Africa | 11,248 | 2,457 | 1,052 | 1,322 | 4,307 | 3,091 | 6,162 | 19,210 | 48,849 | |||||||||
Rest of the World | 1,967 | 6,616 | 1,189 | 3,758 | 4,367 | 4,485 | 3,154 | 1,707 | 27,243 | |||||||||
Total | 49,427 | 69,225 | 10,142 | 18,660 | 52,896 | 38,549 | 63,999 | 128,061 | 430,959 | |||||||||
At 31st December 2008 | ||||||||||||||||||
United Kingdom | ||||||||||||||||||
Corporate lending | 24,790 | 14,715 | 1,574 | 3,259 | 10,585 | 12,372 | 10,495 | 15,876 | 93,666 | |||||||||
Other lending to customers in the United Kingdom | 4,560 | 6,264 | 2,495 | 4,477 | 16,604 | 10,541 | 21,913 | 55,498 | 122,352 | |||||||||
Total United Kingdom | 29,350 | 20,979 | 4,069 | 7,736 | 27,189 | 22,913 | 32,408 | 71,374 | 216,018 | |||||||||
Other European Union | 5,254 | 17,618 | 2,707 | 5,681 | 11,808 | 10,272 | 10,138 | 28,585 | 92,063 | |||||||||
United States | 6,298 | 39,754 | 2,737 | 5,413 | 8,767 | 3,447 | 4,238 | 6,733 | 77,387 | |||||||||
Africa | 8,428 | 2,247 | 1,143 | 1,852 | 4,560 | 4,557 | 5,674 | 16,769 | 45,230 | |||||||||
Rest of the World | 3,832 | 8,150 | 2,167 | 1,545 | 9,267 | 4,008 | 5,666 | 3,005 | 37,640 | |||||||||
Total | 53,162 | 88,748 | 12,823 | 22,227 | 61,591 | 45,197 | 58,124 | 126,466 | 468,338 |
Table 10: Foreign outstandings in currencies other than the local currency of the borrower for countries where this exceeds 1% of total Group assets | ||||||||||
At 31st December 2009 | As % of assets | Total £m | Banks and other financial institutions £m | Governments and official institutions £m | Commercial £m | |||||
United States | 1.2 | 16,907 | 4,622 | – | 12,285 | |||||
At 31st December 2008 | ||||||||||
United States | 3.1 | 63,614 | 16,724 | 2 | 46,888 | |||||
Cayman Islands | 1.2 | 23,765 | 271 | – | 23,494 | |||||
At 31st December 2007 | ||||||||||
United States | 2.1 | 26,249 | 7,151 | 6 | 19,092 |
At 31st December 2009, 2008 2007 and 2006,2007, there were no countries where Barclays had cross-currency loans to borrowers between 0.75% and 1% of total Group assets.
|
Risk management
Statistical information
Table 13: Off-balance sheet and other credit exposures as at 31st December | ||||||
2008 £m | 2007 £m | 2006 £m | ||||
Off-balance sheet exposures | ||||||
Contingent liabilities | 66,310 | 45,774 | 39,419 | |||
Commitments | 260,816 | 192,639 | 205,504 | |||
On-balance sheet exposures | ||||||
Trading portfolio assets | 185,637 | 193,691 | 177,867 | |||
Financial assets designated at fair value held on own account | 54,542 | 56,629 | 31,799 | |||
Derivative financial instruments | 984,802 | 248,088 | 138,353 | |||
Available for sale financial investments | 64,976 | 43,072 | 51,703 |
Table 14: Notional principal amounts of credit derivatives as at 31st December | ||||||
2008 £m | 2007 £m | 2006 £m | ||||
Credit derivatives held or issued for trading purposesa | 4,129,244 | 2,472,249 | 1,224,548 |
Table 15: Credit risk loans summary | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004b £m | |||||
Impaired loansc | 12,264 | 8,574 | 4,444 | 4,550 | n/a | |||||
Non-accruing loans | n/a | n/a | n/a | n/a | 2,115 | |||||
Accruing loans where interest is being suspended with or without provisions | n/a | n/a | n/a | n/a | 492 | |||||
Other accruing loans against which provisions have been made | n/a | n/a | n/a | n/a | 943 | |||||
Subtotal | 12,264 | 8,574 | 4,444 | 4,550 | 3,550 | |||||
Accruing loans which are contractually overdue 90 days or more as to principal or interest | 2,953 | 794 | 598 | 609 | 550 | |||||
Impaired and restructured loans | 483 | 273 | 46 | 51 | 15 | |||||
Credit risk loans | 15,700 | 9,641 | 5,088 | 5,210 | 4,115 |
Table 11: Off-balance sheet and other credit exposures as at 31st December | 2009 £m | 2008 £m | 2007 £m | |||
Off-balance sheet exposures | ||||||
Contingent liabilities | 52,774 | 66,310 | 45,774 | |||
Commitments | 207,275 | 260,816 | 192,639 | |||
On-balance sheet exposures | ||||||
Trading portfolio assets | 151,344 | 185,637 | 193,691 | |||
Financial assets designated at fair value held on own account | 41,311 | 54,542 | 56,629 | |||
Derivative financial instruments | 416,815 | 984,802 | 248,088 | |||
Available for sale financial investments | 56,483 | 64,976 | 43,072 |
Table 12: Notional principal amounts of credit derivatives as at 31st December | 2009 £m | 2008 £m | 2007 £m | |||
Credit derivatives held or issued for trading purposesa | 2,016,796 | 4,129,244 | 2,472,249 |
Table 13: Credit risk loans summary At 31st December | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | |||||
Impaired loans | 16,240 | 12,264 | 8,574 | 4,444 | 4,550 | |||||
Accruing loans which are contractually overdue 90 days or more as to principal or interest | 5,317 | 2,953 | 794 | 598 | 609 | |||||
Impaired and restructured loans | 831 | 483 | 273 | 46 | 51 | |||||
Credit risk loans | 22,388 | 15,700 | 9,641 | 5,088 | 5,210 |
Table 14: Credit risk loans At 31st December | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | |||||
Impaired loans: | ||||||||||
United Kingdom | 4,519 | 3,793 | 3,605 | 3,340 | 2,965 | |||||
Other European Union | 4,004 | 1,713 | 472 | 410 | 345 | |||||
United States | 4,612 | 4,397 | 3,703 | 129 | 230 | |||||
Africa | 2,170 | 1,996 | 757 | 535 | 831 | |||||
Rest of the World | 935 | 365 | 37 | 30 | 179 | |||||
Total | 16,240 | 12,264 | 8,574 | 4,444 | 4,550 | |||||
Accruing loans which are contractually overdue 90 days or more as to principal or interest: | ||||||||||
United Kingdom | 2,312 | 1,656 | 676 | 516 | 539 | |||||
Other European Union | 951 | 562 | 79 | 58 | 53 | |||||
United States | 232 | 433 | 10 | 3 | – | |||||
Africa | 1,739 | 172 | 29 | 21 | 17 | |||||
Rest of the World | 83 | 130 | – | – | – | |||||
Total | 5,317 | 2,953 | 794 | 598 | 609 | |||||
Impaired and restructured loans: | ||||||||||
United Kingdom | 582 | 367 | 179 | – | 5 | |||||
Other European Union | 41 | 29 | 14 | 10 | 7 | |||||
United States | 180 | 82 | 38 | 22 | 16 | |||||
Africa | 22 | – | 42 | 14 | 23 | |||||
Rest of the World | 6 | 5 | – | – | – | |||||
Total | 831 | 483 | 273 | 46 | 51 | |||||
Total credit risk loans: | ||||||||||
United Kingdom | 7,413 | 5,816 | 4,460 | 3,856 | 3,509 | |||||
Other European Union | 4,996 | 2,304 | 565 | 478 | 405 | |||||
United States | 5,024 | 4,912 | 3,751 | 154 | 246 | |||||
Africa | 3,931 | 2,168 | 828 | 570 | 871 | |||||
Rest of the World | 1,024 | 500 | 37 | 30 | 179 | |||||
Credit risk loans | 22,388 | 15,700 | 9,641 | 5,088 | 5,210 |
NotesNote
a | Includes credit derivatives held as economic hedges which are not designated as hedges for accounting purposes. |
|
Table 16: Credit risk loans | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004 a £m | |||||
Impaired loans: b | ||||||||||
United Kingdom | 3,793 | 3,605 | 3,340 | 2,965 | n/a | |||||
Other European Union | 1,713 | 472 | 410 | 345 | n/a | |||||
United States | 4,397 | 3,703 | 129 | 230 | n/a | |||||
Africa | 1,996 | 757 | 535 | 831 | n/a | |||||
Rest of the World | 365 | 37 | 30 | 179 | n/a | |||||
Total | 12,264 | 8,574 | 4,444 | 4,550 | n/a | |||||
Non-accrual loans: | ||||||||||
United Kingdom | n/a | n/a | n/a | n/a | 1,509 | |||||
Other European Union | n/a | n/a | n/a | n/a | 243 | |||||
United States | n/a | n/a | n/a | n/a | 258 | |||||
Africa | n/a | n/a | n/a | n/a | 74 | |||||
Rest of the World | n/a | n/a | n/a | n/a | 31 | |||||
Total | n/a | n/a | n/a | n/a | 2,115 | |||||
Accruing loans where interest is being suspended with or without provisions: | ||||||||||
United Kingdom | n/a | n/a | n/a | n/a | 323 | |||||
Other European Union | n/a | n/a | n/a | n/a | 31 | |||||
Africa | n/a | n/a | n/a | n/a | 21 | |||||
Rest of the World | n/a | n/a | n/a | n/a | 117 | |||||
Total | n/a | n/a | n/a | n/a | 492 | |||||
Other accruing loans against which provisions have been made: | ||||||||||
United Kingdom | n/a | n/a | n/a | n/a | 865 | |||||
Other European Union | n/a | n/a | n/a | n/a | 27 | |||||
United States | n/a | n/a | n/a | n/a | 26 | |||||
Africa | n/a | n/a | n/a | n/a | 21 | |||||
Rest of the World | n/a | n/a | n/a | n/a | 4 | |||||
Total | n/a | n/a | n/a | n/a | 943 | |||||
Accruing loans which are contractually overdue 90 days or more as to principal or interest: | ||||||||||
United Kingdom | 1,656 | 676 | 516 | 539 | 513 | |||||
Other European Union | 562 | 79 | 58 | 53 | 34 | |||||
United States | 433 | 10 | 3 | – | 1 | |||||
Africa | 172 | 29 | 21 | 17 | 1 | |||||
Rest of the World | 130 | – | – | – | 1 | |||||
Total | 2,953 | 794 | 598 | 609 | 550 | |||||
Impaired and restructured loans: | ||||||||||
United Kingdom | 367 | 179 | – | 5 | 2 | |||||
Other European Union | 29 | 14 | 10 | 7 | – | |||||
United States | 82 | 38 | 22 | 16 | 13 | |||||
Africa | – | 42 | 14 | 23 | – | |||||
Rest of the World | 5 | – | – | – | – | |||||
Total | 483 | 273 | 46 | 51 | 15 | |||||
Total credit risk loans: | ||||||||||
United Kingdom | 5,816 | 4,460 | 3,856 | 3,509 | 3,212 | |||||
Other European Union | 2,304 | 565 | 478 | 405 | 335 | |||||
United States | 4,912 | 3,751 | 154 | 246 | 298 | |||||
Africa | 2,168 | 828 | 570 | 871 | 117 | |||||
Rest of the World | 500 | 37 | 30 | 179 | 153 | |||||
Credit risk loans | 15,700 | 9,641 | 5,088 | 5,210 | 4,115 |
Notes
|
Risk management
Statistical information
continued
Table 17: Potential problem loans | ||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||
United Kingdom | 883 | 419 | 465 | 640 | 658 | |||||
Other European Union | 963 | 59 | 32 | 26 | 32 | |||||
United States | 431 | 964 | 21 | 12 | 27 | |||||
Africa | 140 | 355 | 240 | 248 | 67 | |||||
Rest of the World | 39 | — | 3 | 3 | 14 | |||||
Potential problem loansb | 2,456 | 1,797 | 761 | 929 | 798 |
Table 18: Interest foregone on credit risk loans | ||||||
2008 £m | 2007 £m | 2006 £m | ||||
Interest in come that would have been recognised under the original contractual terms | ||||||
United Kingdom | 244 | 340 | 357 | |||
Rest of the World | 235 | 91 | 70 | |||
Total | 479 | 431 | 427 |
Table 15: Potential problem loans | ||||||||||
At 31st December | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | |||||
United Kingdom | 858 | 883 | 419 | 465 | 640 | |||||
Other European Union | 790 | 963 | 59 | 32 | 26 | |||||
United States | 553 | 431 | 964 | 21 | 12 | |||||
Africa | 488 | 140 | 355 | 240 | 248 | |||||
Rest of the World | 679 | 39 | – | 3 | 3 | |||||
Potential problem loans | 3,368 | 2,456 | 1,797 | 761 | 929 |
Table 16: Interest foregone on credit risk loans | ||||||
2009 £m | 2008 £m | 2007 £m | ||||
Interest income that would have been recognised under the original contractual terms | ||||||
United Kingdom | 392 | 244 | 340 | |||
Rest of the World | 736 | 235 | 91 | |||
Total | 1,128 | 479 | 431 |
Interest income of approximately £413m (2008: £195m, (2007: £48m, 2006: £72m)2007: £48m) from such loans was included in profit, of which £137m (2008: £72m, (2007: £26m, 2006: £49m)2007: £26m) related to domestic lending and the remainder related to foreign lending.
In addition, a further £159m (2007: £113m, 2006: £98m)£185m (2008: £135m, 2007: £113m) was recognised arising from impaired loans. Following impairment, interest income is recognised using the original effective rate of interest which was used to discount the expected future cash flows for the purpose of measuring the impairment loss. £54m (2007: £93m, 2006: £88m)£52m (2008: £42m, 2007: £93m) of this related to domestic impaired loans and the remainder related to foreign impaired loans.
Table 19: Analysis of impairment/provision charges | |||||||||||||
At 31st December | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | ||||||||
Impairment charge/net specific provisions charge | |||||||||||||
United Kingdom | 1,817 | 1,593 | 1,880 | 1,382 | 1,021 | ||||||||
Other European Union | 587 | 123 | 92 | 75 | 102 | ||||||||
United States | 1,519 | 374 | 12 | 76 | 57 | ||||||||
Africa | 454 | 214 | 143 | 37 | 27 | ||||||||
Rest of the World | 207 | 2 | (53 | ) | 4 | 103 | |||||||
Impairment on loans and advances | 4,584 | 2,306 | 2,074 | 1,574 | 1,310 | ||||||||
Impairment on available for sale assets | 382 | 13 | 86 | 4 | n/a | ||||||||
Impairment on reverse repurchase agreements | 124 | — | — | — | — | ||||||||
Impairment charge | 5,090 | 2,319 | 2,160 | 1,578 | 1,310 | ||||||||
Total net specific provisions charge | n/a | n/a | n/a | n/a | n/a | ||||||||
General provisions (release)/charge | n/a | n/a | n/a | n/a | (206 | ) | |||||||
Other credit provisions charge/(release) | 329 | 476 | (6 | ) | (7 | ) | (11 | ) | |||||
Impairment/provision charges | 5,419 | 2,795 | 2,154 | 1,571 | 1,093 |
Notes
Table 17: Analysis of impairment/provision charges | ||||||||||||
At 31st December | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | |||||||
Impairment charge/net specific provisions charge | ||||||||||||
United Kingdom | 2,744 | 1,817 | 1,593 | 1,880 | 1,382 | |||||||
Other European Union | 1,408 | 587 | 123 | 92 | 75 | |||||||
United States | 1,525 | 1,519 | 374 | 12 | 76 | |||||||
Africa | 814 | 454 | 214 | 143 | 37 | |||||||
Rest of the World | 839 | 207 | 2 | (53 | ) | 4 | ||||||
Impairment on loans and advances | 7,330 | 4,584 | 2,306 | 2,074 | 1,574 | |||||||
Impairment on available for sale assets | 670 | 382 | 13 | 86 | 4 | |||||||
Impairment on reverse repurchase agreements | 43 | 124 | – | – | – | |||||||
Impairment charge | 8,043 | 5,090 | 2,319 | 2,160 | 1,578 | |||||||
Other credit provisions charge/(release) | 28 | 329 | 476 | (6 | ) | (7 | ) | |||||
Impairment/provision charges | 8,071 | 5,419 | 2,795 | 2,154 | 1,571 |
|
Table 18: Impairment/provisions charges ratios (‘Loan loss ratios’) | ||||||||||
2009 % | 2008 % | 2007 % | 2006 % | 2005 % | ||||||
Impairment/provisions charges as a percentage of average loans and advances for the year: | ||||||||||
Impairment charge | 1.64 | 1.01 | 0.64 | 0.66 | 0.58 | |||||
Total | 1.64 | 1.01 | 0.64 | 0.66 | 0.58 | |||||
Amounts written off (net of recoveries) | 0.72 | 0.61 | 0.49 | 0.61 | 0.50 |
Table 20: Impairment/provisions charges ratios (‘Loan loss ratios’) | |||||||||||
2008 % | 2007 % | 2006 % | 2005 % | 2004a % | |||||||
Impairment/provisions charges as a percentage of average loans and advances for the year: | |||||||||||
Specific provisions charge | n/a | n/a | n/a | n/a | 0.40 | ||||||
General provisions charge | n/a | n/a | n/a | n/a | (0.07 | ) | |||||
Impairment charge | 1.01 | 0.64 | 0.66 | 0.58 | n/a | ||||||
Total | 1.01 | 0.64 | 0.66 | 0.58 | 0.33 | ||||||
Amounts written off (net of recoveries) | 0.61 | 0.49 | 0.61 | 0.50 | 0.40 |
Table 21: Analysis of allowance for impairment/provision for bad and doubtful debts | ||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | ||||||
Impairment allowance/Specific provisions | ||||||||||
United Kingdom | 2,947 | 2,526 | 2,477 | 2,266 | 1,683 | |||||
Other European Union | 963 | 344 | 311 | 284 | 149 | |||||
United States | 1,561 | 356 | 100 | 130 | 155 | |||||
Africa | 857 | 514 | 417 | 647 | 70 | |||||
Rest of the World | 246 | 32 | 30 | 123 | 90 | |||||
Specific provision balances | n/a | n/a | n/a | n/a | 2,147 | |||||
General provision balances | n/a | n/a | n/a | n/a | 564 | |||||
Allowance for impairment provision balances | 6,574 | 3,772 | 3,335 | 3,450 | 2,711 | |||||
Average loans and advances for the year | 453,413 | 357,853 | 313,614 | 271,421 | 328,134 |
Table 22: Allowance for impairment/provision balance ratios | ||||||||||
2008 % | 2007 % | 2006 % | 2005 % | 2004a % | ||||||
Allowance for impairment/provision balance at end of year as a percentage of loans and advances at end of year: | ||||||||||
Specific provision balances | n/a | n/a | n/a | n/a | 0.62 | |||||
General provision balances | n/a | n/a | n/a | n/a | 0.16 | |||||
Impairment balance | 1.27 | 0.97 | 1.05 | 1.14 | n/a | |||||
Total | 1.27 | 0.97 | 1.05 | 1.14 | 0.78 |
Note
|
Risk management
Statistical information
Table 23: Movements in allowance for impairment/provisions charge for bad and doubtful debts | |||||||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||||||||
Allowance for impairment/provision balance at beginning of year | 3,772 | 3,335 | 3,450 | 2,637 | 2,946 | ||||||||||
Acquisitions and disposals | 307 | (73 | ) | (23 | ) | 555 | 21 | ||||||||
Unwind of discount | (135 | ) | (113 | ) | (98 | ) | (76 | ) | n/a | ||||||
Exchange and other adjustments | 791 | 53 | (153 | ) | 125 | (33 | ) | ||||||||
Amounts written off | (2,919 | ) | (1,963 | ) | (2,174 | ) | (1,587 | ) | (1,582 | ) | |||||
Recoveries | 174 | 227 | 259 | 222 | 255 | ||||||||||
Impairment/provision charged against profit b | 4,584 | 2,306 | 2,074 | 1,574 | 1,104 | ||||||||||
Allowance for impairment/provision balance at end of year | 6,574 | 3,772 | 3,335 | 3,450 | 2,711 |
Table 24: Amounts written off | |||||||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||||||||
United Kingdom | (1,514 | ) | (1,530 | ) | (1,746 | ) | (1,302 | ) | (1,280 | ) | |||||
Other European Union | (162 | ) | (143 | ) | (74 | ) | (56 | ) | (63 | ) | |||||
United States | (1,044 | ) | (145 | ) | (46 | ) | (143 | ) | (50 | ) | |||||
Africa | (187 | ) | (145 | ) | (264 | ) | (81 | ) | (15 | ) | |||||
Rest of the World | (12 | ) | — | (44 | ) | (5 | ) | (174 | ) | ||||||
Amounts written off | (2,919 | ) | (1,963 | ) | (2,174 | ) | (1,587 | ) | (1,582 | ) |
Table 25: Recoveries | ||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | ||||||
United Kingdom | 131 | 154 | 178 | 160 | 217 | |||||
Other European Union | 4 | 32 | 18 | 13 | 9 | |||||
United States | 1 | 7 | 22 | 15 | 14 | |||||
Africa | 36 | 34 | 33 | 16 | 4 | |||||
Rest of the World | 2 | — | 8 | 18 | 11 | |||||
Recoveries | 174 | 227 | 259 | 222 | 255 |
Notes
Table 19: Analysis of allowance for impairment/provision for bad and doubtful debts | 2009 | 2008 | 2007 | 2006 | 2005 | |||||
£m | £m | £m | £m | £m | ||||||
Impairment allowance/specific provisions | ||||||||||
United Kingdom | 4,083 | 2,947 | 2,526 | 2,477 | 2,266 | |||||
Other European Union | 2,014 | 963 | 344 | 311 | 284 | |||||
United States | 2,518 | 1,561 | 356 | 100 | 130 | |||||
Africa | 1,349 | 857 | 514 | 417 | 647 | |||||
Rest of the World | 832 | 246 | 32 | 30 | 123 | |||||
Allowance for impairment provision balances | 10,796 | 6,574 | 3,772 | 3,335 | 3,450 | |||||
Average loans and advances for the year | 447,569 | 453,413 | 357,853 | 313,614 | 271,421 |
Table 20: Allowance for impairment/provision balance ratios | 2009 | 2008 | 2007 | 2006 | 2005 | |||||
% | % | % | % | % | ||||||
Allowance for impairment/provision balance at end of year as a percentage of loans and advances at end of year: | ||||||||||
Impairment balance | 2.29 | 1.27 | 0.97 | 1.05 | 1.14 | |||||
Total | 2.29 | 1.27 | 0.97 | 1.05 | 1.14 |
Table 21: Movements in allowance for impairment/provisions charge for bad and doubtful debtsa | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||
£m | £m | £m | £m | £m | |||||||||||
Allowance for impairment/provision balance at beginning of year | 6,574 | 3,772 | 3,335 | 3,450 | 2,637 | ||||||||||
Acquisitions and disposals | 434 | 307 | (73 | ) | (23 | ) | 555 | ||||||||
Unwind of discount | (185 | ) | (135 | ) | (113 | ) | (98 | ) | (76 | ) | |||||
Exchange and other adjustments | (127 | ) | 791 | 53 | (153 | ) | 125 | ||||||||
Amounts written off | (3,380 | ) | (2,919 | ) | (1,963 | ) | (2,174 | ) | (1,587 | ) | |||||
Recoveries | 150 | 174 | 227 | 259 | 222 | ||||||||||
Impairment/provision charged against profit | 7,330 | 4,584 | 2,306 | 2,074 | 1,574 | ||||||||||
Allowance for impairment/provision balance at end of year | 10,796 | 6,574 | 3,772 | 3,335 | 3,450 |
Table 22: Amounts written off | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||
£m | £m | £m | £m | £m | |||||||||||
United Kingdom | (1,569 | ) | (1,514 | ) | (1,530 | ) | (1,746 | ) | (1,302 | ) | |||||
Other European Union | (453 | ) | (162 | ) | (143 | ) | (74 | ) | (56 | ) | |||||
United States | (669 | ) | (1,044 | ) | (145 | ) | (46 | ) | (143 | ) | |||||
Africa | (438 | ) | (187 | ) | (145 | ) | (264 | ) | (81 | ) | |||||
Rest of the World | (251 | ) | (12 | ) | – | (44 | ) | (5 | ) | ||||||
Amounts written off | (3,380 | ) | (2,919 | ) | (1,963 | ) | (2,174 | ) | (1,587 | ) |
114 |
|
Statistical information
continued
Table 26: Impairment allowances/provision charged against profit | |||||||||||||||
2008 £m | | 2007 £m | | 2006 £m | | 2005 £m | | 2004a £m | | ||||||
New and in creased impairment allowance/specific provision charge: | |||||||||||||||
United Kingdom | 2,160 | 1,960 | 2,253 | 1,763 | 1,358 | ||||||||||
Other European Union | 659 | 192 | 182 | 113 | 131 | ||||||||||
United States | 1,529 | 431 | 60 | 105 | 85 | ||||||||||
Africa | 526 | 268 | 209 | 109 | 47 | ||||||||||
Rest of the World | 242 | 20 | 18 | 39 | 134 | ||||||||||
5,116 | 2,871 | 2,722 | 2,129 | 1,755 | |||||||||||
Reversals of impairment allowance/specific provision charge: | |||||||||||||||
United Kingdom | (212 | ) | (213 | ) | (195 | ) | (221 | ) | (120 | ) | |||||
Other European Union | (68 | ) | (37 | ) | (72 | ) | (25 | ) | (20 | ) | |||||
United States | (9 | ) | (50 | ) | (26 | ) | (14 | ) | (14 | ) | |||||
Africa | (36 | ) | (20 | ) | (33 | ) | (56 | ) | (16 | ) | |||||
Rest of the World | (33 | ) | (18 | ) | (63 | ) | (17 | ) | (20 | ) | |||||
(358 | ) | (338 | ) | (389 | ) | (333 | ) | (190 | ) | ||||||
Recoveries | (174 | ) | (227 | ) | (259 | ) | (222 | ) | (255 | ) | |||||
Net impairment allowance/specific provision charge b | 4,584 | 2,306 | 2,074 | 1,574 | 1,310 | ||||||||||
General provision (release)/charge | n/a | n/a | n/a | n/a | (206 | ) | |||||||||
Net charge to profit | 4,584 | 2,306 | 2,074 | 1,574 | 1,104 |
Table 27: Total impairment/specific provision charges for bad and doubtful debts by industry | |||||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||||||
United Kingdom: | |||||||||||||
Financial services | 76 | 32 | 64 | 22 | (1 | ) | |||||||
Agriculture, forestry and fishing | 4 | – | 5 | 9 | – | ||||||||
Manufacturing | 118 | 72 | 1 | 120 | 28 | ||||||||
Construction | 15 | 14 | 17 | 14 | 10 | ||||||||
Property | 80 | 36 | 15 | 18 | (42 | ) | |||||||
Energy and water | 1 | 1 | (7 | ) | 1 | 3 | |||||||
Wholesale and retail distribution and leisure | 59 | 118 | 88 | 39 | 66 | ||||||||
Transport | 3 | 3 | 19 | (27 | ) | (19 | ) | ||||||
Postal and communication | – | 15 | 15 | 3 | (1 | ) | |||||||
Business and other services | 234 | 81 | 133 | 45 | 64 | ||||||||
Home loans | 28 | 1 | 4 | (7 | ) | 17 | |||||||
Other personal | 1,178 | 1,187 | 1,526 | 1,142 | 894 | ||||||||
Finance lease receivables | 21 | 33 | – | 3 | 2 | ||||||||
1,817 | 1,593 | 1,880 | 1,382 | 1,021 | |||||||||
Overseas | 2,767 | 713 | 194 | 192 | 289 | ||||||||
Impairment/specific provision charges | 4,584 | 2,306 | 2,074 | 1,574 | 1,310 |
Table 23: Recoveries | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||||||
United Kingdom | 48 | 131 | 154 | 178 | 160 | ||||||||||
Other European Union | 12 | 4 | 32 | 18 | 13 | ||||||||||
United States | 6 | 1 | 7 | 22 | 15 | ||||||||||
Africa | 80 | 36 | 34 | 33 | 16 | ||||||||||
Rest of the World | 4 | 2 | – | 8 | 18 | ||||||||||
Recoveries | 150 | 174 | 227 | 259 | 222 | ||||||||||
Table 24: Impairment allowances/provision charged against profit a | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||||||
New and increased impairment allowance/specific provision charge: | |||||||||||||||
United Kingdom | 3,123 | 2,160 | 1,960 | 2,253 | 1,763 | ||||||||||
Other European Union | 1,625 | 659 | 192 | 182 | 113 | ||||||||||
United States | 1,535 | 1,529 | 431 | 60 | 105 | ||||||||||
Africa | 932 | 526 | 268 | 209 | 109 | ||||||||||
Rest of the World | 896 | 242 | 20 | 18 | 39 | ||||||||||
8,111 | 5,116 | 2,871 | 2,722 | 2,129 | |||||||||||
Reversals of impairment allowance/specific provision charge: | |||||||||||||||
United Kingdom | (331 | ) | (212 | ) | (213 | ) | (195 | ) | (221 | ) | |||||
Other European Union | (205 | ) | (68 | ) | (37 | ) | (72 | ) | (25 | ) | |||||
United States | (4 | ) | (9 | ) | (50 | ) | (26 | ) | (14 | ) | |||||
Africa | (38 | ) | (36 | ) | (20 | ) | (33 | ) | (56 | ) | |||||
Rest of the World | (53 | ) | (33 | ) | (18 | ) | (63 | ) | (17 | ) | |||||
(631 | ) | (358 | ) | (338 | ) | (389 | ) | (333 | ) | ||||||
Recoveries | (150 | ) | (174 | ) | (227 | ) | (259 | ) | (222 | ) | |||||
Net charge to profit | 7,330 | 4,584 | 2,306 | 2,074 | 1,574 | ||||||||||
Table 25: Total impairment/specific provision charges for bad and doubtful debts by industry | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | ||||||||||
United Kingdom: | |||||||||||||||
Financial services | 485 | 76 | 32 | 64 | 22 | ||||||||||
Agriculture, forestry and fishing | 2 | 4 | – | 5 | 9 | ||||||||||
Manufacturing | 112 | 118 | 72 | 1 | 120 | ||||||||||
Construction | 54 | 15 | 14 | 17 | 14 | ||||||||||
Property | 113 | 80 | 36 | 15 | 18 | ||||||||||
Energy and water | – | 1 | 1 | (7 | ) | 1 | |||||||||
Wholesale and retail distribution and leisure | 314 | 59 | 118 | 88 | 39 | ||||||||||
Transport | 13 | 3 | 3 | 19 | (27 | ) | |||||||||
Postal and communication | 17 | – | 15 | 15 | 3 | ||||||||||
Business and other services | 175 | 234 | 81 | 133 | 45 | ||||||||||
Home loans | 33 | 28 | 1 | 4 | (7 | ) | |||||||||
Other personal | 1,376 | 1,178 | 1,187 | 1,526 | 1,142 | ||||||||||
Finance lease receivables | 50 | 21 | 33 | – | 3 | ||||||||||
2,744 | 1,817 | 1,593 | 1,880 | 1,382 | |||||||||||
Overseas | 4,586 | 2,767 | 713 | 194 | 192 | ||||||||||
Impairment/specific provision charges | 7,330 | 4,584 | 2,306 | 2,074 | 1,574 |
The category ‘Other personal’ now includes credit cards, personal loans, second liens and personal overdrafts.
The industry classifications in Tables 27, 2825, 26 and 2927 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’sParent’s predominant business may be in a different industry.
Notes
|
Risk management
Statistical information
Table 28: Allowance for impairment/specific provision for bad and doubtful debts by industry | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004a | ||||||||||||||||
£m | % | £m | % | £m | % | £m | % | £m | % | |||||||||||
United Kingdom: | ||||||||||||||||||||
Financial services | 81 | 1.2 | 103 | 2.7 | 67 | 2.0 | 26 | 0.8 | 7 | 0.3 | ||||||||||
Agriculture, forestry and fishing | 1 | 0.0 | 5 | 0.1 | 17 | 0.5 | 12 | 0.3 | 4 | 0.2 | ||||||||||
Manufacturing | 185 | 2.8 | 65 | 1.7 | 85 | 2.5 | 181 | 5.2 | 37 | 1.7 | ||||||||||
Construction | 18 | 0.3 | 16 | 0.4 | 16 | 0.5 | 13 | 0.4 | 6 | 0.3 | ||||||||||
Property | 114 | 1.7 | 54 | 1.4 | 26 | 0.8 | 24 | 0.7 | 26 | 1.2 | ||||||||||
Energy and water | 1 | 0.0 | 1 | – | – | – | 18 | 0.5 | 23 | 1.0 | ||||||||||
Wholesale and retail distribution and leisure | 43 | 0.7 | 102 | 2.7 | 81 | 2.4 | 99 | 2.9 | 70 | 3.3 | ||||||||||
Transport | – | 0.0 | 11 | 0.3 | 24 | 0.7 | 32 | 0.9 | 55 | 2.6 | ||||||||||
Postal and communication | 33 | 0.5 | 25 | 0.7 | 12 | 0.4 | 2 | 0.1 | 13 | 0.6 | ||||||||||
Business and other services | 236 | 3.6 | 158 | 4.2 | 186 | 5.6 | 102 | 3.0 | 105 | 4.9 | ||||||||||
Home loans | 46 | 0.7 | 15 | 0.4 | 10 | 0.3 | 50 | 1.4 | 58 | 2.7 | ||||||||||
Other personal | 2,160 | 32.9 | 1,915 | 50.8 | 1,953 | 58.6 | 1,696 | 49.2 | 1,265 | 58.9 | ||||||||||
Finance lease receivables | 29 | 0.4 | 56 | 1.5 | – | – | 11 | 0.3 | 14 | 0.7 | ||||||||||
2,947 | 44.8 | 2,526 | 67.0 | 2,477 | 74.3 | 2,266 | 65.7 | 1,683 | 78.4 | |||||||||||
Overseas | 3,627 | 55.2 | 1,246 | 33.0 | 858 | 25.7 | 1,184 | 34.3 | 464 | 21.6 | ||||||||||
Total | 6,574 | 100.0 | 3,772 | 100.0 | 3,335 | 100.0 | 3,450 | 100.0 | 2,147 | 100.0 |
See note under Table 27.
Table 29: Analysis of amounts written off and recovered by industry
Amounts written off for the year | Recoveries of amounts previously written off | |||||||||||||||||||
2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2004a £m | |||||||||||
United Kingdom: | ||||||||||||||||||||
Financial services | 88 | 6 | 13 | 2 | 7 | 4 | 1 | – | 1 | 3 | ||||||||||
Agriculture, forestry and fishing | 6 | 5 | 8 | 3 | 2 | – | 2 | 1 | – | 1 | ||||||||||
Manufacturing | 53 | 83 | 73 | 47 | 79 | 8 | 7 | 21 | 11 | 30 | ||||||||||
Construction | 19 | 23 | 17 | 15 | 13 | 2 | 3 | 2 | 1 | 2 | ||||||||||
Property | 27 | 16 | 23 | 4 | 2 | 2 | 10 | 6 | 1 | 69 | ||||||||||
Energy and water | 1 | – | 1 | 22 | 9 | – | – | 2 | – | 2 | ||||||||||
Wholesale and retail distribution and leisure | 137 | 109 | 120 | 85 | 55 | 7 | 12 | 14 | 25 | 7 | ||||||||||
Transport | 10 | 13 | 11 | 29 | 44 | 1 | 1 | 10 | 15 | |||||||||||
Postal and communication | 3 | 3 | 5 | 15 | 2 | – | – | – | – | 1 | ||||||||||
Business and other services | 153 | 83 | 124 | 83 | 96 | 10 | 22 | 17 | 14 | 16 | ||||||||||
Home loans | 4 | 1 | – | 2 | 19 | 1 | 1 | 7 | 4 | 5 | ||||||||||
Other personal | 960 | 1,164 | 1,351 | 992 | 948 | 88 | 96 | 107 | 92 | 65 | ||||||||||
Finance lease receivables | 53 | 24 | – | 3 | 4 | 8 | – | – | 1 | 1 | ||||||||||
1,514 | 1,530 | 1,746 | 1,302 | 1,280 | 131 | 154 | 178 | 160 | 217 | |||||||||||
Overseas | 1,405 | 433 | 428 | 285 | 302 | 43 | 73 | 81 | 62 | 38 | ||||||||||
Total | 2,919 | 1,963 | 2,174 | 1,587 | 1,582 | 174 | 227 | 259 | 222 | 255 |
See note under Table 27.
Note
a | Does not reflect the |
|
Table 30: Total impairment allowance/(provision) coverage of credit risk loans | ||||||||||
2008 % | 2007 % | 2006 % | 2005 % | 2004a % | ||||||
United Kingdom | 50.7 | 56.6 | 64.2 | 64.6 | 68.1 | |||||
Other European Union | 41.8 | 60.9 | 65.1 | 70.1 | 60.9 | |||||
United States | 31.8 | 9.5 | 64.9 | 52.8 | 57.0 | |||||
Africa | 39.5 | 62.1 | 73.2 | 74.3 | 68.4 | |||||
Rest of the World | 49.2 | 86.5 | 100.0 | 68.7 | 71.9 | |||||
Total coverage of credit risk loans | 41.9 | 39.1 | 65.6 | 66.2 | 66.9 | |||||
Total coverage of credit risk loans excluding ABS CDO Super Senior exposure | 48.0 | 55.3 | 65.6 | 66.2 | 66.9 |
Table 31: Total impairment allowance/(provision) coverage of potential credit risk lending (CRLs and PPLs) | ||||||||||
2008 % | 2007 % | 2006 % | 2005 % | 2004a % | ||||||
United Kingdom | 44.0 | 51.8 | 57.3 | 54.6 | 56.5 | |||||
Other European Union | 29.5 | 55.1 | 61.0 | 65.9 | 55.6 | |||||
United States | 29.2 | 7.6 | 57.1 | 50.4 | 52.3 | |||||
Africa | 37.1 | 43.4 | 51.5 | 57.8 | 43.5 | |||||
Rest of the World | 45.5 | 86.5 | 91.0 | 67.6 | 65.9 | |||||
Total coverage of potential credit risk lending | 36.2 | 33.0 | 57.0 | 56.2 | 56.0 | |||||
Total coverage of potential credit risk lenders excluding ABS CDO Super Senior exposure | 39.6 | 47.7 | 57.0 | 56.2 | 56.0 |
Allowance coverage of credit risk loans and potential credit risk loans excluding the drawn ABS CDO Super Senior exposure decreased to 48.0% (31st December 2007: 55.3%) and 39.6% (31st December 2007: 47.7%), respectively. The decrease in these ratios reflected a change in the mix of credit risk loans and potential credit risk loans: unsecured retail exposures, where the recovery outlook is relatively low, decreased as a proportion of the total as the collections and underwriting processes were improved. Secured retail and wholesale and corporate exposures, where the recovery outlook is relatively high, increased as a proportion of credit risk loans and potential credit risk loans.
Note
|
Table 26: Allowance for impairment/specific provision for bad and doubtful debts by industry | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
£m | % | £m | % | £m | % | £m | % | £m | % | |||||||||||
United Kingdom: | ||||||||||||||||||||
Financial services | 493 | 4.6 | 81 | 1.2 | 103 | 2.7 | 67 | 2.0 | 26 | 0.8 | ||||||||||
Agriculture, forestry and fishing | – | – | 1 | 0.0 | 5 | 0.1 | 17 | 0.5 | 12 | 0.3 | ||||||||||
Manufacturing | 142 | 1.3 | 185 | 2.8 | 65 | 1.7 | 85 | 2.5 | 181 | 5.2 | ||||||||||
Construction | 41 | 0.4 | 18 | 0.3 | 16 | 0.4 | 16 | 0.5 | 13 | 0.4 | ||||||||||
Property | 90 | 0.8 | 114 | 1.7 | 54 | 1.4 | 26 | 0.8 | 24 | 0.7 | ||||||||||
Energy and water | – | – | 1 | 0.0 | 1 | – | – | – | 18 | 0.5 | ||||||||||
Wholesale and retail distribution and leisure | 182 | 1.7 | 43 | 0.7 | 102 | 2.7 | 81 | 2.4 | 99 | 2.9 | ||||||||||
Transport | – | 0.0 | – | 0.0 | 11 | 0.3 | 24 | 0.7 | 32 | 0.9 | ||||||||||
Postal and communication | 27 | 0.3 | 33 | 0.5 | 25 | 0.7 | 12 | 0.4 | 2 | 0.1 | ||||||||||
Business and other services | 218 | 2.0 | 236 | 3.6 | 158 | 4.2 | 186 | 5.6 | 102 | 3.0 | ||||||||||
Home loans | 63 | 0.6 | 46 | 0.7 | 15 | 0.4 | 10 | 0.3 | 50 | 1.4 | ||||||||||
Other personal | 2,762 | 25.5 | 2,160 | 32.9 | 1,915 | 50.8 | 1,953 | 58.6 | 1,696 | 49.2 | ||||||||||
Finance lease receivables | 65 | 0.6 | 29 | 0.4 | 56 | 1.5 | – | – | 11 | 0.3 | ||||||||||
4,083 | 37.8 | 2,947 | 44.8 | 2,526 | 67.0 | 2,477 | 74.3 | 2,266 | 65.7 | |||||||||||
Overseas | 6,713 | 62.2 | 3,627 | 55.2 | 1,246 | 33.0 | 858 | 25.7 | 1,184 | 34.3 | ||||||||||
Total | 10,796 | 100 | 6,574 | 100.0 | 3,772 | 100.0 | 3,335 | 100.0 | 3,450 | 100.0 |
Table 27: Analysis of amounts written off and recovered by industry | ||||||||||||||||||||
Amounts written off for the year | Recoveries of amounts previously written off | |||||||||||||||||||
2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m | |||||||||||
United Kingdom: | ||||||||||||||||||||
Financial services | 72 | 88 | 6 | 13 | 2 | 3 | 4 | 1 | – | 1 | ||||||||||
Agriculture, forestry and fishing | 2 | 6 | 5 | 8 | 3 | – | – | 2 | 1 | – | ||||||||||
Manufacturing | 162 | 53 | 83 | 73 | 47 | 4 | 8 | 7 | 21 | 11 | ||||||||||
Construction | 34 | 19 | 23 | 17 | 15 | 3 | 2 | 3 | 2 | 1 | ||||||||||
Property | 141 | 27 | 16 | 23 | 4 | 3 | 2 | 10 | 6 | 1 | ||||||||||
Energy and water | 2 | 1 | – | 1 | 22 | 4 | – | – | 2 | – | ||||||||||
Wholesale and retail distribution and leisure | 182 | 137 | 109 | 120 | 85 | 8 | 7 | 12 | 14 | 25 | ||||||||||
Transport | 14 | 10 | 13 | 11 | 29 | 1 | 1 | 1 | 10 | |||||||||||
Postal and communication | 23 | 3 | 3 | 5 | 15 | – | – | – | – | – | ||||||||||
Business and other services | 197 | 153 | 83 | 124 | 83 | 5 | 10 | 22 | 17 | 14 | ||||||||||
Home loans | 16 | 4 | 1 | – | 2 | – | 1 | 1 | 7 | 4 | ||||||||||
Other personal | 705 | 960 | 1,164 | 1,351 | 992 | 13 | 88 | 96 | 107 | 92 | ||||||||||
Finance lease receivables | 19 | 53 | 24 | – | 3 | 4 | 8 | – | – | 1 | ||||||||||
1,569 | 1,514 | 1,530 | 1,746 | 1,302 | 48 | 131 | 154 | 178 | 160 | |||||||||||
Overseas | 1,811 | 1,405 | 433 | 428 | 285 | 102 | 43 | 73 | 81 | 62 | ||||||||||
Total | 3,380 | 2,919 | 1,963 | 2,174 | 1,587 | 150 | 174 | 227 | 259 | 222 |
116 |
Risk management
Statistical information
continued
Table 28: Total impairment allowance/(provision) coverage of credit risk loans | ||||||||||
2009 % | 2008 % | 2007 % | 2006 % | 2005 % | ||||||
United Kingdom | 55.1 | 50.7 | 56.6 | 64.2 | 64.6 | |||||
Other European Union | 40.3 | 41.8 | 60.9 | 65.1 | 70.1 | |||||
United States | 50.1 | 31.8 | 9.5 | 64.9 | 52.8 | |||||
Africa | 34.3 | 39.5 | 62.1 | 73.2 | 74.3 | |||||
Rest of the World | 81.3 | 49.2 | 86.5 | 100.0 | 68.7 | |||||
Total coverage of credit risk loans | 48.2 | 41.9 | 39.1 | 65.6 | 66.2 |
Table 29: Total impairment allowance/(provision) coverage of potential credit risk lending (CRLs and PPLs) | ||||||||||
2009 % | 2008 % | 2007 % | 2006 % | 2005 % | ||||||
United Kingdom | 49.4 | 44.0 | 51.8 | 57.3 | 54.6 | |||||
Other European Union | 34.8 | 29.5 | 55.1 | 61.0 | 65.9 | |||||
United States | 45.1 | 29.2 | 7.6 | 57.1 | 50.4 | |||||
Africa | 30.5 | 37.1 | 43.4 | 51.5 | 57.8 | |||||
Rest of the World | 48.9 | 45.5 | 86.5 | 91.0 | 67.6 | |||||
Total coverage of potential credit risk lending | 41.9 | 36.2 | 33.0 | 57.0 | 56.2 |
117 |
Risk management
The Group’s operations, including its overseas offices, subsidiaries and associates, are subject to a significant body of rules and regulations that are a condition for authorisation to conduct banking and financial services business, and constrain business operations.operations and affect financial returns. These include reserve and reporting requirements and conduct of business regulations. These requirements are imposed by the relevant central banks and regulatory authorities that supervise the Group in the jurisdictions in which it operates. The requirements reflect global standards developed by, among others, the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions. They also reflect requirements derived from EU directives.
In the UK, the FSAFinancial Services Authority (FSA) is the independent body responsible for the regulation and supervision of deposit taking, life insurance, home mortgages, general insurance and investment business. Barclays Bank PLC is authorised by the FSA under the Financial Services and Markets Act 2000 to carry on a range of regulated activities within the UK and is subject to consolidated supervision by the FSA. In its role as supervisor, the FSA seeks to ensuremaintain the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers.customers and the financial system. The FSA’s continuing supervision of financial institutions 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.
The FSA adopts a risk-based approach to supervision. The starting point for supervision of all financial institutions is 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, limits on large exposures to individual entities and groups of closely connected entities, liquidity and rules of business conduct.
The Banking Act 2009 (the Banking Act) provides a permanent regime to allow the FSA, the UK Treasury and the Bank of England to resolve failing banks in the UK. Under the Banking Act, these authorities are given powers, including (a) the power to issue share transfer orders pursuant to which all or some of the securities issued by a bank may be transferred to a commercial purchaser or Bank of England entity and (b) the power to transfer all or some of the property, rights and liabilities of the UK bank to a purchaser or Bank of England entity. A share transfer order can extend to a wide range of securities including shares and bonds issued by a UK bank (including Barclays Bank PLC) or its holding company (Barclays PLC) and warrants for such shares and bonds. The Banking Act powers apply regardless of any contractual restrictions and compensation may be payable in the context of both share transfer orders and property appropriation.
The Banking Act also gives the Bank of England the power to override, vary or impose contractual obligations between a UK bank or its holding company and its former group undertakings for reasonable consideration, in order to enable any transferee or successor bank of the UK bank to operate effectively. There is also power for the Treasury to amend the law (excluding provisions made by or under the Banking Act) for the purpose of enabling it to use the regime powers effectively, potentially with retrospective effect. In addition, the Banking Act gives the Bank of England statutory responsibility for financial stability in the UK and for the oversight of payment systems.
Banks, insurance companies and other financial institutions in the UK are subject to a single financial services compensation scheme (the Financial Services Compensation Scheme)Scheme—FSCS) where an authorised firm is unable or is likely to be unable to meet claims made against it because of its financial circumstances. 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.FSCS. Most claims made in respect of 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 FSCS is funded by levies on authorised UK firms such as Barclays Bank PLC. In the event that the FSCS raises funds, raises those funds more frequently or significantly increases the levies to be paid by firms, the associated costs to the Group may have a material impact on the Group’s results and financial condition. Further details can be found in the “Competition and Regulatory Matters” note to the financial statements on page 222.
Outside the UK, the Group has operations (and main regulators) located in continental Europe, in particular France, Germany, Spain, Switzerland, Portugal and Italy (local central banks and other regulatory authorities); Asia Pacific (various regulatory authorities including the Hong Kong Monetary Authority, the Financial Services Agency of Japan, the Australian Securities and Investments Commission, , the Monetary Authority of Singapore, the China Banking Regulatory Commission and the Reserve Bank of India); Africa and the Middle East (various regulatory authorities including the South African Reserve Bank and the Financial Services Board and the regulatory authorities of the United Arab Emirates) and the United States of America (including the Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of the Currency (OCC) and the Securities and Exchange Commission)Commission (SEC)).
In Europe, the UK regulatory agenda is considerably shaped and influenced by the directives emanating from the EU. 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 EU 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. Barclays operations in Europe are authorised and regulated by a combination of both home (the FSA) and host regulators.
Barclays operations in South Africa, including Absa Group Limited, are supervised and regulated by the South African Reserve Bank (SARB) and the Financial Services Board (FSB). SARB oversees the banking industry and follows a risk-based approach to supervision whilst the FSB oversees the non-banking financial services industry and focuses on enhancing consumer protection and regulating market conduct.
In the United States, Barclays PLC, Barclays Bank PLC and Barclays’Barclays US banking subsidiaries are subject to a comprehensive regulatory structure involving numerous statutes, rules and regulations. Barclays Bank PLC’s branches in New York and Florida are licensed by, and subject to regulation and examination by, their respective licensing authorities, the New York State Banking Department and the Florida Office of Financial Regulation. Barclays Bank PLC also operates a federal agency in California that is licensed by and subject to regulation and examination by the OCC. Barclays Global Investors, NA is a federally chartered trust company subject to regulation and examination by the OCC. Barclays Bank Delaware is a Delaware-chartered commercial bank subject to regulation and examination by the Federal Deposit Insurance Corporation and the Delaware State Banking Commissioner. In addition, the FRB is the primary US federal regulator for the New York and Florida branches and also exercises umbrella regulatory authority over Barclays other US operations. The regulation of Barclays and its US banking subsidiaries imposes restrictions on the activities of Barclays, including its US banking subsidiaries and Barclays Bank PLC’s US branches and agencies, as well as prudential restrictions, such as limits on extensions of credit by the Barclays Bank PLC’s US branches and agencies and the US banking subsidiaries to a single borrower and to Barclays subsidiaries and affiliates.
The licensing authority of each US branch has the authority, in certain circumstances, to take possession of the business and property of Barclays Bank PLC located in the state of the office it licenses. Such circumstances generally include violations of law, unsafe business practices and insolvency. As long as Barclays Bank PLC maintains one or more federal branches or agencies, the OCC also has the authority to take possession of the US operations of Barclays Bank PLC under similar circumstances, and this federal power may pre-empt the state insolvency regimes that would otherwise be applicable to Barclays Bank PLC’s state-licensedstate licensed branches. As a result, if the OCC exercised its authority over the US agency of Barclays Bank PLC pursuant to federal law in the event of a Barclays Bank PLC insolvency, all of Barclays Bank PLC’s US assets would most likely be applied first to satisfy creditors of its US branches and agencies as a group, and then made available for application pursuant to any UK insolvency proceeding.
In addition to the direct regulation of Barclays US banking offices, Barclays US operations subject Barclays to regulation by the FRB under various laws, including the International Banking Act of 1978 and the Bank Holding Company Act of 1956 (BHC Act). Barclays PLC, Barclays Bank PLC and Barclays Group US Inc. are bank holding companies registered with the FRB. Each has elected to be treated as a financial holding company under the BHC Act. Financial holding companies may engage in a broader range of financial and related activities than are permitted to banking organisationsregistered bank holding companies that do not maintain financial holding company status, including underwriting and dealing in all types of securities. To maintain the financial holding company status of each of Barclays PLC, Barclays Bank PLC and Barclays Group US Inc., Barclays Bank PLC is required to meet or exceed certain capital ratios and to be deemed to be “well managed” and Barclays Bank Delaware and Barclays Global Investors, NA must also meet certain capital requirements, and be deemed to be “well managed”. Barclays Bank Delaware must also and have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.
Barclays is required to obtain the prior approval of the FRB before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting securities of any US bank or bank holding company. Under current FRB policy, Barclays is required to act as a source of financial strength for Barclays Bank Delaware. This policy could, among other things, require Barclays to inject capital into any of its US banking subsidiariesBarclays Bank Delaware if they becomeit becomes undercapitalised. A major focus of US governmental policy relating to financial institutions in recent years has been combating money laundering and terrorist financing and enforcing compliance with US economic sanctions. Regulations applicable to US operations of Barclays Bank PLC and its subsidiaries impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to ensure compliance with US economic sanctions against designated foreign
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countries, nationals and others. Failure of a financial institution to maintain and implement adequate programmes to combat money laundering and terrorist financing or to ensure economic sanction compliance could have serious legal and reputational consequences for the institution. See Financial Statement Note 36 to the financial statements for further discussion of competition and regulatory matters.
Barclays investment banking operations are subject to regulations that cover all aspects of the securities business, including:
– Sales Methods
– Trade practices among broker-dealers
– Use and safekeeping of customers’ funds and securities
– Capital structure
– Record-keeping
– The financing of customers’ purchases
– Procedures for compliance with US securities law
– The conduct of directors, officers and employees
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Risk management Supervision and regulation continued |
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Barclays Capital Inc. and the other subsidiaries that conduct these operations are regulated by a number of different government agencies and self-regulatory organizations, including the Securities and Exchange CommissionSEC and the Financial InstitutionIndustry Regulatory Authority (FINRA). Depending upon the specific nature of a broker-dealer’s business, it may also be regulated by some or all of the New York Stock Exchange (NYSE), the Municipal Securities Rulemaking Board, the US Department of the Treasury, the CommoditiesCommodity Futures Trading Commission and other exchanges of which it may be a member. In addition, the US states, provinces and territories have local securities commissions that regulate and monitor activities in the interest of investor protection. These regulators have available a variety of sanctions, including the authority to conduct administrative proceedings that can result in censure, fines, the issuance of cease-and-desist orders or the suspension or expulsion of the entity or its directors, officers or employees.
Barclays Bank PLC and Barclays Capital Energy, Inc. are authorised by the U.S. Federal Energy Regulatory Commission (FERC) to sell wholesale physical power at market-based rates. As FERC authorised power marketers and as buyers and sellers of natural gas, Barclays Bank PLC and Barclays Capital Energy, Inc. are subject to regulation under The U.S. Federal Power Act, The U.S. Natural Gas Act and The U.S. Energy Policy Act of 2005 and applicable FERC orders, rules and regulations thereunder.
Barclays subsidiaries in the US are also subject to regulation by applicable federal and state regulators of their activities in the asset management, investment advisory, mutual fund and mortgage lending businesses.servicing business.
Regulatory Developments
In the wake of the financial crisis there will be regulatory change that will have a substantial impact on all financial institutions, including the Group. The full extent of this impact and its timing is not yet clear. Programmesfully clear, with reform programmes being developed at global, EU and national level. A programme to reform the global regulatory framework werewas agreed first by G8 Finance Ministers in April 2008 and subsequently by G20 Heads of Government in April 2009, building on an agreement that had been reached by the G20 in November 2008. InThe EU is following a similar programme of reform following the EU, Finance Ministers agreed a roadmap for regulatory reform in May 2008.2008 ‘roadmap’ and implementing G20 requirements. There is a substantial degree of commonality to these programmes covering issues of capital and liquidity regulation, risk management and accounting standards. These programmes will be further developed and implemented in 2009.
InThe Financial Stability Board (FSB) has been designated by the UK, in responseG20 as the body responsible for co-ordinating the delivery of the reform programme. It has initiated work developing guidelines for the supervision of systemically significant institutions. It is required to present its proposals to the financial crisis,November 2010 meeting of G20 Heads of Government. The FSB is also working on approaches to the Chairmanresolution of systemically significant institutions that will include the preparation of Recovery and Resolution Plans, sometimes called ‘living wills’. Further detail is awaited from the FSB, although the FSA has been requestedinitiated a pilot project with a group of large UK banks.
In execution of the mandate given by the ChancellorG20 and the FSB, the Basel Committee on Banking Supervision has agreed on increased capital requirements for trading book activities to be introduced from the end of 2010. In December 2009, the Basel Committee issued proposals for consultation on enhanced capital and liquidity requirements. These proposals would refine the definition of regulatory capital to have a greater focus on core equity, would enhance capital requirements in respect of counterparty risk, introduce measures to make capital requirements less procyclical, establish a leverage ratio and require banks to hold greater buffers of high quality liquid instruments. The Basel Committee will conduct a quantitative impact study on its proposals in the course of the Exchequerfirst half of 2010, with a view to undertake a reviewfinalising its requirements by the end of banking regulation. the year and with the aim of commencing the transition to the new capital and liquidity regime from the end of 2012.
The ChancellorBasel Committee’s trading book proposals are being implemented in the EU by amendment to the Capital Requirements Directive (CRD). The CRD has also been amended to tighten the definition of hybrid capital and the operation of the large exposures regime in relation to interbank transactions. The EU has indicated that heit will be presenting a White Paper on the supervision of banking in spring 2009 with the expectation that proposals for legislation will be presented to Parliament. He has also commissioned Sir David Walker to review the corporate governance of the UK banking industry. The results of this review are expected before the end of 2009. The FSA has re-examined its regulatory requirements and processes, substantially increasing regulatory capital requirements in October 2008. It has also been undertaking a Supervisory Enhancement Programme that will increase both the resources devoted to supervision and the intensity of supervision.
On 21st February 2009, the Banking Act 2009 came into force which provides a permanent regime to allow the FSA, the UK Treasury and the Bank of England (the ‘Tripartite Authorities’) to resolve failing banks in the UK. The Banking Act aims to balance the need to protect depositors and prevent systemic failure with the potentially adverse consequences that using powers to deal with those events could have on private law rights, and, as a consequence, wider markets and investor confidence.
These powers, which apply regardless of any contractual restrictions, include (a) power to issue share transfer orders pursuant to which there may be transferred to a commercial purchaser or Bank of England entity, all or some of the securities issued by a bank. The share transfer order can extend to a wide range of ‘securities’ including shares and bonds issued by a UK Bank (including Barclays Bank PLC) or its holding company (Barclays PLC) and warrants for such and (b) the power to transfer all or some of the property, rights and liabilities of the UK bank to a purchaser or Bank of England entity. In certain circumstances encumbrances and trusts can be over-reached. Power also exists to override any default provisions in transactions otherwise affected by these powers. Compensation may be payable in the context of both share transfer orders and property appropriation. In the case of share transfer orders any compensation will be paid to the person who held the security immediately before the transfer, who may not be the encumbrancer.
The Banking Act also vests power in the Bank of England to override, vary or impose contractual obligations between a UK bank or its holding company and its former group undertakings (as defined in the Banking Act), for reasonable consideration, in order to enable any transferee or successor bank of the UK bank to operate effectively. There is also power for the Treasury tofurther amend the law (save forCRD to implement revised global standards on capital adequacy and on liquidity that are being consulted on by the Basel Committee. The EU will also conduct a provision made by or under the Banking Act) by order for the purpose of enabling it to use the special resolution regime powers effectively, potentially with retrospective effect. The Banking Act also gives the Bank of England statutory responsibility for financial stability in the UK and for the oversight of payment systems.
AmendmentsEurope-focused quantitative impact study. In addition, other amendments are being made to the EU framework of directives, including to the Capital Requirements Directive and to the Directive on Deposit Guarantee Schemes. Further amendments to EU regulatory requirements are likely as the EU develops its response to the financial crisis, including the structure of the regulatory system in Europe as proposed in the report of a high-level Commission group published on 25in February 2009. Among other things, it is proposed by the end of 2010 to create a European Banking Authority charged with the development of a single rulebook for banks in the EU. National authorities will remain responsible for the supervision of financial institutions.
In the UK, the Treasury issued a White Paper ‘Reforming Financial Markets’ in July 2009 that foreshadowed the introduction of a Financial Services Bill in November. The Financial Services Bill will among other things create a Council for Financial Stability to co-ordinate the activities of the UK tripartite authorities (HM Treasury, the FSA and the Bank of
England) to deal with issues related to financial stability and systemic risk. It will also place a duty on the FSA to make rules requiring financial institutions to create and maintain Recovery and Resolution plans, require the FSA to make general rules about remuneration policies of regulated firms, give the FSA a wider authority to prohibit short selling and permit collective court actions as a means by which redress can be sought in cases where there has been a mass failure of practice that has affected significant numbers of consumers. The Financial Services Bill is currently going through the Parliamentary process and its likely final shape remains uncertain. In response to the Introduction of the Financial Services Bill, the Conservative Party indicated in July 2009 that, were it to have a majority following the General Election that must take place by early June 2010, it would transfer responsibility for prudential supervision to the Bank of England and create a Consumer Protection Agency to focus on issues of business conduct.
The Chancellor of the Exchequer commissioned two major reviews of the regulation of banks that reported in 2009. Lord Turner, the Chairman of the FSA was requested to undertake a review of banking regulation, while Sir David Walker was asked to review the corporate governance of financial institutions. The Turner Review, published in March 2009, sets out a comprehensive approach to reform the regulation of banks, and for higher standards of capital, liquidity and risk management. It also sets out a more intensive and intrusive approach to supervision. This was already in development as part of the FSA’s Supervisory Enhancement Programme that has seen an increase in the resources devoted to supervision, the intensity of supervision and the penalties that may be applied in any enforcement action. Pending international agreement, the FSA has unilaterally set minimum capital requirements that are very substantially increased from pre-crisis levels. Similarly, the FSA is introducing a regulatory liquidity regime in advance of international agreement on the Basel proposals. The Walker Review, published in November 2009, sets out proposals for reforms to the corporate governance of financial institutions. The Financial Services Bill referred to above will give the FSA enabling powers to implement some of these.
In the United States, the FDIC has established a Temporary Liquidity Guarantee Program (TLGP) for eligible institutions including, among others, US bank holding companies and FDIC-insured depository institutions, unless they opted out. Under the TLGP, the FDIC will insureinsures the entire amount of non-interest bearing transaction account deposits of eligible institutions until December 31, 2009June 30th, 2010 and certain senior unsecured debt of eligible institutions issued before June 30 2009.Barclaysth, 2009 (later extended to October 31st, 2009). Barclays Bank Delaware and Barclays Group US, Inc. are eligible to participate in the TLGP, and they have opted in. Barclays PLC and Barclays Bank PLC, as non-US banks or bank holding companies, arewere not eligible to participate in the TLGP. The US Department of the Treasury has invested approximately $250 billion in the capital of US depository institutions and depository institution holding companies through a Capital Purchase Program authorized under the US Emergency Economic Stabilization Act of 2008 and is expected to continue to make capital investments under the authority of this act. Barclays, as a non-US institution, is not eligible for capital investments by the US Treasury under existing programs.
Another recent focus of US governmental policy relating to the financial services sector generally has been on disclosure and sales practices relating to the sector’s subprime mortgage and other lending.
In addition, in the United States, as elsewhere, recent market disruptions and economic conditions have led to numerous proposals for changes to and significant increases in the regulation of the financial services industry. These proposals include: possible limitations on the activities of banking institutions such as prohibitions on engaging in proprietary trading operations that are not related to serving customers; proposals that would subject large and systemically important banks and financial institutions to enhanced regulatory requirements; and financial market and trading reforms such as the Wall Street Reform and Consumer Protection Act 2009, which was passed by the US House of Representatives in December 2009 and which would, if enacted, among other things, increase regulation of over-the-counter derivatives by imposing clearing and execution requirements on swap dealers and major swap market participants. However, given the current environmentthese and status ofother proposals are still under consideration and there is uncertainty as to whether and in what forms such proposals it is difficult to determineultimately may be enacted or adopted and therefore what impact they will have on the natureGroup and form of any regulation that may ariseits businesses in the United States from any such proposals.States. The Obama Administration has also proposed the levying of a Financial Crisis Responsibility Fee (FCRF). The Administration has said that the FCRF will apply to the US subsidiaries of a foreign bank or financial company if the consolidated assets of the US subsidiaries exceed £50bn. As legislation implementing the FCRF has not yet been proposed, the impact of the FCRF on the Group cannot yet be determined.
The credit card-related activities of the Group in the US will be significantly affected by the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act) which was passed by Congress. The Credit CARD Act will have the effect of restricting many credit card pricing and marketing practices. Among the numerous provisions, which come into effect at various times through August 2010, are those that prohibit increasing rates on existing balances and over limit fees in most instances, restrict increasing fees and rates prospectively, restrict what penalty fees can be assessed, regulate how payments are to be allocated to different balances and how the billing process is to work, and revises all communications to cardholders.
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Board and Executive Committeeexecutive committee
1. Marcus Agius
Group Chairman (Age 62)
Marcus has anMarcus’ extensive background in banking having workedbegan at Lazard where he worked from 1972 to 2006.2006, latterly as Chairman of Lazard in London and Deputy Chairman of Lazard LLC. He also has experiencewas Chairman of chairing large organisations, including BAA plc until 2006 and Lazard in London. Marcus is currently Senior Independent Director of the British Broadcasting Corporation (BBC). and Chairman of the Trustees of The Royal Botanic Gardens.
Term of officeoffice: Marcus joined the Board in September 2006 as a non-executive Director and was appointed Group Chairman on 1st January 2007. Marcus was last re-elected by shareholders at the AGM in 2007, following his appointment.2009.
IndependentIndependent:On appointment
External appointmentsappointments: Senior Independent Director of the BBC since 2006. Trustee toChairman of the BoardTrustees of the Royal Botanic Gardens, Kew. Chairman of The Foundation and Friends of the Royal Botanic Gardens, Kew. Chairman of Lazard in London and Deputy Chairman of Lazard LLC until 2006.
Chairman of BAA plc until 2006.
Committee membershipmembership:Chairman of the Board Corporate Governance and Nominations Committee since January 2007. Member of the Board HR and Remuneration Committee since January 2007.
Sir Richard has experience of both the private and public sector having worked in high-level banking roles and the Civil Service. He was the Executive Chairman of HM Customs and Excise from 2000 to 2003. Formerly a member of the Group Executive Committee of Schroders PLC and a non-executive Director of the Securities Institute.
Sir Richard is Chairman of Arriva PLC.
2. David BoothTerm of office:Sir Richard joined the Board in September 2003. Appointed Senior Independent Director on 1st September 2004 and Deputy Chairman on 16th July 2009. Sir Richard was last re-elected by shareholders at the AGM in 2009.
Independent: Yes
External appointments: Chairman of Arriva PLC since 2004. Executive Chairman of HM Customs and Excise until 2003. Former Group Executive Committee member of Schroders PLC. Non-executive Director (Age 54) of the Securities Institute until 1995.
Committee membership:Member of the Board Risk Committee since April 2004 (Chairman January 2006 to December 2009). Chairman of the Board HR and Remuneration Committee since January 2007 (member since April 2004). Member of the Board Corporate Governance and Nominations Committee since September 2004.
David currently manages his own venture capital investments, having retired from the Management Committee of Morgan Stanley in 1997. David was employed by Morgan Stanley from 1982 to 1992, and again from 1995 to 1997. He held various key positions there, including Head of Government Bond Trading, Head of Mortgage Trading, Sales and Finance and Head of Global Operations and Technology.
Term of officeoffice:David joined the Board in May 2007. David was last re-elected by shareholders at the AGM in 2008, following his appointment.2009.
IndependentIndependent:Yes
External appointmentsappointments: Director of East Ferry Investors, Inc., Trustee of the Brooklyn Botanic Garden. Chair of the Brooklyn Botanic Garden Investment Committee. Various positions at Morgan Stanley & Co. until 1997. Director of the Discount Corporation of New York until 1993.
Committee membershipmembership: Member of the Board Risk Committee since January 2008.
3. Sir Richard Broadbent
Senior Independent Director (Age 55)
Sir Richard has experience of both the private and public sector having worked in high-level banking roles and the Civil Service. He was the Executive Chairman of HM Customs and Excise from 2000 to 2003 and was formerly a member of the Group Executive Committee of Schroders PLC and a non-executive Director of the Securities Institute. Sir Richard is Chairman of Arriva PLC.
Term of office Sir Richard joined the Board in September 2003 and was appointed Senior Independent Director on 1st September 2004. Sir Richard was last re-elected by shareholders at the AGM in 2006.
Independent Yes
External appointments Chairman of Arriva PLC since 2004. Executive Chairman of HM Customs and Excise until 2003. Former Group Executive Committee member of Schroders PLC. Non-executive Director of the Securities Institute until 1995.
Committee membershipChairman of the Board Risk Committee since January 20062010 (member since April 2004). Chairman of the Board HR and Remuneration Committee since January 2007 (member since April 2004)2008). Member of the Board Corporate Governance and Nominations Committee since September 2004.January 2010.
4. Leigh Clifford, AO
Non-executive Director (Age 61)
Leigh is Chairman of Qantas Airways Limited. He previously worked forLimited, a Director of Bechtel Group Inc, Chairman of Bechtel Australia Pty Ltd and Senior Adviser to Kohlberg, Kravis, Roberts and Co. Leigh joined the Rio Tinto Group where hein 1970 and was a Director of Rio Tinto PLCplc from 1994 and Rio Tinto Limited from 1995, and was Chief Executive of the Rio Tinto Group from 2000 until 2007.
Term of officeoffice:Leigh joined the Board in October 2004. Leigh was last re-elected by shareholders at the AGM in 2007.2009.
IndependentIndependent:Yes
External appointmentsappointments:Chairman of Qantas Airways Limited since November 2007. MemberChairman of the Bechtel BoardAustralia Pty Ltd since July 2009. Director of CounsellorsBechtel Group Inc since May 2007.July 2009. Senior Adviser to Kohlberg Kravis Roberts & Co since January 2009. DirectorChairman of the Murdoch Children’sChildrens Research Institute.Institute since December 2009. Board Member of the National Gallery of Victoria Foundation. Chief Executive of Rio Tinto from 2000 until 2007. Director of Freeport-McMoran Copper & Gold Inc. until 2004.
Committee membershipmembership:Member of the Board HR and Remuneration Committee since July 2005. Member of the Barclays Asia Pacific Advisory Committee.
5. Fulvio Conti
Non-executive Director (Age 61)
Fulvio is currently Chief Executive Officer and General Manager of Enel SpA, the Italian energy group, where he was previously Chief Financial Officer from 1999-2005. Fulvio has held a number of high-level financial roles, including Chief Financial Officer and General Manager of Telecom Italia and General Manager and Chief Financial Officer of Ferrovie dello Stato, the Italian national railway.Stato. He was also head of the accounting, finance, and control department of Montecatini and was in charge of finance at Montedison-Compart, overseeing the financial restructuring of the group.Montedison-Compart. He has held positions in finance and operations in various affiliates of Mobil Oil Corporation in Italy and Europe.
Term of officeoffice:Fulvio joined the Board in April 2006. Fulvio was last re-elected by shareholders at the AGM in 2008.2009.
IndependentIndependent:Yes
External appointmentsappointments:Chief Executive of Enel SpA since 2005. Director of ENDESA SA since June 2009. Director of AON Corporation
since January 2008. Chief Financial Officer and General Manager of Telecom Italia until 1999. General Manager and Chief Financial Officer of Ferrovie dello Stato until 1998.
Committee membershipmembership:Member of the Board Audit Committee since September 2006.
6. Professor Dame Sandra Dawson
Non-executive Director (Age 62)
Sandra is KPMG ProfessorSimon has extensive experience of Management Studiesthe institutional fund management industry, having worked at Fidelity International from 1981 to 2008, latterly as President of the UniversityInvestment Solutions Group and President of Cambridgethe Retirement Institute. Simon held a number of positions during his career at Fidelity International, including President, European & UK Institutional Business, Global Chief Investment Officer, Chief Investment Officer for Asia Pacific and MasterChief Investment Officer of Sidney Sussex College, Cambridge. Sandra wasthe European Investment Group. Simon remains a Director of the Judge Business School at Cambridge until September 2006Fidelity European Values PLC and she has held a range of non-executive posts in organisations including Rand Europe (UK), JP Morgan Fleming Claverhouse Investment Trust and Riverside Mental Health Trust.Fidelity Japanese Values PLC.
Term of officeoffice: SandraSimon Fraser joined the Board in March 2003. Sandra will retire from the Board2009. Simon was last reelected by shareholders at the 2009 AGM in April.2009.
IndependentIndependent:Yes
External appointmentsappointments: KPMG ProfessorDirector of Management Studies, UniversityFidelity European Values PLC since July 2002. Director of CambridgeFidelity Japanese Values PLC since 1995. MasterMay 2000. Director of Sidney Sussex College, CambridgeThe Merchants Trust PLC since 1999.August 2009. Director and TrusteeChairman Designate of Oxfam since 2006. Deputy Vice Chancellor, University of Cambridge since 2008. Chairman, Executive Steering Committee, ESRC Advanced Institute of Management. Director of Cambridge Econometrics until 2007. Director of Judge Business School, University of Cambridge until 2006. Director of Rand Europe (UK) until 2004. Director of JP Morgan Fleming ClaverhouseForeign & Colonial Investment Trust until 2003.PLC since September 2009.
Committee membershipmembership:Member of the Board Audit Committee since August 2003.May 2009. Member of the Board HR and Remuneration Committee since May 2009.
Reuben is a Senior Adviser at the Center for Strategic & International Studies in Washington, D.C. and previously served in the US government as Under Secretary of State for Economic, Energy and Agricultural Affairs (2007-2009). Prior to joining the Department of State, Reuben was the Chairman of the Commodity Futures Trading Commission (2005-2007) and before that held a number of positions in US government service (2002-2005). He spent 18 years at Goldman, Sachs & Co. between 1983-2001, where he was managing partner of Goldman Sachs in Paris and of the firm’s European Financial Institutions Group in London.
Term of office:Reuben Jeffery joined the Board in July 2009.
7. Sir Andrew LikiermanIndependent:Yes
Non-executive Director (Age 65)External appointments:Senior Adviser at the Center for Strategic & International Studies, Washington D.C.
Committee membership:Member of Board Risk Committee since January 2010.
Sir Andrew is Chairman of the National Audit Office, having held a number of public roles in the financial services sector, including Managing Director, Financial Management, Reporting and Audit and Head of the Government Accountancy Service at HM Treasury and non-executive Director of the Bank of England. Sir Andrew is also Dean of the London Business School where he was previously Professor of Management Practice in Accounting.School. He has been at the London Business School from 1974-1976, 1979-1993 and since 2004.
Term of officeoffice:Sir Andrew joined the Board in September 2004. Sir Andrew was last re-electedreelected by shareholders at the AGM in 2007.2009.
IndependentIndependent:Yes
External appointmentsappointments:Dean of the London Business School since January 2009.
Chairman of the National Audit Office since December 2008. DirectorTrustee of the Institute for Government since September 2008.
Chairman of Applied Intellectual Capital Inc. until 2008. Non-executive Director of the Bank of England until 2008. Non-executive Director and Vice-Chairman of the Tavistock and Portman NHS Trust until 2008. Non-executive Director and Chairman of the MORI Group until 2005. Managing Director, Financial Management, Reporting and Audit and Head of the Government Accountancy Service at HM Treasury until 2004.
Committee membershipmembership:Member of the Board Audit Committee since September 2004. Member of the Board Risk Committee since September 2004.
8. Sir Michael Rake
Non-executive Director (Age 61)
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Board and executive committee
continued
Sir Michael is currently Chairman of BT Group PLC, and Chairman of the UK Commission for Employment and Skills.Skills and Chairman of easyJet plc. Sir Michael previously worked at KPMG from 1974-2007 where he worked forspent a number of years in Continental Europe and the Middle East. He was Senior Partner of the UK firm from 1998-2000 and Chairman of KPMG International from 2002-2007.
Term of officeoffice:Sir Michael joined the Board in January 2008. Sir Michael was last re-electedreelected by shareholders at the AGM in 2008, following his appointment.2009.
IndependentIndependent:Yes
External appointmentsappointments:Chairman of BT Group PLC since 2007. Chairman of easyJet plc since January 2010 (Deputy Chairman June 2009-December 2009). Director of the Financial Reporting Council since 2007. Chairman of the UK Commission for Employment and Skills since 2007. Director of the McGraw-Hill Companies since 2007. Chairman of KPMG International until 2007. Chairman of Business in the Community from 2004 until 2007.
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Committee membershipmembership: MemberChairman of the Board Audit Committee since March 2009 (member since January 2008. He will succeed Stephen Russell as Chairman2008). Member of the Board AuditRisk Committee in Marchsince May 2009.
9. Sir Nigel Rudd, DL
Deputy Chairman
Non-executive Director (Age 62)
Sir Nigel is non-executive Chairman of Pendragon PLC and BAA Limited. He is also Deputy Chairman of Invensys plc and a non-executive Director of BAE Systems PLC and Sappi Limited. He was formerly Chairman of Alliance Boots PLC.
Term of office Sir Nigel joined the Board in February 1996 and was appointed Deputy Chairman in September 2004. Sir Nigel will retire from the Board at the 2009 AGM in April.
Independent Yes
External appointments Chairman of Pendragon PLC since 1989. Non-executve Director and Deputy Chairman of Invensys plc since January 2009. Chairman of Alliance Boots PLC until 2007. Director of Pilkington PLC until 2006. Director of Kidde PLC until 2003.
Committee membership Member of the Board Corporate Governance and Nominations Committee since October 2001. Chairman of the Barclays Brand and Reputation Committee.May 2009.
10. Stephen Russell
Non-executive Director (Age 63)
Stephen was Chief Executive of Boots Group PLC from 2000 until 2003, having worked for Boots since 1967. He has held a number of non-executive positions and is currently a non-executive Director of Network Rail and Network Rail Infrastructure Limited. He is a trustee of St. John’s Ambulance and Tommy’s the Baby Charity, is on the Council of Nottingham University andSir John is Chairman of Business Control Solutions Group.
Term of office Stephen joined the Board in October 2000 on completion of the acquisition of Woolwich PLC. Stephen was last re-elected by shareholders at the AGM in 2007.
Independent Yes
External appointments Non-executive Director of Network Rail since September 2007. Trustee of St John’s Ambulance since 2005. Chairman of Business Control Solutions Group since 2005. Trustee of Tommy’s the Baby Charity since 2003. Member of the Council of Nottingham University since 2003. Chief Executive of Boots Group PLC until 2003.
Committee membership Chairman of the Board Audit Committee since April 2003 (member since October 2000). He will be succeeded by Sir Michael Rake as Chairman of the Board Audit Committee in March 2009. Member of the Board Corporate Governance and Nominations Committee since September 2004. Member of the Board Risk Committee since October 2001 (Chairman from September 2004-December 2005).
11. Sir John Sunderland
Non-executive Director (Age 63)
Sir JohnMerlin Entertainments Limited. Until July 2008 he was Chairman of Cadbury Schweppes PLC, until July 2008 having worked at Cadbury’s in various roles, including that of Chief Executive, since 1968. He is Deputy President of the Chartered Management Institute, a Director of the Financial Reporting Council, an Adviser to CVC Capital Partners, an Association Member of BUPA and a Governor of both Reading and Aston University Councils.
Term of officeoffice:Sir John joined the Board in June 2005. Sir John was last re-elected by shareholders at the AGM in 2008.2009.
IndependentIndependent:Yes
External appointmentsappointments:Chairman of Merlin Entertainments Limited since December 2009. Deputy President of the Chartered Management Institute since 20082008-2009 (President 2007-2008). Director of the Financial Reporting Council since 2004. Adviser to CVC Capital Partners. Association Member of BUPA. Governor, Aston University Council. Governor, Reading University Council. Chairman of Cadbury Schweppes PLC until July 2008. Deputy President of the CBI tountil June 2008 (member since 2003(former member and President until December 2006)President). President of ISBA (the Incorporated Society of British Advertisers) until 2005. President of the Food and Drink Federation until 2005. Non-executive Director of the Rank Group PLC until 2006. Former Advisory Board Member of Trinsum Group.
Committee membershipmembership:Member of the Board Corporate Governance and Nominations Committee since September 2006. Member of the Board HR and Remuneration Committee since July 2005.
12. Patience Wheatcroft
Non-executive Director (Age 57)
Patience was an established financial journalist and national newspaper editor, having worked as Editor of the Sunday Telegraph from 2006 to 2007 and Business and City Editor of The Times from 1997-2006. She is a non-executive Director of Shaftesbury PLC, a member of the UK/India Round Table and a member of the British Olympic Association Advisory Board. She is also a member of the Council of the Royal Albert Hall and Chair of the Forensic Audit Panel.
Term of office Patience joined the Board in January 2008. Patience was last re-elected by shareholders at the AGM in 2008 following her appointment.
Independent Yes
External appointments Non-executive Director of Shaftesbury PLC since 2008. Member of the UK/India Round Table. Member of the British Olympic Association Advisory Board since 2007. Member of the Council of the Royal Albert Hall. Chair of the Forensic Audit Panel since 2008. Editor of the Sunday Telegraph until 2007. Business and City Editor of The Times until 2006.
Committee membership Member of the Barclays Brand and Reputation Committee.
13. John Varley
Group Chief Executive
Executive Director and Chairman of Executive Committee (Age 52)
John was appointed Group Chief Executive of Barclays on 1st September 2004, prior to which he had been Group Deputy Chief Executive from 1st January 2004. He joined Barclays in 1982 and has held various positions across the Group, including the position of Group Finance Director from 2000 until the end of 2003. He was Chief Executive of Retail Financial Services from 1998 to 2000 and Chairman of the Asset Management Division from 1995 to 1998. Following the sale of BGI, John is a non-executive Director of BlackRock, Inc. John is also a non-executive Director of AstraZeneca PLC. He is also Chairman of Business Action on Homelessness, President of the Employer’s Forum on Disability, Honorary President of the UK Drug Policy Commission and a member of the International Advisory Panel of the Monetary Authority of Singapore.
Term of officeoffice:John joined the Executive Committee in September 1996 and was appointed to the Board in June 1998. John was last re-elected by shareholders at the AGM in 2007.2009.
External appointmentsappointments:Non-executive Director of BlackRock, Inc since December 2009. Non-executive Director of AstraZeneca PLC since 2006. Non-executive Director of British Grolux Investments Limited since 1999. Chairman of Business Action on Homelessness since 2006. President of the Employer’s Forum on Disability since 2005. Honorary President of the UK Drug Policy Commission since 2007. Member of the International Advisory Panel of the Monetary Authority of Singapore since 2006.
14.
Robert E Diamond Jr
President, Barclays PLC and CEO, Investment Banking and Investment Management
Executive Director and member of Executive Committee (Age 57)
Bob is responsible for the Corporate and Investment Banking and InvestmentWealth Management businessbusinesses of the Barclays Group, comprising of Barclays Capital, Barclays Global InvestorsCorporate and Barclays Wealth. He previously worked for Morgan Stanley and CS First Boston, where heBob was Vice-Chairmanformerly Vice Chairman and Head of Global Fixed Income and Foreign Exchange.Exchange at CS First Boston and he was a member of the Executive Board and Operating Committee of CS First Boston. Following the sale of BGI, Bob is a non-executive Director of BlackRock, Inc.
Term of officeoffice:Bob was appointed President of Barclays PLC and became an executive Director in June 2005. He has been a member of the Barclays Executive Committee since September 1997. Bob was last re-elected by shareholders at the AGM in 2006, following his appointment.2009.
External appointmentsappointments:Non-executive Director of BlackRock, Inc. Chairman, Board of Trustees of Colby College, Waterville, Maine. Chairman, Old Vic Productions PLC since September 2007.Plc. Trustee, The Mayor’s Fund for London. Member of the Advisory Board, Judge Business School. Member of International Advisory Board, British-American Business Council. Life Member of The Council on Foreign Relations. Member of The International Advisory Board, The Atlantic Council.
15. Christopher Lucas
Group Finance Director
Executive Director and member of Executive Committee (Age 48)
Chris has worked across financial services for most of his career, including three years in New York as Head of the US Banking Audit Practice of PricewaterhouseCoopers LLP. Chris joined Barclays from PricewaterhouseCoopers LLP, where he was UK Head of Financial Services and Global Head of Banking and Capital Markets. He was Global Relationship Partner for Barclays for the 1999–20041999-2004 financial years and subsequently held similar roles for other global financial services organisations.
Term of officeoffice:Chris was appointed Group Finance Director and became a member of the Executive Committee in April 2007. Chris was last re-elected by shareholders at the AGM in 2007, following his appointment.2009.
External appointmentsappointments:UK Head of Financial Services and Global Head of Banking and Capital Markets of PricewaterhouseCoopers LLP until 2006.
16. Frederik (Frits) Seegers
Chief Executive, Global Retail and Commercial Banking
Executive Director and member of Executive Committee (Age 50)
Frits is responsible for the Global Retail and Commercial Banking business of the Barclays Group, which includes UK Retail Banking, Barclays Commercial Bank, Barclaycard, GRCB – Western Europe, GRCB – Emerging Markets and GRCB – Absa. Frits joined Barclays from Citigroup where he held a number of senior positions over the 17 years he worked there. Most recently, he was CEO Global Consumer Group with a remit covering all retail operations in Europe, the Middle East and Africa. He was also a member of the Citigroup Operating Committee and the Citigroup Management Committee. He was CEO of Consumer Banking for Asia Pacific, covering 11 consumer markets, between 2001 and 2004. Under his leadership, this region was the fastest growing part of Citigroup. Frits was a non-executive Director of Absa Group Limited from 2006 until February 2009.
Term of office Frits joined the Board and the Executive Committee in July 2006. Frits was last re-elected by shareholders at the AGM in 2007, following his appointment.
External appointments Chief Executive Officer of Citigroup International PLC until 2006.
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See page 120 for full biography
See page 120 for full biography
See page 120 for full biography
Jerry is responsible for the firm’s Global Markets businesses, encompassing the Trading, Sales and Research functions globally. He joined Barclays Capital in June 1997 from Bankers Trust in London where he had been a Senior Managing Director of Derivatives Products, responsible for the European business. Prior to this, he was based in Toronto, Canada, where he was responsible for the Canadian Dollar interest rate derivatives business. Before Bankers Trust, he worked for the Bank of Nova Scotia. Jerry currently serves on the Boards of SIFMA (Securities Industry and Financial Markets Association), Room to Read and Queen’s University.
Mark joined Barclays as Group General Counsel in 2003. Included within his area of responsibility are legal and regulatory compliance issues throughout the bank. He chairs the Group Operating Committee and Group Governance and Control Committee. Previously, Mark was a partner in the international law firm, Clifford Chance, where his practice spanned bank finance, capital markets and financial services regulation. He spent four years at UBS as General Counsel of its investment bank. Mark is past Chairman of the General Counsel 100 Group and of the Board of the International Swaps and Derivatives Association (ISDA). He is a Governor of the College of Law.
Antony was appointed Chief Executive of Global Retail Banking and joined the Barclays Executive Committee in November 2009. Prior to that he had been Chief Executive of Barclaycard since January 2006. Antony is a Barclays appointed non-executive Director of Absa, which is majority owned by Barclays. Since October 2008, Antony has been on the Board of Visa Europe Ltd.
Tom joined Barclays in September 1996 after 18 years at JP Morgan where he held a number of roles, including Head of Fixed Income Sales, Trading and Research, and was responsible for all activities with investors in the United States. He has served on the US Treasury Borrowing Advisory Committee and is a former Chair of the US Bond Market Association, a predecessor organisation to SIFMA (Securities Industry and Financial Markets Association).
Robert has been the Chief Risk Officer for Barclays Group since 2004. He first joined Barclays in 2002 as Head of Risk Management at Barclays Capital. Robert is a non-executive Director of Absa, which is majority owned by Barclays. Before joining Barclays, Robert spent most of his career at JP Morgan in the capital markets, fixed income, emerging market and credit areas in New York and London.
Maria is the Group Chief Executive of Absa Group Ltd, which is majority owned by Barclays. Prior to joining Absa on 1st March 2009, she was Group Chief Executive of Transnet Limited, the state-owned South African freight transport and logistics service provider. This was after a successful term as Director-General of the National Treasury (formerly the Department of Finance). Maria is an accomplished academic, who has previously taught at various institutions. She currently serves on the executive committees of the International Business Council, the World Bank Chief Economist Advisory Panel, Business Trust (South Africa), Business Leadership South Africa and the Banking Association of South Africa.
Rich joined Barclays Capital in 1994 and assumed responsibility for several of its support areas. He became Chief Operating Officer (COO) of Barclays Global Investors (BGI) and a member of the BGI Executive Committee in December 2002. In January 2005, Rich was appointed COO of Barclays Investment Banking and Investment Management businesses comprising Barclays Capital, Barclays Wealth and BGI. Prior to joining Barclays Capital, Rich held senior front-office, finance and technology positions at the Bank of Boston and the Bank of New England.
Cathy was appointed as Group Human Resources Director in April 2005 prior to which she held the position as Investor Relations Director for four years. In July 2008 her remit was extended to include Strategy, Corporate Affairs and Brand and Marketing. Prior to Barclays, Cathy was a Practice Leader at Ernst and Young and has previously held roles at Deloitte, Watson Wyatt, Percom and Volex Plc. Cathy is a Council Member of the Royal College of Art and a Board Member of the IFS School of Finance.
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Profit Attributable
The profit attributable to equity shareholders of Barclays PLC for the year amounted to £4,382m,£9,393m, compared with £4,417m£4,382m in 2007.2008.
Dividends
As announced on 13th October 2008, in the light of the new capital ratios agreed with the Financial Services Authority (FSA) and in recognition of the need to maximise capital resources in the current economic climate, the Board concluded that it would not be appropriate to pay aThe final dividend for 2008. The Board intends to resume dividend payments in the second half of 2009, at which time it is intended to pay dividends quarterly. The interim dividend for the year ended 31st December 20082009 of 11.5p1.5p per ordinary share of 25p each has been agreed by the Directors. The final dividend was announced on 16th February 2010 for payment on 19th March 2010 in respect of the ordinary shares registered at the close of business on 26th February 2010. With the interim dividend of 1.0p per ordinary share that was paid on 1st October 2008 and11th December 2009, the total distribution for 20082009 is 11.5p (2007: 34.0p2.5p (2008: 11.5p) per ordinary share).share. The staff shares were re-purchased by the Company during the year. The dividendsinterim and final dividend for the year have absorbed a total of £915m (2007: £2,253m)2009 amounted to £289m (2008: £906m).
Share Capital
At the 2008 Annual General Meeting, shareholders approved the creation of Sterling, Dollar, Euro and Yen preference shares (‘preference shares’)(preference shares) in order to provide the Group with more flexibility in managing its capital resources. As at 27th February 20095th March 2010 (the latest practicable date for inclusion in this report) no preference shares have been issued.
In order to minimise the dilutive effect on existing shareholders of the issuance of 336,805,556 ordinary shares in 2007, at the start of 2008 theThe Company purchased in the market for cancellation 36,150,000 of itsdid not repurchase any ordinary shares of 25p each during 2009 (2008: 36,150,000 at a total cost of £171,923,243 (this was in addition to the 299,547,510 shares purchased for cancellation in 2007)£171,923,243). During 2008 the Company purchased all of its staff shares in issue, following approval for such purchase being given at the 2008 Annual General Meeting, at a total cost of £1,023,054.
As at 27th February 2009,5th March 2010, the Company had an unexpired authority to repurchase ordinary shares up to a maximum of 984,960,000837,620,130 ordinary shares. The authorised ordinary share capital was increased by 7,000 million ordinary shares at the Annual General Meeting held on 23rd April 2009.
The issued ordinary share capital was increased by 1,772m3,040 million ordinary shares during 2008.2009. In addition to those issued as a result of the exercise of options under the Sharesave and Executive Share Option Schemes during the year, the following share issues took place:
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At 31st December 20082009, the issued ordinary share capital totalled 8,371,830,61711,411,577,230 shares. Ordinary shares represent 100% of the total issued share capital as at 31st December 2008.2009. Since 31st December 2009 628.3 million ordinary shares have been issued, of which 626.8 million were issued on exercise of Warrants on 17th February 2010. As at 5th March 2010, issued ordinary share capital was 12,039,880,284.
The Company’s Memorandum and Articles of Association, a summary of which can be found in the Shareholder Information section on pages 305-309,306 to 311, contain the following details, which are incorporated into this report by reference:
– | The structure of the Company’s capital, including the rights and obligations attaching to each class of shares. |
– | Restrictions on the transfer of securities in the Company, including limitations on the holding of securities and requirements to obtain approvals for a transfer of securities. |
– | Restrictions on voting rights. |
– | The powers of the Directors, including in relation to issuing or buying back shares in accordance with the Companies Act |
– | Rules that the Company has about the appointment and removal of Directors or amendments to the Company’s Articles of Association. |
Employee Benefit Trusts (‘EBTs’)(EBTs) operate in connection with certain of the Group’s Employee Share Plans (‘Plans’)(Plans). The Trusteestrustees of the EBTs may exercise all rights attached to the shares in accordance with their fiduciary duties other than as specifically restricted in the relevant Plan governing documents. The trustees of the EBTs have informed the BankCompany that their normal policy is to abstain from voting in respect of the Barclays shares held in trust. The trustees of the Sharepurchase EBT may vote in respect of Barclays shares held in the Sharepurchase EBT, but only at the discretion of the participants. The trustees will not otherwise vote in respect of shares held in the Sharepurchase EBT.
Mandatorily Convertible Notes
On 27th November 2008, Barclays Bank PLC issued £4,050m of 9.75% Mandatorily Convertible Notes (MCNs) maturing on 30th September 2009 toto: Qatar Holding LLC,LLC; Challenger Universal Limited and entities representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan, a member of the Royal Family of Abu Dhabi andDhabi; existing institutional shareholdersshareholders; and other institutional investors. If not converted at the holders’ option beforehand, these instruments mandatorily convertconverted to ordinary shares of Barclays PLC on 30th June 2009. The conversion price iswas £1.53276 and, after taking into account MCNs that were converted on or before 31st December 2008, will resultresulted in the issue of 2,642 million new ordinary shares.
If there is a change of control of Barclays PLC following a takeover bid, Barclays PLC must (so far as legally possible) use all reasonable endeavours to cause the corporation which then controls Barclays PLC to execute a deed poll providing that the holders of the MCNs shall have the right (during the period ending on 30th June 2009) to convert the MCNs into, and to receive on a mandatory conversion, as the case may be, the class and amount of shares and other securities and property receivable upon such a takeover by the holders of the number of ordinary shares as would have been issued on conversion of the MCNs had such MCNs been converted immediately prior to the completion of such takeover.
The issue of new ordinary shares or certain other securities and rights of the Company, at any time during the period commencing on 27th November 2008 and ending on the date on which a holder exercises its optional conversion right or on the mandatory conversion date, at a price (the ‘Future Placing Price’) lower than the then current conversion price will (subject to exceptions for ordinary shares issued pursuant to employee share schemes, under the warrants or as a result of certain corporate events) result in a downward adjustment to the conversion price (subject to a minimum conversion price of the then par value per ordinary share (currently 25 pence)) so that it equals the Future Placing Price. The conversion price will also be subject to adjustment if the Company distributes an extraordinary dividend or if certain dilutive events occur, including bonus issues, rights issues or an adjustment to the nominal value or redenomination of the ordinary shares.
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Warrants
On 31st October 2008, Barclays PLC issued, in conjunction with a simultaneous issue of Reserve Capital Instruments issued by Barclays Bank PLC, warrants to subscribe for up to 1,516.9 million new ordinary shares at a price of £1.97775 to Qatar Holding LLC and HH Sheikh Mansour Bin Zayed Al Nahyan. The warrants may be exercised at any time up to close of business on 31st October 2013.
If there is a change of control of Barclays PLC following a takeover bid, Barclays PLC must (so far as legally possible) use all reasonable endeavours to cause the corporation which then controls Barclays PLC to execute a deed poll providing that the holders of the warrants shall have the right (during the period in which the warrants are exercisable) to exercise the warrants into the class and amount of shares and other securities and property receivable upon such a takeover by the holders of the number of ordinary shares as would have been issued on exercise of the warrants had such warrants been exercised immediately prior to the completion of such takeover.
The warrants contain provisions for the adjustment of the gross number of ordinary shares in the event of the occurenceoccurrence of certain dilutive events including, amongst others, extraordinary dividends, bonus issues, alterations to the nominal value of ordinary shares and rights issues.
ConversionAs at 5th March 2010, a total of the outstanding MCNs and1,006.1 million ordinary shares have been issued on exercise of the Warrants in full would result in the issue of a further 4,159,167,571 newwarrants to subscribe for ordinary shares. The resultant shareholdings of Qatar Holding LLC and HH Sheikh Mansour Bin Zayed Al Nahyan, if the MCNs and Warrants they each hold were converted or exercised in full and taking into account existing holdings of Barclays shares, would represent approximately 12.8% and 16.5%, respectively, of the enlarged Barclays PLC issued ordinary share capital.
Substantial Shareholdings
Substantial shareholders do not have different voting rights from those of other shareholders. As at 27th February 2009,5th March 2010, the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the FSA of the following holdings of voting rights in its shares:
No. of ordinary shares
Qatar Holding LLC | 522,755,622 | 6.4 | % | ||
Axa S.A. | 460,195,183 | 5.5 | % | ||
Legal & General Group plc | 330,460,896 | 4.1 | % |
Holder | Number of Barclays Shares | % of total voting rights attaching to issued share capital | Number of warrants | % of total voting rights attaching to issued share capital a | ||||
BlackRock, Inc. b | 805,969,166 | 7.06 | – | – | ||||
Qatar Holding LLC | 813,964,552 | 6.76 | 379,218,809 | 3.15 | ||||
Nexus Capital Investing Ltd | 626,835,443 | 5.49 | 131,602,175 | 1.15 | ||||
Legal & General Group Plc | 483,625,057 | 4.01 | – | – | ||||
Appleby Trust (Jersey) Limited c | 353,373,992 | 3.10 | – | – |
Board Membership
The membership of the Boards of Directors of Barclays PLC and Barclays Bank PLC is identical and biographical details of the Board members are set out on pages 138119 and 139.
Patience Wheatcroft121. Simon Fraser and Sir Michael RakeReuben Jeffery were appointed as non-executive Directors with effect from 1st January 2008. Simon Fraser will join the Board as a non-executive Director with effect from 10th March 2009 subject to regulatory approvals. Dr Danie Cronjéand 16th July 2009 respectively. The following Directors left the Board on 24th April 2008 and Gary Hoffman left the Board on 31st August 2008.during 2009:
– | Professor Dame Sandra Dawson on 23rd April 2009. |
– | Sir Nigel Rudd on 23rd April 2009. |
– | Patience Wheatcroft on 16th June 2009. |
– | Stephen Russell on 31st October 2009. |
– | Frits Seegers on 3rd November 2009. |
Retirement and Re-election of Directors
As announcedIn accordance with its Articles of Association, one-third (rounded down) of the Directors of Barclays PLC are required to retire by rotation at each 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, the UK Combined Code on 18th November 2008,Corporate Governance (the Code), recommends that every Director should seek re-election by shareholders at least every three years.
All members of the Board exceptionally offered themselves for reelection at the 2009 AGM all DirectorsBarclays Annual General Meeting held in April 2009. Going forward, the Group Chairman, Deputy Chairman and Chairmen of each principal Board Committee will stand for re-election withon an annual basis. One-third of the exception of Sir Nigel Rudd and Professor Dame Sandra Dawson, whoremaining Directors (excluding Directors appointed since the last AGM) will retire at the conclusion of the 2009 AGM and are notby rotation annually. The Directors offering themselves for re-election.re-election in such a manner at the 2010 AGM are Marcus Agius, David Booth, Sir Richard Broadbent and Sir Michael Rake. The Directors retiring by rotation at the 2010 AGM and offering themselves for re-election are Sir Andrew Likierman and Chris Lucas. In addition, Reuben Jeffery, who was appointed as a Director since the last AGM, will be offering himself for re-election at the 2010 AGM.
Directors’ Interests
Directors’ interests in the shares of the Group on 31st December 20082009 are shown on pages 164 and 166.page 153.
Directors’ Emoluments
Information on emoluments of Directors of Barclays PLC, in accordance with the Companies Act 19852006 and the Listing Rules of the United Kingdom Listing Authority, is given in the Remuneration Reportreport on pages 157145 to 172161 and in Note 4342 to the accounts.financial statements.
Directors’ Indemnities
The Board believes that it is in the best interests of the Group to attract and retain the services of the most able and experienced Directors by offering competitive terms of engagement, including the granting of indemnities on terms consistent with the applicable statutory provisions. Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006) were accordingly in force during the course of the financial year ended 31st December 20082009 for the benefit of the then Directors and, at the date of this report, are in force for the benefit of the Directors in relation to certain losses and liabilities which they may incur (or have incurred) in connection with their duties, powers or office.
Activities
Barclays PLCThe Group is a major global financial services provider engaged in retail and commercial banking, credit cards, corporate and investment banking and wealth management and investment management services.management. The Group operates through branches, offices and subsidiaries in the UK and overseas.
Community Involvement and Charitable Donations
Barclays has an extensive community programme covering many countries around the world. The Group provides funding and support to over 7,000 charities and voluntary organisations, ranging from small, local charities, like Passage (UK), to international organisations like the Red Cross.Unicef. We also have a very successful employee programme which in 20082009 saw more than 57,00058,000 employees and pensioners worldwide taking part in Barclays-supported volunteering, giving and fundraising activities. Further information on our community involvement is given on pages 53 and 54.
The total commitment for 20082009 was £52.2m (2007: £52.4m)£54.9m (2008: £52.2m). The Group committed £27.7m£27.4m in support of the community in the UK (2007: £38.9m)(2008: £27.7m) and £24.5m£27.5m was committed in international support (2007: £13.5m)(2008: £24.5m). The UK commitment includes £19.6m£19.3m of charitable donations (2007: £30.4m)(2008: £19.6m).
Notes
a | The percentages of voting rights detailed above have been calculated without including the new shares to be issued when the warrants are exercised. This results in the percentage figures being artificially high. |
b | The number of Barclays shares includes 8,003,236 contracts for difference to which voting rights are attached. |
c | The number of Barclays shares includes 192,860,970 Total Return Swap shares to which voting rights are attached. |
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Directors’ report
continued
Political Donations
The Group did not give any money for political purposes in the UK or the rest of the EU nor did it make any political donations to EUpolitical parties or other political organisations, or to any independent election candidates, or incur any EU political expenditure during the year.
Absa Group Limited, in which the Group acquired a majority stake in 2005, made donations totalling £186,589£213,982 in 2008 (2007: £170,142)2009 (2008: £186,589) in accordance with its policy of making political donations to the major South African political parties as part of their Democracy Support Programme. Donations are made to parties with more than three seats in the National Parliament as confirmed by the Independent Electoral Commission. Support for the deepening of democracy in South Africa remains paramount for the new government. The Group made no other political donations in 2008.2009.
At the AGM in 2008,2009, shareholders gave a limited authority for Barclays PLC and its subsidiaries to make political donations and incur political expenditure, within an agreed limit, as a precautionary measure in light of the wide definitions in the Companies Act 2006. This was similar to an authority given by shareholders in 2007.2008. This authority, which has not been used, expires at the conclusion of the AGM held this year, or, if earlier, 30th June 2009.
The Companies Act 2006 largely restates the provisions of The Political Parties, Elections and Referendums Act 2000.2010. The risk of inadvertently breaching the Companies Act 2006 remains and the Directors consider it prudent to seek a similar authority from shareholders. A resolution to authorise Barclays PLC and its subsidiaries to make EU political donations and incur EU political expenditure up to a maximum aggregate sum of £125,000 is therefore being proposed at the Barclays PLC 20092010 AGM.
Employee Involvement
Barclays is committed to ensuring that employees share in the success of the Group. ColleaguesStaff 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 corporate news magazines, intranets, briefings and mobile phone SMS messaging. These communications help achieve a common awareness among employees of the financial and economic factors affecting the performance of Barclays.
Barclays is also committed to providing employees with opportunities to share their views and provide feedback on issues that are important to them. An annualAnnual Employee Opinion Survey isSurveys are undertaken across Global Retail and Commercial Banking andthe Group Centre with results being reported to the Board and the Board HR and Remuneration Committee, all employees and to our European Works Council, Africa Forum, Unite (Amicus section), our recognised union in the UK and other recognised unions worldwide. Roadshows and employee forums also take place.
In addition, Barclays undertakes regular and formal consultations with our recognised trade unions and workswork councils internationally.
Diversity and Inclusion
The diversity agenda at Barclays seeks to include customers, colleagues and suppliers. Our objective is to recruit and retain the best people, regardless of (but not limited to) race, religion, age, gender, sexual orientation or disability. We strive to ensure our workforce reflects the communities in which we operate and the international nature of the organisation. We recognise that diversity is a key part of responsible business strategy in support of our increasingly global business. In the
UK, Barclays is committed to providing additional support to employees with disabilities and making it easier for them to inform us of their specific
requirements, including the introduction of a dedicated intranet site and disability helpline. Through our UK Reasonable Adjustments Scheme, appropriate assistance can be given, including both physical workplace adjustments, and relevant training and access to trained mentors is also provided for disabled employees. A wide range of recruitment initiatives have been taken to increase the number of people with disabilities working in Barclays.
Health and Safety
Barclays isWe are committed to ensuring the health, safety and welfare of our employees and to providing and maintaining safe working conditions. Barclays regards legislative compliance as a minimum and, where appropriate, we seek to implement higher standards. Barclays also recognises its responsibilities towards all persons on its premises, such as contractors, visitors and members of the public, and ensures, so far as is reasonably practicable, that they are not exposed to significant risks to their health and safety.
Barclays regularly reviews its Statement of Health and Safety Commitment, issued with the authority of the Board and which applies to all business areas in which Barclays has operational control. In this statement Barclays commits to:
– | demonstrate personal leadership that is consistent with this commitment; |
– | provide the appropriate resources to fulfil this commitment; |
– | carry out risk assessments and take appropriate actions to mitigate the risks identified; |
– | consult with our employees on matters affecting their health and safety; |
– | ensure that appropriate information, instruction, training and supervision are provided; |
– | appoint competent persons to provide specialist advice; and |
– | review Barclays Health and Safety Group Process and the Statement of Commitment, at regular intervals. |
Barclays monitors its health and safety performance using a variety of measurements on a monthly basis and the Board HR and Remuneration Committee receives annual reports on health and safety performance from the Group Human ResourcesResource Director. In 2009, a Health and Safety Steering Committee was established to ensure decisions are taken relating to the Health and Safety Global Standard and to oversee the operation of a coordinated Health and Safety control framework. The Committee meets on a quarterly basis and produces a quarterly report for the HR Risk Committee. As part of its Partnership Agreement with Unite (Amicus section), Barclays currently funds full time Health and Safety Representatives.
Creditors’ Payment Policy
Barclays values its suppliers and acknowledges the importance of paying invoices, especially those of small businesses, in a timely manner. It isBarclays policy follows the Group’s practice to agree terms with suppliers when entering into contracts. We negotiate with suppliers on an individual basis and meet our obligations accordingly. The Group does not follow any specific published code or standard on payment practice.
Paragraph 12(3)Department for Business, Innovation & Skills’ Prompt Payment Code, copies of which can be obtained from the Prompt Payment Code website at www.promptpaymentcode.org.uk. Part 5 of Schedule 7 of the Large and Medium-sized Companies Act 1985and Groups (Accounts and Reports) Regulations 2008 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 in accordance with International Financial Reporting Standards. IFRS.
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The components for the trade creditor calculation are not easily identified. However, by identifying as closely as possible the components that would be required if item E.4 (trade creditors) in format I of Schedule 41 of the Companies Act 1985these Regulations applied, the trade creditor payment days for Barclays Bank PLC for 20082009 were 2427 days (2007: 27(2008: 24 days). This is an arithmetical calculation and does not necessarily reflect our practice, which is described above, nor the experience of any individual creditor.
Essential business contractsBusiness Contracts
There are no persons with whom the Group has contractual or other arrangements that are considered essential to the business of the Group.
Contracts of Significance
Under the terms of a stock purchase agreement dated 16th June 2009 which was entered into by and among Barclays Bank PLC, Barclays PLC and BlackRock, Inc. (BlackRock), Barclays agreed to sell BGI to BlackRock. The sale completed on 1st December 2009 following the receipt of all necessary shareholder and regulatory approvals and satisfaction of other closing conditions. The consideration at completion was US$15.2bn (£9.5bn), including 37.567 million new BlackRock shares, giving Barclays an economic interest of 19.9% of the enlarged BlackRock group. Barclays has provided BlackRock with customary warranties and indemnities in connection with the sale. Barclays Bank will also continue to provide support in respect of certain BGI cash funds until December 2013 and indemnities in respect of certain of BGI’s fully collateralised securities lending activities until 30th November 2012.
Research and Developmentdevelopment
In the ordinary course of business Barclaysthe Group develops new products and services in each of its business units.
Financial Instruments
The Group’s financial risk management objectives and policies, including the policy for hedging each major type of forecasted transaction for which hedge accounting is used, and the exposure to market risk, credit risk and liquidity risk are set out inon pages 6794 to 113104 under the headings, ‘Barclays approach torisk management strategy’, ‘Credit risk management’, ‘Credit Risk Management’, ‘Market risk management’, ‘Liquidity Risk Management’risk management’ and ‘Derivatives’ and in Note 14 and Notes 4647 to 49 to the accounts.
Events after the Balance Sheet Date
On 2nd February1st January 2010, the Group acquired 100% ownership of Standard Life Bank Plc for a consideration of £227m in cash. The assets acquired include a savings book of approximately £5.8bn, and a mortgage book with outstanding balances of approximately £7.5bn.
As announced on 3rd November 2009, Barclays completed the acquisition of PT Bank Akita,Group has made changes to its business structure, which was announced initially on 17th September 2008, followingwill be reflected in the approval
ofGroup’s external financial reporting for periods commencing 1st January 2010. The segmental information presented in this Annual Report represents the Central Bank of Indonesia. business segments and other operations used for management and reporting purposes during the year ended 31st December 2009.
On 17th February 2009, Barclays announced that Barclays Capital will discontinue operations at its EquiFirst subsidiary due to the market environment and strategic direction2010, 626.8 million of the Group.758.4 million warrants held by PCP Gulf Invest 3 Limited (a subsidiary of Nexus Capital Investing Limited) were exercised for an aggregate exercise price of approximately £1,240m. As a result 626.8 million new ordinary shares were issued representing a 5.2% ownership in the Group’s enlarged share capital.
The Auditors
The Board Audit Committee 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 pages 198 and 199page 137 and Note 9 to the accounts. PricewaterhouseCoopers LLP have been the Company’s auditors for many years. Having reviewed the independence and effectiveness of the external auditors, the Committee has not considered it necessary to date
to require them to tender for the audit work. The external auditors are required to rotate the audit partners responsible for the Group and subsidiary audits every five years. The current lead audit partner, who has now been in place for five years, will be replaced for the 2010 year-end. There are no contractual obligations restricting the Company’s choice of external auditor. 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 20092010 AGM.
So far as each of the Directors are aware, there is no relevant audit information of which the Company’s auditors are unaware. Each of the Directors has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. For these purposes, ‘relevant audit information’ means information needed by the Company’s auditors in connection with preparing their report.
The Annual General Meeting
The Barclays PLC AGM will be held at The Queen Elizabeth II Conference Centrethe Royal Festival Hall on Thursday 23rdFriday 30th April 2009.2010. The Notice of AGMMeeting is included in a separate document sent to shareholders with this report. A summary of the resolutions being proposed at the 20092010 AGM is set out below:below.
Ordinary Resolutions
– | To receive the Directors’ and Auditors’ Reports and the audited accounts for the year ended 31st December |
– | To approve the Directors’ Remuneration Report for the year ended 31st December |
– | To re-elect the following Directors: |
Reuben Jeffery III
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Marcus Agius
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David Booth
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Sir Richard Broadbent
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Sir Michael Rake
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Sir Andrew Likierman
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– | To reappoint PricewaterhouseCoopers LLP as auditors of the Company. |
– | To authorise the Directors to set the remuneration of the auditors. |
– | To authorise Barclays PLC and its subsidiaries to make political donations and incur political expenditure. |
– | To |
– | To |
Special Resolutions
– | To renew the authority given to the Directors to allot |
– | To renew the Company’s authority to purchase its own shares. |
– | To permit General Meetings to continue to be called on 14 clear days’ notice. |
– | To adopt new Articles of Association. |
This is only a summary of the business to be transacted at the meetingmeetings and you should refer to the Notice of AGMMeeting for full details.
By order of the Board
Lawrence Dickinson
Company Secretary
9th March 2010
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Group Chairman’s Introduction
I am pleasedBarclays performed strongly in 2009, despite it being another challenging year for the financial services industry. Once again, a number of difficult decisions had to reportbe taken as the Board sought to youact in the best interests of shareholders.
Review of 2009
The year started with confidence in the banking sector as a whole at an extremely low ebb. The market was unsure as to the strength of banks’ balance sheets and the extent of further losses from both credit market exposures and the global economic downturn. In Barclays case, the share price was extremely weak during January and the Board took its first key decision in deciding to issue an open letter from the Group Chief Executive and myself on 26th January 2009 to address the activitiesprincipal causes for concern. We felt that it was important to make this announcement, in what were exceptional circumstances, to reassure our stakeholders that we were well funded and profitable.
In March 2009, we announced that the Board did not believe it was in the interests of investors, depositors or clients to participate in HM Treasury’s Asset Protection Scheme. This decision was taken after careful consideration of the economics of participation and detailed stress testing of our capital position and resources, the results of which were confirmed by the FSA.
In March 2009, we explored the potential sale of our iShares business with a number of interested parties and announced, in April 2009, the sale of that business to a limited partnership established by CVC Capital Partners Group. Following a superior offer from BlackRock, Inc. for the sale of the whole of the Barclays Global Investors business (BGI), the Board concluded that it would be in the best interests of Barclays and for the benefit of shareholders to accept that offer. The resolution for the sale of BGI was put to shareholders at a General Meeting on 6th August 2009 and 99.9% of votes cast were in favour of the transaction.
During the second half of 2009, the Board took the decision to restructure the Group’s credit market exposures. We announced in September 2009 that we were restructuring a significant tranche of such exposures in order to secure more stable risk-adjusted returns for shareholders over time. And, while we did not pay a final dividend for 2008, we were able to resume dividend payments in the second half of 2009 and it is our intention to pay quarterly dividends going forward.
It was essential to keep the Board fully informed during the discussions on all these matters and the Directors were updated regularly at Board meetings and through ad hoc circulation of information. A significant number of additional Board and Board Committee meetings were held, often at short notice, to discuss and take those decisions – a total of 27 Board meetings were held during the year and each of our Board Committees held additional meetings. It was also important to keep our shareholders informed and, in addition to regulatory announcements, meetings were held with our institutional shareholders and other investor groups to discuss the financial crisis and how we have responded. Briefings on these meetings were reported to the Board to ensure that all Directors were aware of any concerns raised by our shareholders.
Corporate Governance in Barclays
As Chairman, a key part of my role is to ensure that the composition of the Board is appropriate; that appropriate behaviours are demonstrated in the Boardroom and that there is an environment in which challenge is expected and achieved. In April, we reviewed the lessons learnt from the
financial crisis and considered any enhancements that could be made. Governance processes were reviewed and a number of changes were made. These included revisions to the Board Risk Committee Terms of Reference to make explicit its role in reviewing risks following the Group’s entry into new businesses or geographies. The changes also set out the Committee’s role in reviewing the specific risk adjustments to be applied to performance objectives. The frequency of risk, capital and liquidity reporting to the Board, Board Audit Committee and Board Risk Committee has been increased and additional time has been allocated to strategy discussions.
Barclays has emerged from the crisis in a relatively strong position compared to many of our peers. The profits of the Group were strong in 2009 and good progress was made on key measures of financial strength, such as capital and liquidity. However, we remain conscious of the significant reduction in shareholder value suffered by our shareholders. Whilst we have made changes to some of our Corporate Governance processes and practices, we believe that these were fundamentally sound. The review of Corporate Governance in the banking sector by Sir David Walker (the Walker Review), to which we contributed, made a number of recommendations for improvements in governance in the banking sector. Many of the practices put forward in the Walker Review recommendations are in line with practices we already have in place, but where we can enhance processes and practices, we are doing so.
However, the real key to effective Corporate Governance is to ensure that behaviours around the Board table are appropriate. It is an essential part of my role to ensure that firstly, appropriate and timely information is available to the Board in a readily understandable format, and secondly, that there is an environment in the Boardroom which promotes and supports constructive and effective challenge. This requires the right Board composition and I believe Barclays has been well served by both its executive and non-executive Directors in this respect. Our Directors understand the importance of appropriate Board behaviour, which is set out in our ‘Charter of Expectations’ atwww.barclays.com/corporategovernance. The Charter of Expectations is given to all new Directors and reviewed on an annual basis to ensure it sets out the expectations of each Director in their role on the Board, including expected competencies, behaviours and time commitment.
Board size and composition
During 2009, we made a conscious effort to reduce the size of the Board from its peak of 17 and, although this number will fluctuate as we seek to ensure the Board has the right level of skills and experience, we will aim to keep it between 12 to 15 Directors. Going forward, it is our intention to maintain a majority of independent non-executive Directors, with approximately 50% of those non-executive Directors, including the Group Chairman and the Chairmen of the principal Board Committees, during 2008. Ourhaving banking or financial experience. We do believe, however, that to be fully effective, the Board should have a balance of Directors with both banking or financial experience and broader experience.
We have carefully considered, in the light of both the Walker Review and the Review of the Combined Code, whether all Directors should stand for re-election each year. I do believe it is important that the Chairman should stand for re-election annually and, having discussed the issue at both the Board Corporate Governance and Nominations Committee and the Board, we decided that the Deputy Chairman and Committee Chairmen should also stand for annual re-election.
The report that follows sets out how we have complied with the UK Combined Code on Corporate Governance (the Code) and also gives further details of any enhancements made during the matters that the Boardyear and its principal Committees have considered over the year.
The year proved to be extremely challenging for the financial services industry as increasing vulnerabilities exposed in the global financial system created a period of exceptional instability.
During October 2008, it became clear that an industry-wide solutionparticular, in response to the risks of systemic failure in the UK financial services sector was needed. The outcome of discussions between the UK’s FSA and all UK banks was that we, along with many of our competitors, were required to raise additional equity and Tier 1 capital to take our capital ratios well beyond the levels we had previously agreed with our regulators (the ‘Capital Raising’).
On 31st October 2008, Barclays announced the Capital Raising. In the extraordinary circumstances leading up to that announcement, the Board had choices to make – choices not available to all banks. These choices entailed exceptionally difficult judgements made in market circumstances where from one day to the next nothing could be taken for granted.
These choices included retaining independent controlrecommendations of the business in undertaking the recapitalisation required by the authorities; recapitalising the business in one market operation well in advance of the June 2009 deadline set by the authorities; and effecting a recapitalisation under which all shareholders were not afforded their pre-emption rights.Walker Review.
The Board did not take any of these decisions lightly: its governance processes were rigorous. It met frequently, debated the issues at length, heard differing views and arguments, sought external advice and consulted representative shareholder bodies. The decisions it made were reached in the interests of shareholders as the Board, in the circumstances at the time, perceived them to be. These included forming judgements about the earnings per share and return on capital consequences of the Capital Raising for existing shareholders.
The Board believes that the decisions made have resulted in the Marcus Agius
Group being able to maintain its strategic momentum. The Directors deeply regret, however, that the Capital Raising denied Barclays then existing shareholders their full rights of pre-emption with respect to the ordinary shares issued. The Directors recognise that there is a high level of unhappiness on the part of some shareholders that the principle of pre-emption was breached, with consequent dilution of shareholdings and that, were it not to avoid the risk of destabilising the Company or the system, more of them may have voted against the enabling resolution at the General Meeting on 24th November 2008.Chairman
The Directors wish to place on record both their appreciation of the support received from shareholders in difficult circumstances in completing the Capital Raising and to re-affirm their fundamental commitment to the principle of pre-emption. The Board is clear that the extraordinary circumstances which they were required to deal with were so unusual as to be effectively unique.9th March 2010
Statements of Compliance
UK Combined Code on Corporate Governance
As Barclays is listed on the London Stock Exchange, we comply with the Code.UK Combined Code on Corporate Governance (the Code). For the year ended 31st December 2008,2009, we have complied with the relevant provisions set out in section 1 of the Code and applied the principles of the Code as described in this report.
NYSE Corporate Governance Rules
Barclays has American Depositary Receipts listed on the New York Stock Exchange (NYSE), and is also subject to the NYSE’s Corporate Governance rules (NYSE Rules). We are exempt from most of the NYSE Rules, which domestic US companies must follow, because we are a non-US company listed on the NYSE. However, we are required to provide an Annual Written Affirmation to the NYSE of our compliance with the applicable NYSE Rules and must also disclose any significant differences between our corporate governance practices and those followed by domestic US companies listed on the NYSE. As our main listing is on the London Stock Exchange, we follow the UK’s Combined Code. Key differences between the Code and NYSE Rules are set out later in this report.Report.
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Corporate governance report
Corporate governance framework
Good corporate governance practices are not just a matter for the Board but are at the heart of everything that we do within the Group. The Group operates within a comprehensive governance framework, which is outlined in the diagram below and set out in the diagram below. Details of thereport that follows. The Group’s risk management framework can be foundis described in the Risk Management section on pages 6259 to 66.65.
The Board
The Board is responsible to the shareholders for managingcreating and delivering sustainable shareholder value through the Company on behalfmanagement of its shareholders and eachthe Group’s businesses. Each Director must act in a way that he or she considers promotes the long-term success of the Company for the benefit of those shareholders as a whole.shareholders. The Board also ensures that management achieves an appropriate balance between promoting long-term growth and delivering short-term objectives is achieved. The objectives.
Board delegates responsibility for the day-to-day management of the Company to the Group Chief Executive, who is then responsible for ensuring that the business is operating effectively. The Group Chief Executive is supported by the Executive Committee, which he chairs, and the Executive Committee is supported by a number of management committees, including the Disclosure Committee. Details of the Disclosure Committee are set out on page 154. This report sets out how the Board and its Committees work within the governance framework and corporate governance guidelines.meetings
The Board has eight scheduled Board meetings scheduled each year. Strategy is reviewed regularly at these meetings and there is normallywith updates at each meeting from at least one business unit on the execution of their agreed strategy. One Board meeting each year, scheduled over a day and a half, offsite meetingconsiders and approves the Group’s future strategy. A different approach was taken to strategy formulation in 2009 following feedback received as part of the 2008 Board Effectiveness Review. During the summer of 2009, the non-executive Directors took part in interviews with the Head of Strategy and Company Secretary to discuss strategic areas of focus. These areas of focus were debated by the Board in September with discussions of various themes facilitated by non-executive Directors. Management then developed strategy proposals, which were fully debated by the whole Board in November.
In addition to the eight scheduled meetings in 2009, there were 13 additional Board meetings held to consider and approve the Group’s strategy foriShares and BGI transactions and the next year. In addition to the scheduled Board meetings in 2008, 23 additionalrestructuring of our credit market exposures. A further six Board meetings were held during the year.year on other issues, including share price performance. The purpose of these meetings was to discuss the difficult market conditions that existed during the year and in particular the three equity capital raising transactions that were undertaken: the £4.5bn Placing and Open Offer in July (the ‘Open Offer’), the £701m Placing in September (the ‘Placing’) and the issue of £4.05bn in Mandatorily Convertible Notes, £3bn in Reserve Capital Instruments by Barclays Bank PLC and warrants for new ordinary shares in November (the ‘Capital Raising’). There were 12additional Board meetings, held in October which were often called at short notice, had attendance of 88%. Any Director who was unable to attend a meeting was briefed separately on the discussions at the meeting
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Corporate governance
Corporate governance report
continued
and November specifically to discuss the Capital Raising.their views were sought and considered. There were also eight12 meetings of the Board Finance Committee, to which the Board delegated authority to review and approve certain aspects of the capital raising transactionsiShares, BGI and the acquisition of Lehman Brothers North American businesses.credit market exposure transactions. The Board Finance Committee, whose purpose is to authorise certain transactions to which the Group is party, subject to the relevant authority being delegated to the Committee by the Board (as set out in the Board Finance Committee’s Terms of Reference), comprises the Group Chairman, the Group Chief Executive and at least two independent non-executive Directors, typically the Deputy Chairman and Senior Independent Director.
These additional Board meetings, which were called at short notice, had attendance of 78% for the Open Offer (May-July 2008), 85% for the acquisition of the Lehman Brothers North American businesses (September 2008) and 90% for the Capital Raising (October-November 2008). Attendance at theDirectors. Board Finance Committee attendance was 100%. Those Directors who were unable to attend any meeting were briefed separately on the discussions at the meetings and their views were sought.
We arrange scheduledScheduled Board and Committee meetings are arranged at least aone year in advance. Alladvance and all Directors are expected to attend each meeting and the attendance at scheduled Board meetings is set out on page 149.meeting. All Directors are provided with backgroundthe meeting papers and relevant information in advance of each meeting. Ifmeeting and, if a Director is unable to attend a meeting because of exceptional circumstances, he or she will still receive the supporting papers and will usually discuss with the Chairman of the meeting any matters they wish to raise to ensurewith the Chairman of the meeting. This ensures that their views are given due consideration. The attendance at Board meetings held in 2009 is set out on page 130. In 2009, all Directors committed an appropriate amount of time to fulfil their duties and responsibilities on the Board. Any instances of non-attendance at Board meetings are generally related to prior business or personal commitments or illness. The additional meetings in 2009 were often arranged at short notice or rearranged as market conditions changed and it was not always possible for all Directors to attend these meetings particularly because of time zone differences.
Non-executive Director Board briefings
The Group Chairman usually meets with the non-executive Directors without the executive Directors or any senior management present, ahead of each scheduled Board meeting to brief them on the business of the meeting. These meetings give theare held without any executive Directors or senior management present. The non-executive Directors use these meetings as an opportunity to advise the Group Chairman if they have any particularspecific questions they wishwould like to raise.raise about the business of the meeting. The Group Chairman, Group Chief Executive and Company Secretary are always available for the Directors to discuss any issues relating to theconcerning Board meetings or other matters. In 2008, all Directors contributed the appropriate amount of time needed to fulfil their responsibilities. Reasons for non-attendance are generally prior business, personal commitments or illness. Given market conditions in 2008, several meetings had to be rearranged at short notice and it was not always possible for all Directors to attend on the revised date.
The Group Chairman and the Company Secretary work together to make sure that the information communicated to the Board is accurate, timely and clear. This applies in advance of regular, scheduled Board meetings and in exceptional circumstances between those meetings. Timely communication of information was particularly important this year, given the need for the Board to respond to rapidly changing circumstances. Directors also have secure access to electronic copies of meeting papers and other key documents via a dedicated Directors’ intranet, which includes past and current Board and Committee papers, reports, minutes, press coverage, analyst reports and material from briefing sessions. The services of the Company Secretary and his team are available to all Directors. Directors may also take independent professional advice on request, at the Company’s expense.
The Board
Role of the Board
Directors are required, by UK company law requires Directors to act in a way they consider, in good faith, would promote the success of Barclaysthe Company for the benefit of the shareholders as a whole. In doing so, the Directors must have regard (amongst other matters) to:
– | the likely consequences of any decision in the |
– | the interests of Barclays employees; |
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– | the need to foster Barclays business relationships with suppliers, customers and others; |
– | the impact of Barclays operations on the community and the environment; |
– | the desirability of Barclays maintaining a reputation for high standards of business conduct; and |
– | the need to act fairly as between shareholders of Barclays. |
In addition to their statutory duties, the Directors must ensure that the Board focuses effectively on all its accountabilities. The Board determines the strategic objectives and policies of the Group to deliver long-term value, providing overall strategic direction within an appropriate framework of rewards, incentives and controls. The Board is collectively responsible for the success of the Group: the executive Directors are directly responsible for running the business operations and the non-executive Directors are responsible for bringing independent judgment and scrutiny to decisions taken by the Board. The non-executive Directors must satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust. Following presentation by executive management and a disciplined process of review and challenge by the Board, clear decisions on the policy or strategy are adopted, and the executive management are fully empowered to implement those decisions. The role and responsibilities of the Barclays Board are set out in ‘Corporate Governance in Barclays’, which is available on our website atwww.aboutbarclays.com.www.barclays.com/corporategovernance.
The duties of Directors, described above, form part of their role and responsibilities. The Board is responsible to shareholders for creating and delivering sustainable shareholder value. In order to achieve this it must establish the objectives and policies
Role of the Group Chairman
The role of the Group Chairman is to lead and manage the Board to ensure it discharges its legal and regulatory responsibilities fully and effectively. The time commitment of the Group Chairman is set out in our Charter of Expectations and is in line with the Walker Review recommendation that will deliver long-term value.a Chairman commits two-thirds of his/her time to the role. The Group Chairman must also ensure the Board is effective in delivering all its objectives, and so sets the Board agenda and allocates sufficient time for the Board to engage in meaningful discussions on strategic issues. He facilitates and encourages challenge from all Directors where decisions are needed on matters of risk and strategy. The Group Chairman also ensures that the Directors are kept well-informed, particularly the non-executive Directors, so that Board discussions are effective and there is good communication between the executive and non-executive Directors. The Group Chairman, Group Chief Executive and the Company Secretary work together to ensure that the Directors receive relevant information for them to discharge their duties and that such information is accurate, timely and clear. The communication of information applies to all scheduled Board meetings, but is particularly important in exceptional circumstances where the Board needs to respond to changing market conditions. We provide all our Directors with secure access to electronic copies of meeting papers and other key documents via a dedicated Directors’ intranet. The documents available include past and current Board and Committee papers, reports, minutes, press coverage, analyst reports and material from briefing sessions.
Role of the Chief Executive
The roles of the Group Chairman and Group Chief Executive are separate. The role of the Group Chief Executive is to manage the day-to-day running of the Group. The Board setshas delegated this responsibility to the overall strategic directionGroup Chief Executive and ensures ithe then leads the executive Directors and Executive Committee in making and executing operational decisions. The Group Chief Executive is delivered within an appropriate framework of reward, incentivealso responsible for recommending strategy to the Board.
Company Secretary
The Company Secretary and control.his team provide dedicated support to the Board. Their services are available to all Directors, particularly the non-executive Directors who may need additional support to ensure they receive timely and accurate information to fulfil their duties. Directors may also take independent professional advice on request at the Company’s expense.
Another key responsibilityEffective internal control
One of the BoardBoard’s key responsibilities is to ensure that management maintains a system of internal control that provides assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. The Board considers the Group’s business and reputation and ensures that the controls in place are appropriate to the materiality of financial and other risks to the Group’s business and reputation, ensures that appropriate controls are in place and considers the relative costs and benefits of implementing specific controls.
The powers of the Board has its powersare set out in a formal schedule of matters reserved for the Board’s decision. A summary of theThese matters reserved for the Board is set out opposite. These are matters that are significant to the Group as a whole because of their strategic, financial or reputational implications or consequences. implications.
The Schedule of Matters Reserved to the Board wasis reviewed and updated during 2008regularly to ensure it remains appropriate.
Figure 1 illustrates how the Board spent its time at the scheduled Board meetings during 2008.appropriate and a summary of these matters is set out on page 129.
Board Activities in 20082009
Typically, atAt each meeting in 2009, the Group Chief Executive and Group Finance Director reportreported to the Board and one or two of the main businesses or functions also presentspresented an update on the progressimplementation of implementing thetheir agreed strategy. TheScheduled Board meetings also receivesreceived reports from each of the principal Board Committees and may also receive reports from the Company Secretary on any relevant corporate governance matters.matters, including updates on the Walker Review and the Review of the Combined Code and the potential implications for the Group. The Board also received reports on the new regulatory frameworks in respect of compensation, particularly in respect of the FSA Remuneration Code and the proposals of the Financial Stability Board.
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Summary of Matters Reserved for the Board Approval of Risk Appetite and Liquidity Risk Appetite Approval of allotment of shares Approval of Board and Board Committees performance evaluation process Summary of Matters Reserved to– – Approval of the Group’s strategy, Medium-Term and Short-Term Plans– – – Monitoring delivery of the strategy and performance against plan– – Changes relating to capital structure or status as a PLC– – Approval of annual Capital Plan– – Approval of interim and final financial statements, dividends and any significant change in accounting policies or practices– – Authorisation offor Directors’ conflicts or possible conflicts of interest– – Appointment (or removal) of Company Secretary and Chief Risk Officer– – Any share dividend alternative– – Remuneration of auditors and recommendations for appointment or removal of auditors– – Approval of all circulars, prospectuses and significant press releases– – Principal regulatory filings with stock exchanges– – Board appointments and removals– – Role profiles of key positions on the Board– – Terms of reference and membership of Board Committees– – Major acquisitions, mergers or disposals– – Major capital investments and projects– – Approval of the framework for determining the policy and specific remuneration of executiveExecutive Directors– – Approval of Chairman and non-executive Director remuneration– – Major changes in employee share schemes– – – – Determination of independence of non-executive Directors– – Approval of corporate governanceCorporate Governance framework– – Approval of division of responsibilities between the Group Chairman and Group Chief Executive– – Rules and procedures for dealing in Barclays securitiesBarclaysAnnual Report 2008145
Corporate governance
Corporate governance report
The Board allocated its time at scheduled Board meetings during 2008 as follows:2009 to the following:
Strategy
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– | reports from the Group Chief Executive on key strategic issues and progress, matters considered by the Executive Committee and competitor |
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– | reports on the following key issues: Brand and Marketing, Corporate Sustainability, Franchise Health (including customer and employee satisfaction measures); and |
– | presentations on shareholder sentiment (including institutional perceptions) and reputation. |
Finance (including capital and liquidity)
– | reports from the Group Finance Director on the financial position of the Group, which included capital management and liquidity updates throughout |
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– | approval of the Group’s cost of equity and capital plan for 2010; and |
– | approval of the medium-term plan (including the financial framework) and short-term plan. |
Risk
– | regular reports from the Chief Risk Officer on risk management and impairment and from the Group General Counsel on legal risk issues; |
– | regular reports from the Chairman of the Board Risk Committee on matters discussed at that Committee; and |
– | approval of Risk Appetite and Liquidity Risk Appetite for the Group for 2010. |
Note
a | Capital management was reported separately for 2008. It is included within Finance (including capital and liquidity) for 2009. |
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Corporate Finance
– | consideration and approval of the proposed iShares sale and subsequent sale of Barclays Global Investors; and |
– | consideration and approval of the restructuring of our credit market exposures. |
Corporate Governance
– | reports on governance issues and updates on the changes in company |
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Adverse market conditions during 2008 led to the Board holding an additional 23 meetings during the year. These additional meetings discussed the impact of market conditions on performance, liquidity, the three capital raisings that were undertaken during the year and the acquisition of Lehman Brothers North American businesses. Ongoing and regular communication with the Board was vital during this period, a principle that had been established during the potential ABN AMRO acquisition in 2007. If the additional meetings relating to the capital raisings are taken into account, the Board spent 33% of its time on capital management.
The capital raising that was announced on 31st October 2008 in response to the new higher capital targets which the FSA set for all UK Banks was the subject of considerable discussion. Seven Board meetings and three Board Finance Committee meetings were held during October to discuss the new requirements and Barclays response. The Board had to take some key decisions during this period, in particular:Compensation
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– | reports on regulatory frameworks, including FSA Remuneration Code and the |
– | regular reports from the |
– | consideration of the |
Regulatory issues
– | a review of the FSA’s stress-test results; |
– | regular reports from the Group Chief Executive on contact with regulators worldwide and in particular discussions with the |
These decisions were only taken by
– | consideration of the Government’s Asset Protection Scheme; and updates on the global and UK economic and regulatory environment. |
– | Figure 1 on page 129 illustrates how the Board spent its time at scheduled Board meetings in 2009. |
Board after rigorous discussionsize, composition and having sought external advice. They were taken in the long-term interests of all shareholders.qualification
Board structuresize and composition
The rolesThere are currently 13 Directors on the Board, comprised of the Group Chairman, three executive Directors and Group Chief Executive are separate. In line with the recommendationsnine non-executive Directors. The size and composition of the Code,Board is regularly reviewed by the Board and, in particular, the Board Corporate Governance and Nominations Committee, to ensure there is an appropriate and diverse mix of skills and experience. The Board aims to appoint non-executive Directors who have the skills and experience needed for a comprehensive understanding of the Group’s activities and the risk associated with them. This is particularly important for Barclays as a financial services business and it is our intention that 50% of our non-executive Directors, including the Group Chairman and the Chairmen of the principal Board Committees, should have banking or financial experience. However, a broader range of skills and experience is
Board and Committee Attendance
Independent | Scheduled Board | Additional Board a | Board Audit Committee | Board HR & Remuneration Committee | Board Corporate Governance & Nominations Committee | Board Risk Committee | AGM | |||||||||
Number of meetings held | 8 | 19 | 11 | 14 | 4 | 5 | 1 | |||||||||
Group Chairman | ||||||||||||||||
Marcus Agius | OA | 8 | 19 | – | 14 | 4 | – | 1 | ||||||||
Executive Directors | ||||||||||||||||
John Varley (Group Chief Executive) | ED | 8 | 19 | – | – | – | – | 1 | ||||||||
Bob Diamond | ED | 8 | 17 | – | – | – | – | 1 | ||||||||
Chris Lucas | ED | 8 | 19 | – | – | – | – | 1 | ||||||||
Frits Seegers (to 3rd November) | ED | 6 | 19 | – | – | – | – | 1 | ||||||||
Non-executive Directors | ||||||||||||||||
David Booth | I | 8 | 16 | – | – | – | 5 | 1 | ||||||||
Sir Richard Broadbent | ||||||||||||||||
(Deputy Chairman & Senior Independent Director) | I | 8 | 18 | – | 14 | 4 | 5 | 1 | ||||||||
Leigh Clifford | I | 8 | 7 | – | 11 | – | – | 1 | ||||||||
Fulvio Conti | I | 8 | 15 | 10 | – | – | – | 1 | ||||||||
Professor Dame Sandra Dawson (to 23rd April) | I | 3 | 11 | 5 | – | – | – | 1 | ||||||||
Simon Fraser (from 10th March) b | I | 7 | 15 | 5 | 7 | – | – | – | ||||||||
Reuben Jeffery III (from 16th July) | I | 4 | 2 | – | – | – | – | – | ||||||||
Sir Andrew Likierman | I | 8 | 17 | 11 | – | – | 5 | 1 | ||||||||
Sir Michael Rake | I | 8 | 17 | 11 | – | 2 | 3 | 1 | ||||||||
Sir Nigel Rudd (Deputy Chairman to 23rd April) | I | 3 | 11 | – | – | 1 | – | 1 | ||||||||
Stephen Russell (to 31st October) | I | 6 | 12 | 7 | – | 2 | 3 | 1 | ||||||||
Sir John Sunderland | I | 8 | 17 | – | 14 | 4 | – | 1 | ||||||||
Patience Wheatcroft (to 16th June) | I | 3 | 14 | – | – | – | – | 1 |
Key
OAIndependent on appointment.
EDExecutive Director.
IIndependent non-executive Director.
Notes
a | In the case of Leigh Clifford, who is based in Australia, the time difference meant that he was not always able to participate in additional Board meetings called at short notice, but he was fully briefed on the discussions by the Group Chairman or the Company Secretary. |
b | Simon Fraser was appointed as a member of the Board Audit Committee and Board HR and Remuneration Committee with effect from 1st May 2009. |
131 |
Corporate governance
Corporate governance report
essential for the Board to be fully effective. Figure 2 demonstrates the diverse range of skills and experience on the Board.
We have a strong independent element on the Board and at leastmore than half the BoardDirectors are independent non-executive Directors. AtDirectors, which is in line with the date of this report, the Board is comprisedrecommendations of the Group Chairman, four executive Directors and 11 non-executive Directors.Code. The balance of the Board is illustrated by Figure 2.
The Group Chairman’s main responsibility is to lead and manage the Board, ensuring that it discharges its legal and regulatory responsibilities effectively and fully. The Board has delegated the responsibility for the day-to-day running of the Group to the Group Chief Executive. The Group Chief Executive in turn leads the executive Directors in making and implementing operational decisions and is responsible for recommending strategy to the Board.
Although the Board of Directors has collective responsibility for the success of the Group, executive Directors are directly responsible for business operations, whereas non-executive Directors are responsible for bringing independent judgement and scrutiny to decisions taken by the Board. The non-executive Directors must satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust. The Board has the benefit of a broad range of skills, knowledge and experience that the non-executive Directors have built up as Directors of other companies or business leaders, in government or in academia. Given the events of 2008 and the continuing uncertainty in the global financial services industry, the Board and, in particular, the Board Corporate Governance and
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Nominations Committee, is considering both the appropriate size and skills mix of the Board. As a financial services business, the Board aims to appoint non-executive Directors who have the necessary skills and experience required for a proper understanding of the Group’s activities and associated risks. The Board also aims to have diverse geographical experience represented on the Board and this is illustrated in Figure 3.
The Charter of Expectations, which forms part of ‘Corporate Governance in Barclays’, includes detailed role profiles for each of the main positions on the Board, including that of the Group Chairman, Deputy Chairman, Senior Independent Director and both non-executive and executive Directors. Responsibilities general to all Directors include:
In addition, non-executive Directors have a responsibility to constructively challenge and develop proposals on strategy whilst scrutinising the performance of management in meeting the Group’s strategic objectives. Following appropriate challenge and debate, the Board expects to reach clear decisions and to provide a framework of support for the executive Directors in their management of the Group’s business.
The Charter of Expectations, including role profiles for key Board positions, is available from:www.aboutbarclays.com.
Sir Richard Broadbent continued in the role of Senior Independent Director during 2008. The role of the Senior Independent Director is to:
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During the year, Sir Richard Broadbent attended meetings with a number of our institutional shareholders and shareholder bodies to discuss their views on the Group. Sir Richard also received feedback on the Group Chairman’s performance following the annual Board Effectiveness Review and led discussions with the other non-executive Directors and the Group Chief Executive on the Group Chairman’s performance.
Sir Nigel Rudd continued in the role of Deputy Chairman in 2008, providing support to the Group Chairman as required in carrying out his responsibilities.
The Board Corporate Governance and Nominations Committee is responsible for reviewing the structure, composition and balance of the Board and its principal Committees and recommends to the Board the appointment of any new Directors. It is important that the Board is refreshed regularly and the Committee conducts these reviews to ensure that there is an appropriate mix of skills and experience on the Board. Details of the experience and skills of each of the current Directors are set out in their biographies on pages 138 to 139. The length of tenure of the current non-executive Directors is illustrated in Figure 4.
In line with the recommendations of the Code, all Directors usually seek re-election every three years and any Directors appointed during the year seek re-election at the next annual general meeting (AGM). However, for the 2009 AGM, as set out in the Group Chairman’s letter to shareholders dated 18th November 2008, all Directors will be seeking re-election, with the exception of Sir Nigel Rudd and Professor Dame Sandra Dawson, who will be retiring at the conclusion of the AGM. Details are set out in the Notice of Meeting.
External appointments contribute to an executive Director’s ongoing development and experience and executive Directors are permitted to serve on one other listed company board, in addition to their role at Barclays. Other appointments may be taken up with the approval of the Group Chairman. All external appointments are considered in line with the Group’s policy on Directors’ Conflicts of Interest and, if appropriate, each appointment is authorised by the Board. Further details of the Group’s policy on Directors’ Conflicts of Interest are set out on page 148.
Independence of non-executive DirectorsSir Michael Rake
The Code sets out circumstances that may be relevant to the Board in determining whether each non-executive Director is independent. Barclays Charter of Expectations sets out specific criteria, which the Board considers are essential behaviours, to assess the independence of each non-executive Director, as follows:Sir Andrew Likierman
Chris Lucas
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– | To authorise the Directors to set the remuneration of the auditors. |
– | To authorise Barclays PLC and its subsidiaries to make political donations and incur political expenditure. |
– | To renew the authority given to Directors to allot securities. |
– | To approve and adopt the rules of the Barclays Group SAYE Share Option Scheme. |
Special Resolutions
– | To renew the authority given to the Directors to allot securities for cash other than on a pro-rata basis to shareholders and to sell treasury shares. |
– | To renew the Company’s authority to purchase its own shares. |
– | To permit General Meetings to continue to be called on 14 clear days’ notice. |
– | To adopt new Articles of Association. |
This is only a summary of the business to be transacted at the meetings and you should refer to the Notice of Meeting for full details.
By order of the Board
Lawrence Dickinson
Company Secretary
9th March 2010
126 |
Group Chairman’s Introduction
Barclays performed strongly in 2009, despite it being another challenging year for the financial services industry. Once again, a number of difficult decisions had to be taken as the Board sought to act in the best interests of shareholders.
Review of 2009
The year started with confidence in the banking sector as a whole at an extremely low ebb. The market was unsure as to the strength of banks’ balance sheets and the extent of further losses from both credit market exposures and the global economic downturn. In Barclays case, the share price was extremely weak during January and the Board took its first key decision in deciding to issue an open letter from the Group Chief Executive and myself on 26th January 2009 to address the principal causes for concern. We felt that it was important to make this announcement, in what were exceptional circumstances, to reassure our stakeholders that we were well funded and profitable.
In March 2009, we announced that the Board did not believe it was in the interests of investors, depositors or clients to participate in HM Treasury’s Asset Protection Scheme. This decision was taken after careful consideration of the economics of participation and detailed stress testing of our capital position and resources, the results of which were confirmed by the FSA.
In March 2009, we explored the potential sale of our iShares business with a number of interested parties and announced, in April 2009, the sale of that business to a limited partnership established by CVC Capital Partners Group. Following a superior offer from BlackRock, Inc. for the sale of the whole of the Barclays Global Investors business (BGI), the Board concluded that it would be in the best interests of Barclays and for the benefit of shareholders to accept that offer. The resolution for the sale of BGI was put to shareholders at a General Meeting on 6th August 2009 and 99.9% of votes cast were in favour of the transaction.
During the second half of 2009, the Board took the decision to restructure the Group’s credit market exposures. We announced in September 2009 that we were restructuring a significant tranche of such exposures in order to secure more stable risk-adjusted returns for shareholders over time. And, while we did not pay a final dividend for 2008, we were able to resume dividend payments in the second half of 2009 and it is our intention to pay quarterly dividends going forward.
It was essential to keep the Board fully informed during the discussions on all these matters and the Directors were updated regularly at Board meetings and through ad hoc circulation of information. A significant number of additional Board and Board Committee meetings were held, often at short notice, to discuss and take those decisions – a total of 27 Board meetings were held during the year and each of our Board Committees held additional meetings. It was also important to keep our shareholders informed and, in addition to regulatory announcements, meetings were held with our institutional shareholders and other investor groups to discuss the financial crisis and how we have responded. Briefings on these meetings were reported to the Board to ensure that all Directors were aware of any concerns raised by our shareholders.
Corporate Governance in Barclays
As Chairman, a key part of my role is to ensure that the composition of the Board is appropriate; that appropriate behaviours are demonstrated in the Boardroom and that there is an environment in which challenge is expected and achieved. In April, we reviewed the lessons learnt from the
financial crisis and considered any enhancements that could be made. Governance processes were reviewed and a number of changes were made. These included revisions to the Board Risk Committee Terms of Reference to make explicit its role in reviewing risks following the Group’s entry into new businesses or geographies. The changes also set out the Committee’s role in reviewing the specific risk adjustments to be applied to performance objectives. The frequency of risk, capital and liquidity reporting to the Board, Board Audit Committee and Board Risk Committee has been increased and additional time has been allocated to strategy discussions.
Barclays has emerged from the crisis in a relatively strong position compared to many of our peers. The profits of the Group were strong in 2009 and good progress was made on key measures of financial strength, such as capital and liquidity. However, we remain conscious of the significant reduction in shareholder value suffered by our shareholders. Whilst we have made changes to some of our Corporate Governance processes and practices, we believe that these were fundamentally sound. The review of Corporate Governance in the banking sector by Sir David Walker (the Walker Review), to which we contributed, made a number of recommendations for improvements in governance in the banking sector. Many of the practices put forward in the Walker Review recommendations are in line with practices we already have in place, but where we can enhance processes and practices, we are doing so.
However, the real key to effective Corporate Governance is to ensure that behaviours around the Board table are appropriate. It is an essential part of my role to ensure that firstly, appropriate and timely information is available to the Board in a readily understandable format, and secondly, that there is an environment in the Boardroom which promotes and supports constructive and effective challenge. This requires the right Board composition and I believe Barclays has been well served by both its executive and non-executive Directors in this respect. Our Directors understand the importance of appropriate Board behaviour, which is set out in our ‘Charter of Expectations’ atwww.barclays.com/corporategovernance. The Charter of Expectations is given to all new Directors and reviewed on an annual basis to ensure it sets out the expectations of each Director in their role on the Board, including expected competencies, behaviours and time commitment.
Board size and composition
During 2009, we made a conscious effort to reduce the size of the Board from its peak of 17 and, although this number will fluctuate as we seek to ensure the Board has the right level of skills and experience, we will aim to keep it between 12 to 15 Directors. Going forward, it is our intention to maintain a majority of independent non-executive Directors, with approximately 50% of those non-executive Directors, including the Group Chairman and the Chairmen of the principal Board Committees, having banking or financial experience. We do believe, however, that to be fully effective, the Board should have a balance of Directors with both banking or financial experience and broader experience.
We have carefully considered, in the light of both the Walker Review and the Review of the Combined Code, whether all Directors should stand for re-election each year. I do believe it is important that the Chairman should stand for re-election annually and, having discussed the issue at both the Board Corporate Governance and Nominations Committee and the Board, we decided that the Deputy Chairman and Committee Chairmen should also stand for annual re-election.
The report that follows sets out how we have complied with the UK Combined Code on Corporate Governance (the Code) and also gives further details of any enhancements made during the year and in particular, in response to the recommendations of the Walker Review.
Marcus Agius
Group Chairman
9th March 2010
127 |
Statements of Compliance
UK Combined Code on Corporate Governance
As Barclays is listed on the London Stock Exchange, we comply with the UK Combined Code on Corporate Governance (the Code). For the year ended 31st December 2009, we have complied with the relevant provisions set out in section 1 of the Code and applied the principles of the Code as described in this report.
NYSE Corporate Governance Rules
Barclays has American Depositary Receipts listed on the New York Stock Exchange (NYSE), and is also subject to the NYSE’s Corporate Governance rules (NYSE Rules). We are exempt from most of the NYSE Rules, which domestic US companies must follow, because we are a non-US company listed on the NYSE. However, we are required to provide an Annual Written Affirmation to the NYSE of our compliance with the applicable NYSE Rules and must also disclose any significant differences between our corporate governance practices and those followed by domestic US companies listed on the NYSE. As our main listing is on the London Stock Exchange, we follow the UK’s Combined Code. Key differences between the Code and NYSE Rules are set out later in this Report.
Role and constitution of Board
Corporate governance framework
Good corporate governance practices are not just a matter for the Board but are at the heart of everything that we do within the Group. The Group operates within a comprehensive governance framework, which is outlined in the diagram below and set out in the report that follows. The Group’s risk management framework is described in the Risk Management section on pages 59 to 65.
The Board
The Board is responsible to the shareholders for creating and delivering sustainable shareholder value through the management of the Group’s businesses. Each Director must act in a way that he or she considers promotes the long-term success of the Company for the benefit of shareholders. The Board also ensures that management achieves an appropriate balance between promoting long-term growth and delivering short-term objectives.
Board meetings
The Board has eight Board meetings scheduled each year. Strategy is reviewed regularly at these meetings with updates at each meeting from at least one business unit on the execution of their agreed strategy. One Board meeting each year, scheduled over a day and a half, considers and approves the Group’s future strategy. A different approach was taken to strategy formulation in 2009 following feedback received as part of the 2008 Board Effectiveness Review. During the summer of 2009, the non-executive Directors took part in interviews with the Head of Strategy and Company Secretary to discuss strategic areas of focus. These areas of focus were debated by the Board in September with discussions of various themes facilitated by non-executive Directors. Management then developed strategy proposals, which were fully debated by the whole Board in November.
In addition to the eight scheduled meetings in 2009, there were 13 additional Board meetings held to consider and approve the iShares and BGI transactions and the restructuring of our credit market exposures. A further six Board meetings were held during the year on other issues, including share price performance. The additional Board meetings, which were often called at short notice, had attendance of 88%. Any Director who was unable to attend a meeting was briefed separately on the discussions at the meeting
128 |
Corporate governance
Corporate governance report
continued
and their views were sought and considered. There were also 12 meetings of the Board Finance Committee, to which the Board delegated authority to review and approve certain aspects of the iShares, BGI and credit market exposure transactions. The Board Finance Committee, whose purpose is to authorise certain transactions to which the Group is party, subject to the relevant authority being delegated to the Committee by the Board (as set out in the Board Finance Committee’s Terms of Reference), comprises the Group Chairman, Group Chief Executive and at least two independent non-executive Directors. Board Finance Committee attendance was 100%.
Scheduled Board and Committee meetings are arranged at least one year in advance and all Directors are expected to attend each meeting. All Directors are provided with the meeting papers and relevant information in advance of each meeting and, if a Director is unable to attend a meeting because of exceptional circumstances, he or she will still receive the supporting papers and will usually discuss any matters they wish to raise with the Chairman of the meeting. This ensures that their views are given due consideration. The attendance at Board meetings held in 2009 is set out on page 130. In 2009, all Directors committed an appropriate amount of time to fulfil their duties and responsibilities on the Board. Any instances of non-attendance at Board meetings are generally related to prior business or personal commitments or illness. The additional meetings in 2009 were often arranged at short notice or rearranged as market conditions changed and it was not always possible for all Directors to attend these meetings particularly because of time zone differences.
Non-executive Director Board briefings
The Group Chairman usually meets with the non-executive Directors ahead of each scheduled Board meeting to brief them on the business of the meeting. These meetings are held without any executive Directors or senior management present. The non-executive Directors use these meetings as an opportunity to advise the Group Chairman if they have any specific questions they would like to raise about the business of the meeting. The Group Chairman, Group Chief Executive and Company Secretary are always available for the Directors to discuss any issues concerning Board meetings or other matters.
Role of the Board
UK company law requires Directors to act in a way they consider, in good faith, would promote the success of the Company for the benefit of shareholders as a whole. In doing so, the Directors must have regard (amongst other matters) to:
– | the likely consequences of any decision in the long-term; |
– | the interests of Barclays employees; |
– | the need to foster Barclays business relationships with suppliers, customers and others; |
– | the impact of Barclays operations on the community and the environment; |
– | the desirability of Barclays maintaining a reputation for high standards of business conduct; and |
– | the need to act fairly as between shareholders of Barclays. |
In addition to their statutory duties, the Directors must ensure that the Board focuses effectively on all its accountabilities. The Board determines the strategic objectives and policies of the Group to deliver long-term value, providing overall strategic direction within an appropriate framework of rewards, incentives and controls. The Board is collectively responsible for the success of the Group: the executive Directors are directly responsible for running the business operations and the non-executive Directors are responsible for bringing independent judgment and scrutiny to decisions taken by the Board. The non-executive Directors must satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust. Following presentation by executive management and a disciplined process of review and challenge by the Board, clear decisions on the policy or strategy are adopted, and the executive management are fully empowered to implement those decisions. The role and responsibilities of the Barclays Board are set out in ‘Corporate Governance in Barclays’, which is available on our website atwww.barclays.com/corporategovernance.
Role of the Group Chairman
The role of the Group Chairman is to lead and manage the Board to ensure it discharges its legal and regulatory responsibilities fully and effectively. The time commitment of the Group Chairman is set out in our Charter of Expectations and is in line with the Walker Review recommendation that a Chairman commits two-thirds of his/her time to the role. The Group Chairman must also ensure the Board is effective in delivering all its objectives, and so sets the Board agenda and allocates sufficient time for the Board to engage in meaningful discussions on strategic issues. He facilitates and encourages challenge from all Directors where decisions are needed on matters of risk and strategy. The Group Chairman also ensures that the Directors are kept well-informed, particularly the non-executive Directors, so that Board discussions are effective and there is good communication between the executive and non-executive Directors. The Group Chairman, Group Chief Executive and the Company Secretary work together to ensure that the Directors receive relevant information for them to discharge their duties and that such information is accurate, timely and clear. The communication of information applies to all scheduled Board meetings, but is particularly important in exceptional circumstances where the Board needs to respond to changing market conditions. We provide all our Directors with secure access to electronic copies of meeting papers and other key documents via a dedicated Directors’ intranet. The documents available include past and current Board and Committee papers, reports, minutes, press coverage, analyst reports and material from briefing sessions.
Role of the Chief Executive
The roles of the Group Chairman and Group Chief Executive are separate. The role of the Group Chief Executive is to manage the day-to-day running of the Group. The Board has delegated this responsibility to the Group Chief Executive and he then leads the executive Directors and Executive Committee in making and executing operational decisions. The Group Chief Executive is also responsible for recommending strategy to the Board.
Company Secretary
The Company Secretary and his team provide dedicated support to the Board. Their services are available to all Directors, particularly the non-executive Directors who may need additional support to ensure they receive timely and accurate information to fulfil their duties. Directors may also take independent professional advice on request at the Company’s expense.
Effective internal control
One of the Board’s key responsibilities is to ensure that management maintains a system of internal control that provides assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. The Board considers the materiality of financial and other risks to the Group’s business and reputation, ensures that appropriate controls are in place and considers the relative costs and benefits of implementing specific controls.
The powers of the Board are set out in a formal schedule of matters reserved for the Board’s decision. These matters are significant to the Group as a whole because of their strategic, financial or reputational implications.
The Schedule of Matters Reserved to the Board is reviewed and updated regularly to ensure it remains appropriate and a summary of these matters is set out on page 129.
Board Activities in 2009
At each meeting in 2009, the Group Chief Executive and Group Finance Director reported to the Board and one or two of the main businesses or functions also presented an update on the implementation of their agreed strategy. Scheduled Board meetings also received reports from each of the principal Board Committees and reports from the Company Secretary on relevant corporate governance matters, including updates on the Walker Review and the Review of the Combined Code and the potential implications for the Group. The Board also received reports on the new regulatory frameworks in respect of compensation, particularly in respect of the FSA Remuneration Code and the proposals of the Financial Stability Board.
129 |
Summary of Matters Reserved for the Board
– | Approval of the Group’s strategy, Medium-Term and Short-Term Plans |
– | Approval of Risk Appetite and Liquidity Risk Appetite |
– | Monitoring delivery of the strategy and performance against plan |
– | Changes relating to capital structure or status as a PLC |
– | Approval of annual Capital Plan |
– | Approval of interim and final financial statements, dividends and any significant change in accounting policies or practices |
– | Authorisation for Directors’ conflicts or possible conflicts of interest |
– | Appointment (or removal) of Company Secretary and Chief Risk Officer |
– | Any share dividend alternative |
– | Remuneration of auditors and recommendations for appointment or removal of auditors |
– | Approval of all circulars, prospectuses and significant press releases |
– | Principal regulatory filings with stock exchanges |
– | Board appointments and removals |
– | Role profiles of key positions on the Board |
– | Terms of reference and membership of Board Committees |
– | Major acquisitions, mergers or disposals |
– | Major capital investments and projects |
– | Approval of the framework for determining the policy and specific remuneration of Executive Directors |
– | Approval of Chairman and non-executive Director remuneration |
– | Major changes in employee share schemes |
– | Approval of allotment of shares |
– | Approval of Board and Board Committees performance evaluation process |
– | Determination of independence of non-executive Directors |
– | Approval of Corporate Governance framework |
– | Approval of division of responsibilities between the Chairman and Group Chief Executive |
– | Rules and procedures for dealing in Barclays securities |
The Board allocated its time at scheduled Board meetings during 2009 to the following:
Strategy
– | discussion of and approval of Group Strategy, including risk strategy and remuneration strategy; |
– | reports from the Group Chief Executive on key strategic issues and progress, matters considered by the Executive Committee and competitor activity. The reports also included progress on Group-wide key objectives, a half yearly review of TSR performance and an update on talent management; |
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Corporate governance
Corporate governance report
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The Board considers non-executive Director independence on an annual basis, as part of each Director’s performance review.
The Board Corporate GovernanceFinance (including capital and Nominations Committee and subsequently the Board reviewed the independence of non-executive Directors in early 2009 and concluded that each of them continues to demonstrate these essential behaviours. In determining that each of the non-executive Directors remains independent, the Board considered in particular the following:liquidity)
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The Code suggests that length of tenure is a factor that should be considered when determining whether a Director continues to be independent. As recommended by the Code, it is our policy that any Director who serves for more than nine years should seek annual re-election by shareholders and that all Directors subject to re-election should undergo a rigorous performance evaluation.
As a result of the annual performance review, the Board concluded that Sir Nigel Rudd continues to demonstrate the essential characteristics of independence expected by the Board. The Board continues to be regularly refreshed and the Board considers Sir Nigel’s length of service, and the resulting experience and knowledge of Barclays he has gained, as being especially valuable. This proved particularly helpful during the difficult market conditions in 2008. Sir Nigel has stood for re-election annually at each AGM since 2005. Sir Nigel will, however, retire at the 2009 AGM and is not seeking re-election.
All Directors must report any changes in their circumstances to the Board and the Board reserves the right to terminate the appointment of a non-executive Director if there are any material changes in their circumstances that may conflict with their commitments as a Barclays Director or that may impact on their independence. Under UK company law, a Director must now seek authorisation before taking up anyon the financial position with another company that conflicts, or may possibly conflict, with the Company’s interests. Barclays Articles of Association contain provisions to allow the Directors to authorise situations of potential conflicts of interest so that a Director is not in breach of his/her duty under company law. All existing external appointments for each Director were considered and authorised by the Board in September 2008 and additional external appointments have been authorised at subsequent Board meetings following notification to the Company Secretary. Each authorisation is set out in a Conflicts Register. The Board Corporate Governance and Nominations Committee is responsible for conducting an annual review of the Conflicts Register and confirming to the Board that, where relevant, conflicts have been dealt with appropriately, and that the process for dealing with them is operating effectively.
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Board and Committee Membership and Attendance
The table below sets out attendance of Directors at Board and Committee meetings in 2008.
Independent | Scheduled Board | Additional Board | Board Audit Committee | Board HR & Remuneration Committee | Board Corporate Governance & Nominations Committee | Board Risk Committee | ||||||||
Number of meetings held | 7 | 23 | 10 | 5 | 2 | 4 | ||||||||
Group Chairman | ||||||||||||||
Marcus Agius | OA | 7 | 23 | – | 5 | 2 | – | |||||||
Executive Directors | ||||||||||||||
John Varley (Group Chief Executive) | ED | 7 | 23 | – | – | – | – | |||||||
Bob Diamond | ED | 7 | 22 | – | – | – | – | |||||||
Gary Hoffman (left the Board 31st August 2008) | ED | 5 | 7 | – | – | – | – | |||||||
Chris Lucas | ED | 7 | 23 | – | – | – | – | |||||||
Frits Seegers | ED | 6 | 20 | – | – | – | – | |||||||
Non-executive Directors | ||||||||||||||
David Booth | I | 7 | 22 | – | – | – | 4 | |||||||
Sir Richard Broadbent (Senior Independent Director) | I | 7 | 21 | – | 5 | 2 | 4 | |||||||
Leigh Clifford | I | 7 | 13 | – | 4 | – | – | |||||||
Fulvio Conti | I | 7 | 17 | 9 | – | – | – | |||||||
Dr Danie Cronjé (left the Board 24th April 2008) | I | 2 | – | – | – | – | 1 | |||||||
Professor Dame Sandra Dawson | I | 7 | 21 | 10 | – | – | – | |||||||
Sir Andrew Likierman | I | 7 | 18 | 8 | – | – | 4 | |||||||
Sir Michael Rake | I | 6 | 21 | 7 | – | – | – | |||||||
Sir Nigel Rudd (Deputy Chairman) | I | 7 | 20 | – | – | 2 | – | |||||||
Stephen Russell | I | 6 | 13 | 10 | – | 2 | 3 | |||||||
Sir John Sunderland | I | 7 | 20 | – | 4 | 1 | – | |||||||
Patience Wheatcroft | I | 7 | 22 | – | – | – | – |
Key
Board Committees
Certain responsibilities of the Board are delegated to Board Committees to assist the Board in carrying out its functions and to ensure independent oversight of internal control and risk management. Membership of Board Committees is recommended to the Board by the Board Corporate Governance and Nominations Committee, which reviews Committee composition and balance regularly to ensure the Committees are refreshed. All members of principal Board Committees are non-executive Directors, although the Chairman is a member of the Board HR and Remuneration Committee. Each Board Committee’s terms of reference set out the specific matters for which delegated authority has been given. These terms of reference, which are available on our website, are reviewed annually.
The Board has delegated authority to four principal Board Committees:
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– | regular reports from the Chairman of the Board |
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– | reports on peer group comparison of results following the release of preliminary and half-year results; |
– | approval of the dividend policy; |
– | approval of the Group’s cost of equity and capital plan for 2010; and |
– | approval of the medium-term plan (including the financial framework) and short-term plan. |
Risk
– | regular reports from the Chief Risk Officer on risk management and impairment and from the Group General Counsel on legal risk issues; |
– | regular reports from the Chairman of the Board Risk Committee on matters discussed at that Committee; and |
– | approval of Risk Appetite and Liquidity Risk Appetite for the Group for 2010. |
Note
a | Capital management was reported separately for 2008. It is included within Finance (including capital and liquidity) for 2009. |
130 |
Corporate governance
Corporate governance report
continued
Corporate Finance
– | consideration and approval of the proposed iShares sale and subsequent sale of Barclays Global Investors; and |
– | consideration and approval of the restructuring of our credit market exposures. |
Corporate Governance
– | reports on governance issues and updates on the changes in company law, including approval of non-executive Director appointments, updates on the Walker Review consultation and the Financial Reporting Council’s Review of the Combined Code; |
– | a report on the effectiveness of the Board following the effectiveness review; |
– | approval of the non-executive Directors’ fees following a benchmarking comparison against our peer group; and |
– | reports from each of the Board Committees. |
Compensation
– | reports on remuneration strategy; |
– | reports on regulatory frameworks, including FSA Remuneration Code and the proposals from the Financial Stability Board; |
– | regular reports from the Chairman of the Board HR and Remuneration Committee on matters discussed at that Committee; and |
– | consideration of the proposals for the closure of the UK Retirement Fund. |
Regulatory issues
– | a review of the FSA’s stress-test results; |
– | regular reports from the Group Chief Executive on contact with regulators worldwide and in particular discussions with the tripartite authorities in the UK; |
– | consideration of the Government’s Asset Protection Scheme; and updates on the global and UK economic and regulatory environment. |
– | Figure 1 on page 129 illustrates how the Board spent its time at scheduled Board meetings in 2009. |
Board size, composition and qualification
Board size and composition
There are currently 13 Directors on the Board, comprised of the Group Chairman, three executive Directors and nine non-executive Directors. The number of meetings heldsize and attendance at the Committee meetings is set out above in ‘Board and Committee Membership and Attendance’. The activitiescomposition of the Board Committees are set out onis regularly reviewed by the pages 149Board and, in particular, the Board Corporate Governance and Nominations Committee, to 154.
ensure there is an appropriate and diverse mix of skills and experience. The termsBoard aims to appoint non-executive Directors who have the skills and experience needed for a comprehensive understanding of referencethe Group’s activities and the risk associated with them. This is particularly important for eachBarclays as a financial services business and it is our intention that 50% of our non-executive Directors, including the Group Chairman and the Chairmen of the principal Board Committees, are available fromshould have banking or financial experience. However, a broader range of skills and experience is
Board and Committee Attendance
Independent | Scheduled Board | Additional Board a | Board Audit Committee | Board HR & Remuneration Committee | Board Corporate Governance & Nominations Committee | Board Risk Committee | AGM | |||||||||
Number of meetings held | 8 | 19 | 11 | 14 | 4 | 5 | 1 | |||||||||
Group Chairman | ||||||||||||||||
Marcus Agius | OA | 8 | 19 | – | 14 | 4 | – | 1 | ||||||||
Executive Directors | ||||||||||||||||
John Varley (Group Chief Executive) | ED | 8 | 19 | – | – | – | – | 1 | ||||||||
Bob Diamond | ED | 8 | 17 | – | – | – | – | 1 | ||||||||
Chris Lucas | ED | 8 | 19 | – | – | – | – | 1 | ||||||||
Frits Seegers (to 3rd November) | ED | 6 | 19 | – | – | – | – | 1 | ||||||||
Non-executive Directors | ||||||||||||||||
David Booth | I | 8 | 16 | – | – | – | 5 | 1 | ||||||||
Sir Richard Broadbent | ||||||||||||||||
(Deputy Chairman & Senior Independent Director) | I | 8 | 18 | – | 14 | 4 | 5 | 1 | ||||||||
Leigh Clifford | I | 8 | 7 | – | 11 | – | – | 1 | ||||||||
Fulvio Conti | I | 8 | 15 | 10 | – | – | – | 1 | ||||||||
Professor Dame Sandra Dawson (to 23rd April) | I | 3 | 11 | 5 | – | – | – | 1 | ||||||||
Simon Fraser (from 10th March) b | I | 7 | 15 | 5 | 7 | – | – | – | ||||||||
Reuben Jeffery III (from 16th July) | I | 4 | 2 | – | – | – | – | – | ||||||||
Sir Andrew Likierman | I | 8 | 17 | 11 | – | – | 5 | 1 | ||||||||
Sir Michael Rake | I | 8 | 17 | 11 | – | 2 | 3 | 1 | ||||||||
Sir Nigel Rudd (Deputy Chairman to 23rd April) | I | 3 | 11 | – | – | 1 | – | 1 | ||||||||
Stephen Russell (to 31st October) | I | 6 | 12 | 7 | – | 2 | 3 | 1 | ||||||||
Sir John Sunderland | I | 8 | 17 | – | 14 | 4 | – | 1 | ||||||||
Patience Wheatcroft (to 16th June) | I | 3 | 14 | – | – | – | – | 1 |
Key
OAIndependent on appointment.
EDExecutive Director.
IIndependent non-executive Director.
Notes
a | In the case of Leigh Clifford, who is based in Australia, the time difference meant that he was not always able to participate in additional Board meetings called at short notice, but he was fully briefed on the discussions by the Group Chairman or the Company Secretary. |
b | Simon Fraser was appointed as a member of the Board Audit Committee and Board HR and Remuneration Committee with effect from 1st May 2009. |
131 |
Stephen Russell (Chairman)Corporate governance
Fulvio ContiCorporate governance report
Professor Dame Sandra Dawson
Sir Andrew Likierman
essential for the Board to be fully effective. Figure 2 demonstrates the diverse range of skills and experience on the Board.
We have a strong independent element on the Board and more than half the Directors are independent non-executive Directors, which is in line with the recommendations of the Code. The balance of the Board is illustrated by Figure 3.
Sir Michael Rake
Secretary: Lawrence Dickinson
The Board Audit Committee terms of reference are available from the Corporate Governance section at:www.aboutbarclays.com.
In addition to the members of the Committee, there are a number of regular attendees at each meeting. The Group Chief Executive, Group Finance Director, Barclays Internal Audit Director, Group Risk Director, Group General Counsel and the lead external audit partner normally attend all scheduled Board Audit Committees. The Board Audit Committee members usually meet privately before each meeting to raise any concerns with the Chairman of the meeting and they also meet with the external auditors and the Barclays Internal Audit Director, without management present, at the end of most Committee meetings. Sir Andrew Likierman continues to fulfil his role as the ‘financial expert’ as defined by the US Sarbanes-Oxley Act of 2002 and, as a result of his accountancy background and his career with HM Treasury, has ‘recent and relevant financial experience’ as recommended by the Code. Sir Michael Rake will succeed Stephen Russell as Chairman of the Committee in March 2009. Sir Michael has significant audit experience having worked at KPMG from 1972-2007 where he was Chairman of KPMG International from 2002-2007.
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Corporate governance
Corporate governance report
Activities in 2008
Figure 5 illustrates how the Committee allocated its time in 2008. During 2008, the Committee:
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The Committee also received regular updates during 2008 on:
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In February 2009, the Committee reviewed its activities in 2008 against its terms of reference and concluded that it had discharged the responsibilities delegated to it under those terms of reference.
Approval of financial statements
Barclays has a strong governance process in place to support its framework of disclosure controls and procedures. That process, in which the Board Audit Committee plays a key role, is illustrated in Figure 6.
The Legal and Technical Review Committee is an accounting, legal and regulatory compliance committee, which is responsible for reviewing the Group’s financial reports and disclosures to ensure that they have been subject to adequate verification and comply with legal and technical requirements. Meetings are attended by the Group’s auditors and US lawyers. The membership of the Disclosure Committee and its role is set out on page 154. The membership of the Executive Committee and its role is set out on pages 153 and 154.
This governance process is in place to ensure both management and the Board are given sufficient opportunity to review and challenge the Group’s financial statements and other significant disclosures before they are made public. It also provides assurance for the Group Chief Executive and Group Finance Director when providing certifications as required under the Sarbanes-Oxley Act 2002 and recommended by the Turnbull Guidance on Internal Control. Further details of the Group’s system of internal control and an assessment of its effectiveness may be found on page 173.
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Corporate governance
Corporate governance report
Board Risk Committee
Sir Richard Broadbent (Chairman)
David Booth
Dr Danie Cronjé (to 24th April 2008)
Sir Andrew Likierman
Stephen Russell
Secretary: Lawrence Dickinson
The Board Risk Committee terms of reference are available from the Corporate Governance section at:www.aboutbarclays.com.
In addition to the Members of the Committee, all meetings are usually attended by the Group Finance Director and Group Risk Director. Barclays Internal Audit Director, Group General Counsel and Barclays external auditor, as well as other senior executives, also attend meetings of the Board Risk Committee, where appropriate.
The Board recognises that risk is a key parameter for the business.
The Board Risk Committee provides monitoring and oversight of all Barclays risk activities. During 2008, the Committee received presentations and updates on key aspects of the external market conditions to ensure it was able to maintain an appropriate level of oversight and report effectively to the Board.
Activities in 2008
The Committee met four times in 2008 and Figure 7 shows how the Committee allocated its time at those meetings. During 2008, the Committee:
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In March 2009, the Committee will review its activities in 2008 against its terms of reference.
More information on risk management and the internal control framework can be found in the Risk management report on pages 57 to 136.
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Board Corporate Governance and
Nominations Committee
Marcus Agius (Chairman)
Sir Richard Broadbent
Sir Nigel Rudd
Stephen RussellMichael Rake
Sir John SunderlandAndrew Likierman
Secretary: Chris Lucas
– | To reappoint PricewaterhouseCoopers LLP as auditors of the Company. |
– | To authorise the Directors to set the remuneration of the auditors. |
– | To authorise Barclays PLC and its subsidiaries to make political donations and incur political expenditure. |
– | To renew the authority given to Directors to allot securities. |
– | To approve and adopt the rules of the Barclays Group SAYE Share Option Scheme. |
Special Resolutions
– | To renew the authority given to the Directors to allot securities for cash other than on a pro-rata basis to shareholders and to sell treasury shares. |
– | To renew the Company’s authority to purchase its own shares. |
– | To permit General Meetings to continue to be called on 14 clear days’ notice. |
– | To adopt new Articles of Association. |
This is only a summary of the business to be transacted at the meetings and you should refer to the Notice of Meeting for full details.
By order of the Board
Lawrence Dickinson
Company Secretary
9th March 2010
126 |
Group Chairman’s Introduction
Barclays performed strongly in 2009, despite it being another challenging year for the financial services industry. Once again, a number of difficult decisions had to be taken as the Board sought to act in the best interests of shareholders.
Review of 2009
The year started with confidence in the banking sector as a whole at an extremely low ebb. The market was unsure as to the strength of banks’ balance sheets and the extent of further losses from both credit market exposures and the global economic downturn. In Barclays case, the share price was extremely weak during January and the Board took its first key decision in deciding to issue an open letter from the Group Chief Executive and myself on 26th January 2009 to address the principal causes for concern. We felt that it was important to make this announcement, in what were exceptional circumstances, to reassure our stakeholders that we were well funded and profitable.
In March 2009, we announced that the Board did not believe it was in the interests of investors, depositors or clients to participate in HM Treasury’s Asset Protection Scheme. This decision was taken after careful consideration of the economics of participation and detailed stress testing of our capital position and resources, the results of which were confirmed by the FSA.
In March 2009, we explored the potential sale of our iShares business with a number of interested parties and announced, in April 2009, the sale of that business to a limited partnership established by CVC Capital Partners Group. Following a superior offer from BlackRock, Inc. for the sale of the whole of the Barclays Global Investors business (BGI), the Board concluded that it would be in the best interests of Barclays and for the benefit of shareholders to accept that offer. The resolution for the sale of BGI was put to shareholders at a General Meeting on 6th August 2009 and 99.9% of votes cast were in favour of the transaction.
During the second half of 2009, the Board took the decision to restructure the Group’s credit market exposures. We announced in September 2009 that we were restructuring a significant tranche of such exposures in order to secure more stable risk-adjusted returns for shareholders over time. And, while we did not pay a final dividend for 2008, we were able to resume dividend payments in the second half of 2009 and it is our intention to pay quarterly dividends going forward.
It was essential to keep the Board fully informed during the discussions on all these matters and the Directors were updated regularly at Board meetings and through ad hoc circulation of information. A significant number of additional Board and Board Committee meetings were held, often at short notice, to discuss and take those decisions – a total of 27 Board meetings were held during the year and each of our Board Committees held additional meetings. It was also important to keep our shareholders informed and, in addition to regulatory announcements, meetings were held with our institutional shareholders and other investor groups to discuss the financial crisis and how we have responded. Briefings on these meetings were reported to the Board to ensure that all Directors were aware of any concerns raised by our shareholders.
Corporate Governance in Barclays
As Chairman, a key part of my role is to ensure that the composition of the Board is appropriate; that appropriate behaviours are demonstrated in the Boardroom and that there is an environment in which challenge is expected and achieved. In April, we reviewed the lessons learnt from the
financial crisis and considered any enhancements that could be made. Governance processes were reviewed and a number of changes were made. These included revisions to the Board Risk Committee Terms of Reference to make explicit its role in reviewing risks following the Group’s entry into new businesses or geographies. The changes also set out the Committee’s role in reviewing the specific risk adjustments to be applied to performance objectives. The frequency of risk, capital and liquidity reporting to the Board, Board Audit Committee and Board Risk Committee has been increased and additional time has been allocated to strategy discussions.
Barclays has emerged from the crisis in a relatively strong position compared to many of our peers. The profits of the Group were strong in 2009 and good progress was made on key measures of financial strength, such as capital and liquidity. However, we remain conscious of the significant reduction in shareholder value suffered by our shareholders. Whilst we have made changes to some of our Corporate Governance processes and practices, we believe that these were fundamentally sound. The review of Corporate Governance in the banking sector by Sir David Walker (the Walker Review), to which we contributed, made a number of recommendations for improvements in governance in the banking sector. Many of the practices put forward in the Walker Review recommendations are in line with practices we already have in place, but where we can enhance processes and practices, we are doing so.
However, the real key to effective Corporate Governance is to ensure that behaviours around the Board table are appropriate. It is an essential part of my role to ensure that firstly, appropriate and timely information is available to the Board in a readily understandable format, and secondly, that there is an environment in the Boardroom which promotes and supports constructive and effective challenge. This requires the right Board composition and I believe Barclays has been well served by both its executive and non-executive Directors in this respect. Our Directors understand the importance of appropriate Board behaviour, which is set out in our ‘Charter of Expectations’ atwww.barclays.com/corporategovernance. The Charter of Expectations is given to all new Directors and reviewed on an annual basis to ensure it sets out the expectations of each Director in their role on the Board, including expected competencies, behaviours and time commitment.
Board size and composition
During 2009, we made a conscious effort to reduce the size of the Board from its peak of 17 and, although this number will fluctuate as we seek to ensure the Board has the right level of skills and experience, we will aim to keep it between 12 to 15 Directors. Going forward, it is our intention to maintain a majority of independent non-executive Directors, with approximately 50% of those non-executive Directors, including the Group Chairman and the Chairmen of the principal Board Committees, having banking or financial experience. We do believe, however, that to be fully effective, the Board should have a balance of Directors with both banking or financial experience and broader experience.
We have carefully considered, in the light of both the Walker Review and the Review of the Combined Code, whether all Directors should stand for re-election each year. I do believe it is important that the Chairman should stand for re-election annually and, having discussed the issue at both the Board Corporate Governance and Nominations Committee and the Board, we decided that the Deputy Chairman and Committee Chairmen should also stand for annual re-election.
The report that follows sets out how we have complied with the UK Combined Code on Corporate Governance (the Code) and also gives further details of any enhancements made during the year and in particular, in response to the recommendations of the Walker Review.
Marcus Agius
Group Chairman
9th March 2010
127 |
Statements of Compliance
UK Combined Code on Corporate Governance
As Barclays is listed on the London Stock Exchange, we comply with the UK Combined Code on Corporate Governance (the Code). For the year ended 31st December 2009, we have complied with the relevant provisions set out in section 1 of the Code and applied the principles of the Code as described in this report.
NYSE Corporate Governance Rules
Barclays has American Depositary Receipts listed on the New York Stock Exchange (NYSE), and is also subject to the NYSE’s Corporate Governance rules (NYSE Rules). We are exempt from most of the NYSE Rules, which domestic US companies must follow, because we are a non-US company listed on the NYSE. However, we are required to provide an Annual Written Affirmation to the NYSE of our compliance with the applicable NYSE Rules and must also disclose any significant differences between our corporate governance practices and those followed by domestic US companies listed on the NYSE. As our main listing is on the London Stock Exchange, we follow the UK’s Combined Code. Key differences between the Code and NYSE Rules are set out later in this Report.
Role and constitution of Board
Corporate governance framework
Good corporate governance practices are not just a matter for the Board but are at the heart of everything that we do within the Group. The Group operates within a comprehensive governance framework, which is outlined in the diagram below and set out in the report that follows. The Group’s risk management framework is described in the Risk Management section on pages 59 to 65.
The Board
The Board is responsible to the shareholders for creating and delivering sustainable shareholder value through the management of the Group’s businesses. Each Director must act in a way that he or she considers promotes the long-term success of the Company for the benefit of shareholders. The Board also ensures that management achieves an appropriate balance between promoting long-term growth and delivering short-term objectives.
Board meetings
The Board has eight Board meetings scheduled each year. Strategy is reviewed regularly at these meetings with updates at each meeting from at least one business unit on the execution of their agreed strategy. One Board meeting each year, scheduled over a day and a half, considers and approves the Group’s future strategy. A different approach was taken to strategy formulation in 2009 following feedback received as part of the 2008 Board Effectiveness Review. During the summer of 2009, the non-executive Directors took part in interviews with the Head of Strategy and Company Secretary to discuss strategic areas of focus. These areas of focus were debated by the Board in September with discussions of various themes facilitated by non-executive Directors. Management then developed strategy proposals, which were fully debated by the whole Board in November.
In addition to the eight scheduled meetings in 2009, there were 13 additional Board meetings held to consider and approve the iShares and BGI transactions and the restructuring of our credit market exposures. A further six Board meetings were held during the year on other issues, including share price performance. The additional Board meetings, which were often called at short notice, had attendance of 88%. Any Director who was unable to attend a meeting was briefed separately on the discussions at the meeting
128 |
Corporate governance
Corporate governance report
continued
and their views were sought and considered. There were also 12 meetings of the Board Finance Committee, to which the Board delegated authority to review and approve certain aspects of the iShares, BGI and credit market exposure transactions. The Board Finance Committee, whose purpose is to authorise certain transactions to which the Group is party, subject to the relevant authority being delegated to the Committee by the Board (as set out in the Board Finance Committee’s Terms of Reference), comprises the Group Chairman, Group Chief Executive and at least two independent non-executive Directors. Board Finance Committee attendance was 100%.
Scheduled Board and Committee meetings are arranged at least one year in advance and all Directors are expected to attend each meeting. All Directors are provided with the meeting papers and relevant information in advance of each meeting and, if a Director is unable to attend a meeting because of exceptional circumstances, he or she will still receive the supporting papers and will usually discuss any matters they wish to raise with the Chairman of the meeting. This ensures that their views are given due consideration. The attendance at Board meetings held in 2009 is set out on page 130. In 2009, all Directors committed an appropriate amount of time to fulfil their duties and responsibilities on the Board. Any instances of non-attendance at Board meetings are generally related to prior business or personal commitments or illness. The additional meetings in 2009 were often arranged at short notice or rearranged as market conditions changed and it was not always possible for all Directors to attend these meetings particularly because of time zone differences.
Non-executive Director Board briefings
The Group Chairman usually meets with the non-executive Directors ahead of each scheduled Board meeting to brief them on the business of the meeting. These meetings are held without any executive Directors or senior management present. The non-executive Directors use these meetings as an opportunity to advise the Group Chairman if they have any specific questions they would like to raise about the business of the meeting. The Group Chairman, Group Chief Executive and Company Secretary are always available for the Directors to discuss any issues concerning Board meetings or other matters.
Role of the Board
UK company law requires Directors to act in a way they consider, in good faith, would promote the success of the Company for the benefit of shareholders as a whole. In doing so, the Directors must have regard (amongst other matters) to:
– | the likely consequences of any decision in the long-term; |
– | the interests of Barclays employees; |
– | the need to foster Barclays business relationships with suppliers, customers and others; |
– | the impact of Barclays operations on the community and the environment; |
– | the desirability of Barclays maintaining a reputation for high standards of business conduct; and |
– | the need to act fairly as between shareholders of Barclays. |
In addition to their statutory duties, the Directors must ensure that the Board focuses effectively on all its accountabilities. The Board determines the strategic objectives and policies of the Group to deliver long-term value, providing overall strategic direction within an appropriate framework of rewards, incentives and controls. The Board is collectively responsible for the success of the Group: the executive Directors are directly responsible for running the business operations and the non-executive Directors are responsible for bringing independent judgment and scrutiny to decisions taken by the Board. The non-executive Directors must satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust. Following presentation by executive management and a disciplined process of review and challenge by the Board, clear decisions on the policy or strategy are adopted, and the executive management are fully empowered to implement those decisions. The role and responsibilities of the Barclays Board are set out in ‘Corporate Governance in Barclays’, which is available on our website atwww.barclays.com/corporategovernance.
Role of the Group Chairman
The role of the Group Chairman is to lead and manage the Board to ensure it discharges its legal and regulatory responsibilities fully and effectively. The time commitment of the Group Chairman is set out in our Charter of Expectations and is in line with the Walker Review recommendation that a Chairman commits two-thirds of his/her time to the role. The Group Chairman must also ensure the Board is effective in delivering all its objectives, and so sets the Board agenda and allocates sufficient time for the Board to engage in meaningful discussions on strategic issues. He facilitates and encourages challenge from all Directors where decisions are needed on matters of risk and strategy. The Group Chairman also ensures that the Directors are kept well-informed, particularly the non-executive Directors, so that Board discussions are effective and there is good communication between the executive and non-executive Directors. The Group Chairman, Group Chief Executive and the Company Secretary work together to ensure that the Directors receive relevant information for them to discharge their duties and that such information is accurate, timely and clear. The communication of information applies to all scheduled Board meetings, but is particularly important in exceptional circumstances where the Board needs to respond to changing market conditions. We provide all our Directors with secure access to electronic copies of meeting papers and other key documents via a dedicated Directors’ intranet. The documents available include past and current Board and Committee papers, reports, minutes, press coverage, analyst reports and material from briefing sessions.
Role of the Chief Executive
The roles of the Group Chairman and Group Chief Executive are separate. The role of the Group Chief Executive is to manage the day-to-day running of the Group. The Board has delegated this responsibility to the Group Chief Executive and he then leads the executive Directors and Executive Committee in making and executing operational decisions. The Group Chief Executive is also responsible for recommending strategy to the Board.
Company Secretary
The Company Secretary and his team provide dedicated support to the Board. Their services are available to all Directors, particularly the non-executive Directors who may need additional support to ensure they receive timely and accurate information to fulfil their duties. Directors may also take independent professional advice on request at the Company’s expense.
Effective internal control
One of the Board’s key responsibilities is to ensure that management maintains a system of internal control that provides assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. The Board considers the materiality of financial and other risks to the Group’s business and reputation, ensures that appropriate controls are in place and considers the relative costs and benefits of implementing specific controls.
The powers of the Board are set out in a formal schedule of matters reserved for the Board’s decision. These matters are significant to the Group as a whole because of their strategic, financial or reputational implications.
The Schedule of Matters Reserved to the Board is reviewed and updated regularly to ensure it remains appropriate and a summary of these matters is set out on page 129.
Board Activities in 2009
At each meeting in 2009, the Group Chief Executive and Group Finance Director reported to the Board and one or two of the main businesses or functions also presented an update on the implementation of their agreed strategy. Scheduled Board meetings also received reports from each of the principal Board Committees and reports from the Company Secretary on relevant corporate governance matters, including updates on the Walker Review and the Review of the Combined Code and the potential implications for the Group. The Board also received reports on the new regulatory frameworks in respect of compensation, particularly in respect of the FSA Remuneration Code and the proposals of the Financial Stability Board.
129 |
Summary of Matters Reserved for the Board
– | Approval of the Group’s strategy, Medium-Term and Short-Term Plans |
– | Approval of Risk Appetite and Liquidity Risk Appetite |
– | Monitoring delivery of the strategy and performance against plan |
– | Changes relating to capital structure or status as a PLC |
– | Approval of annual Capital Plan |
– | Approval of interim and final financial statements, dividends and any significant change in accounting policies or practices |
– | Authorisation for Directors’ conflicts or possible conflicts of interest |
– | Appointment (or removal) of Company Secretary and Chief Risk Officer |
– | Any share dividend alternative |
– | Remuneration of auditors and recommendations for appointment or removal of auditors |
– | Approval of all circulars, prospectuses and significant press releases |
– | Principal regulatory filings with stock exchanges |
– | Board appointments and removals |
– | Role profiles of key positions on the Board |
– | Terms of reference and membership of Board Committees |
– | Major acquisitions, mergers or disposals |
– | Major capital investments and projects |
– | Approval of the framework for determining the policy and specific remuneration of Executive Directors |
– | Approval of Chairman and non-executive Director remuneration |
– | Major changes in employee share schemes |
– | Approval of allotment of shares |
– | Approval of Board and Board Committees performance evaluation process |
– | Determination of independence of non-executive Directors |
– | Approval of Corporate Governance framework |
– | Approval of division of responsibilities between the Chairman and Group Chief Executive |
– | Rules and procedures for dealing in Barclays securities |
The Board allocated its time at scheduled Board meetings during 2009 to the following:
Strategy
– | discussion of and approval of Group Strategy, including risk strategy and remuneration strategy; |
– | reports from the Group Chief Executive on key strategic issues and progress, matters considered by the Executive Committee and competitor activity. The reports also included progress on Group-wide key objectives, a half yearly review of TSR performance and an update on talent management; |
– | reports from the following businesses on progress against strategy: Western Europe, Barclays Global Investors, Barclays Wealth, Barclays Commercial Bank, Barclays Capital (including an update on the integration of the Lehman Brothers North American business), Barclaycard, UK Retail Bank and Absa; |
– | reports on the following key issues: Brand and Marketing, Corporate Sustainability, Franchise Health (including customer and employee satisfaction measures); and |
– | presentations on shareholder sentiment (including institutional perceptions) and reputation. |
Finance (including capital and liquidity)
– | reports from the Group Finance Director on the financial position of the Group, which included capital management and liquidity updates throughout the year; |
– | regular reports from the Chairman of the Board Audit Committee on matters discussed at that Committee; |
– | approval of the full year and half-year results for the Group; |
– | reports on peer group comparison of results following the release of preliminary and half-year results; |
– | approval of the dividend policy; |
– | approval of the Group’s cost of equity and capital plan for 2010; and |
– | approval of the medium-term plan (including the financial framework) and short-term plan. |
Risk
– | regular reports from the Chief Risk Officer on risk management and impairment and from the Group General Counsel on legal risk issues; |
– | regular reports from the Chairman of the Board Risk Committee on matters discussed at that Committee; and |
– | approval of Risk Appetite and Liquidity Risk Appetite for the Group for 2010. |
Note
a | Capital management was reported separately for 2008. It is included within Finance (including capital and liquidity) for 2009. |
130 |
Corporate governance
Corporate governance report
continued
Corporate Finance
– | consideration and approval of the proposed iShares sale and subsequent sale of Barclays Global Investors; and |
– | consideration and approval of the restructuring of our credit market exposures. |
Corporate Governance
– | reports on governance issues and updates on the changes in company law, including approval of non-executive Director appointments, updates on the Walker Review consultation and the Financial Reporting Council’s Review of the Combined Code; |
– | a report on the effectiveness of the Board following the effectiveness review; |
– | approval of the non-executive Directors’ fees following a benchmarking comparison against our peer group; and |
– | reports from each of the Board Committees. |
Compensation
– | reports on remuneration strategy; |
– | reports on regulatory frameworks, including FSA Remuneration Code and the proposals from the Financial Stability Board; |
– | regular reports from the Chairman of the Board HR and Remuneration Committee on matters discussed at that Committee; and |
– | consideration of the proposals for the closure of the UK Retirement Fund. |
Regulatory issues
– | a review of the FSA’s stress-test results; |
– | regular reports from the Group Chief Executive on contact with regulators worldwide and in particular discussions with the tripartite authorities in the UK; |
– | consideration of the Government’s Asset Protection Scheme; and updates on the global and UK economic and regulatory environment. |
– | Figure 1 on page 129 illustrates how the Board spent its time at scheduled Board meetings in 2009. |
Board size, composition and qualification
Board size and composition
There are currently 13 Directors on the Board, comprised of the Group Chairman, three executive Directors and nine non-executive Directors. The size and composition of the Board is regularly reviewed by the Board and, in particular, the Board Corporate Governance and Nominations Committee, to ensure there is an appropriate and diverse mix of skills and experience. The Board aims to appoint non-executive Directors who have the skills and experience needed for a comprehensive understanding of the Group’s activities and the risk associated with them. This is particularly important for Barclays as a financial services business and it is our intention that 50% of our non-executive Directors, including the Group Chairman and the Chairmen of the principal Board Committees, should have banking or financial experience. However, a broader range of skills and experience is
Board and Committee Attendance
Independent | Scheduled Board | Additional Board a | Board Audit Committee | Board HR & Remuneration Committee | Board Corporate Governance & Nominations Committee | Board Risk Committee | AGM | |||||||||
Number of meetings held | 8 | 19 | 11 | 14 | 4 | 5 | 1 | |||||||||
Group Chairman | ||||||||||||||||
Marcus Agius | OA | 8 | 19 | – | 14 | 4 | – | 1 | ||||||||
Executive Directors | ||||||||||||||||
John Varley (Group Chief Executive) | ED | 8 | 19 | – | – | – | – | 1 | ||||||||
Bob Diamond | ED | 8 | 17 | – | – | – | – | 1 | ||||||||
Chris Lucas | ED | 8 | 19 | – | – | – | – | 1 | ||||||||
Frits Seegers (to 3rd November) | ED | 6 | 19 | – | – | – | – | 1 | ||||||||
Non-executive Directors | ||||||||||||||||
David Booth | I | 8 | 16 | – | – | – | 5 | 1 | ||||||||
Sir Richard Broadbent | ||||||||||||||||
(Deputy Chairman & Senior Independent Director) | I | 8 | 18 | – | 14 | 4 | 5 | 1 | ||||||||
Leigh Clifford | I | 8 | 7 | – | 11 | – | – | 1 | ||||||||
Fulvio Conti | I | 8 | 15 | 10 | – | – | – | 1 | ||||||||
Professor Dame Sandra Dawson (to 23rd April) | I | 3 | 11 | 5 | – | – | – | 1 | ||||||||
Simon Fraser (from 10th March) b | I | 7 | 15 | 5 | 7 | – | – | – | ||||||||
Reuben Jeffery III (from 16th July) | I | 4 | 2 | – | – | – | – | – | ||||||||
Sir Andrew Likierman | I | 8 | 17 | 11 | – | – | 5 | 1 | ||||||||
Sir Michael Rake | I | 8 | 17 | 11 | – | 2 | 3 | 1 | ||||||||
Sir Nigel Rudd (Deputy Chairman to 23rd April) | I | 3 | 11 | – | – | 1 | – | 1 | ||||||||
Stephen Russell (to 31st October) | I | 6 | 12 | 7 | – | 2 | 3 | 1 | ||||||||
Sir John Sunderland | I | 8 | 17 | – | 14 | 4 | – | 1 | ||||||||
Patience Wheatcroft (to 16th June) | I | 3 | 14 | – | – | – | – | 1 |
Key
OAIndependent on appointment.
EDExecutive Director.
IIndependent non-executive Director.
Notes
a | In the case of Leigh Clifford, who is based in Australia, the time difference meant that he was not always able to participate in additional Board meetings called at short notice, but he was fully briefed on the discussions by the Group Chairman or the Company Secretary. |
b | Simon Fraser was appointed as a member of the Board Audit Committee and Board HR and Remuneration Committee with effect from 1st May 2009. |
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essential for the Board to be fully effective. Figure 2 demonstrates the diverse range of skills and experience on the Board.
We have a strong independent element on the Board and more than half the Directors are independent non-executive Directors, which is in line with the recommendations of the Code. The balance of the Board is illustrated by Figure 3.
Independence of non-executive Directors
The Code sets out the circumstances that may be relevant to the Board in determining whether each non-executive Director is independent. In addition to these circumstances, Barclays ‘Charter of Expectations’ sets out specific criteria that the Board considers are essential behaviours in order to assess the independence of non-executive Directors. These criteria are as follows:
– | 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 and defend their own beliefs and viewpoints in order to support the ultimate good of the organisation; and |
– | has a good understanding of the organisation’s business and affairs to enable them to properly evaluate the information and responses provided by management. |
The Board considers non-executive Director independence on an annual basis, as part of each Director’s performance evaluation. The Board Corporate Governance and Nominations Committee and the Board reviewed the independence of each non-executive Director in early 2010 and concluded that each of them continues to demonstrate these essential behaviours.
Board qualification
The Board benefits from the diverse range of skills, knowledge and experience that the non-executive and executive Directors have acquired as Directors of other companies or as business leaders in government or in academia. The Board also values the experience that our international Directors bring and aims to have diverse geographical experience on the Board, as illustrated by Figure 4. The effectiveness of the Board depends on ensuring the right balance of Directors with banking or financial experience and broader commercial experience.
External appointments
We recognise that there are significant advantages to individuals and to the Board as a whole of Barclays executive Directors serving on the Boards of other companies. In line with the Code recommendation, executive Directors may join the Board of one other listed company and all such appointments must be approved by the Board. Executive Directors must ensure that their external appointments do not involve excessive commitment or conflict of interest and their time commitment to Barclays must take precedence over any external appointment (other than those they undertake in connection with their duties at Barclays). Executive
Note
a | Individual directors may fall into one or more categories. |
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continued
Directors may retain fees paid in connection with an external appointment and details of any fees received by executive Directors may be found in the Remuneration Report on page 145.
Conflicts of Interest
Under UK company law, all Directors must seek authorisation before taking up any position with another company that conflicts, or may possibly conflict, with the Barclays interests. Barclays Articles of Association contain provisions to allow the Directors to authorise situations of potential conflicts of interest so that a Director is not in breach of his duty under company law. All Directors must report any changes in their circumstances to the Board and the Board reserves the right to terminate the appointment of a non-executive Director if there are any material changes in their circumstances that may conflict with their commitments as a Barclays Director or that may impact on their independence. All existing external appointments for each Director have been authorised by the Board and each authorisation is set out in a Conflicts Register. The Board Corporate Governance and Nominations Committee is responsible for conducting an annual review of the Conflicts Register and confirming to the Board that, where relevant, conflicts are dealt with appropriately, and that the process for dealing with them is operating effectively. The Board Corporate Governance and Nominations Committee reviewed the Conflicts Register in early 2010 and concluded that conflicts had been appropriately authorised and that the process for authorisation is operating effectively.
Role of the Board and Board Corporate Governance and Nominations Committee
In addition to reviewing the size and composition of the Board, the Board Corporate Governance and Nominations Committee is also responsible for reviewing the balance on the Board and its principal Committees and recommending the appointment of any new Directors to the Board. It is essential that the Board is refreshed regularly to maintain the appropriate skills and experience and the Committee also considers length of tenure of each non-executive Director, which is set out in Figure 5. The biographies of the current Directors, which set out the details of their skills and experience, are on pages 119 and 120.
The Charter of Expectations, which forms part of ‘Corporate Governance in Barclays’ sets out detailed role profiles for each of the Board positions, including the Group Chairman, Deputy Chairman, Senior Independent Director and both non-executive and executive Directors. Before appointing a new Director, the Board Corporate Governance and Nominations Committee will consider the responsibilities general to all Directors and, in addition, the specific responsibilities required for each role. Non-executive Directors have a responsibility to constructively challenge and develop proposals on strategy and assess the
performance of management in implementing the Group’s strategy. As Deputy Chairman and Senior Independent Director, Sir Richard Broadbent has further responsibilities, which are set out in our Charter of Expectations, including conducting the performance review of the Group Chairman and meeting institutional investors.
Sir Richard Broadbent met privately during the year with the other non-executive Directors and the Group Chief Executive to discuss feedback he received on the Group Chairman’s performance. These results were shared with the Group Chairman. During 2008 and in the first few months of 2009 leading up to the Annual General Meeting (AGM), Sir Richard conducted a series of meetings and consultations with institutional shareholders to discuss the capital raisings. Sir Richard also met with institutional shareholders to discuss Barclays remuneration strategy and the external reviews into this area.
Time Commitment
The Charter of Expectations sets out the time commitment expected from each Director, with specific requirements for the Chairman, Deputy Chairman, Senior Independent Director and non-executive Directors. Additional time commitment expectations are set out for the Board Committee Chairmen and members. The expected time commitment, which is agreed with each individual, will not be less than a minimum of 20 days per annum. Certain non-executive Directors, including the Deputy Chairman, Committee Chairmen and Committee members, are expected to commit additional time, with the average time commitment for the non-executive Directors as a whole being in the range of 30-36 days per year. Sir Richard Broadbent, as Deputy Chairman and Senior Independent Director, is expected to commit to at least one day per week in carrying out his Barclays duties, but in practice spends significantly more time on Barclays business. Committee Chairmen are expected to commit between 3 and 10 days per year in addition to between 6 and 8 days per year for Committee members. The time commitment of each non-executive Director is decided on an individual basis, with six of the non-executive Directors committing over 30 days per year. Taking into account both Board and Board Committee requirements, the balance commit at least 28 days per year.
Re-election of Directors
In line with the recommendations of the Code, all Directors usually seek re-election every three years and any Directors that were appointed during the year seek re-election at the next AGM. For the 2010 AGM the Group Chairman, Marcus Agius, will offer himself for re-election as recommended by the Walker Review. In addition, the Deputy Chairman, Sir Richard Broadbent, the Chairmen of each principal Board Committee, David Booth,
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and Sir Michael Rake will also offer themselves for re-election. The Directors retiring by rotation, as required by our Articles, and offering themselves for re-election are Sir Andrew Likierman and Chris Lucas. Reuben Jeffery, who was appointed on 16th July 2009, is also offering himself for re-election.
Induction, business awareness and development
Each new Director receives an induction presentation, an information pack and a personalised induction programme. The induction presentation explains their responsibilities as a Director of a global, listed financial services company and sets out an overview of the Group and its businesses. The information pack gives details of the disclosures that Directors are required to make to comply with various laws and regulations. The personal induction programme, which is discussed with each new Director, is tailored to their needs so that they can gain a better understanding of the Group and its businesses. The induction programme typically involves two stages of meetings. The first involves sessions with each of the executive Directors, members of the Executive Committee and the heads of the main Group functions. These sessions include opportunities for the new Director to visit operational sites and meet with senior management and employees. The second stage includes additional sessions with the executive Directors and senior managers from each of the Group’s main business units to provide the new Director with in-depth information to develop a comprehensive understanding of those businesses. The sessions focus on the challenges, opportunities and risks that are faced by each business unit. Simon Fraser and Reuben Jeffery undertook their Board induction programmes during 2009. Additional induction programmes are put together for non-executive Directors who are joining any of the principal Board Committees and may include meetings with external advisers and the Group’s statutory auditor, where appropriate or relevant.
To ensure the Directors continue to further their understanding of the issues facing the Group we provide a comprehensive programme of business awareness training sessions and briefings on external technical matters. In early 2009, non-executive Directors were sent a questionnaire to seek their views on topics of interest, including business specific areas and technical issues. As a result, three in-depth briefing sessions on Basel II, Capital Management and Derivatives were arranged during 2009.
Attendees were sent pre-reading material for these sessions and interactive discussions were encouraged. Positive feedback was received from the non-executive Directors who attended these sessions and further sessions are planned for 2010.
During 2009, in response to the 2008 Board Effectiveness Review, a questionnaire was sent to non-executive Directors requesting feedback about the level of interaction with senior management below Board level. Following that feedback, and in addition to the regular presentations made to each Board meeting by senior managers, we aim to hold regular lunches for the non-executive Directors and senior management after Board meetings to encourage greater informal interaction between non-executive Directors and senior management.
External matters
Directors are regularly briefed on market opinion and receive copies of analyst research and press commentary. Further briefing material on market conditions was sent to Directors during 2009 and Directors continue to receive relevant publications to keep them up to date with changing market opinion, including a weekly commentary on the Barclays share price and analyst comment. Directors are invited to attend results presentations to meet with analysts and investors to enhance their awareness of market sentiment.
Functioning of the Board and evaluation of performance
Functioning of the Board
For the Board to function effectively, the non-executive Directors must contribute to Board discussions and challenge and test the proposals on strategy that are put forward by the executive Directors. The Board promotes an environment whereby challenge from the non-executive Directors is welcomed and encouraged, combined with full support for and empowerment of the executive Directors in implementing decisions.
The Board Committees
Certain responsibilities of the Board are delegated to Board Committees to assist the Board in carrying out its functions and to ensure independent oversight of internal control and risk management. The four principal Board Committees (the Board Audit Committee, the Board Corporate Governance and Nominations Committee, the Board HR and Remuneration Committee and the Board Risk Committee) play an essential role in supporting the Board in fulfilling its responsibilities and ensuring that the highest standards of corporate governance are maintained throughout the Group. Each Board Committee reports to the Board following each of its meetings and the minutes of each Board Committee meeting are circulated to the Board. This report sets out how the Board and its Committees work within the governance framework and corporate governance guidelines.
Current membership of the Board Committees
Board Audit Committee | Board Corporate Governance & Nominations Committee | Board HR & Remuneration Committee | Board Risk Committee | |||||
Marcus Agius | – | C | M | – | ||||
David Booth | – | M | – | C | ||||
Sir Richard Broadbent | – | M | C | M | ||||
Leigh Clifford | – | – | M | – | ||||
Fulvio Conti | M | – | – | – | ||||
Simon Fraser | M | – | M | – | ||||
Reuben Jeffery III | – | – | – | M | ||||
Sir Andrew Likierman | M | – | – | M | ||||
Sir Michael Rake | C | M | – | M | ||||
Sir John Sunderland | – | M | M | – |
Key
C Chairman
M Member
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continued
All members of the principal Board Committees are independent non-executive Directors, although the Group Chairman is a member of the Board HR and Remuneration Committee, as permitted by the Code for a Chairman who was independent on appointment. The Group Chairman is also Chairman of the Board Corporate Governance and Nominations Committee.
Each Committee’s terms of reference set out the specific matters for which delegated authority has been given by the Board. These terms of reference are reviewed annually and are available on our website at:www.barclays.com/corporategovernance. A summary of the terms of reference is set out in the table below.
Board Audit Committee
Sir Michael Rake (Chairman from 31st March 2009)
Fulvio Conti
Simon Fraser (from 1st May 2009)
Sir Andrew Likierman
Stephen Russell (to 31st October 2009) (Chairman to 31st March 2009)
Secretary
Lawrence Dickinson
In addition to the members of the Committee, there are a number of regular attendees at each meeting. The Group Chief Executive, Group Finance Director, Barclays Internal Audit Director, Chief Risk Officer, Group General Counsel and the lead external audit partner normally attend all scheduled Board Audit Committee meetings. The Board Audit Committee members usually meet before each meeting, without any executive Directors or senior management present, to raise any questions and discuss issues with the Chairman of the meeting. They also meet with the external auditors and the Barclays Internal Audit Director, without management present, at the end of most Committee meetings.
Sir Andrew Likierman continues to fulfil his role as the ‘financial expert’ as defined by the US Sarbanes-Oxley Act of 2002 and, as a result of his accountancy background and his career with HM Treasury, has ‘recent and relevant financial experience’ as recommended by the Code. Sir Michael Rake succeeded Stephen Russell as Chairman of the Committee in March 2009.
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Board Audit Committee Chairman’s Statement
I took over from Stephen Russell as Chairman of the Board Audit Committee at the end of March. I would like to thank Stephen for his hard work and diligence as Chairman of the Committee and for the support provided to me during the handover period.
Since becoming Chairman, I have focused the work of the Committee on the following key areas:
– | Capital; |
– | Liquidity; |
– | Impairment; |
– | Credit Market Exposures and Mark to Market valuations; and |
– | Key Control Issues. |
In terms of capital and liquidity, the Committee receives quarterly reports setting out current and forecast capital ratios, the size of the buffer above minimum capital requirements and the potential impact on capital ratios of stress scenarios. The liquidity section of the report reviews the Group’s liquidity risk profile, including movements in retail and commercial deposits, the wholesale funding maturity profile and the potential impact on the Group’s liquidity position of stress scenarios. The Committee’s regular review of these reports is one of the key processes enabling it to recommend to the Board, on a bi-annual basis, the going concern statement in the published annual and interim financial statements.
The Committee receives regular reports on current and forecast impairment. The report reviews trends in both retail and wholesale credit risk, in each case by business unit. The report also reviews the level of potential credit risk loans and the level of impairment held against them. A specific report on impairment methodology was commissioned by the Committee to ensure that it was satisfied with the methodologies in use across the Group. The impairment charge included in the interim and preliminary results announcements is specifically reviewed to ensure that the Committee is satisfied that the charge is appropriate. In arriving at this decision, a variety of factors are considered including:
– | actual performance versus forecast; |
– | underlying portfolio trends; |
– | the business environment; |
– | compliance with Group impairment policy; |
– | any adjustments to impairment model outputs; |
– | Barclays position relative to peer banks; and |
– | input from the Group’s external auditor. |
The Committee continues to review closely the fair value of the Barclays Capital credit market exposures (including asset backed securities, commercial property exposure and leveraged credit positions) and the form and content of disclosures of these exposures. The review of the credit market exposure valuations includes a review of marks by key asset categories, movements in exposures (including sales/paydowns) and a review of underlying collateral by vintage and rating. The Committee receives at both the half-year and year-end and before each Interim Management Statement, a specific presentation from Barclays Capital’s Chief Operating Officer and discusses the valuations with the Group Finance Director, the Chief Risk Officer and, importantly, the Group’s external auditors. Confirmation is sought from independent Group control functions such as Risk and Finance, and the external auditors, that the individual marks are appropriate. The Committee continues to be reassured that there were no significant variations between the prices at which assets were sold and the underlying marks.
A specific focus was the sale of US$12.3bn of credit market assets to Protium Finance LP in September. I discussed the accounting treatment relating to the asset sale with both the Group Finance Director and the Group’s external auditor to ensure I was satisfied that it was appropriate. The Committee also reviewed the reclassification of certain financial assets originally classified as held for trading, and now considered as loans and receivables, again to ensure the accounting treatment was appropriate.
The Committee receives a quarterly report on Control Issues of Group Level Significance. This report identifies control weaknesses which could have a significant financial or non-financial impact. The Committee satisfies itself that the remediation programmes are appropriate and, in particular, sufficiently timely. It also monitors the ongoing remediation programme through to satisfactory resolution. The Committee also reviews the key risks and controls in each of the Group’s major business units, focusing in particular on those areas where the Group’s business is expanding or is deemed to be higher risk. It also undertakes more in-depth reviews of specific areas which it believes warrant close attention, including in 2009:
– | Know Your Customer and Anti-Money Laundering Controls; |
– | Sanctions Compliance; |
– | the use of direct sales agents, particularly in the Emerging Markets business; and |
– | the Lehman Brothers North American business integration programme. |
In addition to the five areas of focus outlined above, the Committee has been anxious to ensure that the downward pressure on costs in the current environment does not weaken the control environment. We have particularly monitored staffing levels in Internal Audit to ensure that it has the necessary resources to fulfil the agreed Audit Plan.
The Committee reviews the performance of the internal and external auditors annually. During 2009, a comprehensive external assessment of Internal Audit was undertaken. The review compared their practices to relevant standards, including those published by the Institute of Internal Auditors as well as regulatory standards and expectations in various jurisdictions and included peer group benchmarking. The review concluded that the Internal Audit function complies with the Institute of Internal Auditors’ Standards, is fit for purpose and provides independent assurance on which the Board may rely, with many examples of leading practice. Where suggestions for improvement were made, the Committee will monitor progress.
Feedback on the performance of the external auditors was again sought from key stakeholders in the Group via questionnaires with the results being presented to, and discussed by, the Committee. The Committee is fully satisfied with the performance of the Group’s external auditor and has recommended to the Board and to shareholders that the Group’s external auditor should be re-appointed as the Group’s auditors at the AGM on 30th April 2010. We are satisfied that the Group’s external auditor provides effective, independent challenge to management, which has been crucial in the current difficult environment, and has provided valued support to the Committee in the advice given and the clarity of their briefings and reports.
As Chairman of the Committee, I have liaised as appropriate with the Chairman of the Board HR and Remuneration Committee, particularly to draw attention to any specific aspects of the Group’s results which I feel he ought to be aware of when determining appropriate levels of compensation. I have also liaised with the Chairman of the Board Risk Committee to ensure our agendas are co-ordinated where necessary and to avoid any overlap/underlap in coverage. I am also a member of the Board Risk Committee, which helps to ensure close co-ordination between the two committees.
I also have a programme of visiting key businesses overseas, including attending meetings of local governance and control committees and the audit committees of key subsidiaries. During the year, I visited New York, Dubai and Johannesburg.
The Committee can confirm that it received sufficient, reliable and timely information from management to enable it to fulfil its responsibilities.
Sir Michael Rake
Chairman of the Board Audit Committee
9th March 2010
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continued
Board Audit Committee Activities in 2009
The Committee met 11 times in 2009 and Figure 6 illustrates how the Committee allocated its time at those meetings. The items covered under each heading in Figure 6 are as follows:
Control Issues
– | reviewed internal control and risk management systems; |
– | considered the effectiveness of the Group’s internal controls over financial reporting; |
– | reviewed impairment methodologies; and |
– | considered the Fraud Risk Control Framework. |
Financial Results
– | reviewed the full year results, including market understanding and perception of those results; |
– | reviewed the Annual Report and Accounts, half-year Results and Interim Management Statements; and |
– | reviewed the Group’s accounting policies and the valuation of derivatives and credit market exposures. |
Internal Audit Matters
– | received reports from the internal auditors; |
– | monitored the performance of the Internal Audit function and received an external assessment review of the Internal Audit function; and |
– | reviewed the Global Internal Audit Plan. |
External Audit Matters
– | reviewed the effectiveness and independence of the Group statutory auditor; |
– | approved the re-appointment, remuneration and engagement letter of the Group statutory auditor; |
– | approved the global audit plan for 2009; |
– | considered the provision of non-audit services by the Group statutory auditor – more details can be found in the box on page 137; and |
– | received reports from the external auditors. |
Business Control Environment
– | received reports on Group Control Environment Key Trend Data and on the control environments in each of the following businesses or functions: UK Retail Banking, Barclays Commercial Bank, Barclays Wealth (Americas), Barclays Capital (including an update on the integration of the Lehman Brothers North American business), Barclaycard, Emerging Markets, Barclays Wealth, Western Europe, GRCB–Technology and Absa. |
Governance and Compliance
– | considered the information it would require during the coming year to enable it to discharge its responsibilities given the significant changes in financial markets and economic conditions and the impact on the areas of focus for the Committee; |
– | received reports on matters discussed at the Board Risk Committee, which included information on mark to market valuations, impairment, capital and liquidity; |
– | received regular reports on ‘Raising Concerns’, including whistleblowing; |
– | received updates on Sarbanes-Oxley Section 404 compliance; |
– | received updates on ‘Know Your Customer’, Anti-Money Laundering and Sanctions Compliance audits; |
– | reviewed the effectiveness of subsidiary audit committees; |
– | reviewed the recommendations from the Walker Review; and |
– | reviewed its Terms of Reference to satisfy itself that they enable the Committee to fulfil its responsibilities. |
Other
– | received updates on business continuity management; and |
– | reviewed the regulatory issues. |
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Non-Audit Services Policy
The Committee takes seriously its responsibility to put in place safeguards to auditor objectivity and independence. It has therefore established a policy on the provision of services by the Group’s statutory Auditor. The Policy describes the circumstances in which the Auditor may be permitted to undertake non-audit work for the Group. The Committee oversees compliance with the Policy and considers and approves requests to use the Auditor for non-audit work. Allowable services are pre-approved up to £100,000 or £25,000 in the case of certain taxation services. Any assignment where the expected fee is above the relevant threshold requires specific approval from the Committee or a member of the Committee. The Company Secretary and his team deal with day to day administration of the Policy, facilitating requests for approval by the Committee. The Committee receives a report at each meeting on the non-audit services provided by the Auditor and the Policy is reviewed by the Committee annually. Details of the services that are prohibited and allowed are set out below.
Services that are prohibited include:
– | bookkeeping; |
– | design and implementation of financial information systems; |
– | appraisal or valuation services; |
– | actuarial services; |
– | internal audit outsourcing; |
– | management and Human Resource functions; |
– | broker or dealer, investment advisor or investment banking services; and |
– | legal, expert and tax services involving advocacy. |
Allowable services that the Committee will consider for approval include:
– | statutory and regulatory audit services and regulatory non-audit services; |
– | other attest and assurance services; |
– | accountancy advice and training; |
– | risk management and controls advice; |
– | transaction support; |
– | taxation services; |
– | business support and recoveries; and |
– | translation services. |
Board Corporate Governance section at:www.aboutbarclays.com.and Nominations Committee
Marcus Agius (Chairman)
David Booth (from 1st January 2010)
Sir Richard Broadbent
Sir Michael Rake
Stephen Russell (to 31st October 2009)
Sir John Sunderland
Secretary
Lawrence Dickinson
The meetings are also attended by the Group Chief Executive.
Board Corporate Governance and Nominations Committee Activities in 20082009
The Committee met four times in 2009 and Figure 8 shows7 illustrates how the Committee allocated its time at its meetings in 2008.those meetings. During 2008,2009, the Committee:
– | regularly reviewed Board and Board Committee composition to ensure the right mix of skills and experience are present; |
– | monitored the progress of the action plan arising from the |
– | reviewed the corporate governance disclosures for the |
– | reviewed issues raised at corporate governance meetings held with institutional investors and |
– | recommended the appointment of the new non-executive Directors to the Board and |
– | reviewed succession plans for the Executive Committee and the position of Group Chief |
The Committee also received updates on:
– | reviewed its Terms of Reference to satisfy itself that they enable the |
Note
a | Included in ‘Board and Committee Composition’ for 2008. |
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continued
During 2008,2009, the Committee reviewed the composition of the Board and its principal Committees at each of its meetings. Following those deliberations, the Committee recommended to the Board that Sir Michael Rake succeed Stephen Russell as Chairman of the Board Audit Committee with effect from March 2009. No new DirectorsSimon Fraser and Reuben Jeffery, who were appointed to the Board during 2008, other than Sir Michael Rake and Patience Wheatcroft, who joined the Board with effect from 1st January 2008.
Given that Sir Nigel Rudd and Professor Dame Sandra Dawson will be retiring from the Board at the 2009 AGM and Stephen Russell will be retiring in October 2009 on completion of nine years’ service, the Committee also discussed both Board size and future Board composition and, in particular, given the continuing crisis in the world financial services industry, the type of skills and experience required in new non-executive Directors.
In early 2009, the Committee concluded that a non-executive Director with experience of institutional fund management should be sought and,identified with the assistance of external search consultants, Simon Fraser was identifiedbe appointed as a candidate with the desired experience. He met with members of the Board Corporate Governance & Nominationsnon-executive Directors in March and July 2009 respectively. The Committee and his appointment wasalso recommended to the Board who approved his appointment as a Director. Simon will jointhe following changes to Committee membership:
– | Sir Michael Rake succeeded Stephen Russell as Chairman of the Board Audit Committee on 31st March 2009 and was appointed as a member of the Board Risk Committee and Board Corporate Governance and Nominations Committee with effect from 1st May 2009; |
– | Simon Fraser was appointed as a member of the Board Audit Committee and Board HR and Remuneration Committee with effect from 1st May 2009; |
– | Patience Wheatcroft was appointed as a member of the Board Risk Committee with effect from 1st May 2009; |
– | David Booth succeeded Sir Richard Broadbent as Chairman of the Board Risk Committee and was appointed as a member of the Board Corporate Governance and Nominations Committee with effect from 1st January 2010; and |
– | Reuben Jeffery was appointed as a member of the Board Risk Committee with effect from 1st January 2010. |
The Committee oversees the Board on 10th March 2009, subject to regulatory approvals.
Pursuant to an agreement entered into between BarclaysEffectiveness Review and China Development Bank (CDB) in August 2007approves the Action Plan for the subscriptionyear ahead. Further details of Barclays ordinary shares, CDB retain the right to nominate a non-executive Director toreview and our evaluation statement are set out on page 140.
Board Risk Committee
Information on the role and activities of the Board of Barclays but did not take up this right during 2008.
In January 2009,Risk Committee and the Committee reviewed its activities in 2008 against its termsChairman’s Statement can be found on pages 141 to 143 of reference and concluded that it had discharged the responsibilities delegated to itthis report under those terms‘Governance of reference.Risk’.
Board HR and Remuneration Committee
Sir Richard Broadbent (Chairman)
Marcus Agius
Leigh Clifford
Simon Fraser (from 1st May 2009)
Sir John Sunderland
Secretary
Secretary: Patrick Gonsalves
The Board HR and Remuneration Committee terms of reference are available from the Corporate Governance section at:www.aboutbarclays.com
Additional information on the role and activities of the Committee can be found in the Remuneration Report on pages 157145 to 173, including161. The Committee’s terms of reference have been updated to reflect the Group’s revised philosophy on remuneration, an explanation ofchanges to its role and the Group’s remuneration arrangementsrecent developments in Corporate Governance and a description of the framework for future decisions in this area.regulation.
Board HR and Remuneration Committee Activities in 20082009
The Committee met 14 times in 2009 and Figure 9 shows8 illustrates how the Committee allocated its time at its meetings in 2008. The Committee held additional meetings in November 2008 and Januarythose meetings. During 2009 as a result of the rapidly changing economic environment and the intense scrutiny from regulators and other interested parties that the issue of remuneration has received.
During 2008 the Committee:
– | continued |
– | reviewed |
– | reviewed |
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– | monitored the implementation of the talent agenda; |
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– | considered |
– | reviewed current and future, Group and business level long-term incentive arrangements; |
– | obtained market data on remuneration levels in specified markets; and |
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The Committee received valuable support and advice from its independent advisers, Towers Perrin MGMC and Kepler Associates.(now Towers Watson), who attended four meetings in 2009.
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Management Committees
Executive Committee
Under the leadership of theJohn Varley, Group Chief Executive (Chairman)
Bob Diamond, Group President and Chief Executive, Corporate and Investment Banking and Wealth Management
Chris Lucas, Group Finance Director
Jerry del Missier, co-Chief Executive, Corporate and Investment Banking
Mark Harding, Group General Counsel
Antony Jenkins, Chief Executive, Global Retail Banking
Tom Kalaris, Chief Executive, Barclays Wealth
Robert Le Blanc, Chief Risk Officer
Maria Ramos, Chief Executive, Absa
Rich Ricci, co-Chief Executive, Corporate and Investment Banking
Cathy Turner, Group Human Resources Director
The Board delegates the executive Directors are responsibleresponsibility for managing the Group’s business and making and executing operational decisions. The Executive Committee supportsday to day management of the Company to the Group Chief Executive and ithe is responsible for ensuring that the business is operating effectively. The Group Chief Executive chairs the Executive Committee, which supports him in this role. The Executive Committee is supported by a number of management committees, including the Disclosure Committee, the Group Governance and Control Committee, the Group Operating Committee, the Group Risk Oversight Committee and the Group Brand and Reputation Committee. The Executive Committee meets every fortnight to discuss strategy development and policies to recommend to the Board. The Executive Committee is also responsible for implementing approved strategy and is supported by other Committees, including the Disclosure Committee.
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Corporate governance
Corporate governance report
Executive Committee
John Varley (Chairman)
Bob Diamond
Chris Lucas
Frits Seegers
Disclosure Committee
TheChris Lucas, Group Finance Director, is Chairman of the Disclosure Committee is chaired by Chris Lucas,and the Group Finance Director. Members includemembers of the Committee are the Company Secretary, Group General Counsel, Director Investor Relations, GroupChief Risk Director,Officer, Barclays Corporate Affairs Director, Group Financial Controller and Barclays Treasurer. The Committee:
– | considers and reviews the preliminary and half-year results, Annual Report/Annual Report on Form |
– | considers Interim Management Statements released to the Stock |
The Committee also considers the content, accuracy and tone of significant other announcements that are
– | considers the content, accuracy and tone of any other announcement that is proposed to be made in accordance with the FSA’s Disclosure and Transparency Rules. |
The Committee reports to the Executive Committee and also reports to the Board Audit Committee, documenting its conclusions about the effectiveness of the design and operation of the disclosure controls and procedures. This, forms parttogether with a joint report on internal controls from Barclays Internal Audit Director and the Chairman of the combinedGroup Governance and Control Committee, provides assurance given to the
Board Audit Committee together with the report onas required by the Turnbull Review of Internal Controls and as recommended by the Code.
Evaluation of Board Effectiveness
Performance Review
The Code recommends that an evaluation of the effectiveness of the Board and its Committees is conducted annually.annually and the Walker Review further recommended that the process is externally facilitated at least every second or third year. We have undertaken externally facilitated performance evaluations annually since 2004 and an action plan has been agreed each year to progress any identified improvements. The evaluation in 20072008 was independently facilitated by Egon Zehnder International. All Directors were sent a questionnaire to complete and return to Egon Zehnder International and these were discussed in individual interviews, which included peer review. The following actions were agreed for 2008:
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The 2008 evaluation was again independently facilitated by Egon Zehnder International and took the form of detailed questionnaires, which were completed by each Director, individual interviews and peer evaluation of fellow Directors. As in previous years, the evaluation covered the following areas:
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The results of the evaluationactions were presented to the Board in December 2008. The results from the overall review showed a continuation of the five-year trend of improving scores and the Board concluded that the Board and the principal Board Committees continue to operate effectively in terms of communication, information flows and Directors’ participation and engagement, particularly during the period of difficult market conditions in 2008. The Directors recognised however, and were disappointed, that Group performance has not met shareholder expectations and acknowledged that they are accountable to shareholdersagreed for their stewardship of the Group during the exceptional events of 2008.
From the results of the 2008 evaluation, action points and issues that were discussed included:2009:
– | continued focus on the Board’s calendar of business to ensure that |
– | refinements to the Board’s calendar of business, including additional time to be spent on items such as compensation strategy and succession planning; |
– | review of the overall size |
– | refinements to the process for evaluating the performance of individual |
– | additional reporting on capital and liquidity. |
Further details of these actions are set out under Board Activities in 2009 on page 128, and Board Corporate Governance and Nominations Committee Activities in 2009 on page 137. The Action Plan for 2009 was completed. The evaluation statement for 2009 is set out on page 140.
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continued
Evaluation Statement
In light of changes in Board composition and the significant events of 2009, we reviewed our Board evaluation process before starting the review for 2009. This included considering whether or not to use an external facilitator and reviewing and interviewing a number of alternative external facilitators.
The Board Corporate Governance and Nominations Committee decided to use an external facilitator again in 2009. It felt that in order to get the maximum benefit from an evaluation exercise, interviews with Directors must be conducted as these tend to be far more informative than questionnaires alone. The Committee also felt that it was appropriate to conduct such an external review given the question-marks that have been raised over corporate governance in the sector and following publication of the Walker Review.
The 2009 evaluation was again independently facilitated by Egon Zehnder International. The Committee felt that their proposal for a refreshed approach to evaluation, including an increased emphasis on Board relationships and a broader remit with input being sought from key executives below Board level, was the most appropriate process. The Board confirms that it does not believe there is a conflict of interest in the business relationship with Egon Zehnder International as executive search consultants and Board evaluation facilitators, particularly as the Group has agreed anrelationships with other search firms.
The evaluation process is rigorous and took the form of questionnaires, which were shortened this year to focus on the elements that need to be monitored. These questionnaires were completed by Director and other key executives, who then had individual interviews with Egon Zehnder. The individual meetings with Egon Zehnder focused on overall Board composition, a review of key decisions taken by the Board, the quality of information flows, the quality of debate, the effectiveness of the Board Committees and Board dynamics, particularly with a view to assessing whether the interaction of the Board creates a whole that is greater than the sum of its parts. The process underpinning key decisions taken by the Board during the year was also reviewed. In addition, the evaluation exercise seeks Directors’ views on the appropriate size and composition of the Board, including identifying any gaps in skills and experience around the Board table. The evaluation covered the following areas:
– | Group performance; |
– | Strategy and performance objectives, including non-executive Director involvement; |
– | Reporting to shareholders and stakeholders; |
– | Structure, people and succession planning; |
– | Decision-making processes, including the culture for effective challenge; |
– | Information flows and presentations; |
– | Board structure and composition, including non-executive experience and knowledge; |
– | Board roles and responsibilities; |
– | Board and management relationships; |
– | Board Meetings; and |
– | Board Committees. |
The results of the evaluation were presented to the Board in February 2010. The results focused on key themes rather than on direct feedback from the questionnaires.
The themes that will form the basis of the action plan to progress improvements in 2009.for 2010 include:
In terms of individual Director performance, the Group Chairman
– | Board size and diversity; |
– | holding additional Board meetings overseas, particularly given the increased size of our operations in the US; |
– | increasing the visibility of senior executives below Board and Group Executive Committee level; and |
– | improving the format of strategy presentations to the Board. |
I held private meetings with the non-executive Directors in early 20092010 so that individual and general results could be discussed. DevelopmentBespoke development plans relatingare then agreed with each non-executive Director in relation to their own individual performance were agreed.performance.
As Chairman, I had regular meetings with shareholders and kept the Board fully informed of their views. Details of communications with shareholders are set out on page 143 in the section on Relations with Shareholders.
Marcus Agius
Group Chairman
9th March 2010
141 |
Governance of Risk
Board Risk Committee
David Booth (Chairman from 1st January 2010)
Sir Richard Broadbent (Chairman to 31st December 2009)
Reuben Jeffery III (from 1st January 2010)
Sir Andrew Likierman
Sir Michael Rake
Stephen Russell (to 31st October 2009)
Patience Wheatcroft (1st May-16th June 2009)
Secretary
Secretary: Lawrence Dickinson
In addition to the Members of the Committee, all meetings are usually attended by the Group Finance Director and Chief Risk Officer. Barclays Internal Audit Director, Group General Counsel and Barclays external auditor, as well as other senior executives, also attend meetings of the Board Risk Committee, where appropriate.
Board Risk Committee Chairman’s Statement
Context
Barclays has long recognised the importance of ensuring that the Board and its Committees devote sufficient attention to risk, particularly as it is only by taking appropriate levels of risk that Banks can make a profit. A Board level Risk Committee has been in existence since 1999 and a key role of the Committee is to analyse, understand and monitor the key risks taken by the business to generate profit and create shareholder value. The Senior IndependentCommittee focuses on risks taken deliberately and overtly, such as credit, market, capital and liquidity risk, rather than the risks of simply doing business, such as operational risk. The Committee, in analysing and monitoring risk, is acting on behalf of the Board and it was an essential part of my role as Chairman to ensure that the Committee alerts the Board to issues of concern.
The Committee itself is comprised solely of independent non-executive directors. However, the Group Finance Director met privately with the other non-executive Directorsand Chief Risk Officer attend each meeting as a matter of course and the Group Chief ExecutiveRisk Officer has a dotted reporting line to discuss feedbackme as Chairman of the Committee. I have regular meetings with Robert Le Blanc, the Chief Risk Officer, who also has the right (and indeed responsibility) to elevate issues to me where he received onconsiders it necessary. I am also consulted by the Group Chairman’s performance. These results were then shared withFinance Director in respect of the Group Chairman.performance appraisal and compensation of the Chief Risk Officer. His compensation is approved by the Board HR and Remuneration Committee and appointment to or departures from the role are a matter reserved to the Board.
Director DevelopmentThe Committee is conscious, when undertaking its duties, that banks are in the business of taking risk. The aim of the risk function within Barclays and Business Awareness
A comprehensive development and awareness programmethe Board Risk Committee itself is in place for Directors.therefore not to minimise risk but to optimise it. This comprises:requires us to ensure that risks being taken are:
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– | affordable, particularly in relation to the capital base of the company; |
– | properly controlled and managed; and |
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InductionHow the Committee goes about its business.
All new Directors receiveIt has been an induction presentation, which explains their responsibilities as a Directoressential feature of a global, listed company and provides an overviewthe operation of the Committee that the information flowing to the Committee is congruent with the information flow to Executive Committee. In the case of the Group Risk Profile Report (see below), the report is identical.
The Committee plans its forward programme and its businesses. An information pack, that gives detailsundertakes a number of key tasks throughout the course of the disclosures that Directors are obligedyear in order to makeensure it is satisfied with the way risk is being managed. A key role is to review in detail at the end of every year the proposed Risk Appetite for the forthcoming year, before recommending it to the CompanyBoard.
The Committee monitors risk performance throughout the year to complyassess whether such performance is in line with various lawsexpectations when the budget was set, adjusted for any differences in the performance of the economy. Where actual performance differs from expectations, the actions being taken by management are reviewed to ensure that the Committee is comfortable with them.
The Committee also reviews sectoral limits in both the wholesale and regulations,retail sectors and in market risk. The purpose of these limits, known internally as Mandate and Scale limits, is also provided to each new Director. A personal induction programme is scheduled with each new Director soensure that they can further acquaint themselvesconcentrations in the risk profile do not result in unacceptable levels of losses.
The Committee, in conjunction with the Grouprisk function, also seeks to identify potential future areas of risk in order to undertake detailed analysis and its businesses. Each new Director attends sessions with eachreview. A good example of this would be the Committee’s review of the executive Directors andUS mortgage business, which was requested at the headsend of the main Group functions, which includes opportunities to visit operational sites to meet with senior management and employees.2006. The secondCommittee will also, as part of their induction programme includes additional sessions with the executive Directorsits calendar of business, review experience of past risk events and senior managers from each of the Group’s main business unitsseek to provide the new Director with detailed and in-depth understanding of those businesses. The sessions focus on the challenges, opportunities and risks that are faced by each business unit. Sir Michael Rake and Patience Wheatcroft undertook their induction programmes during 2008.
In 2008, non-executive Directors were asked to complete a questionnaire and give feedback on topics on which they would like to receive additional briefings. Two in-depth briefing sessions were arranged during 2008 on impairment recognition and forecasting and on Barclays Capital’s traded products, including asset-backed securities, credit default swaps and collateralised debt obligations.
The Board and the Board Audit and Board Risk Committees received further briefingsidentify any lessons learnt in order to ensure they were kept upare embedded into business practices. It also seeks to datecompare Barclays risk stance with those of others to understand the relative risk being taken.
The Committee also monitors the Group’s capital and liquidity position throughout the year to ensure they are within the agreed Risk Appetite parameters.
Finally, the Committee regularly reviews how risk is measured within the business in order to ensure it is satisfied with the changing global economic conditions, including updates on capital management, presentations on asset-backed securities and liquidity risk mark-to-market valuations and briefing material to support the various capital raising proposals and acquisition of the Lehman Brothers North American businesses.
Barclays businesses and operations
During 2008, one Board meeting was held off-site. The Board metmeasurement systems in China in September and received presentations on the economic and political outlook in China and met key Barclays staff working in the Asia-Pacific region.place.
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continued
Activities in 2009
During 2009, the Committee undertook the following activities:
Reviewed a full Group Risk Profile Report quarterly.
The Group Risk Profile Report incorporates:
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– | an update on impairment charges and loan loss rates; – risk appetite utilisation; and |
– | sections on retail and wholesale credit risk (by business unit), market risk and operational risk. |
Capital and Liquidity
The Committee monitored movement in economic and regulatory capital demand and supply and the level of losses that could be experienced before minimum regulatory capital ratios are breached. The Committee also reviewed and recommended to the Board the liquidity risk appetite of the Group to ensure that sufficient liquidity is held to cover both market-wide and Barclays specific stress scenarios.
Key risk issues
Each year, the Committee ensures it has a forward programme of issues to analyse in detail. During 2009, the Committee analysed the risk profiles and controls in the following businesses:
– | the Commodities business in Barclays Capital; |
– | the Emerging Markets business in GRCB; and |
– | the US equities business. |
The Committee also received regular reports on the Group’s exposures to the asset backed securities (ABS) and leveraged credit market exposures and how these were being managed down.
Stress Testing
The Committee reviewed and approved the scenarios to be used in the annual stress testing and reviewed the results of the tests themselves to ensure that the Group would remain adequately capitalised and liquid even under severe stress.
Risk Appetite
Risk appetite is set by agreeing the level of credit risk impairment the Group is prepared to accept in the base case economic forecast for the following year, together with impairment levels that would be incurred in economic scenarios that represent 1:7 and 1:25 events. A Daily Value at Risk limit and stress losses for market risk in 1:7 and 1:25 scenarios is also agreed, together with total loss limits from operational risk.
The financial results of the Group are budgeted in the base case and forecast in the stress scenarios to ensure that they do not breach a series of parameters agreed by the Committee. These parameters include pre-tax profit, return on equity, loan loss rates, capital ratios, leverage ratios, dividend and credit rating. A key focus, given current conditions, was to ensure that the capital ratio parameters (in respect of Tier 1 and Core Tier 1) were met at all times.
Follow up on risk issues
The Committee requested and received a report from the business on the lessons learnt from the sub-prime crisis. The losses in sub-prime arose from a systemic market collapse which was not foreseen by our risk processes, the rating agencies or the broader market. Subsequent events have highlighted areas for improvement in certain of our processes, particularly around the need to improve the aggregation of risk positions across all businesses and to include the potential for discontinuous moves in key parameters when setting
sector limits. Risk models in use in the business must also include more subjectivity and bespoke analysis when rating complex financial structures. Action is underway in all these areas.
Mandate and Scale Limits
The Committee reviewed the sectoral limits in place in both the Wholesale and Retail Credit Risk Sectors. These limits include commercial property caps (by geography), leveraged finance limits, high yield underwriting caps, limits to loans to lower grade names or credit scores and stress limits by different types of market risk (e.g. interest rate, foreign exchange, commodity).
Governance
The Committee spent time discussing both the Turner Review and the draft and final Walker Review and, in particular, how the recommendations should be reflected in the Committee’s terms of reference and way of working. Some minor changes have been made as a result.
Relationship with other Committees
The Committee must work closely with both the Board Audit Committee and the Board HR and Remuneration Committee. In respect of the Board Audit Committee, a schedule has been agreed setting out the key roles of each committee in areas such as capital and liquidity to ensure there is clarity of responsibility. The Committee discussed papers from the risk function on the assessment of business performance on a risk-adjusted basis and the proposals for risk metrics to be used in the 2010 compensation cycle, in both cases prior to submission to the Board HR and Remuneration Committee as an input into compensation decisions.
In conclusion, the Committee seeks to ensure that it achieves a balance each year between:
– | comparative analysis |
– | reviewing our risk stance compared to that of our competitors in defined areas; |
– | retrospective analysis |
– | we undertake a retrospective review at least once a year of a selected area of risk; |
– | trend analysis – we look once a year at underlying risk trends; and |
– | technical analysis – we review at least once a year one technical area related to the measurement and management of risk. |
The quality of papers is vital to the work of the Committee, with papers typically including:
– | quantified analysis, including both absolute and relative data; |
– information on returns; and
– financial parameters, such as performance against budget and capital utilisation.
The Committee provides a full written report to the Board after every meeting, which I introduce and answer questions about.
At the beginning of 2010, I handed over the Chairmanship of the Committee to David Booth after four stimulating and challenging years.
Sir Richard Broadbent
Chairman of the Board Risk Committee
9th March 2010
143 |
Board Risk Committee (continued)
The Committee met five times in 2009 and Figure 9 shows how the Committee allocated its time at those meetings. The items covered under each heading in Figure 9 are as follows:
Risk Profile/Risk Appetite
– | Reviewed the Group Risk Profile Report (including updates on the Group’s capital position); |
– | reviewed updates on liquidity risk; |
– | reviewed in greater detail the process around setting annual Risk Appetite to establish the effectiveness of the process in responding to significant changes in economic and market conditions; |
– | reviewed the Risk Appetite for the Group for 2010 and made recommendations to the Board; and |
– | received regular Future Risk Trends reports, which set out the internal and external indicators that are showing signs of strain and a report on future risk issues. |
Key Risk Issues
– | reviewed risk trends in tax risk management; |
– | received regular reports on ABS and leveraged credit market exposures; and |
– | reviewed the Group’s stress testing proposals and outcomes. |
Internal Control/Risk Policies
– | reviewed the internal control and assurance framework; |
– | examined the risk control framework, and approved Group policies including the trading book policy, large exposures policy, liquidity policy, retail and wholesale credit impairment policies and the Group’s principal risks policy; |
– | reviewed risk measurement methodologies; and |
– | received updates on the programme of actions being taken Group-wide to mitigate risk in view of deteriorating economic conditions in our major markets, such as the UK, US, South Africa and Spain. |
Regulatory Frameworks
– | reviewed the liquidity risk framework and underlying assumptions; |
Other
– | revised its Terms of Reference, including its role in reviewing risks following the Group’s entry into new businesses or geographies; its role in reviewing capital ratios, liquidity risk and its input into remuneration decisions; the increased frequency of risk, capital and liquidity reporting and the setting up of an external advisers panel for the Committee; and |
– | reviewed its Terms of Reference to satisfy itself that they enable the Committee to fulfil its responsibilities. |
More information on risk management and the internal control framework can be found in the Risk management report on pages 54 to 118.
Relations with Shareholders
Communicating with shareholders is a key priority for the Board and was particularly important during the continuing financial crisis in 2009. In the normal course of events, the Board aims to keep shareholders up to date and informed about how Barclays is performing and its strategy. During 2009, there was significant additional communication around the sudden fall in the share price in January 2009, the proposed sale of the iShares business and the subsequent sale of BGI, for which we held a General Meeting in August 2009.
Institutional shareholders
Engagement with our institutional shareholders is essential to ensure a greater understanding of and confidence in the medium and longer-term strategy of Barclays and in the Board’s ability to oversee its implementation.
The Group Chairman and Senior Independent Director are responsible for ensuring the Board is accessible to major shareholders and that channels for communication are open. They are also responsible for ensuring that the Board is aware of any concerns raised by major shareholders and that their views are taken on board. The Group Chairman, Senior Independent Director, Group Chief Executive John Varley, helped to launch UK National Branch Week by visitingand Group Finance Director regularly meet with our investors and the Coventry High Street branch. During the course of the week, around 400executive Directors and senior executives fromhold group and one to one meetings with major investors. The Group Chairman, Senior Independent Director and Company Secretary also conduct a series of meetings with the Group went backcorporate governance representatives of our major institutional shareholders ahead of each AGM. The Investor Relations team organise roadshows, seminars, conferences, presentations and other activities that enable the Directors to engage with investors and some of these are highlighted below:
– | over 100 meetings with US institutions following the acquisition of the Lehman Brothers North American businesses; |
– | over 200 one-to-one meetings with investors (the Group Chairman and Executive Committee members); |
– | over 40 group meetings with investors; and |
– | nine presentations at conferences. |
In addition, the floorInvestor Relations team also met nearly 150 investors in one to experience first hand the successesone and challenges colleagues in the branches are facing. Each day had a theme including raising the profile of Barclays product range, employee benefits, the importance of customer service, personal development and charity fundraising. A number of Directors participated and worked alongside cashiers, personal bankers and co-ordinatorsgroup meetings.
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continued
Private shareholders
Communication with our private shareholders has also been important during 2009. Personalised information was sent to shareholders for the day.
John Varley also spent time giving presentations to colleaguesAGM in April and the General Meeting in August, which included the Notice of Meeting, proxy form, Circular and a question and answer booklet about the proposed sale of BGI. Further documents were available on the Group’s capital raising proposals. He kept colleagues upwebsite and sent to dateshareholders on how market conditionsrequest.
We recommenced paying a dividend in December 2009 and will pay the final dividend for 2009 in March 2010.
The change in law that allows us to communicate electronically with shareholders has enabled us to use less paper, which benefits the environment and lowers distribution costs for the Group. All shareholder documents are available electronically as soon as they are published but shareholders can still receive communications in paper format if they wish. This year we will post the Notice of Meeting and proxy forms to all shareholders.
We encourage shareholders to hold their shares in Barclays Sharestore, where shares are held electronically in a cost-effective and secure environment. Shareholders can use our e-view service to receive their shareholder documents electronically and they can also use this service to get immediate access to information relating to their personal shareholding and dividend history. E-view participants can also change their details and dividend mandates online and receive dividend tax vouchers electronically.
Annual General Meeting/General Meeting
The 2009 AGM was held on 23rd April 2009 at the Queen Elizabeth II Conference Centre in London. In accordance with best practice, all resolutions were affecting Barclaysconsidered on a poll and the decisionsresults were made available on our website the Board was taking in respectsame day. 53.1% of the capital raising options thatshares in issue were available.voted and all resolutions were approved. All colleagues were invitedDirectors are encouraged to attend the presentationsAGM and are available to answer shareholder questions. All Directors attended the 2009 AGM, with the exception of Simon Fraser, who was appointed to the Board on 10th March 2009 and had a prior commitment on the day of the AGM.
A general meeting (GM) was held on 6th August 2009, at the Brewery, London, where shareholders were asked to approve a resolution in person or via conference callconnection with the proposed sale of the BGI business and John Varley answered questions raised by colleagues from aroundancillary arrangements. 61.6% of the world.shares in issue were voted on a poll and the resolution was approved. The results of the poll were made available on our website on the same day. The Group Chairman, all of the Executive Directors and two non-executive Directors, including the Deputy Chairman, attended the GM.
External matters
Directors are regularly briefedThe 2010 AGM will be held on market opinionFriday 30th April 2010 at the Royal Festival Hall in London. The resolutions will be considered on a poll and receive copies of analyst research and press commentary. Further briefing materialthe results will be available on market conditions was sent to Directors during 2008 and Directors continue to receive relevant publications to keep them up to date with changing market opinion. Directors are invited to attend results presentations to meet with analysts and investors to enhance their awareness of market sentiment.our website on 30th April 2010.
StatementGroup Chairman
Marcus Agius
Executive Directors
John Varley (Group Chief Executive)
Bob Diamond
Chris Lucas
Frits Seegers (to 3rd November)
Non-executive Directors
David Booth
Sir Richard Broadbent
(Deputy Chairman & Senior Independent Director)
Leigh Clifford
Fulvio Conti
Professor Dame Sandra Dawson (to 23rd April)
Simon Fraser (from 10th March) b
Reuben Jeffery III (from 16th July)
Sir Andrew Likierman
Sir Michael Rake
Sir Nigel Rudd (Deputy Chairman to 23rd April)
Stephen Russell (to 31st October)
Sir John Sunderland
Patience Wheatcroft (to 16th June)
Key
OAIndependent on appointment.
EDExecutive Director.
IIndependent non-executive Director.
Notes
a | In the case of Leigh Clifford, who is based in Australia, the time difference meant that he was not always able to participate in additional Board meetings called at short notice, but he was fully briefed on
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b | Simon Fraser was appointed as a member of the Board Audit Committee and Board HR and Remuneration Committee with effect from 1st May 2009. |
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essential for the Board to be fully effective. Figure 2 demonstrates the diverse range of skills and experience on the Board.
We have a strong independent element on the Board and more than half the Directors are independent non-executive Directors, which is in line with the recommendations of the Code. The balance of the Board is illustrated by Figure 3.
Independence of non-executive Directors
The Code sets out the circumstances that may be relevant to the Board in determining whether each non-executive Director is independent. In addition to these circumstances, Barclays ‘Charter of Expectations’ sets out specific criteria that the Board considers are essential behaviours in order to assess the independence of non-executive Directors. These criteria are as follows:
– | 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 and defend their own beliefs and viewpoints in order to support the ultimate good of the organisation; and |
– | has a good understanding of the organisation’s business and affairs to enable them to properly evaluate the information and responses provided by management. |
The Board considers non-executive Director independence on an annual basis, as part of each Director’s performance evaluation. The Board Corporate Governance and Nominations Committee and the Board reviewed the independence of each non-executive Director in early 2010 and concluded that each of them continues to demonstrate these essential behaviours.
Board qualification
The Board benefits from the diverse range of skills, knowledge and experience that the non-executive and executive Directors have acquired as Directors of other companies or as business leaders in government or in academia. The Board also values the experience that our international Directors bring and aims to have diverse geographical experience on the Board, as illustrated by Figure 4. The effectiveness of the Board depends on ensuring the right balance of Directors with banking or financial experience and broader commercial experience.
External appointments
We recognise that there are significant advantages to individuals and to the Board as a whole of Barclays executive Directors serving on the Boards of other companies. In line with the Code recommendation, executive Directors may join the Board of one other listed company and all such appointments must be approved by the Board. Executive Directors must ensure that their external appointments do not involve excessive commitment or conflict of interest and their time commitment to Barclays must take precedence over any external appointment (other than those they undertake in connection with their duties at Barclays). Executive
Note
a | Individual directors may fall into one or more categories. |
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Directors may retain fees paid in connection with an external appointment and details of any fees received by executive Directors may be found in the Remuneration Report on page 145.
Conflicts of Interest
Under UK company law, all Directors must seek authorisation before taking up any position with another company that conflicts, or may possibly conflict, with the Barclays interests. Barclays Articles of Association contain provisions to allow the Directors to authorise situations of potential conflicts of interest so that a Director is not in breach of his duty under company law. All Directors must report any changes in their circumstances to the Board and the Board reserves the right to terminate the appointment of a non-executive Director if there are any material changes in their circumstances that may conflict with their commitments as a Barclays Director or that may impact on their independence. All existing external appointments for each Director have been authorised by the Board and each authorisation is set out in a Conflicts Register. The Board Corporate Governance and Nominations Committee is responsible for conducting an annual review of the Conflicts Register and confirming to the Board that, where relevant, conflicts are dealt with appropriately, and that the process for dealing with them is operating effectively. The Board Corporate Governance and Nominations Committee reviewed the Conflicts Register in early 2010 and concluded that conflicts had been appropriately authorised and that the process for authorisation is operating effectively.
Role of the Board and Board Corporate Governance and Nominations Committee
In addition to reviewing the size and composition of the Board, the Board Corporate Governance and Nominations Committee is also responsible for reviewing the balance on the Board and its principal Committees and recommending the appointment of any new Directors to the Board. It is essential that the Board is refreshed regularly to maintain the appropriate skills and experience and the Committee also considers length of tenure of each non-executive Director, which is set out in Figure 5. The biographies of the current Directors, which set out the details of their skills and experience, are on pages 119 and 120.
The Charter of Expectations, which forms part of ‘Corporate Governance in Barclays’ sets out detailed role profiles for each of the Board positions, including the Group Chairman, Deputy Chairman, Senior Independent Director and both non-executive and executive Directors. Before appointing a new Director, the Board Corporate Governance and Nominations Committee will consider the responsibilities general to all Directors and, in addition, the specific responsibilities required for each role. Non-executive Directors have a responsibility to constructively challenge and develop proposals on strategy and assess the
performance of management in implementing the Group’s strategy. As Deputy Chairman and Senior Independent Director, Sir Richard Broadbent has further responsibilities, which are set out in our Charter of Expectations, including conducting the performance review of the Group Chairman and meeting institutional investors.
Sir Richard Broadbent met privately during the year with the other non-executive Directors and the Group Chief Executive to discuss feedback he received on the Group Chairman’s performance. These results were shared with the Group Chairman. During 2008 and in the first few months of 2009 leading up to the Annual General Meeting (AGM), Sir Richard conducted a series of meetings and consultations with institutional shareholders to discuss the capital raisings. Sir Richard also met with institutional shareholders to discuss Barclays remuneration strategy and the external reviews into this area.
Time Commitment
The Charter of Expectations sets out the time commitment expected from each Director, with specific requirements for the Chairman, Deputy Chairman, Senior Independent Director and non-executive Directors. Additional time commitment expectations are set out for the Board Committee Chairmen and members. The expected time commitment, which is agreed with each individual, will not be less than a minimum of 20 days per annum. Certain non-executive Directors, including the Deputy Chairman, Committee Chairmen and Committee members, are expected to commit additional time, with the average time commitment for the non-executive Directors as a whole being in the range of 30-36 days per year. Sir Richard Broadbent, as Deputy Chairman and Senior Independent Director, is expected to commit to at least one day per week in carrying out his Barclays duties, but in practice spends significantly more time on Barclays business. Committee Chairmen are expected to commit between 3 and 10 days per year in addition to between 6 and 8 days per year for Committee members. The time commitment of each non-executive Director is decided on an individual basis, with six of the non-executive Directors committing over 30 days per year. Taking into account both Board and Board Committee requirements, the balance commit at least 28 days per year.
Re-election of Directors
In line with the recommendations of the Code, all Directors usually seek re-election every three years and any Directors that were appointed during the year seek re-election at the next AGM. For the 2010 AGM the Group Chairman, Marcus Agius, will offer himself for re-election as recommended by the Walker Review. In addition, the Deputy Chairman, Sir Richard Broadbent, the Chairmen of each principal Board Committee, David Booth,
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and Sir Michael Rake will also offer themselves for re-election. The Directors retiring by rotation, as required by our Articles, and offering themselves for re-election are Sir Andrew Likierman and Chris Lucas. Reuben Jeffery, who was appointed on 16th July 2009, is also offering himself for re-election.
Induction, business awareness and development
Each new Director receives an induction presentation, an information pack and a personalised induction programme. The induction presentation explains their responsibilities as a Director of a global, listed financial services company and sets out an overview of the Group and its businesses. The information pack gives details of the disclosures that Directors are required to make to comply with various laws and regulations. The personal induction programme, which is discussed with each new Director, is tailored to their needs so that they can gain a better understanding of the Group and its businesses. The induction programme typically involves two stages of meetings. The first involves sessions with each of the executive Directors, members of the Executive Committee and the heads of the main Group functions. These sessions include opportunities for the new Director to visit operational sites and meet with senior management and employees. The second stage includes additional sessions with the executive Directors and senior managers from each of the Group’s main business units to provide the new Director with in-depth information to develop a comprehensive understanding of those businesses. The sessions focus on the challenges, opportunities and risks that are faced by each business unit. Simon Fraser and Reuben Jeffery undertook their Board induction programmes during 2009. Additional induction programmes are put together for non-executive Directors who are joining any of the principal Board Committees and may include meetings with external advisers and the Group’s statutory auditor, where appropriate or relevant.
To ensure the Directors continue to further their understanding of the issues facing the Group we provide a comprehensive programme of business awareness training sessions and briefings on external technical matters. In early 2009, non-executive Directors were sent a questionnaire to seek their views on topics of interest, including business specific areas and technical issues. As a result, three in-depth briefing sessions on Basel II, Capital Management and Derivatives were arranged during 2009.
Attendees were sent pre-reading material for these sessions and interactive discussions were encouraged. Positive feedback was received from the non-executive Directors who attended these sessions and further sessions are planned for 2010.
During 2009, in response to the 2008 Board Effectiveness Review, a questionnaire was sent to non-executive Directors requesting feedback about the level of interaction with senior management below Board level. Following that feedback, and in addition to the regular presentations made to each Board meeting by senior managers, we aim to hold regular lunches for the non-executive Directors and senior management after Board meetings to encourage greater informal interaction between non-executive Directors and senior management.
External matters
Directors are regularly briefed on market opinion and receive copies of analyst research and press commentary. Further briefing material on market conditions was sent to Directors during 2009 and Directors continue to receive relevant publications to keep them up to date with changing market opinion, including a weekly commentary on the Barclays share price and analyst comment. Directors are invited to attend results presentations to meet with analysts and investors to enhance their awareness of market sentiment.
Functioning of the Board and evaluation of performance
Functioning of the Board
For the Board to function effectively, the non-executive Directors must contribute to Board discussions and challenge and test the proposals on strategy that are put forward by the executive Directors. The Board promotes an environment whereby challenge from the non-executive Directors is welcomed and encouraged, combined with full support for and empowerment of the executive Directors in implementing decisions.
The Board Committees
Certain responsibilities of the Board are delegated to Board Committees to assist the Board in carrying out its functions and to ensure independent oversight of internal control and risk management. The four principal Board Committees (the Board Audit Committee, the Board Corporate Governance and Nominations Committee, the Board HR and Remuneration Committee and the Board Risk Committee) play an essential role in supporting the Board in fulfilling its responsibilities and ensuring that the highest standards of corporate governance are maintained throughout the Group. Each Board Committee reports to the Board following each of its meetings and the minutes of each Board Committee meeting are circulated to the Board. This report sets out how the Board and its Committees work within the governance framework and corporate governance guidelines.
Current membership of the Board Committees
Board Audit Committee | Board Corporate Governance & Nominations Committee | Board HR & Remuneration Committee | Board Risk Committee | |||||
Marcus Agius | – | C | M | – | ||||
David Booth | – | M | – | C | ||||
Sir Richard Broadbent | – | M | C | M | ||||
Leigh Clifford | – | – | M | – | ||||
Fulvio Conti | M | – | – | – | ||||
Simon Fraser | M | – | M | – | ||||
Reuben Jeffery III | – | – | – | M | ||||
Sir Andrew Likierman | M | – | – | M | ||||
Sir Michael Rake | C | M | – | M | ||||
Sir John Sunderland | – | M | M | – |
Key
C Chairman
M Member
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All members of the principal Board Committees are independent non-executive Directors, although the Group Chairman is a member of the Board HR and Remuneration Committee, as permitted by the Code for a Chairman who was independent on appointment. The Group Chairman is also Chairman of the Board Corporate Governance and Nominations Committee.
Each Committee’s terms of reference set out the specific matters for which delegated authority has been given by the Board. These terms of reference are reviewed annually and are available on our website at:www.barclays.com/corporategovernance. A summary of the terms of reference is set out in the table below.
Board Audit Committee
Sir Michael Rake (Chairman from 31st March 2009)
Fulvio Conti
Simon Fraser (from 1st May 2009)
Sir Andrew Likierman
Stephen Russell (to 31st October 2009) (Chairman to 31st March 2009)
Secretary
Lawrence Dickinson
In addition to the members of the Committee, there are a number of regular attendees at each meeting. The Group Chief Executive, Group Finance Director, Barclays Internal Audit Director, Chief Risk Officer, Group General Counsel and the lead external audit partner normally attend all scheduled Board Audit Committee meetings. The Board Audit Committee members usually meet before each meeting, without any executive Directors or senior management present, to raise any questions and discuss issues with the Chairman of the meeting. They also meet with the external auditors and the Barclays Internal Audit Director, without management present, at the end of most Committee meetings.
Sir Andrew Likierman continues to fulfil his role as the ‘financial expert’ as defined by the US Sarbanes-Oxley Act of 2002 and, as a result of his accountancy background and his career with HM Treasury, has ‘recent and relevant financial experience’ as recommended by the Code. Sir Michael Rake succeeded Stephen Russell as Chairman of the Committee in March 2009.
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Board Audit Committee Chairman’s Statement
I took over from Stephen Russell as Chairman of the Board Audit Committee at the end of March. I would like to thank Stephen for his hard work and diligence as Chairman of the Committee and for the support provided to me during the handover period.
Since becoming Chairman, I have focused the work of the Committee on the following key areas:
– | Capital; |
– | Liquidity; |
– | Impairment; |
– | Credit Market Exposures and Mark to Market valuations; and |
– | Key Control Issues. |
In terms of capital and liquidity, the Committee receives quarterly reports setting out current and forecast capital ratios, the size of the buffer above minimum capital requirements and the potential impact on capital ratios of stress scenarios. The liquidity section of the report reviews the Group’s liquidity risk profile, including movements in retail and commercial deposits, the wholesale funding maturity profile and the potential impact on the Group’s liquidity position of stress scenarios. The Committee’s regular review of these reports is one of the key processes enabling it to recommend to the Board, on a bi-annual basis, the going concern statement in the published annual and interim financial statements.
The Committee receives regular reports on current and forecast impairment. The report reviews trends in both retail and wholesale credit risk, in each case by business unit. The report also reviews the level of potential credit risk loans and the level of impairment held against them. A specific report on impairment methodology was commissioned by the Committee to ensure that it was satisfied with the methodologies in use across the Group. The impairment charge included in the interim and preliminary results announcements is specifically reviewed to ensure that the Committee is satisfied that the charge is appropriate. In arriving at this decision, a variety of factors are considered including:
– | actual performance versus forecast; |
– | underlying portfolio trends; |
– | the business environment; |
– | compliance with Group impairment policy; |
– | any adjustments to impairment model outputs; |
– | Barclays position relative to peer banks; and |
– | input from the Group’s external auditor. |
The Committee continues to review closely the fair value of the Barclays Capital credit market exposures (including asset backed securities, commercial property exposure and leveraged credit positions) and the form and content of disclosures of these exposures. The review of the credit market exposure valuations includes a review of marks by key asset categories, movements in exposures (including sales/paydowns) and a review of underlying collateral by vintage and rating. The Committee receives at both the half-year and year-end and before each Interim Management Statement, a specific presentation from Barclays Capital’s Chief Operating Officer and discusses the valuations with the Group Finance Director, the Chief Risk Officer and, importantly, the Group’s external auditors. Confirmation is sought from independent Group control functions such as Risk and Finance, and the external auditors, that the individual marks are appropriate. The Committee continues to be reassured that there were no significant variations between the prices at which assets were sold and the underlying marks.
A specific focus was the sale of US$12.3bn of credit market assets to Protium Finance LP in September. I discussed the accounting treatment relating to the asset sale with both the Group Finance Director and the Group’s external auditor to ensure I was satisfied that it was appropriate. The Committee also reviewed the reclassification of certain financial assets originally classified as held for trading, and now considered as loans and receivables, again to ensure the accounting treatment was appropriate.
The Committee receives a quarterly report on Control Issues of Group Level Significance. This report identifies control weaknesses which could have a significant financial or non-financial impact. The Committee satisfies itself that the remediation programmes are appropriate and, in particular, sufficiently timely. It also monitors the ongoing remediation programme through to satisfactory resolution. The Committee also reviews the key risks and controls in each of the Group’s major business units, focusing in particular on those areas where the Group’s business is expanding or is deemed to be higher risk. It also undertakes more in-depth reviews of specific areas which it believes warrant close attention, including in 2009:
– | Know Your Customer and Anti-Money Laundering Controls; |
– | Sanctions Compliance; |
– | the use of direct sales agents, particularly in the Emerging Markets business; and |
– | the Lehman Brothers North American business integration programme. |
In addition to the five areas of focus outlined above, the Committee has been anxious to ensure that the downward pressure on costs in the current environment does not weaken the control environment. We have particularly monitored staffing levels in Internal Audit to ensure that it has the necessary resources to fulfil the agreed Audit Plan.
The Committee reviews the performance of the internal and external auditors annually. During 2009, a comprehensive external assessment of Internal Audit was undertaken. The review compared their practices to relevant standards, including those published by the Institute of Internal Auditors as well as regulatory standards and expectations in various jurisdictions and included peer group benchmarking. The review concluded that the Internal Audit function complies with the Institute of Internal Auditors’ Standards, is fit for purpose and provides independent assurance on which the Board may rely, with many examples of leading practice. Where suggestions for improvement were made, the Committee will monitor progress.
Feedback on the performance of the external auditors was again sought from key stakeholders in the Group via questionnaires with the results being presented to, and discussed by, the Committee. The Committee is fully satisfied with the performance of the Group’s external auditor and has recommended to the Board and to shareholders that the Group’s external auditor should be re-appointed as the Group’s auditors at the AGM on 30th April 2010. We are satisfied that the Group’s external auditor provides effective, independent challenge to management, which has been crucial in the current difficult environment, and has provided valued support to the Committee in the advice given and the clarity of their briefings and reports.
As Chairman of the Committee, I have liaised as appropriate with the Chairman of the Board HR and Remuneration Committee, particularly to draw attention to any specific aspects of the Group’s results which I feel he ought to be aware of when determining appropriate levels of compensation. I have also liaised with the Chairman of the Board Risk Committee to ensure our agendas are co-ordinated where necessary and to avoid any overlap/underlap in coverage. I am also a member of the Board Risk Committee, which helps to ensure close co-ordination between the two committees.
I also have a programme of visiting key businesses overseas, including attending meetings of local governance and control committees and the audit committees of key subsidiaries. During the year, I visited New York, Dubai and Johannesburg.
The Committee can confirm that it received sufficient, reliable and timely information from management to enable it to fulfil its responsibilities.
Sir Michael Rake
Chairman of the Board Audit Committee
9th March 2010
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Board Audit Committee Activities in 2009
The Committee met 11 times in 2009 and Figure 6 illustrates how the Committee allocated its time at those meetings. The items covered under each heading in Figure 6 are as follows:
Control Issues
– | reviewed internal control and risk management systems; |
– | considered the effectiveness of the Group’s internal controls over financial reporting; |
– | reviewed impairment methodologies; and |
– | considered the Fraud Risk Control Framework. |
Financial Results
– | reviewed the full year results, including market understanding and perception of those results; |
– | reviewed the Annual Report and Accounts, half-year Results and Interim Management Statements; and |
– | reviewed the Group’s accounting policies and the valuation of derivatives and credit market exposures. |
Internal Audit Matters
– | received reports from the internal auditors; |
– | monitored the performance of the Internal Audit function and received an external assessment review of the Internal Audit function; and |
– | reviewed the Global Internal Audit Plan. |
External Audit Matters
– | reviewed the effectiveness and independence of the Group statutory auditor; |
– | approved the re-appointment, remuneration and engagement letter of the Group statutory auditor; |
– | approved the global audit plan for 2009; |
– | considered the provision of non-audit services by the Group statutory auditor – more details can be |
– |
|
Business Control Environment
– | received reports on Group Control Environment Key Trend Data and on the control environments in each of the following businesses or functions: UK Retail Banking, Barclays Commercial Bank, Barclays Wealth (Americas), Barclays Capital (including an update on the integration of the Lehman Brothers North American business), Barclaycard, Emerging Markets, Barclays Wealth, Western Europe, GRCB–Technology and Absa. |
Governance and Compliance
– | considered the information it would require during the coming year to enable it to discharge its responsibilities given the significant changes in financial markets and economic conditions and the impact on the areas of focus for the Committee; |
– | received reports on matters discussed at |
– | received regular reports on ‘Raising Concerns’, including whistleblowing; |
– | received updates on Sarbanes-Oxley Section 404 compliance; |
– | received updates on ‘Know Your Customer’, Anti-Money Laundering and Sanctions Compliance audits; |
– | reviewed the effectiveness of subsidiary audit committees; |
– | reviewed the recommendations from the Walker Review; and |
– | reviewed its Terms of Reference to satisfy itself that they enable the Committee to fulfil its responsibilities. |
Other
– | received updates on business continuity management; and |
– | reviewed the regulatory issues. |
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Non-Audit Services Policy
The Committee takes seriously its responsibility to put in place safeguards to auditor objectivity and independence. It has therefore established a policy on the provision of services by the Group’s statutory Auditor. The Policy describes the circumstances in which the Auditor may be permitted to undertake non-audit work for the Group. The Committee oversees compliance with the Policy and considers and approves requests to use the Auditor for non-audit work. Allowable services are pre-approved up to £100,000 or £25,000 in the case of certain taxation services. Any assignment where the expected fee is above the relevant threshold requires specific approval from the Committee or a member of the Committee. The Company Secretary and his team deal with day to day administration of the Policy, facilitating requests for approval by the Committee. The Committee receives a report at each meeting on the non-audit services provided by the Auditor and the Policy is reviewed by the Committee annually. Details of the services that are prohibited and allowed are set out below.
Services that are prohibited include:
– | bookkeeping; |
– | design and implementation of financial information systems; |
– | appraisal or valuation services; |
– | actuarial services; |
– | internal audit outsourcing; |
– | management and Human Resource functions; |
– | broker or dealer, investment advisor or investment banking services; and |
– | legal, expert and tax services involving advocacy. |
Allowable services that the Committee will consider for approval include:
– | statutory and regulatory audit services and regulatory non-audit services; |
– | other attest and assurance services; |
– | accountancy advice and training; |
– | risk management and controls advice; |
– | transaction support; |
– | taxation services; |
– | business support and recoveries; and |
– | translation services. |
Board Corporate Governance and Nominations Committee
Marcus Agius (Chairman)
David Booth (from 1st January 2010)
Sir Richard Broadbent
Sir Michael Rake
Stephen Russell (to 31st October 2009)
Sir John Sunderland
Secretary
Lawrence Dickinson
The meetings are also attended by the Group Chief Executive.
Board Corporate Governance and Nominations Committee Activities in 2009
The Committee met four times in 2009 and Figure 7 illustrates how the Committee allocated its time at those meetings. During 2009, the Committee:
– | regularly reviewed Board and Board Committee composition to ensure the right mix of skills and experience are present; |
– | monitored the progress of the action plan arising from the 2008 Board Effectiveness Review and oversaw the conduct of the 2009 Board Effectiveness Review including reviewing the process for the Board, Committee and individual Review Director evaluations for 2009; |
– | reviewed the corporate governance disclosures for the 2008 Annual Report and considered the proposed disclosures for 2009; |
– | reviewed issues raised at corporate governance meetings held with institutional investors and investor bodies in the lead up to the AGM; |
– | recommended the appointment of the new non-executive Directors to the Board and changes to Committee membership; |
– | reviewed succession plans for the Executive Committee and the position of Group Chief Executive; and |
– | reviewed its Terms of Reference to satisfy itself that they enable the Committee to fulfil its responsibilities. |
Note
a | Included in ‘Board and Committee Composition’ for 2008. |
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During 2009, the Committee reviewed the composition of the Board and its principal Committees at each of its meetings. Following those deliberations, the Committee recommended to the Board that Simon Fraser and Reuben Jeffery, who were both identified with the assistance of external search consultants, be appointed as non-executive Directors in March and July 2009 respectively. The Committee also recommended to the Board the following changes to Committee membership:
– | Sir Michael Rake succeeded Stephen Russell as Chairman of the Board
|
– | Simon Fraser was appointed as a member of the Board Audit Committee and |
– | Patience Wheatcroft was appointed as a member of |
– | David Booth succeeded Sir Richard Broadbent as Chairman of the Board Risk Committee and |
– | Reuben Jeffery was appointed as a member of the Board Risk Committee with effect from 1st January 2010. |
The Committee oversees the Board Effectiveness Review and approves the Action Plan for the year ahead. Further details of the review and our evaluation statement are set out on page 140.
Board Risk Committee
Information on the role and activities of the Board Risk Committee and the Committee Chairman’s Statement can be found on pages 141 to 143 of this report under ‘Governance of Risk’.
Board HR and Remuneration Committee
Sir Richard Broadbent (Chairman)
Marcus Agius
Leigh Clifford
Simon Fraser (from 1st May 2009)
Sir John Sunderland
Secretary
Secretary: Patrick Gonsalves
Additional information on the role and activities of the Committee can be found in the Remuneration Report on pages 145 to 161. The Committee’s terms of reference have been updated to reflect the changes to its role and the recent developments in Corporate Governance and regulation.
Board HR and Remuneration Committee Activities in 2009
The Committee met 14 times in 2009 and Figure 8 illustrates how the Committee allocated its time at those meetings. During 2009 the Committee:
– | continued its review of the Group’s remuneration policies and |
– | reviewed Executive and Executive Committee compensation; |
– | reviewed various Pensions and Health and Safety matters; |
– | monitored the implementation of the talent agenda; |
– | considered incentive funding for |
– | considered the alignment of |
– | reviewed current and future, Group and business level long-term incentive arrangements; |
– | obtained market data on remuneration levels in specified markets; and |
– | reviewed regulatory developements in respect of compensation. |
The Committee received valuable support and advice from its independent advisers, Towers Perrin MGMC (now Towers Watson), who attended four meetings in 2009.
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Management Committees
Executive Committee
John Varley, Group Chief Executive (Chairman)
Bob Diamond, Group President and Chief Executive, Corporate and Investment Banking and Wealth Management
Chris Lucas, Group Finance Director
Jerry del Missier, co-Chief Executive, Corporate and Investment Banking
Mark Harding, Group General Counsel
Antony Jenkins, Chief Executive, Global Retail Banking
Tom Kalaris, Chief Executive, Barclays Wealth
Robert Le Blanc, Chief Risk Officer
Maria Ramos, Chief Executive, Absa
Rich Ricci, co-Chief Executive, Corporate and Investment Banking
Cathy Turner, Group Human Resources Director
The Board delegates the responsibility for the day to day management of the Company to the Group Chief Executive and he is responsible for ensuring that the business is operating effectively. The Group Chief Executive chairs the Executive Committee, which supports him in this role. The Executive Committee is supported by a number of management committees, including the Disclosure Committee, the Group Governance and Control Committee, the Group Operating Committee, the Group Risk Oversight Committee and the Group Brand and Reputation Committee. The Executive Committee meets every fortnight to discuss strategy development and policies to recommend to the Board.
Disclosure Committee
Chris Lucas, Group Finance Director, is Chairman of the Disclosure Committee and the members of the Committee are the Company Secretary, Group General Counsel, Director Investor Relations, Chief Risk Officer, Barclays Corporate Affairs Director, Group Financial Controller and Barclays Treasurer. The Committee:
– | considers and reviews the |
– | considers Interim Management Statements released to the Stock Exchange; and |
– | considers the content, accuracy and tone of any other announcement that is proposed to be |
The Committee reports to the Executive Committee and also reports to the Board Audit Committee, documenting its conclusions about the effectiveness of the design and operation of the disclosure controls and procedures. This, together with a joint report on internal controls from Barclays Internal Audit Director and the Chairman of the Group Governance and Control Committee, provides assurance to the Board Audit Committee as required by the Turnbull Review of Internal Controls and as recommended by the Code.
Evaluation of Board Performance
The Code recommends that an evaluation of the effectiveness of the Board and its Committees is conducted annually and the Walker Review further recommended that the process is externally facilitated at least every second or third year. We have undertaken externally facilitated performance evaluations annually since 2004 and an action plan has been agreed each year to progress any identified improvements. The evaluation in 2008 was independently facilitated by Egon Zehnder International and the following actions were agreed for 2009:
– | continued focus on the Board’s calendar of business to ensure that noncritical items are removed or kept to a |
– | refinements to the Board’s calendar of business, including additional time to be spent on items such as compensation strategy and succession planning; |
– | review of the overall size of the Board; |
– | refinements to the process for evaluating the performance of individual Directors; and |
– | additional reporting on capital and liquidity. |
Further details of these actions are set out under Board Activities in 2009 on page 128, and Board Corporate Governance and Nominations Committee Activities in 2009 on page 137. The Action Plan for 2009 was completed. The evaluation statement for 2009 is set out on page 140.
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Evaluation Statement
In light of changes in Board composition and the significant events of 2009, we reviewed our Board evaluation process before starting the review for 2009. This included considering whether or not to use an external facilitator and reviewing and interviewing a number of alternative external facilitators.
The Board Corporate Governance and Nominations Committee decided to use an external facilitator again in 2009. It felt that in order to get the maximum benefit from an evaluation exercise, interviews with Directors must be conducted as these tend to be far more informative than questionnaires alone. The Committee also felt that it was appropriate to conduct such an external review given the question-marks that have been raised over corporate governance in the sector and following publication of the Walker Review.
The 2009 evaluation was again independently facilitated by Egon Zehnder International. The Committee felt that their proposal for a refreshed approach to evaluation, including an increased emphasis on Board relationships and a broader remit with input being sought from key executives below Board level, was the most appropriate process. The Board confirms that it does not believe there is a conflict of interest in the business relationship with Egon Zehnder International as executive search consultants and Board evaluation facilitators, particularly as the Group has relationships with other search firms.
The evaluation process is rigorous and took the form of questionnaires, which were shortened this year to focus on the elements that need to be monitored. These questionnaires were completed by Director and other key executives, who then had individual interviews with Egon Zehnder. The individual meetings with Egon Zehnder focused on overall Board composition, a review of key decisions taken by the Board, the quality of information flows, the quality of debate, the effectiveness of the Board Committees and Board dynamics, particularly with a view to assessing whether the interaction of the Board creates a whole that is greater than the sum of its parts. The process underpinning key decisions taken by the Board during the year was also reviewed. In addition, the evaluation exercise seeks Directors’ views on the appropriate size and composition of the Board, including identifying any gaps in skills and experience around the Board table. The evaluation covered the following areas:
– | Group performance; |
– | Strategy and performance objectives, including non-executive Director involvement; |
– | Reporting to shareholders and stakeholders; |
– | Structure, people and succession planning; |
– | Decision-making processes, including the culture for effective challenge; |
– | Information flows and presentations; |
– | Board structure and composition, including non-executive experience and knowledge; |
– | Board roles and responsibilities; |
– | Board and management relationships; |
– | Board Meetings; and |
– | Board Committees. |
The results of the evaluation were presented to the Board in February 2010. The results focused on key themes rather than on direct feedback from the questionnaires.
The themes that will form the basis of the action plan for 2010 include:
– | Board size and diversity; |
– | holding additional Board meetings overseas, particularly given the increased size of our operations in the US; |
– | increasing the visibility of senior executives below Board and Group Executive Committee |
– | improving the |
I held private meetings with the non-executive Directors in early 2010 so that individual and general results could be discussed. Bespoke development plans are then agreed with each non-executive Director in relation to their own performance.
As Chairman, I had regular meetings with shareholders and kept the Board fully informed of their views. Details of communications with shareholders are set out on page 143 in the section on Relations with Shareholders.
Marcus Agius
Group Chairman
9th March 2010
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Governance of Risk
Board Risk Committee
David Booth (Chairman from 1st January 2010)
Sir Richard Broadbent (Chairman to 31st December 2009)
Reuben Jeffery III (from 1st January 2010)
Sir Andrew Likierman
Sir Michael Rake
Stephen Russell (to 31st October 2009)
Patience Wheatcroft (1st May-16th June 2009)
Secretary
Secretary: Lawrence Dickinson
In addition to the Members of the Committee, all meetings are usually attended by the Group Finance Director and Chief Risk Officer. Barclays Internal Audit Director, Group General Counsel and Barclays external auditor, as well as other senior executives, also attend meetings of the Board Risk Committee, where appropriate.
Board Risk Committee Chairman’s Statement
Context
Barclays has long recognised the importance of ensuring that the Board and its Committees devote sufficient attention to risk, particularly as it is only by taking appropriate levels of risk that Banks can make a profit. A Board level Risk Committee has been in existence since 1999 and a key role of the Committee is to analyse, understand and monitor the key risks taken by the business to generate profit and create shareholder value. The Committee focuses on risks taken deliberately and overtly, such as credit, market, capital and liquidity risk, rather than the risks of simply doing business, such as operational risk. The Committee, in analysing and monitoring risk, is acting on behalf of the Board and it was an essential part of my role as Chairman to ensure that the Committee alerts the Board to issues of concern.
The Committee itself is comprised solely of independent non-executive directors. However, the Group Finance Director and Chief Risk Officer attend each meeting as a matter of course and the Chief Risk Officer has a dotted reporting line to me as Chairman of the Committee. I have regular meetings with Robert Le Blanc, the Chief Risk Officer, who also has the right (and indeed responsibility) to elevate issues to me where he considers it necessary. I am also consulted by the Group Finance Director in respect of the performance appraisal and compensation of the Chief Risk Officer. His compensation is approved by the Board HR and Remuneration Committee and appointment to or departures from the role are a matter reserved to the Board.
The Committee is conscious, when undertaking its duties, that banks are in the business of taking risk. The aim of the risk function within Barclays and the Board Risk Committee itself is therefore not to minimise risk but to optimise it. This requires us to ensure that risks being taken are:
– | properly identified and understood, both in their own right and relative to their interactions with other risks we are taking; |
– | appropriate, relative to the scale and type of |
– | affordable, particularly in relation to the capital base of the company; |
– | properly controlled and managed; and |
– | earning an appropriate return, i.e. , one commensurate with the |
How the Committee goes about its business.
It has been an essential feature of the operation of the Committee that the information flowing to the Committee is congruent with the information flow to Executive Committee. In the case of the Group Risk Profile Report (see below), the report is identical.
The Committee plans its forward programme and undertakes a number of key tasks throughout the course of the year in order to ensure it is satisfied with the way risk is being managed. A key role is to review in detail at the end of every year the proposed Risk Appetite for the forthcoming year, before recommending it to the Board.
The Committee monitors risk performance throughout the year to assess whether such performance is in line with expectations when the budget was set, adjusted for any differences in the performance of the economy. Where actual performance differs from expectations, the actions being taken by management are reviewed to ensure that the Committee is comfortable with them.
The Committee also reviews sectoral limits in both the wholesale and retail sectors and in market risk. The purpose of these limits, known internally as Mandate and Scale limits, is to ensure that concentrations in the risk profile do not result in unacceptable levels of losses.
The Committee, in conjunction with the risk function, also seeks to identify potential future areas of risk in order to undertake detailed analysis and review. A good example of this would be the Committee’s review of the US mortgage business, which was requested at the end of 2006. The Committee will also, as part of its calendar of business, review experience of past risk events and seek to identify any lessons learnt in order to ensure they are embedded into business practices. It also seeks to compare Barclays risk stance with those of others to understand the relative risk being taken.
The Committee also monitors the Group’s capital and liquidity position throughout the year to ensure they are within the agreed Risk Appetite parameters.
Finally, the Committee regularly reviews how risk is measured within the business in order to ensure it is satisfied with the risk measurement systems in place.
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Corporate governance
Corporate governance report
continued
Activities in 2009
During 2009, the Committee undertook the following activities:
Reviewed a full Group Risk Profile Report quarterly.
The Group Risk Profile Report incorporates:
– | an economic overview; |
– | an update on impairment charges and loan loss rates; – risk appetite utilisation; and |
– | sections on retail and wholesale credit risk (by business unit), market risk and operational risk. |
Capital and Liquidity
The Committee monitored movement in economic and regulatory capital demand and supply and the level of losses that could be experienced before minimum regulatory capital ratios are breached. The Committee also reviewed and recommended to the Board the liquidity risk appetite of the Group to ensure that sufficient liquidity is held to cover both market-wide and Barclays specific stress scenarios.
Key risk issues
Each year, the Committee ensures it has a forward programme of issues to analyse in detail. During 2009, the Committee analysed the risk profiles and controls in the following businesses:
– | the |
– | the Emerging Markets business in GRCB; and |
– | the US equities business. |
The Committee also received regular reports on the Group’s exposures to the asset backed securities (ABS) and leveraged credit market exposures and how these were being managed down.
Stress Testing
The Committee reviewed and approved the scenarios to be used in the annual stress testing and reviewed the results of the tests themselves to ensure that the Group would remain adequately capitalised and liquid even under severe stress.
Risk Appetite
Risk appetite is set by agreeing the level of credit risk impairment the Group is prepared to accept in the base case economic forecast for the following year, together with impairment levels that would be incurred in economic scenarios that represent 1:7 and 1:25 events. A Daily Value at Risk limit and stress losses for market risk in 1:7 and 1:25 scenarios is also agreed, together with total loss limits from operational risk.
The financial results of the Group are budgeted in the base case and forecast in the stress scenarios to ensure that they do not breach a series of parameters agreed by the Committee. These parameters include pre-tax profit, return on equity, loan loss rates, capital ratios, leverage ratios, dividend and credit rating. A key focus, given current conditions, was to ensure that the capital ratio parameters (in respect of Tier 1 and Core Tier 1) were met at all times.
Follow up on risk issues
The Committee requested and received a report from the business on the lessons learnt from the sub-prime crisis. The losses in sub-prime arose from a systemic market collapse which was not foreseen by our risk processes, the rating agencies or the broader market. Subsequent events have highlighted areas for improvement in certain of our processes, particularly around the need to improve the aggregation of risk positions across all businesses and to include the potential for discontinuous moves in key parameters when setting
sector limits. Risk models in use in the business must also include more subjectivity and bespoke analysis when rating complex financial structures. Action is underway in all these areas.
Mandate and Scale Limits
The Committee reviewed the sectoral limits in place in both the Wholesale and Retail Credit Risk Sectors. These limits include commercial property caps (by geography), leveraged finance limits, high yield underwriting caps, limits to loans to lower grade names or credit scores and stress limits by different types of market risk (e.g. interest rate, foreign exchange, commodity).
Governance
The Committee spent time discussing both the Turner Review and the draft and final Walker Review and, in particular, how the recommendations should be reflected in the Committee’s terms of reference and way of working. Some minor changes have been made as a result.
Relationship with other Committees
The Committee must work closely with both the Board Audit Committee and the Board HR and Remuneration Committee. In respect of the Board Audit Committee, a schedule has been agreed setting out the key roles of each committee in areas such as capital and liquidity to ensure there is clarity of responsibility. The Committee discussed papers from the risk function on the assessment of business performance on a risk-adjusted basis and the proposals for risk metrics to be used in the 2010 compensation cycle, in both cases prior to submission to the Board HR and Remuneration Committee as an input into compensation decisions.
In conclusion, the Committee seeks to ensure that it achieves a balance each year between:
– | comparative analysis |
– | reviewing our risk stance compared to |
– | retrospective analysis |
– | we undertake a |
– | trend analysis – we look once a year at underlying risk trends; and |
– | technical analysis – we review at least once a year one technical area related to the |
The quality of papers is vital to the work of the Committee, with papers typically including:
– | quantified analysis, including both absolute and relative data; |
– information on returns; and
– financial parameters, such as performance against budget and capital utilisation.
The Committee provides a full written report to the Board after every meeting, which I introduce and answer questions about.
At the beginning of 2010, I handed over the Chairmanship of the Committee to David Booth after four stimulating and challenging years.
Sir Richard Broadbent
Chairman of the Board Risk Committee
9th March 2010
143 |
Board Risk Committee (continued)
The Committee met five times in 2009 and Figure 9 shows how the Committee allocated its time at those meetings. The items covered under each heading in Figure 9 are as follows:
Risk Profile/Risk Appetite
– | Reviewed the Group Risk Profile Report (including updates on the Group’s capital position); |
– | reviewed updates on liquidity risk; |
– | reviewed in greater detail the process around setting annual Risk Appetite to establish the effectiveness of the |
– | reviewed the
|
– |
|
Key Risk Issues
– | reviewed risk trends in tax risk management; |
– | received regular reports on ABS and leveraged credit market exposures; and |
– | reviewed the Group’s stress testing proposals and outcomes. |
Internal Control/Risk Policies
– | reviewed the internal control and assurance framework; |
– | examined the risk control framework, and approved Group policies including the trading book policy, large exposures policy, liquidity policy, retail and wholesale credit impairment policies and the Group’s principal risks policy; |
– | reviewed risk measurement methodologies; and |
– | received updates on the programme of actions being taken Group-wide to mitigate risk in view of deteriorating economic conditions in our major markets, such as the UK, US, South Africa and Spain. |
Regulatory Frameworks
– | reviewed the liquidity risk framework and underlying assumptions; |
Other
– | revised its Terms of Reference, including its role in reviewing risks following the Group’s entry into new businesses or geographies; its role in reviewing capital ratios, liquidity risk and its input into remuneration decisions; the increased frequency of risk, capital and liquidity reporting and the setting up of an external advisers panel for the Committee; and |
– | reviewed its Terms of Reference to satisfy itself that they enable the Committee to fulfil its responsibilities. |
More information on risk management and the internal control framework can be found in the Risk management report on pages 54 to 118.
Relations with Shareholders
Communicating with shareholders is a key priority for the Board and was particularly important during the continuing financial crisis in 2009. In the normal course of events, the Board aims to keep shareholders up to date and informed about how Barclays is performing and its strategy. During 2009, there was significant additional communication around the sudden fall in the share price in January 2009, the proposed sale of the iShares business and the subsequent sale of BGI, for which we held a General Meeting in August 2009.
Institutional shareholders
Engagement with our institutional shareholders is essential to ensure a greater understanding of and confidence in the medium and longer-term strategy of Barclays and in the Board’s ability to oversee its implementation.
The Group Chairman and Senior Independent Director are responsible for ensuring the Board is accessible to major shareholders and that channels for communication are open. They are also responsible for ensuring that the Board is aware of any concerns raised by major shareholders and that their views are taken on board. The Group Chairman, Senior Independent Director, Group Chief Executive and Group Finance Director regularly meet with our investors and the executive Directors and senior executives hold group and one to one meetings with major investors. The Group Chairman, Senior Independent Director and Company Secretary also conduct a series of meetings with the corporate governance representatives of our major institutional shareholders ahead of each AGM. The Investor Relations team organise roadshows, seminars, conferences, presentations and other activities that enable the Directors to engage with investors and some of these are highlighted below:
– | over 100 meetings with US institutions following the acquisition of the |
– | over 200 one-to-one meetings with investors (the Group Chairman and |
– |
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– |
|
In addition, the Investor Relations team also met nearly 150 investors in one to one and group meetings.
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Corporate governance
Corporate governance report
Annual General Meeting/General Meeting
The 2008 AGM was held on 24th April 2008 at The Queen Elizabeth II Conference Centre in London. In accordance with best practice, all resolutions were considered on a poll and the results were made available on our website the same day. 52.9% of the shares in issue were voted and all resolutions were approved. All Directors are encouraged to attend the AGM and are available to answer shareholder questions. All Directors attended the 2008 AGM, with the exception of Dr Danie Cronjé, who was retiring from the Board on that day. A class meeting of ordinary
144 |
Corporate governance
Corporate governance report
continued
Private shareholders was also held on 24th April 2008 for shareholders to consider the resolution of the AGM that created new preference share classes. 50.5% of the shares in issue were voted and the resolution was approved by shareholders.
A general meeting (GM) was held on 24th November 2008, at ExCel London, where shareholders were asked to approve resolutions in connection with the Capital Raising proposals. 60.8% of the shares in issue were voted on a poll and all resolutions were approved. The results of the poll were made available on our website on the same day. The Group Chairman, all of the executive Directors and four non-executive Directors, including the Senior Independent Director, Deputy Chairman and Board Audit Committee Chairman, attended the GM.
The 2009 AGM will be held on 23rd April 2009 at The Queen Elizabeth II Conference Centre in London. The Notice of Meeting is enclosed with this Annual Report as a separate document. The resolutions will be considered on a poll and the results will be available on our website on 23rd April 2009.
Signed on behalf of the Board
Marcus Agius
Communication with our private shareholders has also been important during 2009. Personalised information was sent to shareholders for the AGM in April and the General Meeting in August, which included the Notice of Meeting, proxy form, Circular and a question and answer booklet about the proposed sale of BGI. Further documents were available on the Group’s website and sent to shareholders on request.
We recommenced paying a dividend in December 2009 and will pay the final dividend for 2009 in March 2010.
The change in law that allows us to communicate electronically with shareholders has enabled us to use less paper, which benefits the environment and lowers distribution costs for the Group. All shareholder documents are available electronically as soon as they are published but shareholders can still receive communications in paper format if they wish. This year we will post the Notice of Meeting and proxy forms to all shareholders.
We encourage shareholders to hold their shares in Barclays Sharestore, where shares are held electronically in a cost-effective and secure environment. Shareholders can use our e-view service to receive their shareholder documents electronically and they can also use this service to get immediate access to information relating to their personal shareholding and dividend history. E-view participants can also change their details and dividend mandates online and receive dividend tax vouchers electronically.
Annual General Meeting/General Meeting
The 2009 AGM was held on 23rd April 2009 at the Queen Elizabeth II Conference Centre in London. In accordance with best practice, all resolutions were considered on a poll and the results were made available on our website the same day. 53.1% of the shares in issue were voted and all resolutions were approved. All Directors are encouraged to attend the AGM and are available to answer shareholder questions. All Directors attended the 2009 AGM, with the exception of Simon Fraser, who was appointed to the Board on 10th March 2009 and had a prior commitment on the day of the AGM.
A general meeting (GM) was held on 6th August 2009, at the Brewery, London, where shareholders were asked to approve a resolution in connection with the proposed sale of the BGI business and ancillary arrangements. 61.6% of the shares in issue were voted on a poll and the resolution was approved. The results of the poll were made available on our website on the same day. The Group Chairman, all of the Executive Directors and two non-executive Directors, including the Deputy Chairman, attended the GM.
The 2010 AGM will be held on Friday 30th April 2010 at the Royal Festival Hall in London. The resolutions will be considered on a poll and the results will be available on our website on 30th April 2010.
Group Chairman
5th March 2009
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Marcus Agius
John Varley (Group Chief Executive)
Bob Diamond
Chris Lucas
Frits Seegers (to 3rd November)
Non-executive Directors
David Booth
Sir Richard Broadbent
(Deputy Chairman & Senior Independent Director)
Leigh Clifford
Fulvio Conti
Professor Dame Sandra Dawson (to 23rd April)
Simon Fraser (from 10th March) b
Reuben Jeffery III (from 16th July)
Sir Andrew Likierman
Sir Michael Rake
Sir Nigel Rudd (Deputy Chairman to 23rd April)
Stephen Russell (to 31st October)
Sir John Sunderland
Patience Wheatcroft (to 16th June)
Key
OAIndependent on appointment.
EDExecutive Director.
IIndependent non-executive Director.
Notes
Remuneration Report
Statement froma In the case of Leigh Clifford, who is based in Australia, the time difference meant that he was not always able to participate in additional Board meetings called at short notice, but he was fully briefed on the discussions by the Group Chairman or the Company Secretary. b Simon Fraser was appointed as a member of the Board Audit Committee and Board HR and Remuneration Committee ContextThe disruption in the capital markets that commenced in 2007 deepened in 2008 resulting in one of the most challenging years ever for the global financial services sector. As 2008 closed it was clear that the depth of the financial crisis was so severe that a significant global economic downturn was unavoidable. The extent to which remuneration structures may have played a role in contributing to the financial crisis was still being debated and under scrutiny as this statement was written. Whatever outcomes prevail it is certain the remuneration structures will be different in the future.As a consequence of events, the Committee commenced its deliberations for the 2008 performance year earlier than usual and met more times than is typical. The agenda rapidly developed into two work streams: first, the immediate decisions for 2008; and, second, the long-term shape of remuneration. Work continues on the latter and will extend into with effect from 1st May 2009. Our guiding principle throughout all decisions has been ‘pay for performance’.2008Barclays delivered profit of £6,077m, 14% lower than 2007. Although profitability, on an absolute and relative basis, compares favourably across the sector, several features of performance resulted in a more severe reduction in variable remuneration:
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