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 endedDecember 31, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transitionperiod 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 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* |
Title of Each Class | Name of Each Exchange On Which Registered | |
American Depository Shares, each | New York Stock Exchange | |
4.375% Fixed Rate Subordinated Notes due | New York Stock Exchange | |
2.75% Fixed Rate Senior Notes due 2019 | New York Stock Exchange | |
2.00% Fixed Rate Senior Notes due 2018 | New York Stock Exchange | |
3.65% Fixed Rate Senior Notes due 2025 | New York Stock Exchange | |
2.875% Fixed Rate Senior Notes due 2020 | New York Stock Exchange | |
5.25% Fixed Rate Senior Notes due 2045 | New York Stock Exchange | |
3.25% Fixed Rate Senior Notes due 2021 | New York Stock Exchange | |
4.375% Fixed Rate Senior Notes due 2026 | 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 | |
5.140% Lower Tier 2 Notes due October 2020 | New York Stock Exchange | |
Floating Rate Senior Notes due December 9 2016 | New York Stock Exchange |
iPath® Bloomberg Commodity Index Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Agriculture Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Aluminum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Cocoa Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Coffee Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Copper Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Cotton Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Energy Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Grains Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Industrial Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Lead Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Livestock Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Natural Gas Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Nickel Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Platinum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Precious Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Softs Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Sugar Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg 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® Inverse S&P 500 VIX Short-Term FuturesTM ETN | NYSE Arca | |
iPath® Long Extended Russell 1000® TR Index ETN | NYSE Arca | |
iPath® Long Extended Russell 2000® TR Index ETN | NYSE Arca | |
iPath® Long Enhanced MSCI EAFE® TR Index ETN | NYSE Arca | |
iPath® Long Enhanced MSCI Emerging Markets Index ETN | NYSE Arca | |
iPath® Short Enhanced MSCI Emerging Markets Index ETN | NYSE Arca | |
iPath® Long Extended S&P 500® TR Index ETN | NYSE Arca | |
iPath® Global Carbon ETN | NYSE Arca | |
iPath® Optimized Currency Carry ETN | NYSE Arca | |
iPath® US Treasury Steepener ETN | NASDAQ | |
iPath® US Treasury Flattener ETN | NASDAQ | |
iPath® US Treasury 2-year Bull ETN | NASDAQ | |
iPath® US Treasury 2-year Bear ETN | NASDAQ | |
iPath® US Treasury 10-year Bull ETN | NASDAQ | |
iPath® US Treasury 10-year Bear ETN | NASDAQ | |
iPath® US Treasury Long Bond Bull ETN | NASDAQ | |
iPath® US Treasury Long Bond Bear ETN | NASDAQ | |
iPath® Pure Beta Broad Commodity ETN | NYSE Arca | |
iPath® Pure Beta S&P GSCI®-Weighted ETN | NYSE Arca | |
iPath® Pure Beta Cocoa ETN | NYSE Arca | |
iPath® Pure Beta Coffee ETN | NYSE Arca | |
iPath® Pure Beta Cotton ETN | NYSE Arca | |
iPath® Pure Beta Sugar ETN | NYSE Arca | |
iPath® Pure Beta Aluminum ETN | NYSE Arca | |
iPath® Pure Beta Copper ETN | NYSE Arca | |
iPath® Pure Beta Lead ETN | NYSE Arca |
iPath® Pure Beta Nickel ETN | NYSE Arca | |
iPath® Pure Beta Crude Oil ETN | NYSE Arca | |
iPath® Seasonal Natural Gas ETN | NYSE Arca | |
iPath® Pure Beta Agriculture ETN | NYSE Arca | |
iPath® Pure Beta Grains ETN | NYSE Arca | |
iPath® Pure Beta Softs ETN | NYSE Arca | |
iPath® Pure Beta Industrial Metals ETN | NYSE Arca | |
iPath® Pure Beta Energy ETN | NYSE Arca | |
iPath® Pure Beta Livestock ETN | NYSE Arca | |
iPath® Pure Beta Precious Metals ETN | NYSE Arca | |
iPath® US Treasury 5-year Bull ETN | NASDAQ | |
iPath® US Treasury 5-year Bear ETN | NASDAQ | |
iPath® S&P 500 Dynamic VIX ETN | NYSE Arca | |
iPath® Inverse S&P 500 VIX Short-Term FuturesTM ETN (II) | NYSE Arca | |
iPath® GEMS IndexTM ETN | NYSE Arca | |
iPath® GEMS Asia 8 ETN | NYSE Arca | |
iPath® Asian and Gulf Currency Revaluation ETN | NYSE Arca | |
iPath® S&P MLP ETN | NYSE Arca | |
Barclays ETN+ S&P 500® VEQTOR™ ETN | NYSE Arca | |
Barclays ETN+ Shiller CAPETM ETNs | NYSE Arca | |
Barclays ETN+ Select MLP ETN | NYSE Arca | |
Barclays ETN+ FI Enhanced Europe 50 ETN | NYSE Arca | |
Barclays ETN+ FI Enhanced Global High Yield ETN | NYSE Arca | |
Barclays OFI SteelPath MLP ETN | NYSE Arca | |
Barclays Women in Leadership ETN | NYSE Arca | |
Barclays Return on Disability ETN | NYSE Arca | |
Barclays Inverse US Treasury Composite ETN | NASDAQ |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements to 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 | 16,804,603,949 | ||||
Barclays Bank PLC | £1 ordinary shares | 2,342,558,515 | ||||
£1 preference shares | 1,000 | |||||
£100 preference shares | 20,930 | |||||
€100 preference shares | 31,856 | |||||
$0.25 preference shares | 237,000,000 | |||||
$100 preference shares | 58,133 |
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesþ 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¨ Noþ
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.
Yesþ 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¨ No¨
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 Filerþ | 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¨ Noþ
(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¨
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 | 186, 189, 312-313, 431-432 | ||||
B. | Capitalization and indebtedness | Not applicable | ||||
C. | Reason for the offer and use of proceeds | Not applicable | ||||
D. | Risk factors | 87-94 | ||||
4 | Information on the Company | |||||
A. | History and development of the company | 43-44, 285-286 (note 36), 291 (note 38), 299-305 (note 46), 434-435, 476-478 | ||||
B. | Business overview | i (Market and other data), 177, 181-182, 191-192, 215, 218-220 (note 1), 231-233 (note 15), 261-271 (note 29) | ||||
C. | Organizational structure | 285-286 (note 36), 299-305 (note 46) | ||||
D. | Property, plants and equipment | 255 (Note 23), 256-257 (Note 24), 258 (Note 25) | ||||
4A | Unresolved staff comments | Not applicable | ||||
5 | Operating and Financial Review and Prospects | |||||
A. | Operating results | 145-146, 177-182, 184-208, 221-306 | ||||
B. | Liquidity and capital resources | 103-105, 115-116, 130, 148-171, 177-182, 231-233 (note 15), 272-275 (note 30), 276 (note 31), 291-293 (note 39), 297 (note 43), 441 | ||||
C. | Research and development, patents and licenses, etc. | Not applicable | ||||
D. | Trend information | – | ||||
E. | Off-balance sheet arrangements | 261 (note 28), 286-290 (note 37), 291-293 (note 39) | ||||
F. | Tabular disclosure of contractual obligations | 411 | ||||
G. | Safe harbor | i (Forward-looking statements) | ||||
6 | Directors, Senior Management and Employees | |||||
A. | Directors and senior management | 3-5, 324-329 | ||||
B. | Compensation | 50-83, 281-284 (note 35), 294-296 (note 41) | ||||
C. | Board practices | 6-49, 67-71 | ||||
D. | Employees | 49 (Full time employees by region), 193, 195, 197, 199, 201, 202, 204 | ||||
E. | Share ownership | 50-83, 279-280 (note 34), 294-296 (note 41), 333-335 | ||||
7 | Major Shareholders and Related Party Transactions | |||||
A. | Major shareholders | 44, 323 | ||||
B. | Related party transactions | 294-296 (note 41), 431, 453 (note r) | ||||
C. | Interests of experts and counsel | Not applicable | ||||
8 | Financial Information | |||||
A. | Consolidated statements and other financial information | 184-185, 208-305, 434-455 | ||||
B. | Significant changes | Not applicable | ||||
9 | The Offer and Listing | |||||
A. | Offer and listing details | 312-314 | ||||
B. | Plan of distribution | Not applicable | ||||
C. | Markets | 312-314 | ||||
D. | Selling shareholders | Not applicable | ||||
E. | Dilution | Not applicable | ||||
F. | Expenses of the issue | Not applicable | ||||
10 | Additional Information | |||||
A. | Share capital | Not applicable | ||||
B. | Memorandum and Articles of Association | 43-45, 307-311 | ||||
C. | Material contracts | 81-82, 276 (note 31) | ||||
D. | Exchange controls | 318 | ||||
E. | Taxation | 314-318 | ||||
F. | Dividends and paying assets | Not applicable | ||||
G. | Statement by experts | Not applicable | ||||
H. | Documents on display | 318 | ||||
I. | Subsidiary information | 285-286 (note 36) 299-305 (note 46) | ||||
11 | Quantitative and Qualitative Disclosure about Market Risk | 101-102, 138-147, 297 (note 43), 376-391 |
Form 20-F item number | Page and caption references in this document* | |||||
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 | 312, 316-320 | ||||
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 | 324 | ||||
B. | Management’s annual report on internal control over financial reporting | 40 | ||||
C. | Attestation report of the registered public accounting firm | 210 | ||||
D. | Changes in internal control over financial reporting | 40 | ||||
16A | Audit Committee Financial Expert | 10 | ||||
16B | Code of Ethics | 322 | ||||
16C | Principal Accountant Fees and Services | 16-18, 296 (note 42), 321 (External auditor objectivity and independence: Non-Audit Services) | ||||
16D | Exemptions from the Listing Standards for Audit Committees | Not applicable | ||||
16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 45, 276 (Share repurchase) | ||||
16F | Change in Registrant’s Certifying Accountant | 324 | ||||
16G | Corporate Governance | 322 | ||||
17 | Financial Statements | Not applicable (See Item 8) | ||||
18 | Financial Statements | Not applicable (See Item 8) | ||||
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. |
Return to stability
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
The term Barclays or Group refers to Barclays PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 2015 to the corresponding twelve months of 2014 and balance sheet analysis as at 31 December 2015 with comparatives relating to 31 December 2014. The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of Pounds Sterling respectively; and the abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of US Dollars respectively.
Comparatives have been restated to reflect the implementation of the Group structure changes and the reallocation of elements of the Head Office results under the revised business structure. These restatements were detailed in our Form 6-K filed with the SEC dated 14 July 2014.
References throughout this document to ‘provisions for ongoing investigations and litigation including Foreign Exchange’ mean ‘provisions held for certain aspects of ongoing investigations involving certain authorities and litigation including Foreign Exchange.’
The information in this document does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015, which include certain information required for the Joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US SEC (2015 20-F) and which contain an unqualified audit report under Section 495 of the Companies Act 2006 (which does not make any statements under Section 498 of the Companies Act 2006) have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.
Barclays is a frequent issuer in the debt capital markets and regularly meets with investors via formal road-shows and other ad hoc meetings. Consistent with its usual practice, Barclays expects that from time to time over the coming quarter it will meet with investors globally to discuss these results and other matters relating to the Group.
Strategic Update
On 1 March 2016, Barclays also announced certain strategy updates of the Group, including in relation to reorganisation of operating segments into Barclays UK and Barclays Corporate & International, the intention to reduce the Group’s stake in Barclays Africa Group Limited, the contribution of certain assets to the Non-Core segment, revised guidance on future dividends and new Group financial targets. Further information can be found in the Form 6-K regarding the “Group Chief Executive Officer—Strategy Update” filed by Barclays on 1 March 2016, which is incorporated herein by reference.
Certain non-IFRS measures
Barclays management believes that the non-International Financial Reporting Standards (non-IFRS) measures included in this document provide valuable information to readers of its financial statements because they enable the reader to identify a more consistent basis for comparing the business’ performance between financial periods, and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of the Group. 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. As management reviews the adjusting items described below at a Group level, segmental results are presented excluding these items in accordance with IFRS 8; “Operating Segments”. Statutory and adjusted performance is reconciled at a Group level only.
Key non-IFRS measures included in this document, and the most directly comparable IFRS measures, are:
– Adjusted profit before tax is the non-IFRS equivalent of profit before tax as it excludes the impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, losses on sale relating to the Spanish, Portuguese and Italian businesses, Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology, and gain on valuation of a component of the defined retirement benefit liability. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted profit after tax represents profit after tax excluding the post-tax impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, loss on sale relating to the Spanish, Portuguese and Italian businesses, Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology, and gain on valuation of a component of the defined retirement benefit liability. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted attributable profit represents adjusted profit after tax less profit attributable to non-controlling interests. The comparable IFRS measure is attributable profit. A reconciliation to IFRS is provided on page 192 for the Group;
– Adjusted income and adjusted total income net of insurance claims represents total income net of insurance claims adjusted to exclude the impact of own credit, revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology and gain on US Lehman acquisition assets. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted net operating income represents net operating income excluding the impact of own credit; the gain on US Lehman acquisition assets and revision of ESHLA valuation methodology. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted total operating expenses represents operating expenses excluding impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange and gain on valuation of a component of the defined retirement benefit liability. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted litigation and conduct represents litigation and conduct excluding the provisions for UK customer redress and the provision for ongoing investigations and litigation including Foreign Exchange. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted cost: income ratio represents adjusted operating expenses (defined above) compared to adjusted income (defined above). A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted compensation: net operating income ratio represents compensation costs: net operating income ratio excluding the impact of own credit; and the revision of ESHLA valuation methodology. A reconciliation is provided on page 192 for the Group;
– Adjusted compensation: operating income ratio represents compensation costs: operating income ratio excluding the impact of credit impairment charges and other provisions; own credit; gain on US Lehman acquisition and revision of ESHLA valuation methodology. A reconciliation is provided on page 192 for the Group;
– Adjusted basic earnings per share represents adjusted attributable profit (page 205) divided by the basic weighted average number of shares in issue. The comparable IFRS measure is basic earnings per share, which represents profit after tax and non-controlling interests, divided by the basic weighted average number of shares in issue. A reconciliation to IFRS is provided on page 192 for the Group;
– Adjusted return on average shareholders’ equity represents annualised adjusted profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests, the impact of own credit on retained earnings, and other equity instruments. The comparable IFRS measure is return on average shareholders’ equity which represents annualised profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests and other equity instruments. A reconciliation to IFRS is provided on page 192 for the Group;
– Adjusted return on average tangible shareholders’ equity represents annualised adjusted profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests, the impact of own credit on retained earnings, and other equity instruments adjusted for the deduction of intangible assets and goodwill. The comparable IFRS measure is return on average tangible shareholders’ equity which represents annualised profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill. A reconciliation to IFRS is provided on page 192 for the Group;
– Barclays Core results are non-IFRS measures because they represent the sum of five Operating Segments, each of which is prepared in accordance with IFRS 8; “Operating Segments”: Personal and Corporate Banking, Barclaycard, Africa Banking, Investment Bank and Head Office. A reconciliation to IFRS is provided on pages 191 and 192;
– Constant currency results are calculated by converting ZAR results into GBP using the average exchange rate for the year ended 31 December 2015 for the income statement and the 31 December 2015 closing exchange rate for the balance sheet to eliminate the impact of movement in exchange rates between the two periods;
– Net Stable Funding Ratio (NSFR) is calculated according to the definition and methodology detailed in the standard provided by the Basel Committee on Banking Supervision. The original guidelines released in December 2010 (‘Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring’, December 2010) were revised in October 2014 (‘Basel III: The Net Stable Funding Ratio’, October 2014). The metric is a regulatory ratio that is not yet finalised in local regulations and, as such, represents a non-IFRS measure. This definition and the methodology used to calculate this metric is subject to further revisions ahead of the implementation date and our interpretation of this calculation may not be consistent with that of other financial institutions;
– Liquidity Coverage Ratio (LCR) is calculated according to the Commission Delegated Regulation of October 2014 that supplements Regulation (EU) 575/2013 (CRDIV) published by the European Commission in June 2013. The metric is applicable from 01 October 2015 and as such is a binding measure as at 31 December 2015;
– Transitional CET1 ratio according to FSA October 2012. This measure is calculated by taking into account the statement of the Financial Services Authority, the predecessor of the Prudential Regulation Authority, on CRD IV transitional provisions in October 2012, assuming such provisions were applied as at 1 January 2014. This ratio is used as the relevant measure starting 1 January 2014 for purposes of determining whether the automatic write-down trigger (specified as a Transitional CET1 ratio according to FSA October 2012 of less than 7.00%) has occurred under the terms of the Contingent Capital Notes issued by Barclays Bank PLC on November 21, 2012 (CUSIP: 06740L8C2) and April 10, 2013 (CUSIP: 06739FHK0). Please refer to page 150 for a reconciliation of this measure to CRD IV CET1 ratio.
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 the Group. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures 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 only to historical or current facts. Forward-looking statements sometimes use words such as ‘may’, ‘will’, ‘seek’, ‘continue’, ‘aim’, ‘anticipate’, ‘target’, ‘projected’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘achieve’ 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, impairment charges and provisions, business strategy, capital, leverage and other regulatory ratios, payment of dividends (including dividend pay-out ratios), projected levels of growth in the banking and financial markets, projected costs or savings, original and revised commitments and targets in connection with the strategic cost programme and the Group Strategy Update, rundown of assets and businesses within Barclays Non-Core, estimates of capital expenditures and plans and objectives for future operations, projected employee numbers and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. These may be affected by changes in legislation, the development of standards and interpretations under International Financial Reporting Standards (IFRS), evolving practices with regard to the interpretation and application of accounting and regulatory standards, the outcome of current and future legal proceedings and regulatory investigations, future levels of conduct provisions, the policies and actions of governmental and regulatory authorities, geopolitical risks and the impact of competition. In addition, factors including (but not limited to) the following may have an effect: capital, leverage and other regulatory rules (including with regard to the future structure of the Group) applicable to past, current and future periods; United Kingdom (UK), United States (US), Africa, Eurozone and global macroeconomic and business conditions; the effects of continued volatility in credit markets; market related risks such as changes in interest rates and foreign exchange rates; effects of changes in valuation of credit market exposures; changes in valuation of issued securities; volatility in capital markets; changes in credit ratings of any entities within the Group or any securities issued by such entities; the potential for one or more countries exiting the Eurozone; the implementation of the strategic cost programme; and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Group’s control. As a result, the Group’s actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, and expectations set forth in the Group’s forward-looking statements. Additional risks and factors which may impact the Group’s future financial condition and performance are identified in our filings with the SEC which are available on the SEC’s website at http://www.sec.gov.
Any forward-looking statements made herein speak only as of the date they are made and it should not be assumed that they have been revised or updated in the light of new information or future events. Except as required by the Prudential Regulation Authority, the Financial Conduct Authority, the London Stock Exchange plc (the LSE) or applicable law, Barclays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Barclays’ expectations with regard thereto or any change in events, conditions or circumstances 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 published or may publish via the Regulatory News Service of the LSE and/or has filed or may file with the SEC.
Market and other data
This document contains information, including statistical data, about certain 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.
Uses of Internet addresses
This document contains inactive textual addresses to internet websites operated by us and third parties. Reference to such websites is made for information purposes only, and information found at such websites is not incorporated by reference into this document.
References to Pillar 3 report
This document contains references throughout to Barclays annual risk report, the Pillar 3. Reference to the aforementioned report is made for information purposes only, and information found in said report is not incorporated by reference into this document.
Contents
Governance | Page | |||||
Our corporate governance processes and the role they play in supporting the delivery of our strategy, including reports from the Chairman and each of the Board Committee Chairmen. |
Directors’ report |
|
2 |
| ||
§ Who we are | 3 | |||||
§ What we did in 2015 | 6 | |||||
§ How we comply | 35 | |||||
§ Other statutory information | 42 | |||||
People | 46 | |||||
Remuneration report | 50 |
Risk review
|
| Page
|
| |||
The management of risk plays a central role in the execution of Barclays’ strategy and insight into the level of risk across businesses and portfolios and the material risks and uncertainties the Group face are key areas of management focus. | Material existing and emerging risks | 56 | ||||
Risk management | 94 | |||||
Risk performance | 110 | |||||
§ Credit risk | 111 | |||||
§ Market risk | 138 | |||||
§ Funding risk - capital | 148 | |||||
§ Funding risk - liquidity | 154 | |||||
§ Operational risk | 172 | |||||
§ Conduct risk | 174 | |||||
§ Supervision and regulation | 177 |
Financial review | Page | |||||
A review of the performance of Barclays, including the key performance indicators, and our businesses’ contribution to the overall performance of the Group. |
Key performance indicators |
|
184 |
| ||
Consolidated summary income statement | 186 | |||||
Income statement commentary | 187 | |||||
Consolidated summary balance sheet | 189 | |||||
Balance sheet commentary | 190 | |||||
Analysis of results by business | 191 | |||||
Margins analysis | 207 |
Financial statements
|
| Page
|
| |||
Detailed analysis of our statutory accounts, independently audited and providing in-depth disclosure on the financial performance of the Group. | Consolidated financial statements | 209 | ||||
Notes to the financial statements | 221 | |||||
§ Performance/return | 187 | |||||
§ Assets and liabilities held at fair value | 230 | |||||
§ Financial instruments held at amortised cost | 253 | |||||
§ Non-current assets and other investments | 255 | |||||
§ Accruals, provisions, contingent liabilities and legal proceedings | 259 | |||||
§ Capital instruments, equity and reserves | 272 | |||||
§ Employee benefits | 279 | |||||
§ Scope of consolidation | 285 | |||||
§ Other disclosure matters | 294 |
Additional information
|
| Page
|
| |||
Additional shareholder information | 307 | |||||
Additional information | 321 | |||||
Barclays’ approach to managing risks | ||||||
§ Risk management strategy, governance and risk culture | 336 | |||||
§ Management of credit risk | 354 | |||||
§ Management of counterparty credit risk and credit risk mitigation techniques | 370 | |||||
§ Management of market risk | 376 | |||||
§ Management of operational risk | 393 | |||||
§ Management of funding risk | 397 | |||||
§ Management of conduct risk | 406 | |||||
Additional financial disclosure | 410 | |||||
Barclays Bank PLC data | 434 | |||||
Glossary | 456 | |||||
Shareholder information | 476 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 1 |
Governance
Contents
Our corporate governance processes and the role they play in supporting the delivery of our strategy, including reports from the Chairman and each of the Board Committee Chairmen.
Page
| ||||
Governance: Directors’ report | ||||
Who we are |
§ Board of Directors |
3 | ||
§ Group Executive Committee | 5 | |||
§ Board diversity
| 5
| |||
What we did in 2015 |
§ Chairman’s introduction |
6 | ||
§ Deputy Chairman’s statement | 8 | |||
§ Board Audit Committee Report | 9 | |||
§ Board Risk Committee Report | 19 | |||
§ Board Reputation Committee Report | 24 | |||
§ Board Nominations Committee Report
| 27
| |||
How we comply
|
35
| |||
Other statutory information
|
42
| |||
People
|
46
| |||
Remuneration report
|
50
|
2 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Who we are
Board of Directors1
Board of Directorsa | ||||
Barclays understands the importance of having a Board containing the right balance of skills, experience and diversity and the composition of the Board is regularly reviewed by the Board Nominations Committee. The skills and experience of the current Directors and the value they bring to the Board is described below. Full biographies can be accessed online via home.barclays/investorrelations
| ||||
John McFarlane Chairman
Age: 68 Appointed: 1 January 2015
|
Relevant skills and experience John is a former CEO of Australia and New Zealand Banking Group Limited with extensive financial services experience across retail, commercial and investment banking, gained both globally and in the UK. John has a proven track record of implementing cost reduction, cultural transformation and driving through strategic change; most recently demonstrated during his time as chairman of Aviva plc. He is also an experienced non-executive director and chairman. John became Chairman at the conclusion of the April 2015 AGM. He became Executive Chairman in July 2015 and held this position until 1 December 2015, when he resumed the role of Chairman.
Other principal appointments Old Oak Holdings Limited; Westfield Corporation; Chairman, The CityUK
Committees Nom*
| |||
Jes Staley Group Chief Executive
Age: 59 Appointed: 1 December 2015
| Relevant skills and experience Jes has nearly four decades of extensive experience in banking and financial services. He worked for more than 30 years at JP Morgan, initially training as a commercial banker, and later advancing to the leadership of major businesses involving equities, private banking and asset management, and ultimately heading the company’s global investment bank. Most recently, Jes served as managing partner at BlueMountain Capital. These roles have provided him with a vast experience in leadership and he brings a wealth of investment banking knowledge to the Board. Jes joined Barclays as Group Chief Executive on 1 December 2015.
Other principal appointments None
Committees None
| |||
Sir Gerry Grimstone Deputy Chairman and Senior Independent Director
Age: 66 Appointed: 1 January 2016
| Relevant skills and experience Sir Gerry brings to the Board a wealth of investment banking, financial services and commercial experience gained through his senior roles at Schroders and his various former board positions. Sir Gerry has global business experience across the UK, Hong Kong, the Middle East and the US.
Sir Gerry has significant experience as anon-executive director and chairman. He is currently the chairman of Standard Life plc, independent non-executive board member of Deloitte LLP and the lead non-executive at the Ministry of Defence.
Other principal appointments Financial Services Trade and Investment Board; The Shareholder Executive
Committees Nom, Rep*
|
Mike Ashley Non-executive
Age: 61 Appointed: 18 September 2013
| Relevant skills and experience Mike has deep knowledge of auditing and associated regulatory issues, having worked at KPMG for over 20 years, where he was a partner. Mike was the lead engagement partner on the audits of large financial services groups including HSBC, Standard Chartered and the Bank of England. While at KPMG, Mike was Head of Quality and Risk Management for KPMG Europe LLP, responsible for the management of professional risks and quality control. He also held the role of KPMG UK’s Ethics Partner.
Other principal appointments ICAEW Ethics Standards Committee; European Financial Reporting Advisory Group’s Technical Expert Group; Chairman, Government Internal Audit Agency; Charity Commission; International Ethics Standards Board for Accountants
Committees Aud*, Nom, Ris
| |||
Tim Breedon Non-executive
Age: 58 Appointed: 1 November 2012
| Relevant skills and experience Tim joined Barclays after a distinguished career with Legal & General, where, among other roles, he was the group chief executive until June 2012. Tim’s experience as a CEO enables him to provide challenge, advice and support to the Executive on performance and decision-making.
Tim brings to the Board extensive financial services experience, knowledge of risk management and UK and EU regulation, as well as an understanding of the key issues for investors.
Other principal appointments Marie Curie Cancer Care; Chairman, Apax Global Alpha Limited
Committees Aud, Nom, Rem, Ris*
| |||
Crawford Gillies Non-executive
Age: 59 Appointed: 1 May 2014
| Relevant skills and experience Crawford has extensive business and management experience, gained with Bain & Company and Standard Life plc. These roles have provided him with experience in strategic decision-making and knowledge of company strategy across various sectors and geographical locations.
Crawford has also held board and committee chairman positions during his career, notably as chairman of the remuneration committees of Standard Life plc and MITIE Group PLC.
Crawford intends to retire from his position at Standard Life plc in 2016.
Other principal appointments SSE plc; Control Risks Group Holdings Limited
Committees Aud, Nom, Rem*
| |||
Reuben Jeffery III Non-executive
Age: 62 Appointed: 16 July 2009
| Relevant skills and experience Reuben has extensive financial services experience, particularly within investment banking and wealth management, through his role as CEO and president of Rockefeller & Co. Inc. and Rockefeller Financial Services Inc. and his former senior roles with Goldman Sachs, including as the managing partner of the Paris office.
His various government roles in the US, including as chairman of the Commodity Futures Trading Commission, provides the Board with insight into the US political and regulatory environment.
Other principal appointments International Advisory Council of the China Securities Regulatory Commission; Advisory Board of Towerbrook Capital Partners LP; Advisory Board of J. Rothschild Capital Management Limited; Financial Services Volunteer Corps; The Asia Foundation
Committees Nom, Ris |
a | Full Director biographies can be found on pages324 to327 |
1 | The composition of the Board is correct as at 29 February 2016. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 3 |
Wendy Lucas-Bull Non-executive
Age: 62 Appointed: 19 September 2013
| Relevant skills and experience Wendy has significant financial services and African banking experience gained through CEO and senior executive roles on the boards of large South African banks, including Barclays Africa Group Limited. As a CEO she has a track record of successful financial turnaround and cultural transformation of a major South African bank. Her expertise in asset management, investment, commercial and retail banking on the continent is invaluable to the Board given its operations in the region.
Wendy’s previous experience of leading on a number of conduct-related consultations also provides Barclays with valuable insight into conduct risk issues.
Other principal appointments Chairman, Barclays Africa Group Limited; Chairman, Absa Bank Limited; Chairman, Absa Financial Services; Afrika Tikkun NPC (non-profit); Peotona Group Holdings
Committees Rep
| |||
Tushar Morzaria Group Finance Director
Age: 47 Appointed: 15 October 2013
| Relevant skills and experience Tushar joined Barclays in 2013 having spent the previous four years in senior management roles with JP Morgan, most recently as the CFO of its Corporate & Investment Bank.
Throughout his time with JP Morgan he gained strategic financial management and regulatory relations experience. Since joining the Board he has been a driving influence on the Group’s strategic cost programme, and managing the Group’s capital plan, particularly in response to structural reform.
Other principal appointments None
Committees None
| |||
Dambisa Moyo Non-executive
Age: 47 Appointed: 1 May 2010
| Relevant skills and experience Dambisa is an international economist and commentator on the global economy, having completed a PhD in economics. Dambisa has a background in financial services and a wide knowledge and understanding of African economic, political and social issues, in addition to her experience as a director of companies with complex, global operations.
Other principal appointments SABMiller Plc; Barrick Gold Corporation; Seagate Technology plc
Committees Rem, Rep
| |||
Frits van Paasschen Non-executive
Age: 54 Appointed: 1 August 2013
| Relevant skills and experience Frits is an experienced director, having held the position of CEO and non-executive director in a number of leading global organisations, most recently as CEO of Starwood Hotels and Resorts Worldwide, Inc. These roles have provided him with both a global business perspective and a clear understanding of key management issues, as well as experience of enhancing customer experience in a retail environment.
Other principal appointments None
Committees Rep
|
Diane de Saint Victor Non-executive
Age: 61 Appointed: 1 March 2013
| Relevant skills and experience Diane holds the roles of executive director, general counsel and company secretary of ABB Limited, a listed international power and automation technologies company. Diane’s legal background, combined with her knowledge of regulatory and compliance requirements, bring a unique perspective to the discussions of the Board and its Committees.
Other principal appointments None
Committees Aud, Rep
| |||
Diane Schueneman Non-executive
Age: 63 Appointed: 25 June 2015
| Relevant skills and experience Diane joined Barclays after an extensive career at Merrill Lynch, holding a variety of senior roles. Diane brings a wealth of experience in managing global, cross-discipline business operations, client services and technology in the financial services industry. Diane’s experience is a good addition to discussions of the Board and the Board Risk Committee. Diane will also join the Board Audit Committee with effect from 1 March 2016.
Other principal appointments None
Committees Ris
| |||
Steve Thieke Non-executive
Age: 69 Appointed: 7 January 2014
| Relevant skills and experience Steve has significant experience in financial services, in both investment banking with JP Morgan, where among other roles he served as the chairman of the risk management committee, and in regulation, through roles with the Federal Reserve Bank of New York and the Financial Services Authority. Steve also has significant board experience, having served in both executive and non-executive director roles in his career.
Other principal appointments None
Committees Rem, Ris
| |||
Company Secretary
| ||||
Lawrence Dickinson Age: 58 Appointed: 19 September 2002
| Relevant skills and experience Since joining Barclays as a graduate in 1979, Lawrence has worked in a number of roles, including as Chief of Staff to the CEO and as the Private Bank’s Chief Operating Officer. Lawrence is a member and Treasurer of the GC100, the Association of General Counsels and Company Secretaries of the FTSE100. In August 2015 Lawrence also became Group Chief of Staff to the Chairman. |
Committee membership key | ||
Aud | Board Audit Committee | |
Nom | Board Nominations Committee | |
Rem | Board Remuneration Committee | |
Rep | Board Reputation Committee | |
Ris | Board Risk Committee | |
* | Committee Chairman |
4 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
Who we are
Group Executive Committee1
Biographies for Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance Director, who are members of the Group Executive Committee, which is chaired by Jes Staley, can be found on pages 324 and 326.
![]() | ![]() | ![]() | ||||||
Michael Harte |
Bob Hoyt |
Thomas King | ||||||
Chief Operations and | Group General | Chief Executive, | ||||||
Technology Officer
| Counsel
| Investment Bank
| ||||||
![]() | ![]() | ![]() | ||||||
Robert Le Blanc |
Jonathan Moulds |
Maria Ramos | ||||||
Chief Risk Officer | Group Chief | Chief Executive, | ||||||
Operating Officer
| Barclays Africa Group
| |||||||
![]() | ![]() | ![]() | ||||||
Tristram Roberts |
Michael Roemer |
Amer Sajed | ||||||
Group Human | Group Head of | Interim Chief | ||||||
Resources Director | Compliance | Executive, | ||||||
Barclaycard
| ||||||||
![]() | ||||||||
Ashok Vaswani | ||||||||
Chief Executive, | ||||||||
Personal and | ||||||||
Corporate Banking |
a | Executive Committee biographies can be found on pages 327 to 329 |
1 | The composition of the Group Executive Committee is correct as at 29 February 2016. |
The Board has a balanced and diverse range of skills and experience. All Board appointments are made on merit, in the context of the diversity of skills, experience, background and gender required to be effective.
Balance of non-executive Directors: executive Directors
| 1 | Chairman | 1 | |||||
2 | Executive Directors | 2 | ||||||
3 | Non-executive Directors | 11 | ||||||
Gender balance | ||
Male: Female | ||
10:4 | ||
Length of tenure (Chairman and non-executive Directors) | ||
0-3 years | ||
9 |
| |
3-6 years | ||
2 |
| |
>6 years | ||
1 |
| |
Geographical mix (Chairman and non-executive Directors) | ||
UK | ||
5 |
| |
Continental Europe | ||
1 |
| |
US | ||
4 |
| |
Other | ||
2 |
|
Industry/background experience (Chairman and non-executive Directors)a | ||
Financial Services | 10 | |
Political/regulatory contacts | 9 | |
Current/recent Chair/CEO | 8 | |
Accountancy/financial | 2 | |
International (US) | 4 | |
International (Europe) | 4 | |
International (Rest of the World) | 4 | |
Operations and Technology | 1 | |
Retail/marketing | 1 | |
Note a Individual Directors may fall into one or more categories |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 5 |
What we did in 2015
Chairman’s introduction
“The role of any board, and one in which I passionately believe, is to create and deliver long-term, sustainable value.”
Dear Fellow Shareholders
I joined Barclays in January 2015 as a non-executive Director and succeeded Sir David Walker as Chairman following the April 2015 Annual General Meeting (AGM). I would like to extend my thanks and appreciation to Sir David for all that he did for Barclays during his tenure.
This is my first report to you as Chairman and is perhaps not quite the report I anticipated writing when I first took up this role. From 17 July to 30 November 2015, I served as Executive Chairman, the Board having asked me to take on this role on an interim basis following its decision to search for a new Group Chief Executive to succeed Antony Jenkins. I welcome the flexibility afforded to us by the UK Corporate Governance Code that allowed us to operate under these revised governance arrangements for a short period of time and ensure continuity of focus and leadership. I was ably supported by my fellow Directors and by the Group Executive Committee during my period as Executive Chairman and thank them for their individual and collective guidance and input. I was delighted that, under the leadership of Sir Michael Rake, we were able to progress the search for a new Group Chief Executive quickly and welcome Jes Staley to the Board in December 2015, at which point I reverted to my role of non-executive Chairman. Jes has a track record as an outstanding leader and I believe he has the skills and experience to take Barclays forward to deliver improved shareholder returns and reclaim its position as the UK’s pre-eminent bank. Jes and I are already enjoying a constructive and positive time working together.
The role of the Board
The role of any board, and one in which I passionately believe, is to create and deliver long-term, sustainable value. Barclays is a standout brand and has first-class retail, cards, commercial and investment banking businesses, but this has not translated into shareholder value in recent years. To deliver that value sustainably, we need to be much more focused on what is attractive, what we are good at, and where we are good at it. Put simply, we need to create a tangible and compelling reason for our shareholders to invest in us. This has driven the Board’s focus on three priorities during 2015: focus on our core segments and markets; generate shareholder value; and instil a high performance and customer culture, with strong ethical values.
Board appointments, performance and succession planning
One of the key aspects of my role as Chairman, and one which was especially important during my tenure as Executive Chairman, is to ensure that Barclays has an effective and cohesive, yet challenging Board, with the optimum balance of experience, skills, expertise and personal attributes. I have sought to promote a culture of integrity and transparency, enabling Board debate that allows diverse perspectives and constructive challenge. Certainly, the Board did not shy away from difficult conversations and decisions during 2015, always with a focus on what was needed to drive forward execution of the strategy to generate sustainable value for Barclays and its shareholders.
The Barclays Board has undergone a significant amount of change in recent years and saw further changes during 2015. In addition to my own appointment, we welcomed Diane Schueneman to the Board in June 2015 and Jes Staley in December 2015. Diane brings valuable operations and technology experience to the Board. Sir David Walker and Sir John Sunderland left the Board in April 2015, following the AGM, with Antony Jenkins leaving the Board in July 2015. Finally, in October 2015, we announced that Sir Gerry Grimstone would succeed Sir Michael Rake as Deputy Chairman and Senior Independent Director with effect from 1 January 2016. Sir Michael retired from the Board at the end of 2015 and I would like to thank him for his dedicated service and commitment over his eight years as a non-executive Director, including being Senior Independent Director since October 2011 and Deputy Chairman since July 2012. Sir Michael offers his own perspective on governance during 2015 on page 8.
6 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
What we did in 2015
Chairman’s introduction
I am also delighted to report that we have met the Board diversity target we set back in 2012, which was that 25% of the Board by the end of 2015 should be women. We have now agreed a new diversity target, which is that 33% of the Board by the end of 2020 should be women, although our overriding principle is that all appointments to the Board are made on merit, taking into account the skills and experience that the Board needs now and may need in the future to support delivery of our strategy.
I am on record as saying that Barclays needs to reduce its internal bureaucracy by becoming leaner and more agile and consequently more effective and the Board and its processes are no exception to this. One of the steps I took on becoming Chairman was to review the Board’s governance structure, with assistance from the Company Secretary, in order to simplify and streamline the principal Board Committees, in particular those Board Committees with responsibility for oversight of risk. As a result, the Board decided to disband the Board Enterprise Wide Risk Committee, with its responsibilities for oversight of enterprise-wide risk being assumed by the Board as a whole. We also concluded that the Board Financial Risk Committee should assume responsibility for oversight of the capital and financial aspects of operational risk, in addition to financial risk, leaving the Board Conduct, Operational and Reputational Risk Committee to focus on conduct and culture, reputational risk and citizenship. The Board Audit Committee continued to focus on the control aspects of operational risk. The Board Committees have subsequently been renamed to more accurately reflect their responsibilities.
As part of our discussions on Board and Board Committee succession planning, membership of each Committee was also reviewed to ensure that it had the right balance of skills, experience and perspectives and also to ensure that individual Directors were not being over-burdened by Committee responsibilities. Board Committees play a vital role in supporting the Board in its oversight of internal control and financial reporting, risk and risk management and reward and remuneration. Each of the Board Committee Chairmen report below on how their committees discharged their responsibilities during 2015 and the material matters each considered. The Board Nominations Committee has continued to play a role in succession planning for Group Executive Committee and senior leadership roles and, having had the opportunity during 2015, as Executive Chairman, to work even more closely with Group Executive Committee members, I was able to bring some fresh perspectives on the talent pipeline and talent management processes. More detail on the Board Nominations Committee’s work on succession planning can be found on page 28.
It is important to periodically obtain an independent perspective on the effectiveness of the Board and particularly so in a year when our conventional Board governance processes were temporarily revised. We have conducted an externally facilitated review of the effectiveness of the Board each year since 2004, and for 2015 we asked Independent Board Evaluation to facilitate that review. I am pleased to advise that the overall outcome of the review was that the Board is operating effectively, although there are some areas that could be enhanced. A report on the evaluation process and the outcomes may be found on pages 33 and 34.
Culture and values
People matter more than anything else in any business: it is a company’s people that make it great help it stand out from its competitors and make it an attractive proposition for customers and investors. As a Board, we are responsible for ensuring that Barclays’ people do things – the right things – in the right way by setting the tone from the top, by living Barclays’ culture and values in everything that we do and in the decisions we make, by holding the Group Executive Committee to account for the integrity of our Purpose and Values and by creating a culture in which doing the right thing is integral to the way we operate, globally. In an organisation as large and as complex as Barclays, that can be, and is, a challenge, but we are only too alive to the consequence of getting this wrong. I have personally endorsed our Code of Conduct, The Barclays Way, and the Board Reputation Committee has been monitoring, on behalf of the Board, the progress we are making to embed cultural change.
Shareholder and regulatory engagement
Meaningful engagement with our shareholders and regulators is a key pillar of our approach to corporate governance. We welcome open and constructive discussion with our stakeholders, particularly with regard to governance and succession planning, strategy and remuneration. You can read more about how we have engaged with key stakeholders during 2015 in this report. I also hope to meet with many of our private shareholders at our AGM, which will be held on 28 April 2016. A significant activity during 2015 was our external audit tender, on which we engaged with a number of our major shareholders, and you can read a report from Tim Breedon, who chaired our Audit Tender Oversight Sub-Committee, on page 18.
Looking ahead
2015 has not been without its challenges, but I believe that we now have the leadership in place to take forward execution of our strategy at pace, to deliver on our priorities and generate the long-term sustainable value that will benefit not only Barclays’ shareholders, but society at large.
John McFarlane
Chairman
29 February 2016
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 7 |
Statement from Sir Michael Rake,
Deputy Chairman until 31 December 2015
“In asking the Chairman to take on executive responsibilities…we were mindful of the need to ensure that our Board governance arrangements remained effective.”
Board allocation of time (%)
2015 | 2014 | |||||||||||||
![]() | 1 | Strategy formulation and | 56 | 47 | ||||||||||
implementation monitoring | ||||||||||||||
2 | Finance (incl. capital and liquidity) | 11 | 17 | |||||||||||
3 | Governance and Risk (incl. regulatory issues) | 29 | 32 | |||||||||||
4 | Other (incl. compensation) | 4 | 4 | |||||||||||
Dear Fellow Shareholders
In early July 2015, we announced the departure of Antony Jenkins as Group Chief Executive and the appointment of John McFarlane as Executive Chairman, pending the appointment of a new Group Chief Executive. The non-executive Directors had reflected long and hard on the issue of Group leadership and had concluded that new leadership, bringing a new set of skills, was required to accelerate the pace of execution going forward. These events were extensively reported at the time and, rather than revisit them, I would simply like to reiterate here the Board’s appreciation of Antony’s contribution at what was a critical period for Barclays.
In asking the Chairman to take on executive responsibilities, albeit for an interim period, we were mindful of the need to ensure that our Board governance arrangements remained effective and to maintain an appropriate balance of responsibilities on the Board and in the running of the Company until such time as a new Group Chief Executive was appointed. I wanted to give you my perspective on how we approached that and, in particular, how my role as Deputy Chairman and Senior Independent Director evolved during this time.
First, as Executive Chairman, John McFarlane relinquished his membership of the principal Board Committees on which he served, to ensure they continued to be composed solely of non-executive Directors and without any impediment to their ability to provide independent and constructive challenge to executive management. Specifically, John stood down as Chairman of both the Board Nominations Committee and the Board Reputation Committee and I became Chairman of both committees in his place.
Secondly, I took primary responsibility for the search for a new Group Chief Executive, leading the Board Nominations Committee through this process. As the relationship between the Chairman and Group Chief Executive is pivotal to the effectiveness of the Board, John worked closely with me during this process and his insight and guidance on the skills and qualities we needed in the new Group Chief Executive was invaluable. During the search process, I reported regularly to my non-executive colleagues on the Board on progress and on potential candidates, ensuring that they had the opportunity to provide their views and feedback. You can read more about the search for our new Group Chief Executive on page 32. We announced in late October 2015 that Jes Staley would join the Board as Group Chief Executive with effect from 1 December 2015. John subsequently resumed his chairmanship of the Board Nominations Committee, however, I continued to chair the Board Reputation Committee for the remainder of 2015.
Thirdly, my general interaction with our main stakeholders – our major shareholders and our regulators in the UK and US – increased during the period that John served as Executive Chairman.
Finally, I also maintained close contact with both John and members of senior management to ensure there were no significant issues arising from a governance perspective during this period.
2015 was my last year on the Barclays Board. I joined the Board in January 2008 and served through an eventful and difficult period for both Barclays and the financial services industry as a whole. Barclays announced in October 2015 that I would retire from the Board with effect from 31 December 2015 and I have spent time with my successor as Deputy Chairman and Senior Independent Director, Sir Gerry Grimstone, to ensure a smooth handover. I have been proud to serve on the Barclays Board and wish my fellow Directors continuing success for the future.
Sir Michael Rake
Deputy Chairman and Senior Independent Director until
31 December 2015
8 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
What we did in 2015
Board Audit Committee report
“We have continued to play a role in changing the culture and building a greater sense of personal accountability, not just at a senior level within the Group but throughout the organisation, for maintaining the control environment.”
Dear Fellow Shareholders
My report for 2014 emphasised the role the Committee has in ensuring that Barclays operates with a strong control environment and, in particular, the role it is playing in changing the culture and building a greater sense of personal accountability, not just at a senior level within the Group but throughout the organisation, for maintaining that control environment. During 2015, with the agreement of the Board and the Board Risk Committee, the Committee assumed primary responsibility for assessing and tracking the progress of embedding the Enterprise Risk Management Framework (ERMF), which is the way in which Barclays approaches enterprise risk management and is the bedrock of our management of internal risk and control. In particular, the Committee was keen to find ways in which the ERMF could be linked to the Group’s assessment of Management’s Control Approach (MCA), both to drive the right behaviours and provide a more objective method of assessing MCA. In terms of specific control issues, an area of focus for the Committee during 2015 was operations and technology, where there are a number of material control issues the Group is addressing. In assessing control issues for disclosure, the Committee has applied similar definitions to those used for assessing internal financial controls for the purposes of Sarbanes-Oxley and has concluded that there are no control issues that are considered to be a material weakness, which would therefore merit specific disclosure. Further details may be found in the Risk Management and Internal Control section on page 39. The Committee also continued to address the significant judgements that need to be made in connection with the Group’s financial statements, primarily those relating to conduct and litigation provisions and the valuations of specific financial instruments, derivatives assets and portfolios, particularly those where there is a lack of observable market data. More details of the material matters addressed by the Committee are given in the report below. The Committee also spent time carefully considering the requirements of the new viability statement and confirmed that, as indicated in last year’s report, three years was the appropriate period, as it accorded with the Group’s Medium Term Plan.
A significant activity for the Committee during 2015 was the external audit tender, which was conducted by an Audit Tender Oversight Sub-Committee, chaired by Tim Breedon. As I was until 2013 a partner of KPMG, one of the bidding audit firms, I took no part in the external audit tender process, other than providing input to its initial design. Tim Breedon reports separately on the external audit tender process below.
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The role of Board Audit Committee Chairman continues to be a full and busy one. During 2015, I had significant interaction with our regulators, meeting with representatives from our UK and US regulators and also participating in trilateral meetings with our auditors and UK regulators. I also took the opportunity to liaise with my fellow audit committee chairmen in other financial services companies, to discuss common issues and share practice, and I met with a group of investors to discuss disclosure issues, in particular with regard to realised profits. I carried on with my practice of meeting with representatives from senior management to discuss specific issues, such as customer complaints or cyber risk, in addition to my regular meetings with the Group Finance Director and Chief Internal Auditor. I also visited Barclays Africa, attending the African chairmen’s conference. I held regular private meetings with my fellow Committee members ahead of Committee meetings to ensure I had a good sense of the matters that concerned them most and likewise met regularly with the lead audit partner of the external auditor.
Committee performance
The Committee’s performance during 2015 was evaluated as part of the independently facilitated Board effectiveness review and I am pleased to report that the outcomes were positive. The Committee was regarded as effective and considered to be very thorough and detailed. The review commented on the continuing need to balance the demands of a busy agenda and programme of work with the need to cover issues in appropriate detail. We will also be seeking to strengthen the level of technical accounting experience on the Committee. You can read more about the outcomes of the Board effectiveness review on pages 33 and 34.
Looking ahead
Barclays continues to face an unprecedented level of change, driven by both internal and external factors and it will be critical to ensure that a culture of strong control is maintained as the Group implements its strategy and also as it positions itself for structural reform. The Committee will continue to seek to ensure that management maintains its focus on building personal accountability for upholding a strong and effective control environment and is supportive of the pilot programme being implemented in 2016 that will require certain business personnel to spend time working in a control function before being promoted. 2016 will also see the Committee focus on the transition to a new auditor, KPMG, who will become Barclays auditor with effect from the 2017 financial year. We will be seeking to ensure that the quality of the audit performed by the existing auditor, PwC, is maintained until the end of its tenure and that KPMG has completed the steps it needs to undertake to ensure it is fully independent of Barclays’ and has a strong understanding of the business before it takes up office.
Mike Ashley Chairman, Board Audit Committee 29 February 2016 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 9 |
Committee composition and meetings
The Committee is composed solely of independent non-executive Directors. Dambisa Moyo retired from the Committee at the end of August 2015 following a review of Board Committee composition and size by the Board, which resulted in the membership of each Board Committee being refreshed. Diane Schueneman was appointed to the Committee with effect from 1 March 2016. Mike Ashley is the designated financial expert on the Committee for the purposes of the US Sarbanes-Oxley Act. Although each member of the Committee has financial and/or financial services experience, the Board has determined that the Committee would benefit from additional direct accounting and auditing experience and consideration is being given to further appointments to the Committee in order to deepen its expertise in these areas. You can find more details of the experience of Committee members in their biographies on pages 3 and 4.
The Committee met 10 times in 2015 and the chart on page 17 shows how it allocated its time. One meeting was held purely to consider presentations from the three audit firms bidding for the external audit tender and was not attended by Mike Ashley. Committee meetings were attended by management, including the Group Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, General Counsel and Head of Compliance, as well as representatives from the businesses and other functions. The lead audit partner of the external auditor attended all Committee meetings, except the meeting to evaluate the external audit tender proposals, and the Committee held a number of private sessions with each of the Chief Internal Auditor or the lead audit partner, which were not attended by management.
Member | Meetings attended/eligible to attend | |
Mike Ashley* | 9/10 | |
Tim Breedon | 10/10 | |
Crawford Gillies | 10/10 | |
Dambisa Moyo (to 31 August 2015)† | 6/7 | |
Diane de Saint Victor† | 7/10 |
* | Did not attend the meeting that considered the appointment of a new statutory auditor given that KPMG, where until 2013 he was a partner, was one of the bidding audit firms. |
† | Unable to attend certain meetings owing to prior business commitments. Input was provided to the Committee Chairman prior to the meeting. |
Committee role and responsibilities
The Committee is responsible for:
§ | assessing the integrity of the Group’s financial reporting and satisfying itself that any significant financial judgements made by management are sound |
§ | evaluating the effectiveness of the Group’s internal controls, including internal financial controls and |
§ | scrutinising the activities and performance of the internal and external auditors, including monitoring their independence and objectivity. |
![]() | The Committee’s terms of reference are available at home.barclays/corporategovernance |
10 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Audit Committee report
The Committee’s work
The significant matters addressed by the Committee during 2015 are described below.
Significant financial statement reporting issues
Assumptions and estimates or judgements are an unavoidable and significant part of the financial reporting process and are evaluated carefully by the Committee ahead of the publication of Barclays’ results announcements. The Committee examined in detail the main judgements and assumptions made by management, any sensitivity analyses performed and the conclusions drawn from the available information and evidence, with the main areas of focus during the year set out below. Where appropriate, the Committee sought input and guidance from the external auditor and welcomed its challenge on specific matters. In addition to these main areas of focus, the Committee also covered matters relating to Barclays’ pension scheme, taxation and accounting policy choices.
Area of focus | Reporting issue | Role of the Committee | Conclusion/action taken | |||
Conduct provisions (see Note 27 to the financial statements). | Barclays makes certain assumptions and estimates, analysis of which underpins provisions made for the costs of customer redress, such as for Payment Protection Insurance (PPI), Packaged Bank Accounts (PBA) and rates provided to certain customers on foreign exchange transactions. | In debating Barclays’ financial results statements, the Committee examined the provisions held for the costs of customer redress.
In respect of PPI, the Committee: § analysed the judgements and estimates with regard to the PPI provision, taking into account estimated overturn rates, the estimation policy on missing data, and complaints trend data § evaluated Financial Ombudsman Service overturn rates and trends, provisions utilisation, latest flow forecasts and how reasonable high and low end scenarios had been determined in order to assess the range of reasonable possible future costs § debated proposed additional provisions and whether the analysis performed by management was consistent with prior periods § assessed the Group’s ability to forecast trends in PPI complaints, discussing the levels of uncertainty in the projections § debated the potential range of outcomes that might arise from the Plevin case (the 2014 UK Supreme Court ruling in Plevin v Paragon Personal Finance Ltd) and the potential impact on the future range of provisions arising from the proposed timebar on claims. | The Committee agreed that an additional provision of £150m should be taken at the first quarter but requested a full review of forecasts for PPI redress for the second quarter 2015. Having assessed the outputs of that review, it agreed to increase the provision at the half year by £600m. Following the review at the third quarter, the Committee concluded that no additional provisions were required but asked management to conduct further review and analysis for the 2015 year end to ensure that provisions were within an acceptable range. In deliberating the analyses presented by management in connection with the 2015 full year results, and considering in particular the potential impact resulting from the FCA’s consultation on introducing a time limit for claims and addressing the Plevin case, the Committee agreed with management’s proposal to increase the provision at the year end by £1,450m. The Committee and management will continue to monitor closely any changes in customer or claims management companies’ behaviour in light of the Plevin case and the proposed timebar. | |||
With regard to PBA redress, the Committee: | The Committee endorsed management’s recommendation that an expense of £282m for PBA should be provided for in the first half and agreed it should be disclosed as a separate item in the interim results. Having examined claims trend data, it concluded that no further provisions were required during 2015.
The Committee agreed with the proposal to make a provision of £290m in the third quarter and that this provision should be separately disclosed. The remediation is still at an early stage and the Committee noted that there were no significant developments in the fourth quarter. The Committee therefore agreed that no adjustment was required in the provision at the end of 2015. | |||||
§ debated the practice of providing for future costs where persistent levels of complaints are received § assessed PBA claims experience throughout 2015, examining the level of provisions against forecast volumes and actual claims experience § evaluated management’s analysis of complaint levels and trends and the outputs of product reviews.
In relation to redress to certain customers regarding rates provided on foreign exchange transactions, the Committee: § examined the results of the internal review conducted by management on foreign exchange transactions § evaluated the Group’s proposal for calculating remediation for the customers affected.
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 11 |
Area of focus | Reporting issue | Role of the Committee | Conclusion/action taken | |||
Legal, competition and regulatory provisions (see Notes 27 and 29 to the financial statements). | Barclays makes judgements in respect of provisions for legal, competition and regulatory matters. | § Evaluated advice on the status of current legal, competition and regulatory matters. § Assessed management’s judgements and estimates of the levels of provisions to be taken and the adequacy of those provisions, based on available information and evidence. | The Committee discussed provisions and utilisation for Foreign Exchange and ISDAFix litigation and agreed that any residual provision should be retained and not released in the first half.
Having reviewed the information available to determine what could be reliably estimated, the Committee agreed that the provision at the full year should be set at £1,237m for ongoing investigations and litigation including Foreign Exchange.
Further information may be found on pages 266 and 267.
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Valuations (see Notes 13 to 18 to the financial statements). | Barclays exercises judgement in the valuation and disclosure of financial instruments, derivative assets and certain portfolios, particularly where quoted market prices are not available, in particular the Group’s Education, Social Housing and Local Authority (ESHLA) portfolio, which during 2015 represented the most material judgement in view of widening credit spreads on social housing bonds and budget changes impacting social housing portfolios. | § Debated fair value balance sheet items. This included evaluating a report from the Valuations Committee, analysing social housing bonds credit spread performance and debating the appropriateness of the valuation model. § Assessed how the ESHLA portfolio might be accounted for under IFRS 9. § Debated uncollateralised derivatives and differences in pricing ranges and the potential impact on the Group’s financial statements. § Examined the significant valuation disparity between the Group and a counterparty in relation to a specific long-dated derivative portfolio.
| The Committee concluded that there should be no change to the fair value approach. It also agreed with management’s recommendation that an additional prudential valuation adjustment of £300m should be made in respect of the ESHLA portfolio, reflecting an increase in credit uncertainty for social housing sector loans arising from some widening of social housing bond credit spreads.
The Committee noted that despite attempts by the front office trading team, the Group Finance Director and the Chairman of the Committee, it had not proved possible to gain a complete understanding of the causes of the valuation disparity from the relevant counterparty. Nonetheless, a significant element was understandable in light of the different underlying positions held and the Committee took further comfort from a third party valuation provided in relation to ongoing consideration of restructuring the trades. The Committee concluded that the Group’s valuation methodology was appropriate and also noted that the Group was protected against counterparty credit risk through a collateral escrow arrangement.
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Impairment (see Note 7 to the financial statements). | Where appropriate, Barclays models potential impairment performance, allowing for certain assumptions and sensitivities, to agree allowances for credit impairment, including agreeing the timing of the recognition of any impairment and estimating the size, particularly where forbearance has been granted. | § Assessed impairment experience against forecast and whether impairment provisions were appropriate. § Evaluated the results of the review and stress tests conducted by management of the Group’s exposures to the oil and gas sector in light of the reduction in oil prices. § Debated management’s analysis of the emergence and outturn periods for the Barclaycard portfolios. | The Committee agreed with the proposed adjustments to emergence and outcome periods and determined that the allowances for credit impairment on loans and advances were appropriate and adequately supported by model outputs.
In relation to the oil and gas sector, the Committee determined that the proposed provisions were appropriate but noted that further stress was possible in the event of a prolonged period of lower oil prices.
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12 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Audit Committee report
Area of focus | Reporting issue | Role of the Committee | Conclusion/action taken | |||
Going concern (see page 45 for further information). | Barclays is required to confirm that the going concern basis of accounting is appropriate. | § Assessed a working capital report prepared by Barclays Treasury, covering forecast and stress tested forecasts for liquidity and capital compared to current and future regulatory requirements, while taking into account levels of conduct and litigation provisioning and possible further provisions that may be required.
| After examining forecast working capital, along with Barclays’ ability to generate capital and raise funding in current market conditions, the Committee concluded that Barclays’ liquidity and capital position remained appropriate, that there were no material uncertainties and that the going concern basis of accounting remained appropriate. | |||
Viability | For the 2015 reporting year onwards, the Directors are required to make a statement in the Annual Report as to the longer-term viability of Barclays. | § At the request of the Board, evaluated at the year end a report from management that set out the view of Barclays’longer-term viability. This report was based on Barclays Medium Term Plan (MTP) and covered forecasts for capital, liquidity and leverage, including forecast performance against regulatory targets, outcomes of the stress test of the MTP and forecast capital and liquidity performance against stress hurdle rates, funding and liquidity forecasts and an assessment of global risk themes and the Group’s risk profile.
| Taking into account the assessment by the Board Risk Committee of stress testing results and risk appetite, the Committee agreed to recommend the viability statement to the Board for approval, although it emphasised the need for the statement to refer specifically to the key risks to viability, in particular those outside the Group’s direct control. | |||
Fair, balanced and understandable reporting (including Country by Country reporting and Pillar 3 reporting). | Barclays is required to ensure that its external reporting is fair, balanced and understandable. | § At the request of the Board, assessed, via discussion with and challenge of management, whether disclosures in Barclays’ published financial statements were fair, balanced and understandable, taking into account comments received from investors and others. § Evaluated reports from the Disclosure Committee on its assessment of the content, accuracy and tone of the disclosures. § Sought and obtained confirmation from the Group Chief Executive and Group Finance Director that they considered the disclosures to be fair, balanced and understandable. § Evaluated the outputs of Barclays’ Turnbull assessments and Sarbanes- Oxley s404 internal control process. § Established via reports from management that there were no indications of fraud relating to financial reporting matters. § Assessed disclosure controls and procedures. § Requested that management report on and evidence the basis on which representations to the external auditors were made.
| Having assessed all of the available information and the assurances provided by management, the Committee concluded that the processes underlying the preparation of Barclays’ published financial statements were appropriate in ensuring that those statements were fair, balanced and understandable.
In assessing Barclays’ financial results statements, the Committee requested that certain amendments were made to disclosures on litigation and also provided input on other key disclosure items, including the US Wealth disposal, guidance on Barclays Non-Core, adjusting items, dividends and outlook statements. It also debated the proposed statements to be made by the Chairman and Group Chief Executive, suggesting amendments.
The Committee concluded that the disclosures and process underlying the production of the 2015 Annual Report and Financial Statements were appropriate and recommended to the Board that the 2015 Annual Report and Financial Statements are fair, balanced and understandable.
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 13 |
Other significant matters
Other matters addressed by the Committee focused on the effectiveness of Barclays’ internal controls, the performance and effectiveness of the internal audit function, the performance, objectivity and independence of the external auditor, PricewaterhouseCoopers LLP (PwC) and the arrangements being made to ensure that the incoming auditor, KPMG LLP (KPMG), achieves full independence prior to commencing the Barclays’ audit. The most significant matters are described below.
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Internal control Read more about the Barclays’ Internal control and risk management processes on page 39. | The effectiveness of the control environment in operations and technology (O&T) and the status and remediation of any material control issues. | § Evaluated on a regular basis, the O&T control environment, including the status of any open material control issues, emerging risks and closed control issues, taking the opportunity to directly challenge and question functional leaders. § Scrutinised the status of specific material control issues and their associated remediation plans, including in particular those relating to access management, security of secret and confidential data, cyber risk, IT infrastructure and application issues and third party supplier management. § Debated any slippage to remediation programmes and whether this was a cultural indicator of the Group’s approach. § Conducted a deep dive on security of secure and confidential data control issues, discussing in particular the cultural changes that the businesses needed to make. § Assessed the threat presented by cyber risk, including the impact of any confirmed cyber attacks. § Debated the progress of remediation of third party supplier management control issues, including the potential impacts of the Group’s focus on cost management and of decentralisation.
| Having assessed the status of material control issues and their remediation, the Committee suggested that resilience should be elevated as a material control issue and requested a deep dive. The deep dive has been scheduled for early 2016. The Committee also requested further updates on cyber risk and third party supplier management, both of which are scheduled to take place in early 2016.
The Committee requested a deep dive on access management control issues, which took place during 2015. | |||
The effectiveness of the business control environment, including the status of any material control issues and the progress of specific remediation plans. | § Assessed individual reports on the control environment in PCB, Barclaycard, Barclays Africa and US Investment Banking operations, including questioning directly the heads of those businesses. § Debated the importance of maintaining an effective control environment as the Group decentralises certain functional activities.
| The Committee requested, and received, an update on decentralisation and its potential impact on the Group’s control environment. | ||||
The progress being made on embedding the ERMF to support a strong and effective internal control environment. | § Assessed the results of a self-assessment pilot exercise conducted by the principal business units, as the first line of defence. § Evaluated a proposal for a revised approach to the internal control attestation process to link it to the ERMF. § Deliberated on the challenge of embedding conduct risk management as part of the ERMF. § Debated the effectiveness of the systems being used to support risk and control assessments by the first line of defence. § Focused on the need for effective challenge by the second line of defence. § Debated what metrics could be used to provide line of sight to control issues and whether a more objective approach to MCA ratings could be developed.
| The Committee suggested to management that the assessment of MCA ratings could be more closely aligned to the ERMF. It subsequently considered and approved a proposal to align the MCA and ERMF, recommending that this be implemented with effect from 1 January 2016. The Committee requested further work on the revised approach to the internal control attestation process, so that the revised approach could be implemented for the 2015 year end attestation. The Committee asked for a further update on the effectiveness of the challenge by the second line of defence once all risk and control assessments had been completed. This update is scheduled to be provided in early 2016. |
14 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Audit Committee report
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
The adequacy of the Group’s arrangements to allow employees to raise concerns in confidence without fear of retaliation and the outcomes of any substantiated cases. | § Debated the enhancements made to the Group’s whistleblowing framework, including changes in the team, communications to employees and re-publication of the Raising Concerns Policy. § Evaluated the level of substantiated cases and trends in reporting. | The Committee welcomed the steps that had been taken to strengthen the Group whistleblowing team and to enhance awareness and visibility across the Group of whistleblowing processes and the Raising Concerns Policy. It asked for more granular reporting to be made to the Committee, including ensuring that any cases of retaliation were clearly highlighted and that Barclays Africa incidents were reported to the Committee on the same basis as the rest of the Group. This information is now being received.
To enable an assessment of effectiveness, the Committee asked for Barclays’ processes to be benchmarked against its peers. It was subsequently presented with the results of the benchmarking exercise and concluded that Barclays’ processes were appropriate.
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Internal audit | The performance of internal audit and delivery of the internal audit plan, including scope of work performed, the level of resources and the methodology and coverage of the internal audit plan. | § Focused on how to accelerate the remediation of any control weaknesses and the importance of having a culture of closing issues effectively, including debating a new approach to audit issues management, which requires issues to be remediated within six months of identification, with any extension to that time period requiring the approval of a member of the Group Executive Committee. § Evaluated progress of the internal audit plan for 2015 and debated the plan for 2016, including assessing the proposed internal audit coverage and key control themes identified. § Assessed internal audit resources and attrition levels. § Debated the outcomes from Barclays Internal Audit’s annual self-assessment. | The Committee supported the approach to enforcing even greater accountability and ensuring greater visibility at Group Executive Committee and senior management level of the remediation of control issues and audit issues management. It confirmed its agreement to the key control themes identified by internal audit, although it asked for execution risk to be covered specifically. The Committee approved changes to internal audit’s methodology and the approach to audit coverage and issues validation, which has been implemented from 1 January 2016. The Committee asked for internal audit reports to comment as a matter of course on the effectiveness of both first and second lines of defence when evaluating their audit findings. Having assessed internal audit’s reports on a regular basis, the Committee confirmed completion of the internal audit plan for the first half of 2015 and approved the plan for the second half of the year, including approving the resources requested. It also approved the plan for the first half of 2016. In view of the Group’s focus on cost management, the Committee asked for an assessment of the impact on the internal audit plan of any proposed headcount reductions and for this to be reported to the Committee along with any revised plan. The Committee was content with the outcomes of the self-assessment of internal audit performance, although requested an update on the quality assurance programme, which will be provided in 2016.
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 15 |
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
External audit | The work and performance of PwC, including the maintenance of audit quality during the period of transition to a new auditor. | § Convened a separate session with the key members of the PwC audit team to discuss the 2015 audit plan and agree areas of focus. § Assessed regular reports from PwC on the progress of the 2015 audit and any material issues identified. § Debated the draft audit opinion ahead of 2015 year end.
The Committee was also briefed by PwC on critical accounting estimates, where significant judgement is needed. | The Committee approved the audit plan and the main areas of focus, including impairment, valuations, conduct redress provisions, litigation and regulation and IT systems and controls. The Committee asked PwC to comment on the Group’s reconciliations processes and how they compared to other financial institutions.
Read more about the Committee’s role in assessing the performance, effectiveness and independence of the external auditor and the quality of the external audit below.
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The external audit tender, which was conducted during 2015, and the arrangements for the transition to a new auditor. | § Received regular updates from the Audit Tender Oversight Sub-Committee on the progress of the audit tender. § Convened a special meeting to evaluate final presentations from the three audit firms who responded to the request for proposal. § Assessed and endorsed the proposed process to ensure that KPMG was independent by 1 July 2016. | The Committee decided to look further at potential reputation risk before making a recommendation to the Board. Having done so, it concluded on two firms for recommendation to the Board for consideration, indicating its preferred option of KPMG. In July 2015, Barclays announced the appointment of KPMG as its statutory auditor with effect from the 2017 financial year.
Read more about the external audit tender and the processes in place to ensure KPMG’s independence below.
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The Committee also covered the following matters:
§ ensured it was updated on the implementation of IFRS 9, including the work under way to develop the Group’s approach, project status, resourcing and employee training. The Committee requested, and received, a specific briefing session on IFRS 9, covering the key assumptions and judgements that will be required
§ debated the Group’s plan for recovery and resolution and the process by which it was developed, including assessing the forward-looking trigger indicators
§ tracked progress of plans to ensure an attestation could be made to the Group’s regulators with regard to financial crime controls
§ assessed status reports on the Group’s controls around client assets and encouraged management to ensure that complexity, and the associated compliance costs, was taken into account when deciding which products to be offered
§ evaluated regular reports on regulatory issues
§ approved revisions to its terms of reference and recommended them to the Board for approval
§ approved a revised Group Retail Impairment Policy.
Assessing external auditor effectiveness, auditor objectivity and independence and non-audit services
The Committee is responsible for assessing the effectiveness, objectivity and independence of the Group’s auditor, PwC. This responsibility was discharged throughout the year at formal committee meetings, during private meetings with PwC and via discussions with key executive stakeholders. In addition to the matters noted above, during 2015, the Committee:
§ approved the terms of the audit engagement letter and associated fees, on behalf of the Board, having scrutinised the results of Barclays’ formal evaluation of PwC. More information on the formal evaluation is provided below
§ appraised PwC’s approach to key accounting judgements and how they were communicated and agreed with management and the Committee
§ recognising that PwC, and its predecessor firms, has been Barclays external auditor since 1896 and that it had been more than 10 years since the external audit was last tendered, conducted an external audit tender, identified KPMG as the preferred candidate for appointment as Barclays’ new auditor and made a recommendation to the Board. Details of the audit tender process, which was overseen by the Audit Tender Oversight Sub-Committee, can be found on page 18
§ discussed and agreed revisions to the Group Policy on the Provision of Services by the Group Statutory Auditor and regularly analysed reports from management on the services that PwC provided to Barclays. Following the appointment of KPMG as auditor from 1 January 2017, the Committee also commenced oversight of new non-audit service engagements with KPMG in recognition of the potential threats to independence. Read more about non-audit services below
§ instructed Barclays Internal Audit to undertake a review of a sample of non-audit services provided by PwC to ensure that the final deliverables aligned to the scope of work approved by the Committee. No concerns were identified by this review
§ evaluated and approved revisions to the Group Policy on Employment of Employees from the Statutory Auditor and ensured compliance with the policy by regularly assessing reports from management detailing any appointments made
§ analysed the results of the inspection of PwC by the Financial Reporting Council’s Audit Quality Review Team and confirmed support for the actions PwC proposed to take to address areas identified for improvement
§ assessed the draft report to the PRA prepared by PwC regarding its detailed audit work on specific topics, in particular, impairment.
PwC’s performance, independence and objectivity during 2015 were formally assessed at the beginning of 2016. A questionnaire incorporating best practice recommendations from a number of professional and governance bodies, and taking account of key findings from the 2014 review, was completed by key stakeholders across the Group. The questionnaire was designed to evaluate PwC’s audit process in its entirety and addressed matters including the quality of planning and communication, technical knowledge, the level of scrutiny and challenge applied and PwC’s understanding of the business. The subsequent report provided empirical data on which the Committee assessed PwC. It also reflected specific comments made by respondents, giving the Committee a valuable insight into management’s views. The Committee was particularly interested in assessing whether audit quality was being maintained throughout the period of transition to a new auditor. The results of the evaluation confirmed that both PwC and the audit process were effective. Having considered the results of the evaluation, the Committee recommended to the Board and to shareholders that PwC should be reappointed as the Group’s auditors at the AGM on 28 April 2016, noting that this would be PwC’s final year as Group auditor.
16 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Audit Committee report
Non-audit services
In order to safeguard the auditor’s independence and objectivity, Barclays has in place a policy setting out the circumstances in which the auditor may be engaged to provide services other than those covered by the Group audit. The Group Policy on the Provision of Services by the Group Statutory Auditor (the Policy) applies to all Barclays’ subsidiaries and other material entities over which Barclays has significant influence. The core principle of the Policy is that non-audit services (other than those legally required to be carried out by the Group’s auditor) should only be performed by the auditor in certain, controlled circumstances. The Policy sets out those types of services that are strictly prohibited and those that are allowable in principle. Any service types that do not fall within either list are considered by the Committee Chairman on a case by case basis, supported by a risk assessment provided by management.
The Committee has pre-approved all allowable services up to £100,000, or £25,000 for tax advisory services, however, all proposed work, regardless of the fees, must be sponsored by a senior executive and recorded on a centralised online system, with a detailed explanation of the clear commercial benefit arising from engaging the auditor over other potential service providers. The audit firm engagement partner must also confirm that the engagement has been approved in accordance with the auditor’s own internal ethical standards and does not pose any threat to the auditor’s independence or objectivity.
All requests to engage the auditor are assessed by independent management before work can commence. Requests for allowable service types in respect of which the fees are expected to meet or exceed the above thresholds must be approved by the Chairman of the Committee before work is permitted to begin. Services where the fees are expected to be £250,000 or higher must be approved by the Committee as a whole. All expenses and disbursements must be included in the fees calculation.
During 2015, all engagements where expected fees met or exceeded the above thresholds were evaluated by either the Committee Chairman or the Committee as a whole who, before confirming any approval, assured themselves that there was justifiable reason for engaging the auditor and that its independence and objectivity would not be threatened. Two requests were declined in 2015 (2014: two). On a quarterly basis, the Committee scrutinised details of individually approved and pre-approved services undertaken by the auditor in order to satisfy itself that they posed no risk to the auditor’s independence, either in isolation or on an aggregated basis. A breakdown of the fees paid to the auditor for non-audit work can be found in Note 42 on page 296, with non-audit fees representing 23.5% (2014: 25.7%) of the audit fee. Significant categories of engagement undertaken in 2015 included:
§ | attest and assurance services required by regulators in connection with reviews of internal controls including reviews of the suitability of design and operating effectiveness of controls related to custody of securities and funds within Barclays Wealth Americas |
§ | tax compliance services in respect of assignments initiatedpre-January 2011 in connection with Barclays international and expatriate employees, involving co-ordination and filing of statutory tax returns, social security applications and additional compliance filings |
§ | transaction support on secured funding transactions, including the provision of audits required by the Bank of England and the issue of comfort letters |
§ | provision of advice and market insight in respect of regulatory requirements relating to remuneration structure, incentive funding and risk adjustment and remuneration reporting. |
Independence of KPMG
Following the appointment of KPMG as Barclays’ auditor with effect from 1 January 2017, the Committee was concerned to ensure that KPMG obtained independence from Barclays during 2016, enabling it to familiarise itself with Barclays and receive a structured, formal handover from PwC. In order to ensure KPMG’s independence, and to allow the Committee to assess whether any non-audit work being conducted by KPMG in the meantime is appropriate, both in terms of type and scale, Barclays is in the process of exiting any current relationships or assignments that may prevent KPMG obtaining independent status and
has implemented procedures to manage the types of relationships and assignments that KPMG provides going forward. In particular, KPMG is not permitted to provide any service that may continue beyondmid-2016 if it has potential to cause independence issues. Since October 2015, the Committee has required all new engagements to be considered in light of the Policy and is maintaining oversight of them on the same basis as for the current auditor. The Committee has reserved the right to decline any proposed engagement with KPMG.
The fees paid to KPMG for non-audit work during 2015 were £38m. Significant categories of engagement undertaken in 2015 included:
§ | international tax compliance services for expatriate employees of Barclays, including expatriate tax returns, tax counselling, tax equalisation, international social security and other employment tax issues |
§ | independent approved person review (s.166) of interest rate swaps to small businesses, covering the sale of interest rate hedging products to retail customers |
§ | the building of an internal lean self-sufficiency capability to support end-to-end value stream improvements of core business processes within Group Operations and Technology |
§ | assistance in the establishment and running of the programme management office associated with the African brand migration project |
§ | support in the implementation of the Group conduct risk programme |
§ | support with the development of the anti-money laundering programme and the provision of related advice |
§ | support for Barclaycard in the assessment and restructuring of its pricing model |
§ | review and remediation of know your customer documentation requirements for Barclays politically exposed persons and special focus clients in the US, UK, Switzerland, Monaco, India, Singapore and Hong Kong |
§ | support for the development and embedding of the Basel II-compliant models in Spain. |
The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014
Barclays intends to comply with the requirements of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services.
Board Audit Committee allocation of time (%)
2015 | 2014 | |||||||||||||
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1 |
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Control issues |
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18 |
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24 |
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2 | Business control environment | 16 | 10 | |||||||||||
3 | Financial results | 27 | 42 | |||||||||||
4 | Internal audit matters | 7 | 8 | |||||||||||
5 | External audit matters (including external audit tender) | 26 | 11 | |||||||||||
6 | Other (including governance and compliance) | 6 | 5 | |||||||||||
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 17 |
Governance in Action – external audit tender
As indicated in last year’s Annual Report, Barclays decided to undertake an external audit tender in 2015, with a view to replacing our external audit firm from the 2017 financial year onwards. This was done to conform with the auditor rotation requirements of the final statutory audit services order published in October 2014 by the UK’s Competition and Markets Authority, which took effect in January 2015.
In December 2014, we established an Audit Tender Oversight Sub-Committee, to oversee the external audit. I was asked to chair the Sub-Committee and Crawford Gillies and Colin Beggs, Chairman of the BAGL Audit Committee, were the other members. The tender process completed in summer 2015 and the Board announced in July 2015 that it had appointed KPMG as Barclays Auditor with effect from the 2017 financial year.
One of the Sub-Committee’s key objectives was to ensure that the selection process was efficient, fair, effective, open and transparent. It established and published the following weighted key assessment criteria: Audit Quality (50%), Cultural Fit (20%), Corporate Fit (15%) and Experience (15%). No fee information was available to the Board Audit Committee before the recommendation was finalised. Three levels of governance were implemented to manage and support the process.
| Timeline and key activities
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Governance body
| Purpose
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Core Audit Tender Team |
§ Assist the audit firms to put the best solution forward for consideration. § Conduct a detailed assessment of the audit firms following the design approved by the Audit Tender Oversight Sub-Committee.
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Audit Tender Oversight Sub-Committee |
§ Agree objectives and desired outcomes for the audit tender. § Approve the design of the audit tender process. § Construct and agree a shortlist of firms to be asked to participate. § Oversee the implementation of the audit tender process.
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Board Audit Committee |
§ Recommend to the Board, from at least two potential candidates, the preferred firm to be appointed.
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A number of firms were invited to participate in the audit tender, including firms outside the ‘Big 4’ auditors. We published key information on the tender in a timely manner, including making the request for proposal available on Barclays’ website. We also wrote to our major shareholders, setting out the process and details of the tendering audit firms, which we considered essential to transparency. Enhanced compliance procedures were established. We then undertook a broad and structured evaluation of each firm through site visits and workshops with the tendering firms, covering all the major businesses of the Group, the control functions and specific audit exercises, which were also attended by members of the Board Audit Committee. Ongoing feedback was provided to the tendering audit firms through a single point of contact in order to ensure that each was given the best chance possible of putting forward a credible proposal to the Board Audit Committee.
At the conclusion of the audit tender process, the Board Audit Committee was able to recommend to the Board the preferred firm to be appointed, from two shortlisted firms. All tendering firms met the minimum thresholds set by the Audit Tender Oversight Sub- Committee and, following a full assessment of the proposals and detailed questioning of the audit firms, KPMG was identified as the preferred firm, based on audit quality, evaluation scores and its extensive experience of auditing banks. Mike Ashley and Sir Michael Rake, both former partners of KPMG, took no part in the evaluation process or the Board Audit Committee’s recommendation and both recused themselves when the Board discussed and approved the appointment.
Tim Breedon Chairman, Audit Tender Oversight Sub-Committee
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18 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
What we did in 2015
Board Risk Committee reporta
“In 2016 the Committee will continue to supervise the level and deployment of risk appetite, as well as the Group’s funding and capital position, as we respond to regulatory requirements and our expectations of continued volatility in external conditions.”
Dear Fellow Shareholders
Over the past year, the Board Risk Committee reviewed management’s responses to a range of external challenges. These included a slowdown in China and other emerging markets, falling oil and commodity prices, as well as some industry trends toward more aggressive lending terms in certain core markets, including UK property and international leveraged finance. Risk appetite, as well as country, sector and individual exposures, were carefully monitored to ensure that business activity and limits appropriately reflected external risks. We were pleased to see impairment remain broadly flat on 2014 levels and within planning expectations, despite increasingly challenging conditions in some markets.
A key activity for the Committee is recommending risk appetite to the Board and monitoring performance against the agreed appetite on its behalf. The context in which we set our Medium Term Plan (MTP) and risk appetite for 2015 was based on our assessment of our key markets, including risk factors arising from the near term geopolitical, macroeconomic and market environment and the potential for further conduct and litigation charges. Matters for particular focus were the UK housing market, where new mortgage regulations, a potential rise in interest rates, the growth in the buy-to-let market and ongoing high levels of household debt were expected to have an impact; continuing economic and political uncertainty in Europe; weak economic prospects for South Africa; and the potential effects of ongoing weakness in oil prices. 2015 risk appetite and risk triggers were set to position Barclays conservatively given this environment. During 2015, significant stress in emerging markets and economies became evident, underpinned by a slowing in the Chinese economy and resultant market volatility. Consequently, Barclays took early action to reduce its risk appetite to emerging markets, particularly Africa, and also remained vigilant to the potential impacts arising from a downturn in economic growth, indebtedness generally and further weakness in capital markets.
At the end of 2014, the Committee asked for a review of the Group’s process for setting risk appetite and during 2015 approved a revised methodology that takes a scenario-based approach, with stress testing as the basis of the risk appetite framework. This revised methodology was used to set risk appetite for 2016, with the Committee also approving the stress testing themes, the severity of the proposed stress and the financial constraints.
Note a The name of the Committee changed from the Board Financial Risk Committee in June 2015 | Another key area of focus during 2015 was the structural reform programme, where the Committee was asked by the Group Chairman to oversee progress of the planning process, particularly with regard to structural options, their capital and liquidity implications and the potential risks for the Group, its customers and for the financial system. Now that the programme has moved into its implementation phase, the Board will directly oversee programme execution, although the Committee will continue to exercise oversight of capital and liquidity aspects, including assessing capital on a legal entity basis. From July 2015, the Committee also assumed oversight responsibility for operational risk, agreeing to focus on the financial and capital aspects of operational risk, while the Board Audit Committee oversees the control aspects.
The role of Board Risk Committee Chairman is not confined to the Committee’s regular meetings. During 2015, I continued to have significant interaction with our regulators, meeting regularly with representatives from our UK and US regulators. I held regular meetings with the Chief Risk Officer and members of his senior management team, with Barclays Treasurer and the Chief Operating Officer. I also liaised closely with the Chairman of Board Audit Committee, particularly on those matters where the remit of the two committees might overlap, including with regard to the implementation of the Enterprise Risk Management Framework and operational risk issues.
Committee performance
The Committee’s performance during 2015 was evaluated as part of the independently facilitated annual Board effectiveness review and I am happy to report that the outcomes were positive. The Committee was regarded as effective and as taking a thorough and detailed approach to its responsibilities. The main area identified for improvement was ensuring that the papers presented to the Committee strike the right balance between providing data for information and providing insight and analysis to encourage greater debate and I will be working with the Chief Risk Officer and Barclays Treasurer to address this during 2016. You can read more about the outcomes of the Board effectiveness review on pages 33 and 34.
Looking ahead
The Committee expects its areas of focus for 2016 to be guided by the ongoing level of change faced by the Group as it implements its strategy and executes the structural reform programme, with a particular focus on capital and liquidity management across legal entities. We will also continue to monitor and react to any emerging risks arising in our key markets in the UK, US and South Africa as a consequence of any macroeconomic deterioration or disruption in financial market conditions.
Tim Breedon Chairman, Board Risk Committee 29 February 2016 | |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 19 |
Committee composition and meetings
The Committee is comprised solely of independent non-executive Directors. Following a review by the Board during 2015 of Board Committee composition, Dambisa Moyo stepped down from the Committee with effect from 31 August 2015 and Diane Schueneman joined the Committee with effect from 1 September 2015. Details of the skills and experience of the Committee members can be found in their biographies on pages3 and 4.
The Committee met seven times in 2015, with two of the meetings held in New York. Two additional meetings were held at short notice for the sole purpose of considering and approving revised risk limits in connection with specific transactions and, with the consent of the Committee Chairman, were not attended by all Committee members. The chart on page23 shows how the Committee allocated its time during 2015. Committee meetings were attended by management, including the Group Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, Barclays Treasurer and General Counsel, as well as representatives from the businesses. Representatives from the external auditor also attended meetings.
Member | Meetings attended/eligible to attend | |||
Tim Breedon | 7/7 | |||
Mike Ashley | 7/7 | |||
Reuben Jeffery III* | 5/7 | |||
Dambisa Moyo (to 31 August 2015)* | 3/5 | |||
Diane Schueneman (from 1 Sept 2015) | 2/2 | |||
Steve Thieke* | 5/7 |
* | with the consent of the Chairman did not attend the two meetings held at short notice to consider specific transaction limits |
Committee role and responsibilities
The Committee’s responsibilities include:
§ | recommending to the Board the total level of financial and operational risk the Group is prepared to take (risk appetite) to create long-term shareholder value |
§ | monitoring financial and operational risk appetite, including setting limits for individual types of risk, e.g., credit, market and funding risk |
§ | monitoring the Group’s financial and operational risk profile |
§ | ensuring that financial and operational risk is taken into account during the due diligence phase of any strategic transaction and |
§ | providing input from a financial and operational risk perspective into the deliberations of the Board Remuneration Committee. |
![]() | The Committee’s terms of reference are available at home.barclays/corporategovernance |
The Committee’s work
The significant matters addressed by the Committee during 2015 are described below:
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Risk appetite, i.e. the level of risk the Group chooses to take in pursuit of its business objectives. | The methodology for calculating the level of risk appetite. | § Requested a review of the Group’s risk appetite process and methodology and debated proposals from management to move to a scenario-based stress testing approach. § Evaluated the proposed MTP stress test, agreeing on a scenario involving a global recession from an economic slowdown in China. § Debated the severity of the scenario and how it would apply across the Group’s main markets of the UK, US and South Africa and how it aligned to regulatory stress tests. | The Committee challenged the parameters proposed by management and asked for a parameter to be linked to PBT. It also asked for early consideration to be given to the impact of IFRS 9 on the Group’s risk appetite and stress testing assumptions. This work is under way and will be reported to the Committee in the first half of 2016. Given the change in methodology, the Committee requested early sight of the design and outputs as the new risk appetite process was implemented, resulting in a workshop being held in December 2015. All non-executive Directors were invited to attend the workshop.
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Stress testing, i.e. testing whether the Group’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic stress.
| The Group’s stress testing exercises, including scenario selection and constraints, the results and implications of stress tests, including stress tests run by the Bank of England (BoE), and regulatory feedback on the methodology and results. | § Debated proposals from management to move to a scenario-based risk appetite setting approach and approved a change to the Group’s methodology. § Assessed the progress of the BoE stress test and evaluated the preliminary results, including discussing any potential areas of sensitivity.
| The Committee approved the stress test results for submission to the BoE. It subsequently evaluated the BoE stress testing results and feedback from the BoE on the stress test. |
20 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Risk Committee report
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Structural reform, i.e. the progress of structural reform, including the challenges to execution. | The impact of structural reform on the Group’s principal risks, including the impact on capital and liquidity for individual Group legal entities and the potential overall impact on the safety and soundness of the UK financial system. | § Debated structural reform and the impact on the capital and liquidity flight paths for individual legal entities, in particular, the prospective credit rating of Barclays Bank PLC in the structural reform structure. § Evaluated the respective impacts on capital, liquidity and on the general safeness and soundness of the Group of different ring fence bank (RFB) structures. | The Committee recognised the design and implementation challenges of the programme and supported management in proposing structures and perimeters that best ensured the safety and soundness of all elements of the Group. It requested a workshop on structural reform to provide the Committee with an in-depth view of the key challenges. The workshop was held in December 2015 and all non-executive Directors were invited to attend.
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Liquidity and funding, i.e. having sufficient financial resources available to enable the Group to meet its obligations as they fall due. | Compliance with regulatory requirements and internal liquidity risk appetite (LRA). | § Assessed on a regular basis liquidity performance against requirements. § Debated the credit ratings of Barclays PLC and Barclays Bank PLC and potential market reaction to a ratings downgrade following removal of sovereign support notching. § Questioned the cost of additional liquidity and asked for options to reduce the cost to be considered.
| The Committee ensured that management had in place options to manage any impact on liquidity of a ratings downgrade. It agreed that the cost of maintaining surplus liquidity was appropriate. | |||
Capital and leverage, i.e., having sufficient capital resources to meet the Group’s regulatory requirements, maintain its credit rating and support growth and strategic options.
| The flight path to achieving required regulatory and internal targets and capital and leverage ratios. | § Debated on a regular basis, capital performance against plan, tracking the capital flight path, any challenges/headwinds and regulatory developments. § Evaluated options to maximise capital and capital ratios in order to meet regulatory and market expectations.
| The Committee supported the forecast trajectory and the actions identified by management to manage the Group’s capital position. | |||
Country risk, i.e. the levels of risk the Group is prepared to take in specific countries. | The potential impact on the Group’s risk profile of political instability and economic weakness in South Africa, one of its main markets. | § Debated economic conditions in South Africa and the future outlook. § Examined the actions already taken to manage risks, improve controls and asset quality and develop triggers for additional action in the event of further macro deterioration. § Monitored the impact on South Africa of the slowdown in China and the fall in commodity prices. | The Committee sought additional information around the actions that had been taken to manage the risk profile in South Africa, including the impact of the actions taken to date. It requested a deep dive on the risk profile of the South African business, inviting the South African business heads to present on the actions that had been taken and how the business was positioned for a further economic downturn, including the impact of a further country rating downgrade.
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 21 |
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Political and economic risk, i.e. the impact on the Group’s risk profile of political and economic developments and macroeconomic conditions. | The potential impact on the Group’s risk profile of political developments, such as the UK general election and budget statement, the potential exit of countries from the Eurozone, and weakening macroeconomic conditions, such as disruption and volatility in financial markets. | § Assessed the potential impact of the UK general election and steps that could be taken to manage any market volatility. § Evaluated the potential risks arising from a general macroeconomic slowdown and from financial markets disruption, including the global impact of the economic slowdown in China. § Assessed global consumer indebtedness indicators and the potential impact of rising consumer debt on the Group’s risk profile. § Debated the Group’s Eurozone exposures in the context of the potential break-up of the Eurozone in the event of a Greek exit and assessed the Group’s levels of redenomination risk in the Eurozone.
| The Committee asked management to evaluate macroeconomic conditions and market indicators to inform the strategic plan and risk appetite proposals for 2016, so that the Group is positioned appropriately. | |||
Retail credit risk, i.e. UK property market, interest rate risk. | The potential overheating of the UK housing market, particularly in London and the South East and the Group’s risk appetite for and management of sectors such as the buy-to-let sector. | § Debated UK property market indicators and conditions, particularly in the high loan to value (LTV) andthe buy-to-let markets and potential economic and political risks to that market. § Evaluated the Group’s lending criteria and its approach to assessing customers on affordability. § Assessed the potential impact of an increase in interest rates on customers, including how customers had been stress tested and assessed against affordability criteria.
| The Committee encouraged management to continue to take a conservative approach to UK mortgage lending in the buy-to-let market and emphasised the need to keep risks and exposures within agreed appetite. | |||
Specific sector risk, i.e. the Group’s risk profile in sectors showing signs of stress, such as the oil sector. | The Group’s exposures to the oil and commodities sectors in light of the price weakness and volatility in these sectors during 2015. | § Regularly assessed the Group’s exposures to the oil sector, including assessing steps taken with regard to the credit strategy for the sector, how the portfolio was performing and whether this was in line with expectations. § Evaluated the Group’s exposures to the commodities sector and actions taken to identify any names at risk and reduce exposures.
| The Committee supported the actions that had been taken by management to manage the Group’s risks and exposures to the oil and commodities sectors. It requested a stress test to assess the impact of further (and longer) oil price weakness on the Group’s lending portfolio, including indirect exposure. | |||
Operational Risk From 1 July 2015, the Committee took responsibility for oversight of the capital and financial aspects of operational risk. | The Group’s operational risk capital requirements and any material changes to the Group’s operational risk profile and performance versus risk appetite. | § Evaluated operational risk capital and debated the potential for an increase in regulatory operational capital requirements. § Debated whether Barclays advanced status for calculating operational risk capital should be retained. § Tracked operational risk key indicators via regular reports from the Head of Operational Risk.
| The Committee focused its oversight of operational risk on the financial and capital implications, debating in particular the potential impact of regulatory operational risk requirements. |
22 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Risk Committee report
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||||
Risk governance, i.e. the capability, governance and controls that the Group has over the management of risk. | The development of a scorecard to assist the Committee in assessing risk capability across the Group; further enhancement to the limit framework and governance of leveraged finance; the actions being taken to enhance controls and governance around risk models. | § Requested development of a risk capability scorecard. § Regularly debated conditions in the leveraged finance market, tracking market indicators and the Group’s risk exposures and assessing the limit framework for leveraged finance and underwriting, including proposed changes to the framework to strengthen controls. § Assessed the progress of enhancements to risk models controls and governance, including the role of the Group’s Independent Validation Unit. § Evaluated revisions proposed to the ERMF.
| The Committee approved the approach to the risk capability scorecard and requested a formal annual assessment of capability, with the option of an external assessment every three years. The Committee approved a revised limit framework for leveraged finance transactions and approved underwriting limits in general. The Committee concluded that good progress had been made on enhancing the controls and governance around risk models and asked management to focus on improving the quality of models and data quality further. The Committee also recommended the revised ERMF to the Board for approval.
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Remuneration | The scope of any risk adjustments to be taken into account by the Board Remuneration Committee when making remuneration decisions for 2015. | § Evaluated the Risk function’s view of performance, which informed remuneration decisions for 2015. | The Committee supported the Risk function’s view of 2015 risk performance and endorsed the report that had been submitted to the Board Remuneration Committee.
The Remuneration Report on pages50 to 83 includes more detail on how risk is taken into account in remuneration decisions.
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In addition, the Committee also covered the following matters in 2015:
§ regularly tracked the utilisation of risk appetite and evaluated the Group’s risk profile
§ evaluated the impact of the Swiss franc revaluation on the Group’s electronic trading systems and asked for any lessons learned to be applied to other electronic platforms
§ debated risk related matters arising from regulatory assessments and the actions needed to address any specific issues raised
§ approved regulatory submissions, including the Individual Capital Adequacy Assessment Process and the Individual Liquidity Adequacy Assessment
§ assessed and debated a report on its own performance during 2014, including considering whether its remit should be revised to cover operational risk and assessing the degree of challenge and support and value it provided to the Risk function
§ discussed and agreed on its own training needs, resulting in two workshops being held in 2015, one on risk appetite and one on structural reform, with a further briefing session on the impact of IFRS 9 planned for 2016
§ approved amendments to its terms of reference to reflect its revised remit and to ensure they remained in line with best practice and
§ discussed and agreed its specific responsibilities for the oversight of operational risk, focusing on the capital and financial impacts, leaving the Board Audit Committee to oversee operational risk control issues. | Board Risk Committee allocation of time (%) | |||||||||||||||
2015 | 2014 | |||||||||||||||
| 1 | Risk profile/risk appetite | 43 | 57 | ||||||||||||
(including capital and liquidity management) | ||||||||||||||||
2 | Key risk issues | 31 | 19 | |||||||||||||
3 | Internal control/risk policies | 11 | 11 | |||||||||||||
4 | Other (including remuneration and | 15 | 13 | |||||||||||||
governance issues) | ||||||||||||||||
Read more about Barclays’ risk management on pages 95 to | ||||||||||||||||
109 and 336 to 409 | ||||||||||||||||
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 23 |
Board Reputation Committee reporta
‘The Committee’s responsibilities were reshaped during 2015 to focus on three main pillars: conduct and compliance; reputation; and citizenship.’
Dear Fellow Shareholders The Board Reputation Committee underwent a period of change during 2015, in terms of both a reassessment of Board Committee responsibilities and membership. John McFarlane succeeded Reuben Jeffery III as Chairman of the Committee in March 2015 and, following John’s appointment as Executive Chairman in July 2015, the Board asked me to assume the role of Committee Chairman, a position I held until my retirement from the Board at the end of December 2015.
The Committee’s responsibilities were reshaped during 2015 to focus on three main pillars: conduct and compliance; reputation; and citizenship. Culture and conduct are the bedrock of the organisation and, with the right culture, much of Barclays’ exposure to conduct risk can be reduced. To this end, the Committee has continued to focus on these issues, assessing progress against plans for embedding our conduct risk programme and implementing cultural change throughout the Group. We assessed deep-dive reports into conduct risk within key businesses, such as Barclays Africa and the Cards business, and evaluated the findings of a report by Air Marshal Sir David Walker, commissioned by management to give an independent view on whether we are making progress with cultural change. I am pleased to report that, although there is more to be done, progress on both has been good and there is strong commitment throughout the Group to embedding the necessary changes.
The Committee also tracked the exposure of Barclays, and the financial sector generally, to reputational risks. Reputational risk is a risk type that is constantly evolving, with potential new risks emerging while we are implementing controls to manage identified risks. Consequently, we have taken a thematic approach to identifying our key reputational risks and have ensured that we look ahead to identify emerging risks enabling us to mitigate them early. You can read more on pages25 and 26 about the significant matters addressed during the year. |
Committee performance As part of the annual Board effectiveness review the performance of the Board’s committees was considered and I am pleased to report that the Committee is considered to be effective. The Committee is relatively new and areas for improvement included continuing to refine its agenda, particularly with regard to compliance and conduct risk, and ensuring that it does not duplicate the work of other Board Committees. Please turn to the report of the Board effectiveness review on pages 33 and 34 for more details.
Looking ahead My successor, Sir Gerry Grimstone, will be assessing the areas of focus for the Committee in 2016 and I wish him and the Committee well for the future.
Sir Michael Rake Chairman, Board Reputation Committee until 31 December 2015
Committee composition and meetings The Committee comprises independent non-executive Directors, with the exception of Wendy Lucas-Bull, who the Board has decided to deem as non-independent for the purposes of the UK Corporate Governance Code, owing to her position as Chairman of Barclays Africa Group Limited. During 2015, there were a number of changes to the membership of the Committee, which are set out in the table below.
The Committee met four times during 2015 and the chart on page26 shows how it allocated its time. Committee meetings were attended by management, including the Group Chief Executive, Chief Internal Auditor, Chief Risk Officer, General Counsel, Group Corporate Relations Director and the Heads of Compliance, Conduct Risk and Operational Risk, as well as representatives from the businesses and other functions.
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Member | Meetings attended/eligible to attend | |||||
Reuben Jeffery III (Chairman and member to 31 March 2015) | 1/1 | |||||
John McFarlane (Chairman from 1 April 2015 – 16 July 2015) | 2/2 | |||||
Sir Michael Rake (Chairman and member from 17 July 2015 – 31 December 2015) | 2/2 | |||||
Mike Ashley (to 31 August 2015) | 2/2 | |||||
Tim Breedon (to 31 August 2015) | 2/2 | |||||
Wendy Lucas-Bull | 4/4 | |||||
Dambisa Moyo | 4/4 | |||||
Diane de Saint Victor | 4/4 | |||||
Sir John Sunderland (to 23 April 2015) | 1/1 | |||||
Frits van Paasschen (from 1 September 2015) | 2/2 | |||||
Committee role and responsibilities The principal purpose of the Committee is to:
§ ensure, on behalf of the Board, the efficiency of the processes for identification and management of conduct and reputational risk and
§ oversee Barclays’ Citizenship Strategy, including the management of Barclays’ economic, social and environmental contribution.
Until the end of June 2015, the Committee also had responsibility for oversight of operational risk. Following a review by the Board of its governance arrangements, responsibility for the oversight of the capital and financial aspects of operational risk was reallocated to the Board Financial Risk Committee, which was renamed the Board Risk Committee. The Board Audit Committee oversees the control aspects of operational risk.
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![]() | The Committee’s terms of reference are available at home.barclays | |||||
Note a Formerly called the Board Conduct, Operational and Reputational Risk Committee
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24 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Reputation Committee report
The Committee’s work
The significant matters addressed by the Committee during 2015 are described below:
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Conduct risk | Progress on embedding the conduct risk management framework, focus on specific conduct risks and continued reduction of customer complaint levels. | § Continued its monitoring of the conduct risk programme via quarterly reports from management. § Specifically assessed the status of the conduct risk programmes in Barclays Africa and across the Cards business. § Monitored regulators’ views of Barclays’ conduct risk management and reporting via updates from management. § Assessed progress made in reducing numbers of complaints, including those escalated to the Financial Ombudsman Service.
| The Committee welcomed the progress made in embedding the conduct risk programme and requested more visibility of the status of specific conduct risks. It encouraged management to continue to apply lessons learned from past events to prevent similar events occurring now or in the future. It was content with the progress made in embedding conduct risk in Barclays Africa, but encouraged greater simplification of the governance structures and communication. It also encouraged management to do more to reduce the number of complaints. | |||
Operational risk (to July 2015) | The management of Barclays’ operational risk profile and exposure to significant operational risks. | § Monitored Barclays’ operational risk profile via quarterly reports from management. § Evaluated management’s strategy for addressing cyber risk and monitored its progress. § Assessed Barclays’ exposure to technology risk and examined plans to resolve identified control issues by the end of the year. | The Committee focused its attention on emerging risks and those to which the Group’s exposure was increasing. It supported tactical and strategic actions proposed by management to mitigate the Group’s risks, including endorsing management’s strategy for addressing cyber risk. The Committee also satisfied itself that progress in managing technology risk was good and there was a healthy focus on embedding the right culture.
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Reputational issues | Ensuring that Barclays anticipates, identifies and manages reputational issues that may impact it or the industry now or in the future. | § Tracked Barclays’ exposure to reputational risks via twice-yearly management reports. § Examined the effectiveness of the current reputation risk framework, including assessing case studies on specific reputational matters.
| The Committee took a thematic approach to its assessment of reputational risks and guided management in its approach to managing them. It satisfied itself as to the effectiveness of the reputation risk framework. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 25 |
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||||
Cultural change | The progress being made on embedding of cultural change. | § Evaluated the outputs of an independent review by Air Marshal Sir David Walker. § Assessed an industry-wide report by the Group of Thirty (G30) into banking conduct and culture and how Barclays’ practices benchmarked against the best practices and suggestions outlined in that report. | The Committee endorsed Air Marshal Sir David Walker’s report, which confirmed its view that progress had been good but that there was more to do to achieve the cultural change required. It encouraged management to continue to prioritise progress on cultural change. The Committee also concluded that many of the actions Barclays had taken in response to the Salz Review recommendations had aligned its practices with those proposed in the G30 report.
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Citizenship | The delivery of the 2015 Citizenship Plan and development of a Shared Growth Plan for 2016-2018. | § Tracked progress against the current 2015 Citizenship plan via six-monthly reports from management. § With the current Citizenship Plan coming to completion, evaluated the proposed Shared Growth Plan for 2016-2018. | The Committee noted that all targets in the 2015 Citizenship Plan had been met or exceeded, with the exception of our new and renewed household lending target, which had not been possible to achieve owing to market and trading conditions. It endorsed the 2016-2018 Shared Growth Plan, particularly the proposal to link the plan to Barclays’ core purpose and values and to focus on employability skills.
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The Committee also covered the following matters:
§ assessed progress of the programme to implement enhanced controls in the Investment Bank over conflicts of interest between Barclays and third parties
§ evaluated outcomes of regulatory thematic reviews of conduct issues and controls
§ evaluated the levels of attestation by colleagues globally to The Barclays Way, the Group’s code of conduct
§ assessed the status of specific remediation programmes being implemented by the business
| Board Reputation Committee allocation of time (%) | |||||||||||||||||||
2015 | 2014 | |||||||||||||||||||
| 1 | Citizenship | 6 | 2 | ||||||||||||||||
2 | Reputational issues | 13 | 7 | |||||||||||||||||
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3 |
| Culture, conduct and compliance | 57 | 52 | |||||||||||||||
4 | Operational risk | 19 | 33 | |||||||||||||||||
5 | Other | 6 | 6 | |||||||||||||||||
§ provided input to the Board Remuneration Committee on conduct and reputation issues to be taken into consideration for 2015 remuneration decisions
§ tracked progress against the Compliance function’s business plan, including updates on resourcing and attrition levels
§ monitored progress of Barclays’ plans for compliance with the Volcker Rule (restrictions on proprietary trading and certain fund investments by banks operating in the US)
§ assessed and discussed a report on the Committee’s performance during 2014
§ approved revisions to its terms of reference and recommended them to the Board for approval and
§ considered and approved Group Compliance Policies. | ![]() | Read more about Barclays’ risk management on pages 95 to 109 and 336 to 409 | ||||||||||||||
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26 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
What we did in 2015
Board Nominations Committee reporta
“The importance of people as a driving force in sustaining a business over the long term.”
Dear Fellow Shareholders I have often stressed the importance of people as a driving force in sustaining a business over the long term through their expertise, innovation and commitment. This is equally true of your Board, where it is crucially important that we have strong leaders able to make tough, strategic decisions while energising colleagues and galvanising them into action. It is with this in mind that the Committee approached appointments.
During 2015 we announced the appointment of two new non-executive Directors and a new Group Chief Executive. Board Committee membership was refreshed and we also took the opportunity to review the composition and roles of the Board Committees. In addition, we considered the requirements for independent non-executive directors for the boards of our strategically significant subsidiaries, including those that will be formed as the Group implements structural reform. We continued to foster executive succession by supporting new initiatives and by directly engaging with senior executives, for example, by mentoring individual senior executives, in order to nurture high potential individuals and help build a stronger succession pipeline.
The Committee was pleased that the Board achieved its target of having 25% female representation on the Board by the end of 2015. The target has subsequently been increased to 33% by 2020. While we also achieved our aspiration to reach 23% female representation within our senior leadership population by the end of 2015, we recognise that we need to sustain our focus to attract more senior women to Barclays, and to enable women to grow their careers with us. That will ensure we reach our 2018 goal of 26% women in senior leadership roles. We remain committed to maintaining the momentum of our gender diversity programme.
Committee performance As part of the annual Board effectiveness review, a separate exercise was conducted to assess the Committee’s performance. The assessment found that the Committee is performing effectively. Please see the report on the Board effectiveness review on pages 33 and34 for more details. I would like to thank my fellow Committee members for their hard work and support during 2015, particularly Sir Michael Rake, who chaired the Committee during the period that I was Executive Chairman, and led the search for a new Group Chief Executive.
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Looking ahead We are preparing to implement a new structure in 2016 which will enable us to prepare for structural reform, simplify the organisation and speed up execution of the individual business strategies. These changes give us the opportunity to make sure that we have the right people in senior roles and that we also take action to build strength in each of the business executive teams for the longer term.
John McFarlane Chairman, Board Nominations Committee 29 February 2016
Committee composition and meetings The Committee is composed solely of independent non-executive Directors. John McFarlane, as Chairman of the Board, is also Chairman of the Committee. Mike Ashley, Tim Breedon, Crawford Gillies, being the Chairmen of each of the other Board Committees, Reuben Jeffery III and Sir Gerry Grimstone, the Deputy Chairman and Senior Independent Director, are also members of the Committee. Details of the skills and experience of the Committee members can be found in their biographies on pages3 and 4.
During 2015, there were eight meetings of the Committee, including four additional meetings on Group Chief Executive succession. Attendance by members at Committee meetings is shown below. The chart on page30 shows how the Committee allocated its time during 2015. Committee meetings were attended by the Group Chief Executive or Executive Chairman, with the HR Director, the Global Head of Leadership, Learning & Talent, the Global Head of Diversity and Inclusion and representatives from Spencer Stuart presenting on specific items.
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Member | Meetings attended/eligible to attend | |||||
Sir David Walker (Chairman until 23 April 2015) | 2/2 | |||||
John McFarlane* (Chairman from 24 April 2015 – 16 July 2015 and from 1 December 2015)* | 4/4 | |||||
Sir Michael Rake (Chairman from 17 July 2015 to 1 December 2015) | 8/8 | |||||
Mike Ashley | 8/8 | |||||
Tim Breedon† | 7/8 | |||||
Crawford Gillies (from 24 April 2015) | 7/7 | |||||
Reuben Jeffery III† | 6/7 | |||||
Sir John Sunderland (until 23 April 2015) | 2/2 | |||||
* John McFarlane stood down as a member of the Committee during the period 17 July – 30 November 2015, when he was Executive Chairman. No Director with executive responsibilities may be a member of the Committee † did not attend one meeting owing to prior business commitments
Note The Chairman and the Group Chief Executive excuse themselves from meetings when the Committee focuses on the matter of succession to their roles.
Committee role and responsibilities The principal purpose of the Committee is to:
§ support and advise the Board in ensuring that the composition of the Board and its Committees is appropriate and enables them to function effectively
§ examine the skills, experience and diversity on the Board and plan succession for key Board appointments, planning ahead to deal with upcoming retirements and to fill any expected skills gaps
§ provide oversight, at Board level, of the Group’s talent management programme and diversity and inclusion initiatives
§ agree the annual Board effectiveness review process and monitor the progress of any actions arising, and
§ keep the Board’s governance arrangements under review and make appropriate recommendations to the Board to ensure that they are consistent with best practice corporate governance standards.
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![]() | You can find the Committee’s terms of reference at home.barclays/corporategovernance | |||
Note a The name of the Committee changed from the Board Corporate Governance and Nominations Committee in June 2015
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 27 |
The Committee’s work
The significant matters addressed by the Committee during 2015 are described below:
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Board appointments | The refreshment of Board and Board Committee membership to secure individuals with the desired skills and experience needed on the Board in light of future strategic direction. | § Conducted a search for successors to Sir Michael Rake and Antony Jenkins. § Evaluated a gap analysis of the skills and experience on the Board and identified the requirement for new non-executive Directors with financial services experience, and the preference to appoint more UK-based Directors given the time commitments associated with Board Committee appointments.
| The Committee recommended the appointments of Sir Gerry Grimstone as Deputy Chairman and Senior Independent Director, Jes Staley as Group Chief Executive and Diane Schueneman as a non-executive Director.
Please refer to pages 30 and 32 for details of the Board’s approach to recruitment of new Directors and the case study of the recruitment of Jes Staley in particular.
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Board and Board Committee structure, size and composition | The restructure of the Board and Board Committees to allow the Board to focus on the Group’s commercial and strategic performance. The optimum size of the Board, the potential impact of structural reform and the need to constitute subsidiary boards. | § Reassessed the structure, size and composition of the Board and Board Committees, as well as the current roles and responsibilities of the Board Committees, and recommended a number of changes to the Board. § Requested a working plan for Board succession over the next three years. | The Committee agreed that the size of the Board should be reduced over time and more matters should be delegated to the principal Board Committees. The Committee agreed that non-executive Directors should normally not serve on more than two Board Committees, to avoid being over-stretched, and to reduce the Committees in size over time to a maximum of four members, while taking care to ensure appropriate cross-membership. The Committee recommended revised Board-level responsibilities for oversight of risk, including the Board re-taking overall responsibility for enterprise-wide risk, disbanding the Board Enterprise Wide Risk Committee and reallocating responsibility for oversight of the capital and financial aspects of operational risk to the Board Risk Committee.
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Succession planning and talent management | The management of Board succession and oversight of the leadership needs of the Group to enable it to meet its strategic aims and its changing make-up resulting from the effects of structural reform. | § Examined regular reports on succession plans and talent management of the leadership of the Group to address succession planning in the short-term and internal talent development.
§ Debated options for Directors to engage with members of the Group Executive Committee and senior management to help in nurturing high potential individuals and to support building a stronger succession pipeline. | The Committee agreed a proposal for Committee members to partner high potential senior management. The Committee endorsed the Group’s rapid development programme for high potential talent and agreed to support the programme by providing an insight into the role of the Board and its priorities. The Committee also endorsed the introduction of an improved talent assessment process and assessed the efficacy of the Group’s external talent acquisition process. The Committee examined the results of internal and external benchmarking exercises, including external benchmarking of senior management roles against similar roles in equivalent companies as part of the work on Group Executive Committee succession.
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28 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Nominations Committee report
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Board effectiveness | The 2015 Board effectiveness review of the Board and its Committees. The progress made against the actions identified in the 2014 Board effectiveness review. | § Considered the effectiveness of the 2014 Board effectiveness review process and agreed the approach to be taken to the 2015 Board effectiveness review. § Regularly examined progress of the action plan arising from the outcomes of the 2014 Board effectiveness review. | The Committee set the criteria for conduct of the 2015 Board effectiveness review, including the appointment of a new external facilitator, Independent Board Evaluation, and agreed an action plan to address the matters arising from the 2014 Board effectiveness review.
See pages 33 and 34 for a full description of the process and outputs from the 2014 and 2015 effectiveness reviews.
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Governance implications of structural reform | The establishment of governance principles for the Group under structural reform. | § Scrutinised proposed governance guiding principles for the Group post-structural reform, which set out ultimate decision-making powers, while respecting the rights and responsibilities of the boards of the strategically significant subsidiaries: the ring-fence bank (RFB), Barclays Bank PLC, the US Intermediate Holding Company (IHC) and Barclays Africa Group (BAGL). § Discussed the potential composition of the RFB and Barclays Bank PLC boards in light of regulatory requirements.
| The Committee endorsed and supported the governance guiding principles. The Committee provided views on the outline board and committee composition of the RFB and Barclays Bank PLC for the Board’s consideration. | |||
Significant subsidiary board composition | The composition of Barclays’ US IHC board and associated committees. | § Determined the required structure and composition of the IHC board. § Endorsed the implementation of measures to allow potential future IHC board candidates the opportunity to build their knowledge of Barclays US businesses ahead of the formal creation of the IHC board in 2016. | The Committee agreed the proposed composition of the IHC board, including the appointments of Steve Thieke as chairman and Diane Schueneman as a non-executive director. It oversaw the establishment of a US Governance Review Board to allow proposed IHC board members to familiarise themselves with Barclays’ US businesses.
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 29 |
In addition the Committee covered the following matters:
§ | the review of non-executive Directors’ performance, independence and time commitment as part of the Committee’s assessment of their eligibility for re-election |
§ | consideration of a new target for Board diversity beyond the end of 2015 in the Company’s Board Diversity Policy and recommended it to the Board for approval |
§ | updating of the Charter of Expectations and Corporate Governance in Barclays |
§ | proposals for the 2015 Corporate Governance Report |
§ | its annual review of the Directors’ register of interests and authorisations granted and |
§ | changes to the Committee’s terms of reference. |
Board Nominations Committee allocation of time (%)
2015 | 2014 | |||||||||||||
| 1 | Corporate governance matters | 17 | 21 | ||||||||||
2 | Board and Committee composition | 24 | 20 | |||||||||||
3 | Succession planning and talent (includging CEO succession) | 47 | 43 | |||||||||||
4 | Board effectiveness | 6 | 11 | |||||||||||
5 | Other | 6 | 5 | |||||||||||
Appointment and re-election of Directors
The Committee reviews Board and Board Committee composition, including potential new non-executive Directors, at each of its meetings. In addition to seeking successors for known retirements from the Board, the Committee monitors the skills and experience the Group needs to be able to deliver its strategic aims, to govern the Group appropriately, to ensure that risks threatening performance are identified and either addressed or mitigated, and to set ‘the tone from the top’ in terms of Barclays’ corporate culture and values. In 2015, the Committee also focused on the need to identify non-executive directors to serve on the boards of the Group’s strategically significant subsidiaries.
When considering a new appointment to the Board, the Committee relies on assessments of the current and expected Board and Board Committee composition, in order to assess the timeline for appointments, and a skills matrix that identifies the core competencies, skills, experience and diversity required for the Board to function effectively, with target weightings for each attribute. These assessments are regularly updated to take account of the Group’s needs over time.
The approach to recruiting new non-executive Directors is to create an individual specification with reference to the role requirements, including time commitment, the key competencies and behaviours set out in our Charter of Expectations and the desired key skills and experience identified from the skills matrix. The curriculum vitae and references of
potential candidates are assessed by the Committee as a whole, before shortlisted candidates are interviewed by members of the Committee. For certain Board positions, the Committee seeks engagement with key shareholders and Barclays’ regulators as part of the selection process. Feedback from these parties is taken into account before any recommendation is made to the Board, which is kept informed of progress throughout the selection and recruitment process. An illustration of the rigorous process applied to appointments can be found in the case study and timeline of the process to identify Jes Staley as Group Chief Executive, which is set out on page 32.
Executive search firms MWM Consulting, Egon Zehnder International and Spencer Stuart were instructed to assist with our Director searches in 2015. None of these firms has any other connection with Barclays, other than to provide executive recruitment services. Open advertising for Board positions was not used during 2015, as the Committee believes that targeted recruitment is the optimal way of recruiting for Board positions.
Barclays announced the appointment of two new non-executive Directors during 2015: Diane Schueneman and Sir Gerry Grimstone. In addition, Barclays announced the appointment of Jes Staley as Group Chief Executive. Each of them brings valued skills and experience which contribute to the efficacy of the Board as a whole. As previously reported, Diane Schueneman brings expertise in operations and technology to the Board, which she gained in financial services organisations, as well as wide-ranging experience of implementing change and achieving turnaround in business success and profitability. Sir Gerry Grimstone, who succeeded Sir Michael Rake as Deputy Chairman and Senior Independent Director, is well known, commands great respect within the financial services industry and brings immense experience, integrity and knowledge to his roles at Barclays. Jes Staley has the leadership skills and wide-ranging experience to deliver shareholder value and to take the Group forward strategically and, in particular, possesses a good understanding of corporate and investment banking. Biographical information is provided on pages 3 and 4, with further details available online at home.barclays
Changes in the composition of the Board and the Committee’s reassessment of the structure, size and composition of the Board and its Committees resulted in a refresh of the membership of Board Committees, as well as their roles and responsibilities, during 2015. Details of the changes are included in each of the Board Committee reports.
The Directors in office at the end of 2015 were subject to an effectiveness review, as described below. Based on the results of the review, the Board accepted the view of the Committee that each Director proposed for re-election continued to be effective and that they had each demonstrated the level of commitment required in connection with their role on the Board and the needs of the business.
30 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Nominations Committee report
Diversity statement
The Financial Reporting Council maintains that one of the ways in which constructive board debate can be encouraged is through having sufficient diversity on the board. Barclays agrees with this view and, when it adopted a Board Diversity Policy in 2012, stated the Board’s aspirational goal of achieving 25% female representation on the Board by 2015. Female representation on the Board exceeded 25% at the end of 2015, having increased during the year with the appointment of Diane Schueneman. Noting that the latest progress report onWomen on Boards from the Davies Review has suggested a target of 33% by 2020, Barclays has adopted this new target in its Board Diversity Policy.
The Committee assisted the Board in achieving its target of 25% by ensuring that this was recorded on the Board skills matrix and, in particular, that the search firms were aware of the priority. The Committee also supported a number of initiatives to grow the talent pipeline within the Group and sought opportunities to engage with female members of senior management. Diversity as a whole, including gender, was also taken into account when evaluating the effectiveness of the Board. The comprehensive brief provided to Independent Board Evaluation for this year’s review included an evaluation of boardroom dynamics and the effects of diversity. The consultant accordingly assessed the impact of diversity including gender, age, the internationality of the Directors, the breadth of experience, qualifications and skills, concluding that there was a good degree of diversity on the Board with a range of different experiences and outlooks and that the Chairman should continue to nurture inputs from all Directors to derive the benefits of this diversity.
Below Board level, Barclays met its target of 23% female representation among the Managing Director and Director population in 2015. To achieve the target, the Committee endorsed programmes to embed accountability for diversity and inclusion throughout the Group. These efforts included Balanced Scorecard aligned targets for hiring, promotion and attrition set for each business or function, expansion of diversity data to include greater focus, expanding global campaigns to raise awareness and refined communications to drive impact. More details of Barclays’ diversity and inclusion strategy may be found on pages 47 to 49.
![]() | You can find the Board Diversity Policy at home.barclays/corporategovernance |
Review of Board and Board Committee effectiveness
Barclays conducts an externally facilitated review of the effectiveness of the Board, Board Committees, individual Directors and the Chairman each year. For 2015, the effectiveness review was facilitated by Independent Board Evaluation, an independent external consultancy with no other connection with Barclays. The review process involved the consultant, Ffion Hague, attending certain Board and Board Committee meetings in November and December 2015 as an observer, alongside detailed interviews conducted according to a set agenda with Directors, members of the Group Executive Committee, the Company Secretary and other members of the executive and senior management. Feedback was also sought from external stakeholders. Independent Board Evaluation prepared a report for the Board on the findings from the review process, which was presented to the Board in December 2015. In addition, the Chairman was provided with a report and feedback on the performance of each of the Directors and the Senior Independent Director received a report on the Chairman. A similar process was followed for the Board Committees. Independent Board Evaluation provided feedback to each of the Committee Chairmen on the performance of each Committee. The feedback is scheduled to be discussed by each Committee in early 2016.
Having assessed the findings of the effectiveness review, the Directors were satisfied that the Board and each of its Committees operated effectively during 2015. Nonetheless, the Board identified a number of actions to help maintain and improve its effectiveness. These, together with an update on the actions taken following the 2014 review, are set out on pages 33 and 34.
Directors’ Conflicts of Interest
Barclays requires Directors to declare any potential or actual conflict of interest that could interfere with a Director’s ability to act in the best interests of the Group. The Board has adopted procedures for ensuring that its powers to authorise Directors’ conflicts operate effectively. A register of actual and potential conflicts and of any authorisation of a conflict granted by the Board is maintained by the Company Secretary and reviewed annually by the Board Nominations Committee.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 31 |
![]() | Governance in action: the appointment of Jes Staley
Role requirements The Committee, which has responsibility for identifying suitable candidates to join the Board, agreed the desired attributes for a successor to Antony Jenkins as Group Chief Executive (CEO). In addition to strong and motivational leadership qualities, the Committee sought candidates with significant experience of retail and/or commercial and investment banking in large scale, complex organisations and an excellent track record of delivery and credibility with regulators and internal and external stakeholders. Personal attributes sought included strategic thinking and the ability to lead and manage change, especially cultural change.
Process The Committee directed the selection process. As the Chairman had accepted the role of Executive Chairman until a successor was in place, it was agreed that he would step down from the Committee to ensure that it remained composed of independent non-executive Directors and that I would lead the process. It was also agreed that the Committee as a whole would be involved in shortlisting and interviewing candidates and, once preferred candidates had been agreed, to involve the rest of the Board and key senior executives. Spencer Stuart, an external search consultant, was engaged to assist with the search and selection process.
Search Having established that there were currently no potential candidates within the Group with the spread and depth of experience required for the role, the Committee examined a ‘long list’ of candidates produced as a result of the global search and received a presentation from Spencer Stuart covering the prospects for consideration. The Committee identified the most credible prospects to be contacted and invited to interview and requested that the views of the Group’s regulators on the preferred type of candidate for the role also be obtained.
I asked Committee members to consider sources for potential candidates that might be approached directly and to recommend potential candidates for the role. In addition, although John McFarlane did not take part in the selection process, he was consulted for his view and insights. I also ensured that Board members were kept up-to-date throughout the process.
Recruitment As Jes Staley emerged as the preferred candidate and had confirmed his interest in the role, he undertook a series of interviews involving me, the Chairman and members of the Committee. He also met with the remaining members of the Board and the Group Executive Committee.
In addition to the regular communication with Directors, the Board held an additional meeting specifically to discuss the proposed appointment and to allow Directors to share their feedback on Jes Staley before approving his appointment, which was announced on 28 October 2015.
Sir Michael Rake
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32 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2015
Board Nominations Committee report
Review of Board and Board Committee effectiveness
Board priorities
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Exhibiting and upholding the Company’s values
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Leveraging Board experience in support of executives
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Greater awareness of Board Committee work
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2014 findings To refine the Board’s priorities for 2015. | 2014 findings To continue the embedding of cultural change across and deeper into the organisation and provide effective oversight of progress. | 2014 findings To continue to build effective relationships between the Board and business and functional heads. | 2014 findings To continue to deepen the Board’s focus on the key priorities and main issues facing each of the Board Committees and to ensure that the Board Committee structure remains appropriate and fit for purpose.
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Actions taken in 2015 In 2015 the Board re-focused its time on three key themes:
§ focus on core § accelerate earnings growth § high performance ethic.
A set of execution priorities was developed for each theme and progress against these priorities was reported to the Board on a regular basis.
| Actions taken in 2015 The Board Reputation Committee received reports on the progress of cultural change in 2015.
Members of senior management completed a survey on cultural change, the results of which were shared with the Board Reputation Committee.
The results of the employee opinion survey and a values survey were shared with the Board. | Actions taken in 2015 John McFarlane has, and will continue to, discuss his key priorities as Chairman with senior management.
Members of the Board Nominations Committee are mentoring high-potential senior managers. | Actions taken in 2015 The Board Committee structure was updated in 2015, following review by the Board Nominations Committee. The revised structure was approved by the Board and implemented from July 2015.
In line with prior years, all non-executive Directors may attend Board Committee meetings on request, with the agreement of the Committee Chairman. All non-executive Directors were invited to attend Board Risk Committee workshops on risk appetite and on structural reform.
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2015 findings To ensure that the Board agenda is optimised, including time for ‘blue-sky’ discussion of major risks. | 2015 findings No specific matters were raised during the 2015 review. | 2015 findings To continue to ensure that all non-executive Directors have the opportunity to contribute to strategic debate. | 2015 findings To continue to raise awareness across all Board members of the significant issues considered by Board Committees and to continue to refine the remit and scope of the Board Reputation Committee.
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Actions to be taken in 2016 We will identify opportunities for more free-ranging Board discussions, including discussion of risk.
A revised set of Board objectives will be agreed in order to track progress. | Actions to be taken in 2016 No actions are proposed for 2016. | Actions to be taken in 2016 We will continue to identify ways in which the skills and experience of individual non-executive Directors may be leveraged, including partnering individual non-executive Directors with members of the Group Executive Committee. | Actions to be taken in 2016 We will provide opportunities for Board Committee Chairmen to provide more detailed briefings to non-Committee members on the work of their Committee.
We will review the role and scope of the Board Reputation Committee with its new Chairman.
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Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 33 |
Improvements to the Board appointment process
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Director induction
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Effective handling of legacy issues
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Dealing more strategically with global regulation
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2014 findings To continue to ensure that the Board has sufficient visibility of executive succession planning and the talent pipeline. | 2014 findings To extend the new Director induction programme to involve senior executives below Group Executive Committee level and to continue to support new Board Committee Chairmen.
| 2014 findings To continue to focus on the existing priority of overseeing the resolution of legacy issues. | 2014 findings To continue to focus the Board’s time on strategy and strategic options. | |||||||||||
Actions taken in 2015 The non-executive Directors attended a briefing on talent management and succession planning in April 2015.
The Board Nominations Committee considered Group Executive Committee succession in October 2015. In November 2015, the HR Director attended the Board meeting to provide an update on talent and succession. | Actions taken in 2015 Directors have been offered the opportunity of additional meetings with senior executives as part of their induction programmes. | Actions taken in 2015 Work has continued in 2015 to resolve historical legal and conduct risks. Several outstanding issues have been resolved in 2015. | Actions taken in 2015 Additional time was allocated to the discussion of business strategy at Board meetings in 2015. In particular, the Investment Bank and structural reform were both covered in depth.
The Group’s three strategic priorities: focus on core; accelerate earnings growth; and high performance ethic, were developed with the Board’s collective input.
Representatives from the Group’s UK and US regulators attended Board and Board Committee meetings during the year.
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2015 findings To continue to assess the skills and experience needed on the Board and to ensure that Board composition is balanced between UK and international members.
To enhance Board succession planning, particularly in respect of key roles.
| 2015 findings To enhance the Board training and induction programme, with particular focus on the training needs of Board members from outside the financial services sector. | 2015 findings No specific matters were raised during the 2015 review. | 2015 findings To continue to provide opportunities for Board members to provide early input to thinking on major issues and decisions. | |||||||||||
Actions to be taken in 2016 We will develop a revised Board succession plan for discussion by the Board Nominations Committee, including planning for succession to key roles, considering the optimum size of the Board and the balance of UK and overseas Directors.
We will schedule additional updates to the Board on talent management and succession planning.
| Actions to be taken in 2016 We will schedule as part of the Board’s training programme for 2016 specific briefings for non-executive Directors who do not have a financial services background. | Actions to be taken in 2016 No actions are proposed for 2016. | Actions to be taken in 2016 We will continue to allocate sufficient time for Board discussion of strategic priorities and options. | |||||||||||
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34 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
Leadership
The Role of the Board
As members of the Board of Directors, we have a collective responsibility to create and deliver sustainable value for our shareholders, in a manner that is supported by the right culture, values and behaviours throughout the Group. To support our role in determining the strategic objectives and policies of the Group, there exists a well-defined Corporate Governance framework. We aim to achieve long-term and sustainable value and it is our responsibility as the Board to ensure that management effectively delivers on short-term objectives, while promoting the long-term growth of Barclays.
In addition, we have further responsibility for ensuring that management maintains both an effective system of internal control and an effective risk management and oversight process. When carrying out these responsibilities we consider the Group’s business and reputation, the materiality of risks that are inherent in the business and the relevant costs and benefits of implementing controls. The Group’s internal control system provides assurance of internal financial controls, compliance with law and regulation and effective and efficient operations.
The Board is the decision-making body for those matters that are considered of significance to the Group owing to their strategic, financial or reputational implications or consequences. To retain control of these key decisions, certain matters have been identified that only we as the Board can approve and there is in place a formal schedule of powers reserved to the Board. As Directors we must act in accordance with the Company’s constitution and only exercise powers for the purposes for which they have been conferred. A summary of the matters reserved to the Board is available at home.barclays/corporategovernance. These matters include the approval of Barclays’ strategy, interim and full year financial statements and any major acquisitions, mergers, disposals or capital expenditure.
Specific responsibilities have been delegated to Board Committees and each Committee has its own terms of reference, which are available on home.barclays/corporategovernance. Each Committee reports to, and has its terms of reference approved by, the Board and the minutes of Committee meetings are shared with the Board. The main Board Committees are the Board Audit Committee, the Board Nominations Committee, the Board Remuneration Committee, the Board Reputation Committee and the Board Risk Committee.
In addition to the principal Board Committees, the Regulatory Investigations Committee, which was formed in late 2012, focuses on providing Board-level oversight of regulatory investigations. This Committee met six times in 2015. John McFarlane is Chairman of the Committee and the other current Committee members are Mike Ashley, Sir Gerry Grimstone, Diane de Saint Victor and Jes Staley. Antony Jenkins, Sir Michael Rake, Sir John Sunderland and Sir David Walker also served on the Committee during 2015, stepping down when they left the Board.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 35 |
Attendance
In 2015 we attended both scheduled and additional Board meetings, as disclosed in the table below. The Chairman met privately with non-executive Directors ahead of scheduled Board meetings. If, owing to exceptional circumstances, a Director was not able to attend a Board meeting, he or she ensured that their views were known to the Chairman.
Board attendance | Independent | | Scheduled meetings eligible to attend | | | Scheduled meetings attended | | | Additional meetings eligible to attend | | | Additional meetings attended | | |||||
Group Chairman | ||||||||||||||||||
John McFarlane | On appointment | 8 | 8 | 2 | 2 | |||||||||||||
Executive Directors | ||||||||||||||||||
Tushar Morzariaa | Executive Director | 8 | 8 | 2 | 1 | |||||||||||||
Jes Staley | Executive Director | 1 | 1 | 0 | 0 | |||||||||||||
Non-executive Directors | ||||||||||||||||||
Mike Ashley | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Tim Breedon | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Crawford Gillies | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Reuben Jeffery III | Independent | 8 | 7 | 2 | 2 | |||||||||||||
Wendy Lucas-Bullb | Non-Independent | 8 | 8 | 2 | 2 | |||||||||||||
Dambisa Moyo | Independent | 8 | 8 | 2 | 1 | |||||||||||||
Frits van Paasschen | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Sir Michael Rake | Deputy Chairman, Senior Independent Director | 8 | 7 | 2 | 2 | |||||||||||||
Diane de Saint Victor | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Diane Schueneman | Independent | 5 | 5 | 1 | 1 | |||||||||||||
Steve Thieke | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Former Directors | ||||||||||||||||||
Sir David Walker | On appointment | 3 | 3 | 0 | 0 | |||||||||||||
Antony Jenkins | Executive Director | 4 | 4 | 1 | 1 | |||||||||||||
Sir John Sunderland | Independent | 3 | 3 | 0 | 0 | |||||||||||||
Secretary | ||||||||||||||||||
Lawrence Dickinson | 8 | 8 | 2 | 2 |
Notes
a | Although eligible to attend, as an executive Director, Tushar Morzaria did not attend the additional meeting held to consider and approve the appointment of the new Group Chief Executive. |
b | Although we have reached the conclusion that all non-executive Directors exhibit independence of character and judgement, we continue to disclose that, for the purposes of the Code, Wendy Lucas-Bull was not designated as independent owing to her chairmanship of Barclays Africa Group Limited, a62%-owned subsidiary of Barclays. |
36 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
How we comply
Board Governance Framework
As a Board we may, under the authority of our Articles of Association and where appropriate, delegate all or any of our powers to an individual Director or to a Committee of Directors. Further information on the operations of each of the Barclays Board Committees can be found on the pages referenced above. Board Committee membership is reviewed regularly by the Board Nominations Committee.
Roles on the Board
As Directors we have established a division of responsibilities between running the Board and running the business of the Group. It is the responsibility of the Chairman to lead the Board and to ensure that it operates effectively, while the responsibility for the day-to-day management of Barclays has been delegated to the Group Chief Executive.
Role profiles setting out the responsibilities of the Chairman, the Group Chief Executive, Deputy Chairman, Senior Independent Director, non-executive Directors, Executive Directors, Committee Chairmen and the Company Secretary can be found inBarclays Charter of Expectations, which is available on home.barclays/corporategovernance.Barclays Charter of Expectationsalso sets out high-performance indicators for non-executive Directors.
The Group Chief Executive is supported by the Group Executive Committee, which is responsible for making and implementing operational decisions while running the Group’s day-to-day business. Further information on the Group Executive Committee can be found on page 5. The Group Executive Management structure has been designed to support management’s decision-making responsibilities, aligned to personal accountability and delegated authority, while embedding risk and control in business decision-making.
Effectiveness
Composition of the Board
The Board Nominations Committee is responsible for reviewing Board composition, considering succession plans for both the Board and senior executives, selecting and appointing new Directors and considering the results of the Board effectiveness review. For more information on the work of this Committee in 2015 please turn to page 27.
Our individual biographies can be found onpages 3 and 4: these include our relevant skills and experience, Board Committee membership and any other principal appointments. Details of changes to the Board in 2015 and year to date are disclosed on page 6.
The Board currently comprises a Chairman, who was independent on appointment, two Executive Directors and11 non-executive Directors. In line with the Code, independent non-executive Directors form a majority of our Board. Each year we consider the independence of our non-executive Directors, using the guidance set out in the Code and behaviours determined by us as essential in order for a Director to be considered independent. These independence criteria are disclosed inCorporate Governance in Barclays, which can be viewed at home.barclays/corporategovernance. Having considered this guidance, we have determined those non-executive Directors who are standing for re-election at the 2016 AGM to be independent.
Executive Directors’ service contracts and the letters of appointment for the Chairman and non-executive Directors are available for inspection at the Company’s registered office.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 37 |
We carry out an annual effectiveness review in order to evaluate our performance as a Board. This evaluation includes an assessment of the effectiveness of Board Committees and individual Directors, to ensure that each of us continues to contribute effectively to the decision-making of the Board. Independence and the existence of any conflicts of interest are considered as part of the effectiveness evaluation. We take the outcomes of the review into account when deciding whether Directors will offer themselves for election or re-election at the AGM.
More information on the Board effectiveness review can be found on page 33 and 34.
Time commitment
In order to effectively discharge our responsibilities, non-executive Directors must commit sufficient time to their role. Set out below is the average time commitment for each non-executive position on the Board. In practice, however, time commitment is agreed on an individual basis and for certain Board positions additional time commitment will often be required in order to fulfil extra responsibilities, such as those of the Deputy Chairman, Senior Independent Director and Committee Chairmen. In addition, in exceptional circumstances, we are expected to commit significantly more time than disclosed below.
Role | Expected time commitment | |
Chairman | 80% of a full-time position | |
Deputy Chairman | 0.5 days a week | |
Senior Independent Director | As required to fulfil the role | |
Non-executive Director | 30-36 days a year (membership of one Board Committee included, increasing to 40-50 days a year if a member of two Board Committees) | |
Committee Chairmen | 50-60 days (inclusive of non-executive Director time commitment) |
It is expected that our Chairman will commit as much time as is necessary to fulfil his duties, with his responsibilities to Barclays taking priority over other business commitments. The Chairman and non-executive Directors are also expected to allocate sufficient time to understanding the business, through meetings with regulators and executives and undergoing training to ensure ongoing business awareness. This time is in addition to that spent preparing for, and attending, Board and Board Committee meetings. When appropriate, a Director joining a Board Committee will be given a specific Board Committee induction programme.
Induction
Following appointment, each Director undergoes a comprehensive induction that has been tailored to individual requirements. The personal induction programme is designed and organised by the Company Secretary in consultation with the Chairman and in doing so they consider how to develop each Director’s understanding of how the Group works and the key issues that it faces.
The purpose of the induction programme is to provide Directors with the information they need to become as effective as possible within the shortest practicable time after joining the Board. Typically, a new Director will meet with members of the Group Executive Committee and senior management, allowing an opportunity to familiarise themselves with various businesses and discuss specific matters with senior individuals. When an induction programme is complete, in addition to understanding the Group’s business, a new Director should have a clear understanding of Barclays’ relationships with its shareholders, regulators and customers and clients.
In 2015, John McFarlane and Diane Schueneman both received tailored induction programmes on joining the Board. Feedback was sought from both new Directors to ensure that the induction programme remains effective.
Training and development
In order to ensure that our non-executive Directors have the necessary knowledge and understanding of the Group’s business to enable them to contribute effectively at Board and Board Committee meetings they are regularly provided with the opportunity for training and development.
As part of the annual performance evaluation process the individual development needs of each non-executive Director are reviewed and discussed with the Chairman. Training can be provided through one-to-one meetings with senior executives, in order to receive further insight into a particular area of the Group’s business, or as part of dedicated training on a particular issue identified by the Directors and the Company Secretary.
Our Directors have a continuing responsibility to fulfil their duties as members of the Board and Board Committees and this is managed through the provision of focused training and development opportunities.
During 2015, non-executive Directors attended briefings on the following subjects:
§ | talent management and succession planning |
§ | Senior Managers Regime, and |
§ | operational resilience. |
Board Committees also undertook specific training and details can be found in the respective Committee Chairmen’s reports.
During 2015, individual Directors also attended regular meetings with our regulators, external auditors and major shareholders. In addition, the Board Audit Tender Oversight Sub-Committee carried out site visits as part of the audit tender process.
The following provides more detail of a specific training session that took place in 2015.
Governance in action: training and development
Following the July 2015 Board meeting, the non-executive Directors attended a briefing session on the Senior Managers Regime, led by Barclays Compliance. The Senior Managers Regime commences in March 2016 and, although only certain non-executive Directors will be in scope, there are a number of governance, reporting and conduct requirements that will apply to all Board Directors. The briefing session provided an overview of the Senior Managers Regime, with particular focus on the following:
§ an introduction to ‘Reasonable Steps’, including practical examples
§ the roles and responsibilities of non-executive Directors in scope
§ guidance for non-executive Directors who are not in scope, and
§ the Conduct Rules (standards that will be expected of all employees in a regulated firm).
In addition, Barclays Compliance detailed the work needed in order for Barclays to be ready for implementation of the regime in early 2016. This timetable included scheduling individual briefing sessions with in-scope non-executive Directors.
In late 2015/early 2016, Mike Ashley, Tim Breedon, Crawford Gillies and Sir Gerry Grimstone each had individual meetings with Barclays Compliance in order to cover the reasonable steps that, as a result of their particular role on the Board, each of them will be expected to take under the Senior Managers Regime. The session included a review of case studies, which focused on each Director’s prescribed responsibilities under the Senior Managers Regime. The Directors were briefed ahead of the meetings and provided with supporting documentation in advance. These meetings were also attended by the Company Secretary and external advisers.
|
38 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
How we comply
Information provided to the Board
As set out in the Code, the Chairman is responsible for ensuring that the Board receives accurate, timely and high quality information about the Company’s performance at appropriate intervals and in an appropriate manner to enable it to take sound decisions, monitor effectively and provide advice to promote the success of the Company. Our Company Secretary supports the Chairman in ensuring good information flows between the Board, the Board Committees and the senior executives. In addition to providing dedicated support for the Board, the Company Secretary maintains dialogue with our Directors in order to confirm that the information they require in order to fulfil their responsibilities as a member of the Board is being received. If there is a need for independent and professional advice this can be sought by the Board, via the Company Secretary or directly, at Barclays expense.
Directors expect to be kept informed of key developments in the business by both the Executive Directors and senior management, and take seriously their responsibility to request any further explanations as required. The Board and Board Committee annual forward calendars of business are formulated to ensure that Directors receive regular reports and presentations, in addition to periodic communications advising of any updates to the business of the Company, current events and the regulatory environment.
Accountability
Risk management and internal control
The Directors have responsibility for ensuring that management maintain an effective system of risk management and internal control and for assessing its effectiveness. Such a system is designed to identify, evaluate and manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
Barclays is committed to operating within a strong system of internal control that enables business to be transacted and risk taken without exposing itself to unacceptable potential losses or reputational damage. Barclays has an overarching framework that sets out the Group’s approach to internal governance (theBarclays Guide). TheBarclays Guide establishes the mechanisms and processes by which the Board directs the organisation, through setting the tone and expectations from the top, delegating its authority and assessing compliance.
A key component of theBarclays Guide is the Enterprise Risk Management Framework (ERMF). The purpose of the ERMF is to identify and set minimum requirements in respect of the main risks to achieving the Group’s strategic objectives and to provide reasonable assurance that internal controls are effective. The key elements of the Group’s system of internal control, which is aligned to the recommendations of The Committee of Sponsoring Organizations of the Treadway Commission, Internal Control – Integrated Framework (2013 COSO), are set out in the risk control frameworks relating to each of the Group’s principal and key risks. As well as incorporating our internal requirements, these reflect material Group-wide legal and regulatory requirements relating to internal control and assurance.
Effectiveness of internal controls
Key controls are assessed on a regular basis for both design and operating effectiveness. Issues arising out of business risk and control assessments and other internal and external sources are examined to identify pervasive themes. Where appropriate, control issues are reported to the Board Audit Committee. In addition, regular reports are made to the Board Audit Committee by management, Barclays Internal Audit and the Finance, Compliance and Legal functions covering, in particular, financial controls, compliance and other operational controls.
Risk management and internal control framework
The ERMF is the Group’s internal control framework. It is refreshed annually with an assessment of operational maturity provided to the Board Audit Committee. In 2015, the Board Audit Committee received quarterly reports on the effectiveness of the control environment: these reports covered risks and controls including financial, operational and compliance risk.
The Board Audit Committee formally reviews the system of internal control and risk management annually. Throughout the year ending 31 December 2015 and to date, the Group has operated a system of internal control that provides reasonable assurance of effective operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the principal risks facing the Group in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published by the Financial Reporting Council.
The review of the effectiveness of the system of risk management and internal control is achieved through a four-step approach which is centred on reviewing the effectiveness of theBarclays Guide and its component parts, including the ERMF.
1. | Governance Risk and Control meetings of the business and functional executive committees monitor, review and challenge the effective operation of key risk management and control processes, including the results of audits and reviews undertaken by Barclays Internal Audit (which include assessments of the control environment and management’s control approach) and examinations and assessments undertaken by our primary regulators, on an ongoing basis as part of the system of risk management and internal control. The remediation of issues identified within the control environment is regularly monitored by management and the Board Audit Committee. |
2. | Testing of the Governance Risk and Control meetings held within the executive committees provides assurance that the committees are effectively overseeing the control environment and associated risk management and internal control processes. |
3. | The owners of the key governance processes which comprise the Barclays Guide undertake a review to confirm that processes have been implemented and are operating effectively. |
4. | The annual review of the system of risk management and internal control brings together the results of the activities completed in steps 1 to 3 to ensure that each of the key processes has been effectively reviewed. |
In 2015, the Board received regular reports covering risks of Group-level significance. Over the year, the Board Risk Committee and the Board Reputation Committee examined reports covering the principal risks (credit risk, market risk, capital risk, liquidity risk, operational risk and conduct risk) as well as reports on risk measurement methodologies and risk appetite. Further details of risk management procedures and potential risk factors are given in the Risk Management section on pages 87 to 93.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 39 |
Controls over financial reporting
A framework of disclosure controls and procedures is in place to support the approval of the Group’s financial statements. The Legal and Technical Review Committee is responsible for examining the Group’s financial reports and disclosures to ensure that they have been subject to adequate verification and comply with applicable standards and legislation. The Committee reports its conclusions to the Disclosure Committee. The Disclosure Committee examines the content, accuracy and tone of the disclosures and reports its conclusions to the Board Audit Committee, which debates its conclusions and provides further challenge. Finally, the Board scrutinises and approves results announcements and the Annual Report and ensures that appropriate disclosures have been made. This governance process ensures that both management and the Board are given sufficient opportunity to debate and challenge the Group’s financial statements and other significant disclosures before they are made public.
Management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision of the principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and issued by the International Accounting Standards Board (IASB). Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisations of management and the respective Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements.
Internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed Barclays PLC Group’s and Barclays Bank PLC Group’s internal control over financial reporting as of 31 December 2015. In making its assessment, management has utilised the criteria set forth by the 2013 COSO framework. Management concluded that, based on its assessment, the internal control over financial reporting was effective as of 31 December 2015. Our independent registered public accounting firm has issued a report on Barclays PLC’s internal control over financial reporting, which is set out on page 210.
The system of internal financial and operational controls is also subject to regulatory oversight in the UK and overseas. Further information on supervision by the financial services regulators is provided under Supervision and Regulation in the Risk review section on pages 177 to 182.
Changes in internal control over financial reporting
There have been no changes in the Group’s internal control over financial reporting that occurred during the period covered by this report which have materially affected or are reasonably likely to materially affect the Group’s internal control over financial reporting.
Remuneration
We have delegated responsibility to the Board Remuneration Committee to determine the remuneration arrangements for the Chairman, our Executive Directors and other senior executives and certain other Group employees, as determined by the Committee. Additional information on the Board Remuneration Committee, including its membership and activities in 2015, can be found on pages 70 and 71 in the Directors’ remuneration report, which forms part of the corporate governance statement.
Stakeholder engagement
We describe below how we engage with our stakeholders.
Investor engagement
The Board is committed to promoting effective channels of communication with shareholders and upholding good corporate governance as a means of building stronger and more engaged relationships with them. Our comprehensive investor engagement initiatives help us to understand their views about Barclays, which are communicated regularly to the Board. Our shareholder communication guidelines, which underpin all investor engagement, are available on our website at home.barclays/barclays-investor-relations/corporate-governance/shareholder-communication-guidelines.html.
Institutional investors
In 2015, our engagement with institutional investors took place throughout the year, following our quarterly results as well as outside the reporting cycle. This allowed the opportunity for existing and potential investors to engage with us regularly, and promoted dialogue on longer-term strategic developments, as well as about the recent financial performance of the Group.
The Directors, in conjunction with the senior executive team and Investor Relations, participated in varied forms of engagement across multiple geographic locations, reflecting the diverse nature of our equity and debt institutional ownership. Divisional management also presented extensively to investors, promoting greater awareness and understanding of our operational businesses and other functions.
In the past year, discussions with investors focused on the continued execution of our strategic plan outlined in 2014, and the steps taken in 2015 to improve our returns to shareholders, while adapting to the changing regulatory environment and addressing legacy issues. Meetings focused on corporate governance matters also took place throughout the year, covering topics including management changes, remuneration and other AGM-related matters. Following the appointment of Sir Gerry Grimstone as Senior Independent Director on 1 January 2016, our major investors were offered a meeting with him.
During 2015, we held quarterly results briefings, including an in-person presentation for the 2014 results announcement in March 2015, and quarterly breakfast briefings for equity and debt sellside analysts, hosted by the Group Finance Director. For fixed income investors, we held conference calls at our full year and half year results, hosted by our Group Finance Director and Group Treasurer, as well as quarterly briefings for credit analysts.
An independent audit of investor views took place in April 2015. Interviews with a cross-section of institutional shareholders and non-holders, were conducted on specific topics including strategy, business performance and the management team. The findings of the investor audit were presented to the Board.
To enable the effective distribution of information to all investors, transcripts of executive management speeches were uploaded to the investor relations section of the website, alongside associated presentation materials. In 2015, we received the UK Investor Relations Society’s award for the Best Use of Digital Communications, reinforcing the importance placed on using our website to engage with the market. For example, we introduced short videos providing a summary of our results from our Chairman, Group Chief Executive and Group Finance Director.
40 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
How we comply
Private shareholders
Throughout 2015, we continued to communicate with our private shareholders using our shareholder mailings. Also, shareholders can choose to sign up to Shareview so that they receive information about Barclays and their shareholding directly by email. On a practical level, over 60,000 shareholders did not cash their Shares Not Taken Up (SNTU) cheque following the Rights Issue in September 2013. During 2015, we conducted a tracing process to reunite these shareholders with their SNTU monies together with any unclaimed dividends. By the end of the year, we had returned over £2.2m to our shareholders. In addition, we launched a special share dealing service in October 2015 for shareholders holding 4,000 shares or less. Shareholders could donate their sale proceeds to ShareGift if they wished. Shareholders donated nearly £130,000.
Our Annual General Meeting (AGM)
Our AGM continues to be a key date in the diary for the Board. It affords us our primary opportunity to engage with shareholders, particularly our private shareholders, on the key issues facing the Group and any questions they may have. The majority of Directors, including the Chairman, were available for informal discussion before and after the formal business of our 2015 AGM. All resolutions proposed at the 2015 AGM, which were considered on a poll, were passed with votes for ranging from 88.5% to 99.9% of the total votes cast.
The 2016 AGM will be held on Thursday 28 April 2016 at the Royal Festival Hall in London. The Notice of AGM can be found in a separate document, which is sent out at least 20 working days before the AGM and also made available at home.barclays/agm. Voting on the resolutions will again be by poll and the results will be announced via the Regulatory News Service and made available on our website on the same day. We encourage any shareholders who are unable to attend on the day to vote in advance of the meeting via home.barclays/investorrelations/vote or through Shareview (www.shareview.co.uk).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 41 |
The Directors present their report together with the audited accounts for the year ended 31 December 2015.
Other information that is relevant to the Directors’ Report, and which is incorporated by reference into this report, can be located as follows:
Contents | Page | |||
Employee involvement | 44-49 | |||
Policy concerning the employment of disabled persons | 48 | |||
Financial instruments | 230-254 | |||
Hedge accounting policy | 231 | |||
Remuneration policy, including details of the remuneration of each Director and Directors’ interests in shares | 50-83 | |||
Corporate governance report | 2-49 | |||
Risk review | 84-182 |
Disclosures required pursuant to Listing Rule 9.8.4R can be found on the following pages:
|
Page |
| ||
Long-term incentive schemes | 77 | |||
Director emoluments | 295 | |||
Allotment for cash of equity securities | 276 | |||
Waiver of dividends | 42 |
The particulars of important events affecting the Company since the financial year end can be found in Note 29 Legal, competition and regulatory matters.
Profit and dividends
The adjusted profit for the financial year, after taxation, was £3,713m (2014: £3,798m). Statutory profit after tax for 2015 was £623m (2014: £845m). The final dividend for 2015 of3.5p per share will be paid on 5 April 2016 to shareholders whose names are on the Register of Members at the close of business on 11 March 2016. With the interim dividends totalling 3p per ordinary share, paid in June, September and December 2015, the total distribution for 2015 is 6.5p (2014: 6.5p) per ordinary share. The interim and final dividends for 2015 amounted to £1,081m (2014: £1,057m).
The nominee companies of certain Barclays’ employees benefit trusts holding shares in Barclays in connection with the operation of the Company’s share plans have lodged evergreen dividend waivers on shares held by them that have not been allocated to employees. The total amount of dividends waived during the year ended 31 December 2015 was £6.4m.
Board of Directors
The names of the current Directors of Barclays PLC, along with their biographical details, are set out on pages 3 and 4 and are incorporated into this report by reference. Changes to Directors during the year are set out below.
Name | Role | Effective date of appointment/ resignation | ||
Diane Schueneman
|
Non-executive Director
|
Appointed 25 June 2015
| ||
James (Jes) Staley
|
Executive Director
|
Appointed 1 December 2015
| ||
Sir Gerald (Gerry) Grimstone
|
Non-executive Director
|
Appointed 1 January 2016
| ||
Sir John Sunderland
|
Non-executive Director
|
Retired 23 April 2015
| ||
Sir David Walker
|
Non-executive Director
|
Retired 23 April 2015
| ||
Antony Jenkins
|
Executive Director
|
Resigned 16 July 2015
| ||
Sir Michael Rake
|
Non-executive Director
|
Retired 31 December 2015
|
John McFarlane succeeded Sir David Walker as Chairman of Barclays with effect from the conclusion of the Barclays PLC AGM in April 2015. John McFarlane held the position of Executive Chairman with effect from 17 July 2015 to 1 December 2015, when Jes Staley took up the position of Group Chief Executive.
42 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
Other statutory information
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the Company’s Articles of Association (the Articles), the UK Corporate Governance Code (the Code), the Companies Act 2006 and related legislation.
The Articles may only be amended by a special resolution of the shareholders. The Board has the power to appoint additional Directors or to fill a casual vacancy among the Directors. Any such Director holds office only until the next AGM and may offer himself/herself for election. The Code recommends that all directors of FTSE 350 companies should be subject to annual re-election.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006) were in force during the course of the financial year ended 31 December 2015 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. In addition, the Company maintains Directors’ and Officers’ Liability Insurance which gives appropriate cover for legal action brought against its Directors.
Qualifying pension scheme indemnity provisions (as defined by section 235 of the Companies Act 2006) were in force during the course of the financial year ended 31 December 2015 for the benefit of the then Directors, and at the date of this report are in force for the benefit of directors of Barclays Pension Funds Trustees Limited as Trustee of the Barclays Bank UK Retirement Fund. The directors of the Trustee are indemnified against liability incurred in connection with the Company’s activities as Trustee of the retirement fund.
Similarly, qualifying pension scheme indemnities were in force during 2015 for the benefit of Barclays Executive Schemes Trustees Limited as Trustee of Barclays Bank International Zambia Staff Pension Fund (1965), Barclays Capital International Pension Scheme (No.1), Barclays Capital Funded Unapproved Retirement Benefits Scheme, and Barclays PLC Funded Unapproved Retirement Benefits Scheme. The Directors of the Trustee are indemnified against the liability incurred in connection with the Company’s activities as Trustee of the schemes above.
Political donations
The Group did not give any money for political purposes in the UK, the rest of the EU or outside the EU, nor did it make any political donations to political parties or other political organisations, or to any independent election candidates, or incur any political expenditure during the year.
In accordance with the US Federal Election Campaign Act, Barclays provides administrative support to a federal Political Action Committee (PAC) in the US funded by the voluntary political contributions of eligible employees. The PAC is not controlled by Barclays, and all decisions regarding the amounts and recipients of contributions are directed by a steering committee comprising employees eligible to contribute to the PAC. Contributions to political organisations reported by the PAC during the calendar year 2015 totalled $79,500 (2014: $103,000).
Environment
Barclays’ climate action programme focuses on addressing environmental issues where we believe we have the greatest potential to make a difference. The programme focuses on managing our own carbon footprint and reducing our absolute carbon emissions, developing products and services to help enable the transition to a low-carbon economy, and managing the risks of climate change to our operations, clients, customers and society at large. We invest in improving the energy efficiency of our operations and offset the emissions remaining through the purchase of carbon credits. We also have a long-standing commitment to managing the environmental and social risks associated with our lending practices, which is embedded into our credit risk processes. A governance structure is in place to facilitate clear dialogue across the business and with suppliers around
issues of potential environmental and social risk.
We have disclosed global greenhouse gas emissions that we are responsible for as set out by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. We provide fuller disclosure across our carbon emissions within Barclays Citizenship Data Supplement found on our website home.barclays/citizenship.
Reporting yeara 2015 | Reporting yeara 2014 | Reporting yeara 2013 | Comparison yeara 2012 | |||||
Global GHG emissionsb | ||||||||
Total CO2e (tonnes)b | 701,600 | 853,376 | 1,036,755 | 1,119,145 | ||||
Scope 1 CO2e emissions (tonnes)c | 65,340 | 49,939 | 58,372 | 47,904 | ||||
Scope 2 CO2e emissions (tonnes)d | 500,086 | 678,443 | 791,766 | 880,995 | ||||
Scope 3 CO2e emissions (tonnes)e | 136,174 | 124,993 | 186,616 | 190,245 | ||||
Intensity ratio | ||||||||
Total full time employees (FTE) | 129,400 | 132,300 | 139,600 | 139,200 | ||||
Total CO2e per FTE (tonnes) | 5.42 | 6.45 | 7.43 | 8.04 |
Notes
a | 2015, 2014 and 2013 reporting years cover Q4 from the previous year and Q1, 2, 3 of the reporting year in question. The carbon reporting year is not fully aligned to the financial reporting year covered by the Directors’ report. This report is produced earlier than previous carbon reporting to allow us to report within the year end financial reporting timelines. The 2012 reporting year is the full calendar year (Jan 2012 – Dec 2012). |
b | The methodology used to calculate our CO2e emissions is the operational control approach on reporting boundaries and carbon emissions methodology as defined by the World Resources Institute/World Business Council for Sustainable Development (WRI/WBCSD) Greenhouse Gas Protocol (GHG): A Corporate Accounting and Reporting Standard, Revised Edition. Where properties are covered by Barclays’ consolidated financial statements but are leased to tenants who are invoiced for utilities, these emissions are not included in the Group GHG calculations. For properties where Barclays is the tenant, landlords provide Barclays with utility bills which are included in our emissions reporting. |
§ | Scope 1 covers direct combustion of fuels and company–owned vehicles (from UK and South Africa only, which are the most material contributors). |
§ | Scope 2 covers emissions from electricity and steam purchased for own use. |
§ | Scope 3 covers indirect emissions from business travel (global flights and ground transport) from the UK and South Africa. We have improved our coverage for car hire data and now include data from the US and India. Ground transportation data (excluding Scope 1 company cars) covers those countries where this type of transport is material and robust data is available. |
In cases where we have collected new data for previously unreported consumption, we have restated the baseline if the new data amounts to a material change greater than 1% of the total consumption. If the change is less than 1%, we have reported consumption from the point at which the data became available. If it is greater than 1%, we have restated the baseline and previous years’ figures based on actual or estimated figures. Reasons for restatements in data are due to more accurate data being available which led to replacements of estimates with actual data for 2012, 2013 and 2014.
c | Fugitive emissions reported in Scope 1 for 2015, 2014 and 2013 cover emissions from UK, Americas, Asia-Pacific and South Africa. Fugitive emission data for 2012 is not available. Business travel reported in Scope 1 covers company cars in the UK and South Africa. This covers the majority of our employees where we have retail operations with car fleets. |
d | Scope 2 carbon emissions from electricity have been calculated using location–based carbon conversion factors as defined by the GHG Protocol 2015. We are mindful of the new location and market based methodology for accounting Scope 2 electricity emissions and these emissions will be reported in future reports. |
e | Scope 3 is limited to emissions from business travel which covers global flights and ground transport from the UK and South Africa. We have improved our coverage for car hire data and now include data from the US and India. Ground transportation data (excluding Scope 1 company cars) covers only countries where this type of transport is material and data is available. |
Research and development
In the ordinary course of business, the Group develops new products and services in each of its business divisions.
Share capital
Share capital structure
The Company has ordinary shares in issue. The Company’s Articles also allow for the issuance of sterling, US dollar, euro and yen preference shares (preference shares). No preference shares have been issued as at 26 February 2016 (the latest practicable date for inclusion in this report). Ordinary shares therefore represent 100% of the total issued share
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 43 |
capital as at 31 December 2015 and as at 26 February 2016 (the latest practicable date for inclusion in this report). Details of the movement in ordinary share capital during the year can be found in Note 31 on page 276.
Voting
Every member who is present in person or represented at any general meeting of the Company, and who is entitled to vote, has one vote on a show of hands. Every proxy present has one vote. The proxy will have one vote for and one vote against a resolution if he/she has been instructed to vote for or against the resolution by different members or in one direction by a member while another member has permitted the proxy discretion as to how to vote. On a poll, every member who is present or represented and who is entitled to vote has one vote for every share held. In the case of joint holders, only the vote of the senior holder (as determined by order in the share register) or his proxy may be counted. If any sum payable remains unpaid in relation to a member’s shareholding, that member is not entitled to vote that share or exercise any other right in relation to a meeting of the Company unless the Board otherwise determine. If any member, or any other person appearing to be interested in any of the Company’s ordinary shares, is served with a notice under section 793 of the Companies Act 2006 and does not supply the Company with the information required in the notice, then the Board, in its absolute discretion, may direct that that member shall not be entitled to attend or vote at any meeting of the Company. The Board may further direct that if the shares of the defaulting member represent 0.25% or more of the issued shares of the relevant class, that dividends or other monies payable on those shares shall be retained by the Company until the direction ceases to have effect and that no transfer of those shares shall be registered (other than certain specified ‘excepted transfers’). A direction ceases to have effect seven days after the Company has received the information requested, or when the Company is notified that an excepted transfer of all the relevant shares to a third party has occurred, or as the Board otherwise determines.
Transfers
Ordinary shares may be held in either certificated or uncertificated form. Certificated ordinary shares shall be transferred in writing in any usual or other form approved by the Secretary and executed by or on behalf of the transferor. Transfers of uncertificated ordinary shares shall be made in accordance with the Companies Act 2006 and CREST Regulations.
The Board is not bound to register a transfer of partly-paid ordinary shares, or fully-paid shares in exceptional circumstances approved by the FCA. The Board may also decline to register an instrument of transfer of certificated ordinary shares unless it is duly stamped and deposited at the prescribed place and accompanied by the share certificate(s) and such other evidence as reasonably required by the Board to evidence right to transfer, it is in respect of one class of shares only, and it is in favour of a single transferee or not more than four joint transferees (except in the case of executors or trustees of a member).
In accordance with the provisions of Section 84 of the Small Business, Enterprise and Employment Act 2015, preference shares may only be issued in registered form. Preference shares shall be transferred in writing in any usual or other form approved by the Secretary and executed by or on behalf of the transferor. The Company’s registrar shall register such transfers of preference shares by making the appropriate entries in the register of preference shares. Each preference share shall confer, in the event of a winding up or any return of capital by reduction of capital (other than, unless otherwise provided by their terms of issue, a redemption or purchase by the Company of any of its issued shares, or a reduction of share capital), the right to receive out of the surplus assets of the Company available for distribution among the members and in priority to the holders of the ordinary shares and any other shares in the Company ranking junior to the relevant series of preference shares and pari passu with any other class of preference shares (other than any class of shares then in issue ranking in priority to the relevant series of preference shares), repayment of the amount paid up or treated as paid up in respect of the nominal value of the preference share together with any premium which was paid or treated as paid when the preference share was issued in addition to an amount equal to accrued and unpaid dividends.
Variation of rights
The rights attached to any class of shares may be varied either with the consent in writing of the holders of at least 75% in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights of shares shall not (unless expressly provided by the rights attached to such shares) be deemed varied by the creation of further shares ranking equally with them or subsequent to them.
Limitations on foreign shareholders
There are no restrictions imposed by the Articles or (subject to the effect of any economic sanctions that may be in force from time to time) by current UK laws which relate only to non-residents of the UK and which limit the rights of such non-residents to hold or (when entitled to do so) vote the ordinary shares.
Exercisability of rights under an employee share scheme
Employee Benefit Trusts (EBTs) operate in connection with certain of the Group’s Employee Share Plans (Plans). The trustees 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 Company that their normal policy is to abstain from voting in respect of the Barclays shares held in trust. The trustees of the Global Sharepurchase EBT and UK Sharepurchase EBTs may vote in respect of Barclays shares held in the EBTs, but only as instructed by participants in those Plans in respect of their partnership shares and (when vested) matching and dividend shares. The trustees will not otherwise vote in respect of shares held in the Sharepurchase EBTs.
Special rights
There are no persons holding securities that carry special rights with regard to the control of the Company.
Major shareholdersa
Major shareholders do not have different voting rights from those of other shareholders. Information provided to the Company by major shareholders pursuant to the FCA’s Disclosure Rules and Transparency Rules (DTRs) are published via a Regulatory Information Service and is available on the Company’s website. As at 31 December 2015, the Company had been notified under Rule 5 of the DTRs of the following holdings of voting rights in its shares.
Person interested | Number of Barclays shares | % of total voting rights attaching to issued share capitala | ||
The Capital Group Companies Incb | 1,172,090,125 | 6.98 | ||
Qatar Holding LLCc | 813,964,522 | 6.65 | ||
BlackRock, Inc.d | 822,938,075 | 5.02 | ||
Norges Bank | 506,870,056 | 3.02 |
Notes
a | Significant shareholders for the last 3 years are shown on page 323. |
b | The percentage of voting rights detailed above was calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR. |
c | The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts. |
d | Qatar Holding LLC is wholly owned by Qatar Investment Authority. |
e | Total shown includes 1,408,618 contracts for difference to which voting rights are attached. On 25 January 2016, BlackRock, Inc. disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,109,026,156 ordinary shares of the Company as of 31 December 2015, representing 6.6% of that class of shares. |
Powers of Directors to issue or buy back the Company’s shares
The powers of the Directors are determined by the Companies Act 2006 and the Company’s Articles. The Directors are authorised to issue and allot shares and to buy back shares subject to annual shareholder approval at the AGM. Such authorities were granted by shareholders at the 2015 AGM. It will be proposed at the 2016 AGM that the Directors be granted new authorities to allot and buy back shares.
44 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Directors’ report
Other statutory information
Repurchase of shares
The Company did not repurchase any of its ordinary shares during 2015 (2014: none). As at26 February 2016 (the latest practicable date for inclusion in this report) the Company had an unexpired authority to repurchase ordinary shares up to a maximum of 1,650,234,602 ordinary shares.
Change of control
There are no significant agreements to which the Company is a party that are affected by a change of control of the Company following a takeover bid. There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid.
Going concern
The Group’s business activities and financial position, the factors likely to affect its future development and performance, and its objectives and policies in managing the financial risk to which it is exposed and its capital are discussed in the Risk Management section.
The Directors considered it appropriate to prepare the financial statements on a going concern basis.
Disclosure of information to auditor
Each Director confirms that, so far as he/she is aware, there is no relevant audit information of which the Company’s auditors are unaware and that each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given pursuant to section 418 of the Companies Act 2006 and should be interpreted in accordance with and subject to those provisions.
Directors’ responsibilities
The following statement, which should be read in conjunction with the report of the independent registered public accounting firm set out on page 210, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts.
The Directors are required by the Companies Act 2006 to prepare accounts for each financial year and, with regards to Group accounts, in accordance with Article 4 of the IAS Regulation. The Directors have prepared group and individual accounts in accordance with IFRS as adopted by the EU. The accounts are required by law and IFRS to present fairly the financial position of the Company and the Group and the performance for that period. The Companies Act 2006 provides, in relation to such accounts, that references to accounts giving a true and fair view are references to fair presentation.
The Directors consider that, in preparing the accounts on pages 211 to 305, and the additional information contained on pages 111 to 182, the Group has used appropriate accounting policies, supported by reasonable judgements and estimates, and that all accounting standards which they consider to be applicable have been followed.
Having taken all the matters considered by the Board and brought to the attention of the Board during the year into account, the Directors are satisfied that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, understandable, and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
Directors’ responsibility statement
The Directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group which enable them to ensure the accounts comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors, whose names and functions are set out on pages 3 and 4, confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and
(b) the management report, which is incorporated into the Directors’ Report on pages 3 to 45, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Lawrence Dickinson
Company Secretary
29 February 2016
Barclays PLC
Registered in England, Company No. 48839
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 45 |
People
During 2015 we have continued our work to enhance support for our colleagues in their careers and to enable them to contribute to the long-term success of Barclays.
Culture, values and learning
We are into our third year of cultural change at Barclays. We have defined a common set of Values and Behaviours and embedded them into our core people processes so that they are recognised and understood by our colleagues. Having set the tone from the top by driving cultural change through our Group Executive Committee and business/ functional senior leaders, we have delivered a number of group-wide initiatives to embed the organisational culture. Our leadership development programme is underpinned by our Values, and ensures all senior management are aware of, and are enabled to role model our Values and Behaviours. Both the Barclays Leadership Academy and the Global Curriculum, which provides colleagues with development resources focused on personal and behavioural skill, are widely available and provide a consistent approach to core and leadership development.
We continue to assess candidate alignment to our Values and Behaviours through our recruitment and promotion processes and we also ensure new joiners attend the ‘Being Barclays’ Global Induction programme, which provides an in-depth experience of the Values and life at Barclays. All colleagues are required to attest and demonstrate their understanding of expected behaviours through the Global Code of Conduct (The Barclays Way).
Early careers and apprenticeships
Barclays is committed to helping young people achieve their ambitions when they enter the world of work, so our Early Careers proposition includes graduate, internship and apprenticeship programmes which provide structured support to young people. In 2015, we launched our Bolder Apprenticeship Programme, targeting long-term unemployed adults over the age of 24, which is the first of its kind in the UK and underlines our commitment to tackling societal issues and attracting diverse talent.
We provide pathways for progression from apprentice to graduate supported by recognised qualifications and, in doing so, help to create an internal talent pipeline. In 2015, Barclays hired over 1,000 interns, 800 graduates and have created over 2,500 apprenticeships since 2013. During 2015 we increased our gender diversity across our internship programmes by 8% to 42% female representation.
My Career and mentoring tool
Colleague development, both personal and professional, has been a priority in 2015. We launched the ‘My Career’ online portal which provides a wide range of information and tools to help colleagues understand their potential and make informed career decisions. We recognise the importance of great mentor relationships and have deployed an online tool to match mentors and mentees based on skill sets and experience.
Wellbeing
Our new global wellbeing programme, ‘Be Well’ launched in 2015, aiming to support employee engagement and improve health and well-being. The programme includes existing health and well-being resources, as well as new investment in areas such as employee health screenings, a global speaker series and a new global portal which acts as a gateway to education materials and events.
Performance management
Colleagues are encouraged to align their objectives to business and team goals and behavioural expectations are set in relation to our Values. Performance is assessed against both ‘what’ colleagues do and ‘how’ they do it. The ‘Values in Action’ framework provides all colleagues with the tools to assess ‘what’ objectives they achieved and ‘how’ they achieved them, together with a guide on expected behaviours in line with the Values. Our global recognition plan allows colleagues to recognise the outstanding achievements of those who have demonstrated our Values, with over 188,500 colleagues receiving a Values ‘Thank You’ in 2015.
Managing change
Where business restructuring has been necessary to support the transformation of our business and cost profile, we have consulted on potential job losses with employee representatives, as well as the impacted individuals. Our aim has been to treat all colleagues with respect and to avoid compulsory redundancies wherever possible. We have placed significant emphasis on both voluntary redundancy programmes as well as internal redeployment via “Internals First”.
Internals First supports colleagues who have been impacted by change and provides individual support to ensure that we retain talent within Barclays. Internals First is deployed in all our main locations and is managed by a dedicated team. In 2015, 935 colleagues registered for Internals First support and we redeployed 39% of them within Barclays. Throughout 2015, colleagues attended Internals First Career and Networking Events and opted for outplacement support services.
During 2015, we also developed ‘Be Informed’, which is available on both desktop and mobile devices. This intuitive support site gives transparent and helpful advice for colleagues who are impacted by change, including how to manage change, further career options available to them and where to go for help and support during periods of uncertainty.
When an employee does leave Barclays as a consequence of restructuring, our commitment is to ensure they are given the best support for the next stage in their career and life. Following an extensive review, a new globally consistent career transition service has been implemented which offers personalised advice and support for all employees placed at risk of redundancy.
Industrial relations
We continue to advocate and practise a partnership approach to industrial relations and value the relationships we have with over 30 trade unions, works councils and staff associations around the world. In particular, our formal partnership with Unite since 2000 is one of the longest standing in the UK. During 2015, we have continued to have regular, constructive dialogue with employee representatives on a wide range of topics that affect employees, facilitated through established regional consultation forums which bring together representatives from across our businesses.
We are confident that through all these established core people processes and others, we have created the right landscape at Barclays to sustain the desired organisational culture. We also believe that while we have a common purpose, Values, and vision, this can mean different things for different parts of our business and so we need to continue to shape our culture in a way that makes sense for each of our business areas. To that end, in 2015, each business CEO was tasked with driving the organisational culture for their business and we supported this by deploying business-specific training academies across the Group. This will continue into 2016.
46 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance
People
Your View
Barclays’ recognises the importance of listening to our colleagues and maintaining open, two-way dialogues between the organisation and colleagues. The views of our colleagues shape the decisions we make, helping us create an environment that colleagues want to work in, which we in turn believe will help drive high performance.
We deployed a global colleague survey, ‘Your View’ once again in 2015 to seek the views of colleagues. This year’s survey was more focused, based on the insights derived from the previous year’s survey, and asked for our colleagues’ views on a range of topics, including our Values, leadership and line management, the working environment, and citizenship. The results showed a near-universal understanding among colleagues of the Values and related behaviours (97% favourable) with 81% agreeing that role modelling the Values is central to creating the right culture at Barclays.
Compared to 2014, colleagues feel an increased sense of job accomplishment and enthusiasm, believe more strongly in Barclays’ goals, and are more likely to recommend Barclays as a place to work. Sustainable Engagement is at 75%, a 3% increase compared to 2014. This is a strong result, suggesting action taken during 2015 is having an impact, notwithstanding the continued and sustained change we have experienced. We have performed an in-depth review of the results of the survey with all senior leaders, and will continue to focus our efforts on improving employee engagement in 2016.
Barclays regularly updates employees regarding the financial and economic factors affecting the company’s performance throughout the year, using a variety of communications channels. These include CEO and senior leader email communications, line manager briefing packs, video interviews and talking points which are distributed to employees every quarter to coincide with Barclays’ financial reporting calendar. They are all designed to build awareness and understanding of Barclays’ results and the broader macroeconomic environment, and to drive dialogue around what the figures mean and how employees should respond. We also hold a variety of events for all employees, across each business division and function throughout the year, which provide employees the chance to hear directly from the CEO, ExCo member or leader and to ask them questions. We have also recently introduced an ‘Ask the Experts’ communication which gives perspectives from across the bank on what Barclays’ results mean and how they are received by different stakeholders such as investors, politicians and the media.
Flagship campaigns are released to all employees each quarter, covering topics such as wellbeing, recognition and dynamic working. Each quarter, colleagues and managers receive interactive updates to raise awareness of the tools being introduced to help them develop their careers at Barclays and to provide them with the opportunity to understand and engage in employee initiatives. Colleagues are also kept informed through regular intranet and email updates about the progress Barclays is making across activity such as our Diversity and Inclusion agenda, Performance Management and annual Pay and Reward processes.
Employees are invited to share their opinion on what it is like to work at Barclays through regular interactive events with senior leaders. These events provide employees with the opportunity to discuss their perspective on a range of areas to help senior management understand what is working well and where we need to improve. Any changes that are implemented as a result of colleague feedback are communicated through leadership briefings and engagement initiatives at an individual business/function level.
Colleagues are also encouraged to be involved with the company’s performance by participating in Barclays all-employee shareplans, which have been running successfully for over 10 years. Further details of our approach to remuneration are included in the Remuneration Report pages 53 and 54.
Diversity and inclusion
Barclays’ global Diversity and Inclusion (D&I) strategy sets out objectives, and frames our plans for each of five core pillars: Gender, LGBT, Disability, Multicultural and Multigenerational. Central to each pillar is building an inclusive culture, which is why we continue to build leadership competency about Unconscious Bias and have had more than 10,000 participants undertake the training. Following our 2014 programme to engage senior leaders, our ‘Everyday Ism’s’ programme has this year opened up dialogue with colleagues more widely focusing on stereotypes, assumptions and bias.
An important aspect of our D&I agenda is ensuring people from all backgrounds have equal opportunity to join, and progress through, our organisation. In support of this, we have established candidate shortlist diversity goals for senior positions to provide focus during talent decisions, and ensure hiring panels are diverse to broaden assessment perspectives.
This ethos begins with our most senior roles. Having achieved the target we set ourselves in 2012 to increase Board level diversity to 25%, we have now challenged ourselves to achieve a minimum of 33% by 2020. To strengthen the pipeline, we have consecutively achieved our year on year goals towards representation of women in senior roles to 26% by 2018. We have more to do, but are pleased when progress towards greater inclusion is recognised. During 2015, respected organisations such as Stonewall in the UK, Working Mother in the US and Community Business in Asia have praised our programmes and achievements, citing our D&I work as innovative and robust.
Gender
Sustaining progress towards our Balanced Scorecard and Board Diversity goals remains a core focus. Our Board membership has increased to four women, with one woman on Group Executive Committee. Our female senior leadership population stood at 23% at the end of 2015 representing a consecutive 1% increase year-on-year since 2011. Women are also leading countries where we operate, for example in Ireland, Brazil, Singapore, Botswana and Gibraltar.
At all levels, our gender pipeline is strengthening thanks to extensive programmes which focus on building capability and fostering gender intelligence. Our internal HeForShe campaign, in partnership with the United Nations, asks colleagues to pledge a specific commitment that will contribute to gender parity. Since launching HeForShe, 60% of new Women’s Initiative Network members have been male, and men have also taken active roles as mentors and sponsors.
Also new this year is our Returnship programme which is enabling senior women who needed to pause their career, the opportunity to refresh their skills and confidence in preparation for a return to leadership roles. For the eighth year running, we were pleased to be included in The Times Top 50 Workplaces for Women in the UK, and for the third successive year to be named in ‘Working Mother’ 100 Best Companies in the US.
Female representation
Above shows the positive change in female representation within Barclays from 2014 (H2) to 2015 (H2)
LGBT
An inclusive culture is vital for colleagues to have the freedom and choice to bring their whole selves to work, and in particular for people to be open about their sexual orientation if they choose to. Our Your View survey saw 5% of global colleagues identifying as being LGBT globally, a 1% increase since 2014. Enabling that culture are our Global Allies – colleagues from every region who share our commitment to LGBT equality and who take an active role in shaping an LGBT-inclusive workplace. The Allies programme is led by Spectrum, our employee network for anyone interested in LGBT matters. Since 2001, Spectrum has been an important contributor of insight and innovation and now connects colleagues across the world, with the Spectrum App providing access outside the workplace.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 47 |
‘#PrideHeroes’ was the theme of Pride in London, which we were again the lead sponsors of in 2015. More than 400 colleagues, leaders, friends and family came together for Pride, with many more joining other events across our regions of operation. A specially ‘Pride wrapped’ DLR train carried the ‘#RidewithPride’ message across London, with ATM’s up and down the UK communicating our support for LGBT equality. ATM messaging also conveyed our advocacy for IDAHOBIT (International Day Against Homophobia, Biphobia and Transphobia). For World AIDS Day, £ for £ matching augmented colleague fundraising for organisations leading on the treatment and prevention of AIDS.
Independent recognition reflects the sustained impact of our global work and further motivates us to continue to shape our culture so that colleagues can be themselves at work. In Singapore, we won best LGBT employee network at this year’s ALMA Awards, and Stonewall continue to name us as one of just eight ‘Star Performer’ organisations that are seen as leaders globally. Colleagues across a range of levels were this year recognised in the Financial Times OUTstanding list of 100 LGBT business leaders, and in the Pride Power List.
Disability
Our aspiration to become ‘the most accessible bank’ remains firm. Understanding where we need to focus attention is key which is why we value our Disability Listening forums to bring together colleagues who have insight with those who have influence to turn ideas into action. We listen to our customers too, directly and via our external partners – from RNIB to Leonard Cheshire – as part of our continual improvement ethos. Their feedback contributed to us becoming the first bank to receive an accreditation from AbilityNet for our Mobile Banking app, reflecting its improved accessibility functionality.
In another first, we successfully launched our Return on Disability Exchange Traded Notes (ETNs) on the New York Arca Stock Exchange. The ETNs are a first of a kind investment product, linked to the performance of an index developed in conjunction with The Return on Disability Group. They provide investors with exposure to US based companies that have acted to attract and serve people with disabilities, and their friends and family, as customers and employees.
Continually improving our own workplace is a steadfast aim, and is why we expanded ‘This Is Me’ from a UK to a global campaign. Originally focused on mental health, through ‘This Is Me’ colleagues tell their stories as to how disability touches their lives. The stories told via ‘This Is Me’ included members of our Reach employee network, which connects anyone interested in disability. The inclusive culture enabled by Reach is instrumental in helping us attract people who have a disability, so that they bring their talent to us. Our apprenticeship programme is just one career route that we are ensuring is fully accessible to all.
Awards and recognition from exemplar organisations, including the Business Disability Forum, indicates that we are fast moving towards our own ‘most accessible’ ambition but we want to share learning with others. To celebrate and recognise the 25th anniversary of the American Disability Act (ADA), we partnered with the New York Mayor’s Office to host the only B2B event in the ADA calendar to stimulate thought leadership and encourage partnership. Our Your view Survey saw over 6% of colleagues identifying as having a disability globally, a 1 percentage point improvement from previous year results.
We recognise ability is multi-faceted. We give full and fair consideration to applications from candidates who may have a disability. Our people processes ensure all colleagues can progress their careers, with comprehensive training and
development, and through tailored and needs-based workplace adjustments where relevant. Employees who become disabled during their employment with us can access a full range of services and support ensuring, where-ever possible, we retain their talent. Ongoing reviews ensure adjustments are updated and relevant to individual requirements, providing the ability for colleagues to move between roles with consistent support.
Multigenerational
We benefit from the diverse perspectives of employees from five generations and need to ensure our workplace is inclusive for all. ‘Work’ and ‘place’ are increasingly becoming less co-joined, with shifts in technology and generational expectations requiring us to think and act differently. Dynamic Working, our signature campaign relevant to colleagues’ every life stages with the strapline of ‘how do your work your life’, encourages dialogue about the integration of personal and professional responsibilities through smarter working. With flexibility and agility at the core, more than 12,000 line managers and their teams have participated in workshops, presentations and training to open up discussions about how work could be done differently.
Multigenerational
Above shows the different generations working at Barclays and the percentage change over 2014 (H2) and 2015 (H2)
Changing careers is another important time, which is why our Armed Forces Transitioning, Employment and Rehabilitation (AFTER) programme also continued to see ex-military talent join our company, or be supported to gain relevant work-ready skills. Our ‘LifeSkills’ programme continue to prepare young people for their first steps into the world of work and our Emerge network ensures new joiners, whatever their career stage, feel connected from the moment they arrive.
In Singapore, we won the Most Empowering Company for Mums award by the National Trades Union Congress while in the US we were included in the ‘100 Best Companies for Working Mothers’. In the UK, our approach to Talent Attraction was recognised by Working Mums as well as by Business In the Community who felt our apprenticeship and ‘LifeSkills’ programmes were award winning.
48 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance
People
Multicultural
Our global footprint covers more than 50 countries, making multicultural inclusion imperative. Fostering cross-cultural connections is enabled by Embrace our multicultural network which brings together all those who share an interest in all aspects of race, ethnicity, nationality and faith. Embrace took an active role in Interfaith week, when leaders hosted discussions to gain insight and ideas for better serving our multicultural customers and clients, and for engaging colleagues across our global community. Embrace also helped us mark important cultural and religious calendar dates throughout 2015 such as Diwali and Eid, creating communications and events to bring to life the rich multicultural diversity of our people. Day-to-day, this diversity is enabled by, for example, a dedicated quiet room in many of our larger sites for prayer and reflection, and by serving halal and kosher food in our canteens.
Ensuring Black, Asian and Minority Ethnic (BAME) female entrepreneurs can sustain and develop their businesses has been a shared focus via our partnership with the UK Women’s Business Council, and in 2015 we also supported the Black British Business Awards to celebrate the achievements of BAME leaders in the UK.
Insight from BAME colleagues has been put into practice for our attraction and recruitment processes, including profiling available roles in jobsites dedicated to the diverse job-seeker and targeting high calibre candidates for our apprenticeship programmes. 26% of our Bolder apprentices have been from a BAME background, evidencing our engagement approach is working but we will continue to strive to ensure our workforce is representative of our communities.
Multicultural
Above shows the percentage of underrepresented populations that make up our global and regional populations. Note that underrepresented populations are defined regionally to ensure inclusion with all groups in the workplace
a | UK includes Asian, Mixed, Black, Other and Non-disclosed. |
b | US includes Hispanic/Latino, Asian, Mixed, Black, Other and Non-disclosed. |
c | South Africa includes African, Indian, Coloured, Other, and Non-disclosed. |
FTE by region
2015 | 2014 | 2013 | ||||||||||
United Kingdom | 49,000 | 48,600 | 54,400 | |||||||||
Continental Eurpe | 7,400 | 9,900 | 9,800 | |||||||||
Americas | 10,600 | 10,900 | 11,100 | |||||||||
Africa and Middle East | 43,600 | 44,700 | 45,800 | |||||||||
Asia Pacific | 18,000 | 18,200 | 18,500 | |||||||||
Total | 129,400 | 132,300 | 139,600 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 49 |
Governance: Remuneration report
Annual statement from the Chairman of the Board Remuneration Committee
‘The Committee’s priorities are to ensure that Barclays pays for sustainable performance, aligns remuneration with risk and delivers a greater proportion of the income we generate to our shareholders.’
Remuneration Committee members
Chairman
Crawford Gillies (member from 1 May 2014,
Chairman from 24 April 2015)
Sir John Sunderland (until 23 April 2015)
Members
Sir David Walker (until 23 April 2015)
Tim Breedon
Steve Thieke
Dambisa Moyo (from 1 September 2015)
|
|
Page |
| |
Annual statement | 50 | |||
At a Glance – Performance and pay | 52 | |||
Remuneration policy for all employees | 53 | |||
2015 incentives | 55 | |||
Annual report on Directors’ remuneration | 59 | |||
Additional remuneration disclosures | 72 | |||
Directors’ remuneration policy (abridged) | 75 | |||
The tables marked ‘audited’ in the report have been audited by PricewaterhouseCoopers LLP
|
Dear Shareholders
I am pleased to introduce my first Remuneration report as Chairman of the Board Remuneration Committee, having taken over from Sir John Sunderland on 24 April 2015.
The Committee thought carefully about Barclays’ remuneration philosophy during 2015, and we agreed a revised, simplified statement, which articulates Barclays’ overarching approach to remuneration. This is set out in full on page 53 and is the background to our 2015 decisions.
The Committee’s priorities are to ensure that Barclays pays for sustainable performance, aligns remuneration with risk and delivers a greater proportion of the income we generate to our shareholders.
Performance and pay
The Committee’s 2015 pay decisions took full consideration of financial performance, both on an adjusted and a statutory basis, and non-financial performance including progress towards the 2018 targets within the Balanced Scorecard. The Committee also recognised the need to improve returns to shareholders and to accelerate delivery. We are committed to moving this forward in a manner that is consistent with Barclays’ Values to ensure that legacy events are not repeated.
Although there were improvements in the Core operating businesses, adjusted profit before tax was down 2% to £5,403m for 2015. Statutory profit before tax was down 8% at £2,073m. The Group’s capital position has continued to strengthen with a CRD IV fully loaded Common Equity Tier 1 (CET1) ratio of 11.4% and a leverage ratio of 4.5% at the end of the year. Cost targets have been met and Barclays Non-Core has made significant progress in reducing its risk weighted assets.
Against this background, the Group incentive pool for 2015 is again significantly lower than in prior years, down by £191m or 10% in absolute terms at £1,669m compared to the incentive pool of £1,860m for 2014. Similarly, the 2015 Investment Bank incentive pool is down 7%.
Total compensation costs are down 6%, and the compensation to adjusted net income ratio is 37.2%, down from 37.7% in 2014. Compensation to statutory net income ratio is 35.7%, down from 38.5% in 2014. The Core compensation to adjusted net income ratio is also down at 34.7% (2014: 35.7%). For a reconciliation of total incentive awards granted to the relevant income statement charge, see table on page 56.
Risk and conduct
A central feature of our remuneration philosophy is that remuneration must be aligned with risk, and with the conduct expectations of Barclays, our regulators and stakeholders. The Group incentive pool outlined above is after adjustments the Committee has made for both risk and conduct events. In addition to specific risk and conduct events, we also adjusted the incentive pool to take account of an overall assessment of a wide range of future risks, non-financial factors that can support the delivery of a strong conduct culture and other factors including reputation, impact on customers, markets and other stakeholders.
We have a robust process for considering risk and conduct issues as part of individual performance management reviews with outcomes reflected in individual incentive decisions. Individuals who are directly or indirectly accountable for risk and conduct events have had their remuneration adjusted as appropriate. This includes reductions in current year bonus levels and reductions in vesting amounts of deferred awards through the application of malus. Further details can be found on page 56.
Key remuneration decisions for executive Directors
2015 saw a change in Group Chief Executive. All of the associated remuneration decisions were made in accordance with the Directors’ remuneration policy approved by our shareholders at the 2014 Annual General Meeting (AGM).
We announced on 28 October 2015 that Jes Staley was to become Group Chief Executive with effect from 1 December 2015. He was appointed on a salary of £1,200,000 and Role Based Pay of £1,150,000 commensurate with market pay levels. He was not eligible for a 2015 bonus or a grant under the 2016-2018 long term incentive plan (LTIP) cycle. The Committee approved the grant of a share ‘buy-out’ award to compensate him for an unvested share award granted to him by a previous employer which was forfeited as a result of him joining Barclays.
50 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual statement from the Chairman of the Board Remuneration Committee
The award was made on terms aligned to the forfeited award. Jes Staley satisfied, at the date of joining, the executive Directors’ shareholding requirement of four times salary through his personal purchase of 2,790,000 Barclays shares.
During the four month period between Antony Jenkins’ departure as Group Chief Executive and Jes Staley starting in the role, John McFarlane served as Executive Chairman. He indicated to the Committee that he did not wish his remuneration to be increased during that time, and therefore his fee remained unchanged for the period during which he served as Executive Chairman.
The Committee also approved compensation arrangements on Antony Jenkins’ departure as Group Chief Executive during the year. Further details can be found on page 68.
Bonuses for both of the executive Directors in role at the start of 2015 were determined against the financial, Balanced Scorecard and personal measures set at the beginning of the year. The Committee approved a pro-rated bonus award of £505,000 for Antony Jenkins. A 2015 bonus award of £701,000 was approved for Tushar Morzaria. Tushar Morzaria took on significantly increased executive responsibilities in the second half of 2015 and we regard this bonus as fully deserved in recognition of his strong performance. Further details of the Committee’s 2015 decisions for the executive Directors are set out on pages 59 to 61.
During the year, we also reviewed the performance measures of our LTIP to ensure they are appropriate given our strategy and align the interests of executive Directors and shareholders. We have changed the financial measures and given them an increased weighting of 70% for the award to be granted in 2016 and added a comprehensive Risk Scorecard as the new risk measure which will focus on Barclays’ management of principal risks (including Conduct Risk). Before formal approval, we engaged with shareholders on these changes. Tushar Morzaria is the only participant in this LTIP cycle. Further details are set out on pages 62 and 63.
Regulatory developments
The volume and pace of regulatory change has continued during 2015.
The PRA made revisions to the Remuneration part of its Rulebook (formerly the UK Remuneration Code) which apply from 1 January 2016. These include the seven, five and three year ‘tiered’ deferral requirements for Senior Managers and different categories of Material Risk Taker (MRT) respectively, and the potential extension of the clawback period to 10 years for Senior Managers (under certain circumstances). These changes, which apply globally to Barclays as a UK-headquartered bank, further emphasise the competitive disadvantages attributable to the lack of a global level regulatory ‘playing field’.
Further revisions to the Remuneration part of the PRA Rulebook are expected during 2016 as a consequence of the European Banking Authority’s (EBA) final Guidelines on sound remuneration policies. The most significant changes include a prohibition on the payment of dividends on deferred shares and an increase to a one year (from six months) holding period for incentive awards delivered in shares to the large majority of MRTs. The Guidelines apply from 1 January 2017. The application of the Guidelines to UK firms, once confirmed by the PRA and FCA, will contribute to changes to our Directors’ remuneration policy in 2017.
Agenda for 2016
In line with legal requirements, we will be seeking shareholder approval for our Directors’ remuneration policy at the 2017 AGM. As a Committee we will review our remuneration policy to ensure that future arrangements are fully aligned to our strategy to accelerate delivery to shareholders in a manner consistent with Barclays’ Values and also to meet new regulatory requirements. This will be developed over the coming months and we will engage constructively with shareholders and regulators as we do so.
Our Remuneration report
We have provided an ‘At a glance’ summary of 2015 performance and pay on the next page. The Annual report on Directors’ remuneration provides further details.
The report has been prepared in accordance with the remuneration disclosures required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Remuneration report (other than the part containing the Directors’ remuneration policy) will be subject to an advisory vote by shareholders at the 2016 AGM.
On behalf of the Board
Crawford Gillies
Chairman, Board Remuneration Committee
29 February 2016
51 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
At a Glance – Performance and pay
How did we perform and pay in 2015?
The Committee’s 2015 pay decisions took full consideration of financial and non-financial performance. Statutory profit before tax decreased between 2014 and 2015 by 8%, while the absolute reduction in the Group incentive pool was 10%.
Since 2010 the Group incentive pool has declined steadily, from £3,484m in 2010 to £1,669m in 2015 – a decrease of more than 50% over five years. Over the same period, Group statutory profit before tax is down 65%.
Group incentive pool | ||
|
How much were executive Directors paid in 2015?
All of the Committee’s 2015 decisions in relation to executive Directors’ remuneration were made within the parameters of the Directors’ remuneration policy which was approved at the 2014 AGM.
| Antony Jenkinsa £000 |
| Tushar Morzaria £000 |
| | Jes Staleyb £000 | | |||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | ||||||||||||||
Fixed Pay | ||||||||||||||||||
Salary | 598 | 1,100 | 800 | 800 | 100 | |||||||||||||
Role Based Pay (RBP) | 516 | 950 | 750 | 750 | 96 | |||||||||||||
Benefits | 89 | 100 | 82 | 95 | 48 | |||||||||||||
Pension | 197 | 363 | 200 | 200 | 33 | |||||||||||||
Variable pay | ||||||||||||||||||
Annual Bonusc | 505 | 1,100 | 701 | 900 | – | |||||||||||||
LTIPd | 1,494 | 1,854 | – | – | – | |||||||||||||
Total pay | 3,399 | 5,467 | 2,533 | 2,745 | 277 |
Notes
a | The 2015 figures for Antony Jenkins relate to the period to 16 July 2015 when he ceased to be a Director, save in the case of the LTIP which relates to the whole period pursuant to the LTIP rules. In accordance with his contractual entitlements, Antony Jenkins will receive salary, RBP, benefits and pension, in instalments, until 7 July 2016 subject to mitigation. Full details of his leaving arrangements can be found on page 68. |
b | The 2015 figures for Jes Staley relate to the period from 1 December 2015 when he joined the Board as Group Chief Executive. On joining Barclays, Jes Staley was granted a share award of 896,450 Barclays shares to compensate him for an unvested share award granted to him by JP Morgan. The award will be delivered on 14 March 2016 in line with the vesting date of the original JP Morgan award. |
c | 2015 bonus awards reflect the formulaic outcome of 2015 performance against the financial measures and the Committee’s assessment of progress towards the Balanced Scorecard targets. These resulted in a total of 22.1% (out of 50% maximum) and 15% (out of 35%) of the maximum bonus being payable respectively. Personal objectives were assessed by the Committee on an individual basis. |
d | Over the 2013-2015 LTIP performance period, a return on risk weighted assets (RoRWA) of 0.21% and a loan loss rate (LLR) of 53 bps resulted in nil (out of 50%) outcome for RoRWA and 30% (out of 30%) for LLR. The Balanced Scorecard assessment was 9% (out of 20%). Therefore 39% of the maximum number of shares will be considered for release in March 2016, subject to an additional two year holding period. |
How will executive Directors’ pay be structured?
2016 Fixed pay
| Salary £000 | | | RBP £000 | | | Pension £000 | | ||||
Jes Staley | 1,200 | 1,150 | 396 | |||||||||
Tushar Morzaria | 800 | 750 | 200 |
Salary, RBP, pension and benefits are unchanged from 2015.
Variable pay | ||||||
2016 Annual Bonus | ||||||
Maximum 80% of fixed pay | ||||||
2016 performance measures and weighting: | ||||||
Financial | ||||||
Adjusted profit before tax | 20% | |||||
CET1 ratio | 20% | |||||
Adjusted costs | 10% | |||||
50% | ||||||
Balanced Scorecard | 35% | |||||
Personal objectives | 15% |
2016-2018 Long term incentive plan | ||||||
Maximum 120% of fixed pay | ||||||
2016-2018 cycle performance measures and weighting: | ||||||
Financial | ||||||
Adjusted return on tangible equity (subject to CET1 ratio underpin) | 25% | |||||
CET1 ratio | 25% | |||||
Cost: income ratio | 20% | |||||
70% | ||||||
Balanced Scorecard | 15% | |||||
Risk Scorecard(new Risk measure which will focus on Barclays’ management of principal risks, including Conduct Risk) | 15% |
Tushar Morzaria is the only participant in the 2016-2018 LTIP cycle.
52 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Remuneration policy for all employees
This section sets out Barclays’ remuneration policy for all employees, explaining the philosophy underlying the structure of remuneration packages, and how this links remuneration to the achievement of sustained high performance and long-term value creation.
Remuneration philosophy
In October 2015, the Committee formally adopted a revised, simplified remuneration philosophy which articulates Barclays’ overarching remuneration approach and is set out below.
Barclays’ Remuneration philosophy
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Attract and retain talent needed to deliver Barclays’ strategy
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Long term success depends on the talent of our employees. This means attracting and retaining an appropriate range of talent to deliver against our strategy, and paying the right amount for that talent
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Align pay with investor interests
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Ensure employees’ interests are aligned with those of investors (equity and debt holders), both in structure and the appropriate balance of returns
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Reward sustainable performance
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Sustainable performance means making a positive contribution to stakeholders, in both the short and longer term, playing a valuable role in society
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Support Barclays’ Values and culture
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Results must be achieved in a manner consistent with our Values. Our Values and culture should drive the way that business is conducted
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Align with risk appetite, risk exposure and conduct expectations
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Designed to reward employees for achieving results in line with the Bank’s risk appetite and conduct expectations
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Be clear, transparent and as simple as possible
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All employees and stakeholders should understand how we reward our employees. Remuneration structures should be as simple as possible so that everyone can understand how they work and the behaviours they reward
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Remuneration and performance
Our remuneration philosophy applies to all employees across the whole of Barclays. It ensures that all employees are aligned with and support the achievement of Barclays’ Group priorities.
This is achieved by linking remuneration to a broad assessment of performance, based on expected standards of delivery and behaviour, which are discussed with employees at the start of, and throughout, the performance year. Under the Barclays’ performance management approach, employees are encouraged to align each of their objectives to business and team goals, and behavioural expectations are set in relation to our Values. This ensures that clear expectations are set for not only ‘what’ employees are expected to deliver, but also ‘how’ they are expected to go about it.
Individual performance is then evaluated against both the ‘what’ (performance against objectives) and the ‘how’ (demonstration of our Values). This evaluation takes into account various factors including:
§ | performance against agreed objectives (both financial and non-financial) and core job responsibilities |
§ | adherence to relevant risk policies and procedures and control frameworks |
§ | behaviour in line with Barclays’ Values |
§ | colleague and stakeholder feedback |
§ | input from the Risk and Compliance functions where there are concerns about the behaviour of any individuals or the risk of the business undertaken. |
There is no specific weighting between the financial and non-financial considerations for employees because all of them are important to the determination of the overall performance assessment.
Linking individual performance assessment and remuneration decisions to both the Barclays’ business strategy and our Values in this way promotes the delivery of sustainable individual and business performance, and establishes clear alignment between remuneration policy and Barclays’ strategy.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 53 |
Remuneration structure
The remuneration structure for employees is aligned with that for executive Directors, set out in detail in the Directors’ remuneration policy which was approved by shareholders at the 2014 AGM. A full copy of the policy can be found on the Barclays PLC website. An abridged version is at pages 75 to 83 of this Report.
Employees receive salary, pension and other benefits and are eligible to be considered for an annual bonus. Employees in some customer-facing businesses participate in incentive plans including plans based on a balanced scorecard of performance which has good customer outcomes at its centre. The plans also recognise how results have been achieved in line with Barclays’ Values. Some senior employees receive Role Based Pay (RBP). Remuneration of PRA Material Risk Takers (MRTs) is subject to the 2:1 maximum ratio of variable to fixed pay. A total of 1,523 (2014: 1,277) individuals were MRTs in 2015.
Barclays is a long standing supporter of the Living Wage. As an accredited Living Wage employer, Barclays commits to ensure that all permanent UK employees and those UK employees of third party contractors who provide services to us at our sites, are paid at least the current London or UK Living Wage. This is a commitment which we have also extended to all our UK employed apprentices.
Fixed remuneration
Salary |
Salaries reflect individuals’ skills and experience and are reviewed annually in the context of annual performance assessment. They are increased where justified by role change, increased responsibility or a change in the latest available market data. Salaries may also be increased in line with local statutory requirements and in line with union and works council commitments.
| |
Role Based Pay (RBP)
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A small number of senior employees receive a class of fixed pay called RBP to recognise the seniority, breadth and depth of their role.
| |
Pension and benefits
|
The provision of a competitive package of benefits is important to attracting and retaining the talented staff needed to deliver Barclays’ strategy. Employees have access to a range of country specific company funded benefits, including pension schemes, healthcare, life assurance and Barclays share plans as well as other voluntary employee funded benefits. The cost of providing these benefits is defined and controlled. Gracechurch Services Corporation is used to employ US nationals seconded overseas allowing them to retain eligibility to US benefits.
|
Variable remuneration
Annual bonus |
Annual bonuses incentivise and reward the achievement of Group, business and individual objectives, and reward employees for demonstrating individual behaviours in line with Barclays’ Values.
| |
| ||
The ability to recognise performance through variable remuneration enables the Group to control its cost base flexibly and to react to events and market circumstances. Bonuses remain a key feature of remuneration practice in the highly competitive and mobile market for talent in the financial services sector. The Committee is careful to control the proportion of variable to fixed remuneration paid to individuals.
| ||
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Bonus deferral levels are significantly in excess of PRA requirements.
| ||
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The typical deferral structures include:
|
For MRTs: | For non-MRTs: | For Managing Directors in the Investment Bank: | ||||||||||||||
Incentive award | Amount deferred | Incentive award | Amount deferred | Incentive award | Amount deferred | |||||||||||
< £500,000 | 40% | Up to £65,000 | 0% | All values | 100% | |||||||||||
³ £500,000 | 60% | > £65,000 | Graduated level of deferral |
Deferred bonuses are generally delivered in equal portions as deferred cash under the Cash Value Plan (CVP) and deferred shares under the Share Value Plan (SVP), each typically vesting in annual tranches over three years subject to the rules of the plans (as amended from time to time) and continued service.
| ||
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Deferred bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil) at its discretion. Events which may lead the Committee to do this include, but are not limited to, employee misconduct or a material failure of risk management.
| ||
| ||
Clawback applies to any variable remuneration awarded to a MRT on or after 1 January 2015 in respect of years for which they are a MRT. Barclays may apply clawback if, at any time during the seven year period from the date on which variable remuneration is awarded to a MRT: (i) there is reasonable evidence of employee misbehaviour or material error, and/or (ii) the firm or the business unit suffers a material failure of risk management, taking account of the individual’s proximity to and responsibility for that incident.
| ||
Share plans |
Alignment of senior employees with shareholders is achieved through deferral of incentive pay into the SVP. We also encourage wider employee shareholding through the all employee share plans. 82% of the global employee population (excluding Africa) are eligible to participate.
|
54 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
2015 incentives
This section provides details of how 2015 total incentive award decisions were made.
2015 pay and performance headlines
The key performance considerations which the Committee took into account in making its remuneration decisions for 2015 are highlighted below:
§ | Group adjusted profit before tax was down 2% to £5,403m (2014: £5,502m) while the Investment Bank adjusted profit before tax was up 17% at £1,611m (2014: £1,377m) |
§ | Group statutory profit before tax was down 8% at £2,073m (2014: £2,256m) |
§ | the CET1 ratio was up to 11.4% (2014: 10.3%) |
§ | the leverage ratio was up to 4.5% (2014: 3.7%) |
§ | Balanced Scorecard – progress has been made against the Balanced Scorecard in respect of 2018 targets. |
The pay outcomes and decisions can be summarised as follows:
§ | the Group compensation to adjusted net income ratio improved to 37.2% (2014: 37.7%). The Core compensation to adjusted net income ratio also improved to 34.7% (2014: 35.7%) |
§ | the Group compensation to statutory net income ratio improved to 35.7% (2014: 38.5%) |
§ | total compensation costs decreased 6% to £8,339m (2014: £8,891m). Total compensation costs in the Investment Bank were down 5% at £3,423m (2014: £3,620m) |
§ | total incentive awards granted were £1,669m, down 10% on 2014. Investment Bank incentive awards granted were £976m, down 7% on 2014 |
§ | there has been strong differentiation on the basis of individual performance to allow the Group to more effectively manage compensation costs |
§ | average value of incentive awards granted per Group employee is £12,900 (2014: £14,100) and the average value of incentive awards granted per Investment Bank employee is £46,500 (2014: £51,400) |
§ | levels of bonus deferral continue to significantly exceed the minimum requirements in the Remuneration part of the PRA Rulebook and are expected to remain among the highest deferral levels globally. 2015 bonuses awarded to Managing Directors in the Investment Bank were again 100% deferred. |
2015 pay – Questions and answers
How do you justify a 2015 incentive pool of £1,669m?
The Committee remains focused on aligning pay to performance and setting pay at a level which is no more than necessary but is motivational to ensure that we accelerate the delivery of shareholder value.
In line with our financial performance, the final 2015 incentive pool at £1,669m is down 10% on 2014.
The following chart illustrates the reduction in variable remuneration over the period from 2010.
Barclays incentive pools
Notes
a | 2013 Investment Bank incentive pool has been restated from £1,574m to reflect the business reorganisation. The 2010, 2011 and 2012 Investment Bank incentive pools have not been restated. |
b | Part of the reduction in incentive pools in 2014 was due to the introduction of Role Based Pay. |
c | For a reconciliation of total incentive awards granted to the relevant income statement charge, see table on page 56. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 55 |
What have you done in terms of conduct adjustments in 2015?
A key feature of our revised remuneration philosophy is the alignment of remuneration with risk appetite and with the conduct expectations of Barclays, our regulators and stakeholders. The Committee takes risk and conduct events very seriously and ensures that there are appropriate adjustments to individual remuneration and, where necessary, the incentive pool.
The Remuneration Review Panel, which reports to the Committee, supports the Committee in this process. The Panel is chaired by the Chief Risk Officer and includes senior representatives from the key control functions of Risk, Compliance, Internal Audit, Legal and HR. It sets the policy and processes and is responsible for assessing and recommending to the Committee compensation adjustments for risk and conduct events.
We have a robust process for considering risk and conduct as part of individual performance management reviews with outcomes reflected in individual incentive decisions. When considering individual responsibility, a variety of factors are taken into account such as:
§ | whether the individual was solely responsible for the event or whether others were also responsible, if not directly involved, |
§ | whether the individual was aware (or could reasonably have been expected to be aware) of the failure, |
§ | whether the individual took or missed opportunities to take adequate steps to address the failure, and |
§ | whether the individual, by virtue of seniority, could be deemed indirectly responsible, including staff who drive the Group’s culture and set its strategy. |
Individuals who were directly or indirectly accountable for an event have had their remuneration adjusted as appropriate. This includes reductions in current year bonus levels and reductions in vesting amounts of deferred awards through the application of malus. In addition, a number of employees have been terminated for responsibility and accountability for risk and conduct events resolved during the year. The Committee fully acknowledges the impact such risk and conduct events have on shareholders and believes it is wholly appropriate that this should be reflected in incentive decisions for those whose performance and conduct falls short of Barclays’ standards.
The Committee recognises that conduct events continue to weigh on Group performance, impacting profitability and returns, so in addition to reductions to individuals’ incentive outcomes, material adjustments have also been made to the incentive pool for conduct. These included, but were not limited to, the settlement reached with the New York State Department of Financial Services in respect of its investigation into electronic trading of Foreign Exchange, the settlements reached with the US Securities and Exchange Commission and New York State Attorney General in respect of those agencies’ investigations relating to the operation of LX (an alternative trading system), and the settlement reached with the FCA following an investigation into whether Barclays carried out the appropriate due diligence in connection with a transaction it executed in 2012.
The Committee also made a further adjustment in respect of the settlements reached with a number of authorities in May 2015 in relation to investigations into certain sales and trading practices in the Foreign Exchange market and the setting of the US Dollar ISDAFIX benchmark, over and above the substantial adjustments made in 2014 as part of the Committee’s prudent approach towards incentive funding. The Committee took a similar prudent approach in determining 2015 incentive funding.
The overall impact on the incentive pool resulting from both the direct financial impact on performance and the additional adjustments applied by the Committee is a reduction in excess of £600m.
We have also, in addition to the adjustment for specific risk and conduct issues, adjusted the incentive pool to take account of an overall assessment of a wide range of future risks (including Conduct), non-financial factors that can support the delivery of a strong conduct culture and other factors including reputation, impact on customers, markets and other stakeholders.
Total incentive awards granted – current year and deferred (audited)
Barclays Group | Investment Bank | |||||||||||||||||||||||
| Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change | | Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change | |||||||||||
Total current year bonus | 839 | 885 | 5 | 367 | 381 | 4 | ||||||||||||||||||
Total deferred bonus | 661 | 757 | 13 | 579 | 634 | 9 | ||||||||||||||||||
Bonus pool | 1,500 | 1,642 | 9 | 946 | 1,015 | 7 | ||||||||||||||||||
Commissions, commitments and other incentives | 169 | 218 | 22 | 30 | 38 | 21 | ||||||||||||||||||
Total incentive awards granted | 1,669 | 1,860 | 10 | 976 | 1,053 | 7 | ||||||||||||||||||
Proportion of bonus that is deferred | 44% | 46% | 61% | 62% | ||||||||||||||||||||
Total employees (full time equivalent) | 129,400 | 132,300 | 2 | 21,000 | 20,500 | (2 | ) | |||||||||||||||||
Average bonus per employee | £12,900 | £14,100 | 9 | £46,500 | £51,400 | 10 |
Deferral levels vary according to the incentive award quantum. With reductions in incentive award levels, this has reduced the proportion of the bonus that is deferred.
Deferred bonuses are delivered, subject to the rules, and only once an employee meets certain conditions, including continued service. This creates a timing difference between the communication of the bonus pool and the charges that appear in the income statement which are reconciled in the table below:
Reconciliation of total incentive awards granted to income statement charge (audited)
Barclays Group | Investment Bank | |||||||||||||||||||||||
| Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change |
| Year ended 31.12.15 £m |
| | Year ended 31.12.14 £m | | % change | |||||||||||
Total incentive awards for 2015 | 1,669 | 1,860 | 10 | 976 | 1,053 | 7 | ||||||||||||||||||
Less: deferred bonuses awarded in 2015 | (661 | ) | (757 | ) | 13 | (579 | ) | (634 | ) | 9 | ||||||||||||||
Add: current year charges for deferred bonuses from previous years | 874 | 1,067 | 18 | 736 | 854 | 14 | ||||||||||||||||||
Othera | 2 | (108 | ) | 51 | 12 | |||||||||||||||||||
Income statement charge for performance costs | 1,884 | 2,062 | 9 | 1,184 | 1,285 | 8 |
Note
a Difference between incentive awards granted and income statement charge for commissions, commitments and other incentives
56 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
2015 incentives
§ | Employees only become eligible to receive payment from a deferred bonus once all of the relevant conditions have been fulfilled, including the provision of services to the Group. |
§ | The income statement charge for performance costs reflects the charge for employees’ actual services provided to the Group during the relevant calendar year (including where those services fulfil conditions attached to previously deferred bonuses). It does not include charges for deferred bonuses where conditions have not been met. |
§ | As a consequence, the 2015 incentive awards granted decreased 10% compared to 2014, while the income statement charge for performance costs decreased by 9%. |
Income statement charge (audited)
Barclays Group | Investment Bank | |||||||||||||||||||||||
| Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change |
| Year ended 31.12.15 £m |
| | Year ended 31.12.14 £m | | % change | |||||||||||
Deferred bonus charge | 874 | 1,067 | 18 | 736 | 854 | 14 | ||||||||||||||||||
Current year bonus charges | 839 | 885 | 5 | 367 | 381 | 4 | ||||||||||||||||||
Commissions, commitments and other incentives | 171 | 110 | (55) | 81 | 50 | (62) | ||||||||||||||||||
Performance costs | 1,884 | 2,062 | 9 | 1,184 | 1,285 | 8 | ||||||||||||||||||
Salariesa | 4,954 | 4,998 | 1 | 1,847 | 1,749 | (6) | ||||||||||||||||||
Social security costs | 594 | 659 | 10 | 248 | 268 | 7 | ||||||||||||||||||
Post retirement benefitsbc | 545 | 624 | 13 | 112 | 120 | 7 | ||||||||||||||||||
Allowances and trading incentives | 147 | 170 | 14 | 56 | �� | 64 | 13 | |||||||||||||||||
Other compensation costs | 215 | 378 | 43 | (24) | 134 | |||||||||||||||||||
Total compensation costsd | 8,339 | 8,891 | 6 | 3,423 | 3,620 | 5 | ||||||||||||||||||
Other resourcing costs | ||||||||||||||||||||||||
Outsourcing | 1,034 | 1,055 | 2 | 15 | 9 | (67) | ||||||||||||||||||
Redundancy and restructuring | 134 | 358 | 63 | 84 | 239 | 65 | ||||||||||||||||||
Temporary staff costs | 697 | 530 | (32) | 248 | 176 | (41) | ||||||||||||||||||
Other | 185 | 171 | (8) | 51 | 42 | (22) | ||||||||||||||||||
Total other resourcing costs
| 2,050 | 2,114 | 3 | 398 | 466 | 15 | ||||||||||||||||||
Total staff costs | 10,389 | 11,005 | 6 | 3,821 | 4,086 | 6 | ||||||||||||||||||
Compensation as % of adjusted net income | 37.2% | 37.7% | 45.5% | 47.6% | ||||||||||||||||||||
Compensation as % of statutory net income | 35.7% | 38.5% | 45.5% | 47.6% | ||||||||||||||||||||
Compensation as % of adjusted income | 34.0% | 34.6% | 45.2% | 47.7% | ||||||||||||||||||||
Compensation as % of statutory income | 32.8% | 35.2% | 45.2% | 47.7% |
Notes
a | Salaries include Role Based Pay and fixed pay allowances. |
b | Post retirement benefits charge includes £246m (2014: £242m) in respect of defined contribution schemes and £(130)m credit (2014: £382m) in respect of defined benefit schemes. |
c | 2015 post-retirement benefits have been adjusted to exclude the impact of a £429m (2014: nil) gain on valuation of a component of the defined benefit liability. Including the gain would result in a compensation: adjusted net income ratio of 35.3% and a compensation: adjusted income ratio of 32.3%. The aforementioned gain is already included in the statutory ratios. |
d | In addition, £236m of Group compensation (2014: £250m) was capitalised as internally generated software. |
§ | Total staff costs decreased 6% to £10,389m, principally reflecting a 9% decrease in performance costs and a 63% decrease in redundancy and restructuring charges. |
§ | Performance costs decreased 9%, reflecting a 18% decrease in the charges for deferred bonuses, a 5% decrease in the bonus charge partially offset by an increase in other performance charges. |
§ | Redundancy and restructuring charges decreased 63% to £134m, predominantly due to the non-recurrence of the 2014 restructuring costs in the Investment Bank. |
Deferred bonuses awarded are expected to be charged to the income statement in the years outlined in the table that follows.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 57 |
��
Year in which income statement charge is expected to be taken for deferred bonuses awarded to datea
Actual | Expectedb | |||||||||||||||
| Year ended 31.12.14 £m | | | Year ended 31.12.15 £m | | | Year ended 31.12.16 £m | | | 2017 and beyond £m | | |||||
Barclays Group | ||||||||||||||||
Deferred bonuses from 2012 and earlier bonus pools | 488 | 117 | 13 | – | ||||||||||||
Deferred bonuses from 2013 bonus pool | 579 | 293 | 111 | 17 | ||||||||||||
Deferred bonuses from 2014 bonus pool | – | 464 | 194 | 100 | ||||||||||||
Deferred bonuses from 2015 bonus pool | – | – | 370 | 247 | ||||||||||||
Income statement charge for deferred bonuses | 1,067 | 874 | 688 | 364 | ||||||||||||
Investment Bank | ||||||||||||||||
Deferred bonuses from 2012 and earlier bonus pools | 398 | 101 | 11 | – | ||||||||||||
Deferred bonuses from 2013 bonus pool | 456 | 239 | 93 | 13 | ||||||||||||
Deferred bonuses from 2014 bonus pool | – | 396 | 167 | 80 | ||||||||||||
Deferred bonuses from 2015 bonus pool | – | – | 341 | 217 | ||||||||||||
Income statement charge for deferred bonuses | 854 | 736 | 612 | 310 |
Bonus pool component | Expected grant date | Expected payment date(s)c | Year(s) in which income statement charge arisesd | |||
Current year cash bonus | § March 2016 | § March 2016 | § 2015 | |||
Current year share bonus | § March 2016 | § March 2016 | § 2015 | |||
Deferred cash bonus | § March 2016 | § March 2017 (33.3%) | § 2016 (48%) | |||
§ March 2018 (33.3%) | § 2017 (35%) | |||||
§ March 2019 (33.3%) | § 2018 (15%) | |||||
§ 2019 (2%) | ||||||
Deferred share bonus | § March 2016 | § March 2017 (33.3%) | § 2016 (48%) | |||
§ March 2018 (33.3%) | § 2017 (35%) | |||||
§ March 2019 (33.3%) | § 2018 (15%) | |||||
§ 2019 (2%) |
Notes
a | The actual amount charged and payments made are subject to all conditions being met prior to the expected payment date and will vary compared with the above expectation. In addition, employees receiving a deferred cash bonus may be awarded a service credit of 10% of the initial value of the award at the time that the final instalment is made, subject to continued employment. Dividend equivalent shares may also be awarded under SVP awards. |
b | Does not include the impact of grants which will be made in 2016 and 2017. |
c | Share awards may be subject to an additional holding period. |
d | The income statement charge is based on the period over which conditions are met. |
58 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
This section explains how our Directors’ remuneration policy was implemented during 2015.
Executive Directors
Executive Directors: Single total figure for 2015 remuneration (audited)
The following table shows a single total figure for 2015 remuneration in respect of qualifying service for each executive Director together with comparative figures for 2014.
| Salary £000 |
| | Role Based Pay £000 | | | Taxable benefits £000 | | Annual bonus £000 |
| LTIP £000 |
|
| Pension £000 |
| Total £000 |
| |||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||
Antony Jenkinsa | 598 | 1,100 | 516 | 950 | 89 | 100 | 505 | 1,100 | 1,494 | 1,854 | 197 | 363 | 3,399 | 5,467 | ||||||||||||||||||||||||||||||||||||||||||||||||
Tushar Morzaria | 800 | 800 | 750 | 750 | 82 | 95 | 701 | 900 | – | – | 200 | 200 | 2,533 | 2,745 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jes Staleyb | 100 | – | 96 | – | 48 | – | – | – | – | – | 33 | – | 277 | – |
Notes
a | The 2015 figures for Antony Jenkins relate to the period to 16 July 2015 when he ceased to be a Director, save in the case of the LTIP which relates to the whole performance period. Details of his leaving arrangements are provided on page 68. |
b | The 2015 figures for Jes Staley relate to the period from 1 December 2015 when he joined the Board as Group Chief Executive. |
John McFarlane was appointed Executive Chairman from 17 July 2015 pending the appointment of a new Group Chief Executive. At his request, he received no increase in fees. Details of his fees are provided on page 67. John McFarlane is not eligible to participate in Barclays’ cash, share or long-term incentive plans or pension plans.
Additional information in respect of each element of pay for the executive Directors (audited)
Salary
Jes Staley commenced employment as Group Chief Executive on 1 December 2015 on a salary of £1,200,000 per annum. Tushar Morzaria was paid a salary of £800,000 per annum as Group Finance Director. Antony Jenkins was paid a salary of £1,100,000 per annum.
Role Based Pay (RBP)
Executive Directors receive RBP which is delivered quarterly in shares, subject to a holding period with restrictions lifting over five years (20% each year). The value shown is of shares at the date awarded.
Taxable benefits
Taxable benefits include private medical cover, life and ill health income protection, tax advice, relocation, home leave related costs, car allowance, the use of a company vehicle and driver when required for business purposes and other benefits that are considered minor in nature.
Annual bonus
Annual bonuses are discretionary and are typically awarded in Q1 following the financial year to which they relate. The 2015 bonus awards reflect the Committee’s assessment of the extent to which the executive Directors achieved their Financial (50% weighting) and Balanced Scorecard (35% weighting) performance measures, and their personal objectives (15% weighting). More information on the performance measures and the outcomes for the 2015 bonuses is set out on pages 60 and 61. Jes Staley was not eligible for a 2015 bonus.
60% of each executive Director’s 2015 bonus will be deferred in the form of a share award under the Share Value Plan vesting over three years with one third vesting each year. 20% will be paid in cash and 20% delivered in shares. All shares (whether deferred or not deferred) are subject to a further six month holding period from the point of release. 2015 bonuses are subject to clawback provisions and, additionally, unvested deferred 2015 bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil).
LTIP
The LTIP amount included in Antony Jenkins’ 2015 single total figure is the value of the amount scheduled to be released in relation to the LTIP award granted in 2013 in respect of performance period 2013-2015. As Tushar Morzaria and Jes Staley were not participants in this cycle, the LTIP figure in the single figure table is shown as zero for them. Release is dependent on, amongst other things, performance over the period from 1 January 2013 to 31 December 2015. The performance achieved against the performance targets is as follows.
Performance measure | Weighting | Threshold | Maximum vesting | Actual | % of award vesting | |||||
Return on risk weighted assets (RoRWA) | 50% | 13% of award vests for average annual RoRWA of 1.1% | Average annual RoRWA of 1.6% | 0.21% | 0% | |||||
Loan loss rate | 30% | 10% of award vests for average annual loan loss rate of 75bps | Average annual loan loss rate of 60bps or below | 53bps | 30% | |||||
Balanced Scorecard | 20% | Performance against the Balanced Scorecard was assessed by the Committee to determine the percentage of the award that may vest between 0% and 20%. Each of the 5Cs in the Balanced Scorecard has equal weighting. | See below | 9% | ||||||
Total | 39% |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 59 |
A summary of the Committee’s assessment against the Balanced Scorecard performance measure over the three year performance period is provided below.
Category | Performance | Vesting out of maximum 4% for each ‘C’ | ||
Customer and Client | The Customer and Client Relationship metrics remained stable at 4th place as a strong performance in corporate banking, combined with improvements in Barclaycard UK and Barclays current accounts, was offset by the impact of reshaping the Wealth business and competitive challenges in South Africa. The Client Franchise Rank remained stable at 5th place in challenging market conditions. | 2% | ||
Colleague | There has been continued advancement towards Barclays’ 2018 gender goal of 26% women in senior leadership roles; at 23% by the end of 2015. Sustained Engagement is currently 75%, a positive result in light of the on-going change the organisation has experienced in 2015. Further work is required to achieve the 2018 target. | 2% | ||
Citizenship | In Citizenship Plan, 10 out of 11 metrics on target shows Barclays is having a positive impact on the communities in which it operates, with lending to households the only initiative to lose momentum primarily as a result of market and trading conditions. | 3% | ||
Conduct | While Conduct reputation as measured by the YouGov survey improved over the period, the Committee nevertheless determined that, by reference to the material conduct events that crystallised during the performance period, nil vesting was appropriate. | 0% | ||
Company | There has been a significant strengthening in the CET1 ratio, which is ahead of 2018 target, however there is plenty of work to do to deliver an acceptable return to shareholders, with adjusted RoE slightly down on 2014. | 2% | ||
Total | 9% |
The LTIP award is also subject to a discretionary underpin whereby the Committee must be satisfied with the underlying financial health of the Group based on profit before tax. The Committee was satisfied that this underpin was met, and accordingly determined that the award should be considered for release to the extent of 39% of the maximum number of shares under the total award. The shares are scheduled to be released in March 2016. After release, the shares are subject to an additional two year holding period.
Pension
Executive Directors are paid cash in lieu of pension contributions. This is market practice for senior executives in comparable roles.
2015 Annual bonus outcomes
The Committee considered each of the eligible executive Directors’ performance against the financial and non-financial measures which had been set to reflect the strategic priorities for 2015. Performance against their individual personal objectives (15% weighting overall) is assessed on an individual basis. The Committee may exercise its discretion to amend the formulaic outcome of assessment against the targets.
Financial (50% weighting)
The approach taken to assessing financial performance against each of the financial measures is based on a straight line outcome between 25% for threshold performance and 100% applicable to each measure for achievement of maximum performance.
The formulaic outcome from 2015 performance against the financial measures gave a total of 22.1% out of 50% being payable attributable to those measures. A summary of the assessment is provided in the following table.
Financial performance measure | Weighting | Threshold 25% | Maximum 100% | 2015 Actual | | 2015 Outcome | | |||||||||||||||
Adjusted profit before tax | 20% | £5,801m | £7,022m | £5,403m | 0.0% | |||||||||||||||||
Adjusted costs (ex CTA) | 10% | £16,780m | £15,182m | £16,205m | 5.2% | |||||||||||||||||
CET1 ratio | 10% | 10.47% | 11.34% | 11.4% | 10.0% | |||||||||||||||||
Leverage ratio | 10% | 4.17% | 4.72% | 4.5% | 6.9% | |||||||||||||||||
Total Financial | 50% | 22.1% |
60 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
Balanced Scorecard (35% weighting)
Progress in relation to each of the five ‘Cs’ of the Balanced Scorecard was assessed by the Committee. The Committee took an approach based on a three-point scale in relation to each measure, with 0% to 3% for ‘below’ target, 4% or 5% for a ‘met’ target, and 6% or 7% for ‘above’ target progress against a particular Balanced Scorecard component.
Based on this approach to assessing performance against 2015 Balanced Scorecard milestones, the Committee agreed a 15% outcome out of a maximum of 35%. A summary of the assessment is provided in the following table.
Balanced Scorecard – 5 Cs | Weighting | Metric | | 2015 Target | | | 2015 Actual | | 2015 Assessment by the Committee | 2015 Outcome out of maximum 7% for each ‘C’ | ||||||||
Customer and Client | 7% | PCB, Barclaycard and Africa Banking weighted average ranking of Relationship Net Promoter Score v peer sets Client Franchise Risk | 4th | 4th | Met target | 4.0% | ||||||||||||
5th | 5th | Met target | ||||||||||||||||
Colleague | 7% | Sustained engagement of colleagues’ score | 82-88% | 75% | Below target | |||||||||||||
% women in senior leadership | 23% | 23% | Met target | 2.0% | ||||||||||||||
Citizenship | 7% | Citizenship Plan – initiatives | 11/11 | 10/11 | Below target | 3.0% | ||||||||||||
Conduct | 7% | Conduct Reputation (You Gov Survey) | 5.6/10 | 5.4/10 | Below target | 3.0% | ||||||||||||
Company | 7% | Adjusted return on equity | 5.9% | 4.9% | Below target | |||||||||||||
CET1 ratio | 11.0% | 11.4% | Above target | 3.0% | ||||||||||||||
Total Balanced Scorecard | 35% | 15.0% |
Individual outcomes including assessment of personal objectives
Performance against each of the executive Directors’ individual personal objectives (15% weighting overall) was assessed by the Committee on an individual basis.
(i) Antony Jenkins
A summary of the assessment for Antony Jenkins against his specific performance measures is provided in the following table.
Performance measure | Weighting | Outcome | ||||||||
Financial | See table on page 60 | 50% | 22.1% | |||||||
Balanced Scorecard – 5Cs | See table above | 35% | 15.0% | |||||||
Personal objectives | Judgemental assessment – see below | 15% | 11.0% | |||||||
Total | 100% | 48.1% | ||||||||
Final outcome approved by the Remuneration Committee | 48.1% |
The Committee determined at the time of his departure that he would remain eligible for a pro rated 2015 bonus for the part of the year in which he was Group Chief Executive, subject to an assessment post year end of the relevant performance measures and the general discretion of the Committee. Although it was deemed the appropriate time for Barclays to change Group Chief Executive in mid-2015, the Committee recognised that during the first half of the year Antony Jenkins showed full commitment to continuing to embed a customer and client focused culture backed by the Barclays’ Values and to delivering on financial commitments with particular focus on capital accretion, reducing costs and continuing the run-down of Non-Core. He was also responsible for ensuring that the Conduct Risk Framework was embedded into the business. Given Antony Jenkins’ overall personal performance in the first half of the year, the Committee judged that 11% of a maximum of 15% was appropriate.
In aggregate, the performance assessment resulted in an overall formulaic outcome of 48.1% of maximum bonus opportunity being achieved. The resulting 2015 bonus, pro rated for service, is £505,000.
(ii) Tushar Morzaria
A summary of the assessment for Tushar Morzaria against his specific performance measures is provided in the following table.
Performance measure | Weighting | Outcome | ||||||||
Financial | See table on page 60 | 50% | 22.1% | |||||||
Balanced Scorecard – 5Cs | See table above | 35% | 15.0% | |||||||
Personal objectives | Judgemental assessment – see below | 15% | 13.0% | |||||||
Total | 100% | 50.1% | ||||||||
Final outcome approved by the Remuneration Committee | 50.1% |
The Committee concluded that Tushar Morzaria had delivered a strong personal performance throughout the year, and noted that during the second half of the year (pending Jes Staley’s arrival) this was achieved while discharging considerably increased executive responsibilities. During 2015, Tushar Morzaria continued to drive transformational change, encouraging focus on the simplification of the operating model, including improved process and technology. He managed external relationships very effectively, in particular with shareholders, investors and regulators. He personally worked hard on improving colleague engagement and diversity and actively participated in supporting and promoting Barclays’ Citizenship agenda. He has managed risk effectively and embedded a positive risk culture. He has also fully embedded the Conduct Risk Framework into the activities of Group Finance, Tax and Treasury. The Committee, in particular, recognised Tushar Morzaria’s role in the significant improvement in the Bank’s capital position and in driving further focus on close and effective cost management during 2015. Given this strong personal performance, the Committee judged that 13% of a maximum of 15% attributable to individual objectives was appropriate.
As a result, the formulaic outcome for Tushar Morzaria would be 50.1% of maximum bonus opportunity. The resulting 2015 bonus is £701,000.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 61 |
Executive Directors: other LTIP awards
The Directors’ remuneration reporting regulations require inclusion in the single total figure of only the value of the LTIP awards whose last year of performance ends in the relevant financial year and whose vesting outcome is known. For 2015, this is the award to Antony Jenkins under the 2013-2015 LTIP cycle and further details are set out on page 59. This section sets out other LTIP cycles in which the executive Directors participate, the outcome of which remains dependent on future performance.
LTIP awards to be granted during 2016
The Committee decided to make an award under the 2016-2018 LTIP cycle to Tushar Morzaria with a face value at grant of 120% of his fixed pay at 31 December 2015. Jes Staley is not eligible for a grant under the 2016-2018 LTIP cycle.
The 2016-2018 LTIP award will be subject to the following performance measures.
Performance measure | Weighting | Threshold | Maximum vesting | |||
Adjusted return on tangible equity (RoTE) | 25% | 6.25% of award vests for average adjusted RoTE of 7.5% | average adjusted RoTE of 10.0% | |||
CET1 ratio must remain at or above an acceptable level for any of this element to vest. The threshold will be reviewed and set annually based on market conditions and regulatory requirements (11% as at 31 December 2016). | ||||||
CET1 ratio as at 31 | 25% | 6.25% of award vests for CET1 ratio of 11.6% | CET1 ratio of 12.7% | |||
Cost:income ratio | 20% | 5% of award vests for average cost:income ratio of 66% | average cost:income ratio of 58% | |||
Risk Scorecard | 15% | Performance against the Risk Scorecard is assessed by the Committee, with input from the Group Risk function, Board Risk Committee and Board Reputation Committee as appropriate, to determine the percentage of the award that may vest between 0% and 15%. The Risk Scorecard measures performance against three broad categories – Risk Profile (including Conduct), Control Environment and Risk Capability – using a combination of quantitative and qualitative metrics. Specific targets within each of the categories are deemed to be commercially sensitive. Retrospective disclosure of performance will be made in the 2018 Remuneration report subject to commercial sensitivity no longer remaining. | ||||
Balanced Scorecard | 15% | Performance against the Balanced Scorecard is assessed by the Committee to determine the percentage of the award that may vest between 0% and 15%. Each of the 5Cs in the Balanced Scorecard has equal weighting. Assessment will be made against progress towards the 2018 targets. |
Straight line vesting applies between the threshold and maximum points in respect of the financial measures.
The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.
Outstanding LTIP awards
(i) LTIP awards granted during 2014
The performance measures for the awards made under the 2014-2016 LTIP cycle are shown below.
Performance measure | Weighting | Threshold | Maximum vesting | |||
Return on risk weighted assets (RoRWA) | 50% | 23% of award vests for average annual RoRWA of 1.08% | Average annual RoRWA of 1.52% | |||
Loan loss rate | 20% | 7% of award vests for average annual loan loss rate of 70bps | Average annual loan loss rate of 55bps or below | |||
Balanced Scorecard | 30% | Performance against the Balanced Scorecard is assessed by the Committee to determine the percentage of the award that may vest between 0% and 30%. Each of the 5Cs in the Balanced Scorecard has equal weighting. The targets within each of the 5Cs are deemed to be commercially sensitive. However, retrospective disclosure of the targets and performance against them will be made in the 2016 Remuneration report subject to commercial sensitivity no longer remaining. |
Straight line vesting applies between the threshold and maximum points in respect of the RoRWA and loan loss rate measures. If the Committee is satisfied with the underlying financial health of the Group based on profit before tax, depending on the extent of its satisfaction, the percentage of Barclays shares that may be considered for release by the Committee under the RoRWA measure can be increased or decreased by 10% of the total award, subject always to a maximum of 50% of the award. Performance outcome will be determined at the end of the performance period. For Antony Jenkins, the resulting number of shares will then be pro-rated to his termination date.
(ii) LTIP awards granted during 2015
Awards were made on 16 March 2015 under the 2015-2017 LTIP cycle at a share price on the date of grant of £2.535, in accordance with our remuneration policy to the executive Directors. This is the price used to calculate the face value below.
% of fixed pay | Number of shares | Face value at grant | Performance period | |||||||||||||
Antony Jenkins | 120% | 1,142,248 | £2,895,599 | 2015-2017 | ||||||||||||
Tushar Morzaria | 120% | 828,402 | £2,099,999 | 2015-2017 |
62 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
The performance measures for the 2015-2017 LTIP awards are as follows:
Performance measure | Weighting | Threshold | Maximum vesting | |||
Net generated equitya | 30% | 7.5% of award vests for Net Generated Equity of £1,363m | Net Generated Equity of £1,844m | |||
Core return on risk weighted assets (RoRWA) excluding own credit | 20% | 5% of award vests for average annual Core RoRWA of 1.34% | Average annual Core RoRWA of 1.81% | |||
Non-Core drag on adjusted return on equity (RoE) | 10% | 2.5% of award vests for Non-Core drag on adjusted RoE of –4.02% | Non-Core drag on adjusted RoE of –2.97% | |||
Loan loss rate | 10% | 2.5% of award vests for average annual loan loss rate of 70bps | Average annual loan loss rate of 55bps or below | |||
Balanced Scorecard | 30% | Performance against the Balanced Scorecard is assessed by the Committee to determine the percentage of the award that may vest between 0% and 30%. Each of the 5Cs in the Balanced Scorecard has equal weighting. The targets within each of the 5Cs are deemed to be commercially sensitive. However, retrospective disclosure of the targets and performance against them will be made in the 2017 Remuneration report subject to commercial sensitivity no longer remaining. |
Note
a | Net generated equity is a metric which converts changes in the CET1 ratio into an absolute capital equivalent measure. For remuneration purposes, Net generated equity will exclude inorganic actions such as rights issues, as determined by the Committee. |
Straight line vesting applies between the threshold and maximum points in respect of the financial and risk measures. The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group. For Antony Jenkins, the resulting number of shares will then be pro-rated to his termination date.
Executive Directors: pension (audited)
Jes Staley and Tushar Morzaria receive cash in lieu of pension. The 2015 cash in lieu of pension shown below for Jes Staley is for the period 1 December 2015 to 31 December 2015.
Antony Jenkins left the UK pension scheme in April 2012, and then started receiving cash in lieu of pension. He has benefits in both the final salary 1964 section and in the cash balance Afterwork section. The accrued pension shown below relates to his 1964 section pension only. The other pension entries relate to his benefits in both sections. Antony Jenkins ceased to be an executive Director on 16 July 2015. The 2015 cash in lieu of pension shown below is for the period 1 January 2015 to 16 July 2015.
| Accrued pension at 31 December 2015 £000 |
| | Increase in value of accrued pension over year net of inflation £000 | |
| Normal retirement date |
| | Pension value in 2015 from DB Scheme £000 | | | 2015 Cash in lieu of pension £000 | | | 2015 Total £000 | | |||||||
Antony Jenkins | 4 | 0 | 11 July 2021 | 0 | 197 | 197 | ||||||||||||||||||
Tushar Morzaria | – | – | – | 200 | 200 | |||||||||||||||||||
Jes Staley | – | – | – | 33 | 33 |
Executive Directors: Statement of implementation of remuneration policy in 2016
The introduction of new deferral and LTIP requirements in the Remuneration part of the PRA Rulebook and EBA Guidelines will require some structural changes as to how the approved Directors’ remuneration policy will be implemented in 2016. It is therefore our intent to consult with shareholders over proposed changes once formulated. This section explains how the approved Directors’ remuneration policy would be implemented in 2016 under the current framework.
Jes Staley | Tushar Morzaria | Comments | ||||||
Salary | £1,200,000 | £800,000 | No change from 2015. | |||||
RBP | £1,150,000 | £750,000 | Delivered quarterly in shares subject to a holding period with restrictions lifting over five years. No change from 2015. | |||||
Pension | 33% of salary | 25% of salary | Fixed cash allowance in lieu of participation in pension plan. No change from 2015. | |||||
Maximum bonus
| 80% of fixed pay
| 80% of fixed pay
| Variable remuneration for the executive Directors is delivered through bonus and LTIP, both of which are currently deferred over three years. Variable remuneration for the 2016 performance year will be delivered in line with the requirements of the Remuneration part of the PRA Rulebook, including the vesting requirements. Awards under the LTIP will be delivered in shares. The performance and holding periods will be determined before the awards are made in Q1 2017. Vesting will be dependent on performance over the performance period and subject to a further holding period after vesting. | |||||
Maximum LTIP | 120% of fixed pay | 120% of fixed pay | ||||||
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 63 |
Total Fixed Pay
The Directors’ remuneration policy sets out the policy on RBP for executive Directors. Following the EBA Guidelines, published in December 2015, and despite the formal power to reduce RBP in the Directors’ remuneration policy, the Committee has agreed, as they also did in 2015, that total fixed pay (salary and RBP elements) will not be reduced in 2016. The Committee will review the structure of RBP in light of the change in regulation and any changes will be reflected in the Directors’ remuneration policy which will be presented to shareholders for approval at the 2017 AGM.
Clawback and malus
Clawback applies to any variable remuneration awarded to the executive Directors on or after 1 January 2015. Barclays may apply clawback if at any time during the seven year period from the date on which any variable remuneration is awarded: (i) there is reasonable evidence of individual misbehaviour or material error, and/or (ii) the firm suffers a material failure of risk management, taking account of the individual’s proximity to and responsibility for, that incident. For variable remuneration awards granted to executive Directors in respect of 2016 onwards, the clawback period may be extended to 10 years in circumstances where the Company or a regulatory authority has commenced an investigation which could potentially lead to the application of clawback.
As set out in the Directors’ remuneration policy, malus provisions will continue to apply to unvested deferred awards.
Deferral
A seven year deferral period (with no vesting prior to the third anniversary of award, and vesting no faster than on a pro rata basis between the third and seventh year), will apply to any deferred variable remuneration awarded to the executive Directors in respect of the 2016 performance year onwards.
2016 Annual bonus performance measures
Performance measures with appropriately stretching targets have been selected to cover a range of financial and non-financial goals that support the key strategic objectives of the Company. The performance measures and weightings are shown below.
Financial (50% weighting) |
§ Adjusted profit before tax (20% weighting) | |
§ Adjusted costs (10% weighting) | ||
A performance target range has been set for each financial measure.
|
§ CET1 ratio (20% weighting) | |
Balanced Scorecard (35% weighting)
|
Progress towards the five year Balanced Scorecard targets will be assessed by the Committee at the year end. Each of the 5Cs in the Balanced Scorecard will have equal weighting
| |
Personal (15% weighting) |
The executive Directors have the following joint personal objectives for 2016: | |
§ structure the business effectively, ensuring it is focused on a sustainable core proposition with a simpler performing portfolio, with the majority of restructuring completed in 2016 | ||
§ make significant progress in exiting Non-Core by the end of 2016 | ||
§ deliver on financial commitments with particular focus on improvement in cost and productivity, as evidenced by an improved profit and a lower cost:income ratio | ||
§ manage risk and conduct effectively and make significant progress in ensuring that legacy events are both resolved expediently and not repeated. | ||
In addition, individual personal objectives for 2016 are as follows:
Jes Staley: | ||
§ implement the new management structure to support structural reform, including a new operating model designed to improve efficiency | ||
§ make substantive progress towards a higher performing culture in line with our Values, while strengthening employee engagement at all levels | ||
§ foster an externally focused and customer-centric culture. | ||
Tushar Morzaria: | ||
§ demonstrate effective management of external relationships and reputation | ||
§ strengthen the performance ethic and employee engagement in Group Finance, Tax and Treasury, while also improving productivity.
|
Detailed calibration of the Financial and Balanced Scorecard targets is commercially sensitive and it is not appropriate to disclose this information externally on a prospective basis. Disclosure of achievement against the targets will be made in the 2016 Annual Report subject to the targets no longer being commercially sensitive. The Committee may exercise its discretion to amend the formulaic outcome of assessment against the targets. Any exercise of discretion will be disclosed and explained.
64 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
Illustrative scenarios for executive Directors’ remuneration
The charts below show the potential value of the executive Directors’ 2016 remuneration in three scenarios: ‘Minimum’ (i.e. fixed pay only), ‘Maximum’ (i.e. fixed pay and the maximum variable pay that may be awarded) and ‘Mid-point’ (i.e. fixed pay and 50% of the maximum variable pay that may be awarded). For the purposes of these charts, the value of benefits is based on an estimated annual value. The scenarios do not reflect share price movement between award and vesting. LTIP is included at face value; the amount received and included in the single total figure for remuneration will depend on performance over the performance period.
A significant proportion of the potential remuneration of the executive Directors is variable and is therefore performance related. It is also subject to deferral, malus and clawback.
Total remuneration opportunity:Group Chief Executive (£000) | Total remuneration opportunity:Group Finance Director (£000) | |||
![]() | ![]() |
In the above illustrative scenarios, benefits include regular contractual benefits. Additional ad hoc benefits may arise, for example, overseas relocation of executive Directors, but will always be provided in line with the Directors’ remuneration policy.
Performance graph and table
The performance graph below illustrates the performance of Barclays over the financial years from 2009 to 2015 in terms of total shareholder return compared with that of the companies comprising the FTSE 100 index. The index has been selected because it represents a cross-section of leading UK companies.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 65 |
In addition, the table below provides a summary of the total remuneration of the relevant Group Chief Executive over the same period as the previous graph. For the purpose of calculating the value of the remuneration of the Group Chief Executive, data has been collated on a basis consistent with the ‘single figure’ methodology.
Year | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | 2014 | | 2015 | | 2015 | 2015 | ||||||||||||||||||||||||||||
Group Chief Executive | | John Varley | | | John Varley | | | Bob Diamond | | | Bob Diamonda | | | Antony Jenkinsb | | | Antony Jenkins | | | Antony Jenkins | |
| Antony Jenkinsb |
|
| John McFarlanec |
| | Jes Staleyd | | ||||||||||
Group Chief Executive single figure of total remuneration £000s | 2,050 | 4,567 | 11,070e | 1,892 | 529 | 1,602 | 5,467f | 3,399 | 305 | 277 | ||||||||||||||||||||||||||||||
Annual bonus against maximum opportunity % | 0% | 100% | 80% | 0% | 0% | 0% | 57% | 48% | N/A | N/A | ||||||||||||||||||||||||||||||
Long-term incentive vesting against maximum opportunity % | 50% | 16% | N/Af | 0% | N/Ag | N/Ag | 30% | 39% | N/Ag | N/Ag |
Notes
a | Bob Diamond left the Board on 3 July 2012. |
b | Antony Jenkins became Group Chief Executive on 30 August 2012 and left the Board on 16 July 2015. |
c | John McFarlane was Executive Chairman from 17 July 2015 to 30 November 2015. His fees, which remained unchanged, have been pro-rated for his time in the position. He was not eligible to receive a bonus or LTIP. |
d | Jes Staley became Group Chief Executive on 1 December 2015. |
e | This figure includes £5,745k tax equalisation as set out in the 2011 Remuneration report. Bob Diamond was tax equalised on tax above the UK rate where that could not be offset by a double tax treaty. |
f | Antony Jenkins’ 2014 pay is higher than in earlier years since he declined a bonus in 2012 and 2013 and did not have LTIP vesting in those years. |
g | Not a participant in a long-term incentive award which vested in the period. |
Percentage change in Group Chief Executive’s remuneration
The table below shows how the percentage change in the Group Chief Executive’s salary, benefits and bonus between 2014 and 2015 compares with the percentage change in the average of each of those components of pay for UK based employees.
Salary | Role Based Pay | Benefits | Annual bonus | |||||||||
Group Chief Executivea | 0.0% | 0.0% | 20.0%b | (15.6%) | ||||||||
Average based on UK employeesc | 3.0% | 12.2%d | 0.0% | (8.0%) |
Notes
a | The 2015 figures for the Group Chief Executive are based on former Group Chief Executive, Antony Jenkins, and are annualised in order to provide a meaningful comparison of the year on year change in remuneration for the Group Chief Executive and UK based employees. |
b | The percentage change in benefits for the Group Chief Executive represents an increase in the cost to Barclays of existing benefits. There was no change in actual benefit provision to the former Group Chief Executive from 2014 to 2015. |
c | Certain populations were excluded to enable a meaningful like for like comparison. |
d | The majority of the increase was due to the introduction of Role Based Pay to certain populations, including new MRTs required to comply with PRA/EBA requirements. |
We have chosen UK based employees as the comparator group as it is the most representative group for pay structure comparisons.
Relative importance of spend on pay
A year on year comparison of the relative importance of pay and distributions to shareholders is shown below. 2015 Group compensation costs have reduced by 6% and dividends to shareholders have increased 2% from 2014.
Group Compensation Costs (£m) | Dividends to Shareholders (£m) | |||
![]() | ![]() |
66 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
Chairman and non-executive Directors
Remuneration for non-executive Directors reflects their responsibilities and time commitment and the level of fees paid to non-executive Directors of comparable major UK companies.
Chairman and non-executive Directors: Single total figure for 2015 fees (audited)
Fees | Benefits | Total | ||||||||||||||||||||||
| 2015 £000 | | | 2014 £000 | | | 2015 £000 | | | 2014 £000 | | | 2015 £000 | | | 2014 £000 | | |||||||
Chairman | ||||||||||||||||||||||||
John McFarlanea | 628 | – | 11 | – | 639 | – | ||||||||||||||||||
Sir David Walkerb | 285 | 750 | 6 | 19 | 291 | 769 | ||||||||||||||||||
Non-executive Directors | ||||||||||||||||||||||||
Mike Ashley | 207 | 213 | – | – | 207 | 213 | ||||||||||||||||||
Tim Breedon | 232 | 240 | – | – | 232 | 240 | ||||||||||||||||||
Crawford Gilliesc | 178 | 91 | – | – | 178 | 91 | ||||||||||||||||||
Reuben Jeffery III | 135 | 160 | – | – | 135 | 160 | ||||||||||||||||||
Wendy Lucas-Bulld | 358 | 367 | – | – | 358 | 367 | ||||||||||||||||||
Dambisa Moyo | 152 | 151 | – | – | 152 | 151 | ||||||||||||||||||
Frits van Paasschen | 88 | 80 | – | – | 88 | 80 | ||||||||||||||||||
Sir Michael Rakee | 250 | 250 | – | – | 250 | 250 | ||||||||||||||||||
Diane de Saint Victor | 135 | 135 | – | – | 135 | 135 | ||||||||||||||||||
Diane Schuenemanfk | 74 | – | – | – | 74 | – | ||||||||||||||||||
Sir John Sunderlandg | 60 | 190 | – | – | 60 | 190 | ||||||||||||||||||
Steve Thiekehk | 184 | 131 | – | – | 184 | 131 | ||||||||||||||||||
Fulvio Contii | – | 37 | – | – | – | 37 | ||||||||||||||||||
Simon Fraserj | – | 47 | – | – | – | 47 | ||||||||||||||||||
Total | 2,966 | 2,842 | 17 | 19 | 2,983 | 2,861 |
Non-executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays.
The Chairman is provided with private medical cover and the use of a company vehicle and driver when required for business purposes.
Notes
a | John McFarlane joined the Board as a non-executive Director with effect from 1 January 2015 and as Chairman from 24 April 2015. The total includes non-executive Director fees of £78,000 for the period from 1 January 2015 to 24 April 2015. |
b | Sir David Walker retired from the Board with effect from 23 April 2015. |
c | Crawford Gillies joined the Board as a non-executive Director with effect from 1 May 2014. |
d | The 2014 figure has been updated to include fees received by Wendy Lucas-Bull for her role as Chairman of Barclays Africa Group Limited. The 2015 figure includes fees received by her in 2015 for that role. |
e | Sir Michael Rake retired from the Board with effect from 31 December 2015. |
f | Diane Schueneman joined the Board as a non-executive Director with effect from 25 June 2015. |
g | Sir John Sunderland retired from the Board with effect from 23 April 2015. |
h | Steve Thieke joined the Board as a non-executive Director with effect from 7 January 2014. |
i | Fulvio Conti retired from the Board with effect from 24 April 2014. |
j | Simon Fraser retired from the Board with effect from 24 April 2014. |
k | Diane Schueneman and Steve Thieke both served in 2015 on the US Governance Review Board, which is an advisory board set up as the forerunner of the board of our US intermediate holding company which will be established during 2016. The 2015 figures for Diane Schueneman and Steve Thieke include fees of $37,500 and $75,000 for these roles respectively. |
Chairman and non-executive Directors: Statement of implementation of remuneration policy in 2016
2016 fees, subject to annual review in line with policy, for the Chairman and non-executive Directors are shown below.
| 1 January 2016 £000 | | | 1 January 2015 £000 | | | Percentage Increase | | ||||
Chairmana | 800b | 750 | – | |||||||||
Deputy Chairmana | 250 | 250 | 0 | |||||||||
Board member | 80 | 80 | 0 | |||||||||
Additional responsibilities | ||||||||||||
Senior Independent Director | 30 | 30 | 0 | |||||||||
Chairman of Board Audit or Board Remuneration Committee | 70 | 70 | 0 | |||||||||
Chairman of Board Risk Committee | 60 | 60 | 0 | |||||||||
Chairman of Board Reputation Committee | 50 | 50 | 0 | |||||||||
Membership of Board Audit or Board Remuneration Committee | 30 | 30 | 0 | |||||||||
Membership of Board Reputation or Board Risk Committee | 25 | 25 | 0 | |||||||||
Membership of Board Nominations Committee | 15 | 15 | 0 |
Notes
a | The Chairman and Deputy Chairman do not receive any other additional responsibility fees in addition to the Chairman and Deputy Chairman fees respectively. |
b | John McFarlane was appointed Chairman on 24 April 2015 on fees of £800,000. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 67 |
Payments to former Directors
Former Group Chief Executive: Antony Jenkins
Antony Jenkins ceased to be Group Chief Executive on 16 July 2015. In accordance with his contractual entitlements, Antony Jenkins will receive base salary, RBP, benefits and pension until 7 July 2016 (the Termination Date). These payments are being made in instalments and are subject to mitigation in the event that Antony Jenkins brings his termination date forward.
The Committee carefully considered the circumstances of Antony Jenkins’ departure, taking into account his contribution in bringing the Group to a much stronger position during a difficult period for the Group. Against that background, the Committee agreed to exercise its discretion to treat Antony Jenkins as an eligible leaver for the purposes of his variable pay in accordance with the Directors’ remuneration policy approved by shareholders at the 2014 AGM. The Committee agreed that:
§ | Antony Jenkins would remain eligible for an annual bonus in respect of 2015, pro-rated to 16 July 2015 |
§ | Antony Jenkins’ 260,355 deferred shares will be considered for release in full on the scheduled release dates. After release, the shares will be subject to an additional 6 month holding period |
§ | the unvested LTIP awards granted to Antony Jenkins in 2014 and 2015 will be considered for release on the scheduled release dates subject to achievement of the applicable performance measures and time pro-rated to the Termination Date. The maximum number of shares (subject to the achievement of the applicable performance measures) after reduction for time pro-rating are LTIP 2014-2016: 1,418,805 shares and LTIP 2015-2017: 475,937 shares. After vesting, the shares will be subject to an additional two year holding period |
§ | all outstanding unvested deferred awards are subject to malus provisions |
The Company has paid £106k in respect of outplacement services and legal costs in connection with Antony Jenkins’ termination of employment in line with the approved Directors’ remuneration policy on terminations.
Former Group Finance Director: Chris Lucas
In 2015, Chris Lucas continued to be eligible to receive life assurance cover, private medical cover and payments under the Executive Income Protection Plan (EIPP). Full details of his eligibility under the EIPP were disclosed in the 2013 Directors’ Remuneration report (page 91 of 2013 Form 20-F). Chris Lucas did not receive any other payment or benefit in 2015.
Other policy information
Outside appointments
During the period while he was Executive Chairman, John McFarlane retained fees in respect of external directorships at Westfield Corporation Limited of $62k and at Old Oak Holdings Limited of £37k.
Directors’ shareholdings and share interests
Executive Directors’ shareholdings and share interests
The chart below shows the value of Barclays’ shares held beneficially by Jes Staley and Tushar Morzaria as at 26 February 2016 that count towards the shareholding requirement of, as a minimum, Barclays’ shares worth four times salary. The current executive Directors have five years from their respective date of appointment to meet this requirement. At close of business on 26 February 2016, the market value of Barclays ordinary shares was £1.6910.
Jes Staley (£000)
Tushar Morzaria (£000)
68 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
The table below shows shares owned beneficially by all the Directors and shares over which executive Directors hold awards which are subject to either deferral terms or performance measures. The shares shown below, that are subject to performance measures, are based on the maximum number of shares that may be released (before pro-rating for Antony Jenkins).
Interests in Barclays PLC shares (audited)
| Total as at 31 December 2015 (or date |
| ||||||||||||||||||
Unvested | ||||||||||||||||||||
Owned outright | | Subject to performance measures | | | Not subject to performance measures | | | of retirement from the Board, if earlier) | | | Total as at 26 February 2016 | | ||||||||
Executive Directors | ||||||||||||||||||||
Antony Jenkinsa | 5,540,236 | 4,579,983 | 260,355 | 10,380,574 | – | |||||||||||||||
Tushar Morzaria | 931,310 | 2,204,213 | 741,829 | 3,877,352 | 3,877,352 | |||||||||||||||
Jes Staleyb | 2,812,997 | – | 896,450 | 3,709,447 | 3,709,447 | |||||||||||||||
Chairman | ||||||||||||||||||||
John McFarlanec | 11,995 | – | – | 11,995 | 11,995 | |||||||||||||||
Sir David Walkerd | 151,455 | – | – | 151,455 | – | |||||||||||||||
Non-executive Directors | ||||||||||||||||||||
Mike Ashley | 23,547 | – | – | 23,547 | 23,547 | |||||||||||||||
Tim Breedon | 19,196 | – | – | 19,196 | 19,196 | |||||||||||||||
Crawford Gillies | 58,856 | – | – | 58,856 | 58,856 | |||||||||||||||
Reuben Jeffery III | 184,988 | – | – | 184,988 | 184,988 | |||||||||||||||
Wendy Lucas-Bull | 14,672 | – | – | 14,672 | 14,672 | |||||||||||||||
Dambisa Moyo | 40,696 | – | – | 40,696 | 40,696 | |||||||||||||||
Frits van Paasschen | 17,184 | – | – | 17,184 | 17,184 | |||||||||||||||
Sir Michael Rakee | 75,670 | – | – | 75,670 | – | |||||||||||||||
Diane de Saint Victor | 21,579 | – | – | 21,579 | 21,579 | |||||||||||||||
Diane Schuenemanf | 2,000 | – | – | 2,000 | 2,000 | |||||||||||||||
Sir John Sunderlandg | 139,081 | – | – | 139,081 | – | |||||||||||||||
Steve Thieke | 23,123 | – | – | 23,123 | 23,123 | |||||||||||||||
Sir Gerry Grimstoneh | – | – | – | – | 97,045 |
Notes
a | Antony Jenkins left the Board with effect from 16 July 2015. |
b | Jes Staley joined the Board as Group Chief Executive with effect from 1 December 2015. |
c | John McFarlane joined the Board as a non-executive Director with effect from 1 January 2015 and as Chairman with effect from 24 April 2015. He was Executive Chairman from 17 July 2015 to 30 November 2015. |
d | Sir David Walker retired from the Board with effect from 23 April 2015. |
e | Sir Michael Rake retired from the Board with effect from 31 December 2015. |
f | Diane Schueneman joined the Board as a non-executive Director with effect from 25 June 2015. |
g | Sir John Sunderland retired from the Board with effect from 23 April 2015. |
h | Sir Gerry Grimstone joined the Board as Senior Independent Director and Deputy Chairman with effect from 1 January 2016. On appointment, he held 97,045 Barclays PLC shares. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 69 |
Barclays Board Remuneration Committee
The Board Remuneration Committee is responsible for overseeing Barclays’ remuneration as described in more detail below.
Terms of Reference
The role of the Committee is to:
§ | set the overarching principles and parameters of remuneration policy across the Group; |
§ | consider and approve the remuneration arrangements of the Chairman, the executive Directors, other senior executives and those employees whose total annual compensation exceeds an amount determined by the Committee from time to time (currently £2m or more) |
§ | exercise oversight for remuneration issues. |
The Committee also considers and approves buy-outs of forfeited rights for new hires of £2m or more, and packages on termination where the total discretionary value is £1m or more. It reviews the policy relating to all remuneration plans including pensions, and considers and approves measures to promote the alignment of the interests of shareholders and employees. It is also responsible for the selection and appointment of its independent remuneration adviser.
The Terms of Reference can be found at home.barclays/corporategovernance or from the Company Secretary on request.
Chairman and members
The Chairman and members of the Committee are as follows:
§ | Crawford Gillies, Committee member since 1 May 2014 and Chairman since 24 April 2015 |
§ | Tim Breedon, Committee member since 1 December 2012 |
§ | Steve Thieke, Committee member since 6 February 2014 |
§ | Dambisa Moyo, Committee member since 1 September 2015 |
Former Chairman and members
Members who left the Committee during 2015 were as follows:
§ | Sir John Sunderland, Committee member since 1 July 2005 and Committee Chairman from 24 July 2012 to 23 April 2015 |
§ | Sir David Walker, Committee member from 1 September 2012 to 23 April 2015 |
All current members are considered independent by the Board.
Remuneration Committee attendance in 2015
| Number of meetings eligible to attend | | | Number of meetings attended | | |||
Crawford Gillies | 7 | 7 | ||||||
Tim Breedon | 7 | 7 | ||||||
Steve Thieke | 7 | 7 | ||||||
Dambisa Moyo | 4 | 4 | ||||||
Sir John Sunderland | 1 | 1 | ||||||
Sir David Walker | 1 | 1 |
The performance of the Committee is reviewed each year as part of the Board Effectiveness Review. The December 2015 review concluded that Board members have confidence in the effectiveness of the Committee. Full details of the Board Effectiveness review can be found on pages 33 and 34.
Advisers to the Remuneration Committee
During 2015, the Committee was advised by Towers Watson (now known as Willis Towers Watson. The Committee is satisfied that the advice provided by Towers Watson to the Committee is independent. Towers Watson is a signatory to, and its appointment as adviser to the Committee is conditional on adherence to, the voluntary UK Code of Conduct for executive remuneration consultants.
Towers Watson’s work in 2015 included advising the Committee and providing the latest market data on compensation and trends when considering incentive levels and remuneration packages. A representative from Towers Watson attends Committee meetings. When requested by the Committee, Towers Watson is available to advise and meet with the Committee members separate from management.
Fees for Committee work are charged on a time/cost basis and Towers Watson was paid a total of £195,000 (excluding VAT) in fees for its advice to the Committee in 2015 relating to the executive Directors (either exclusively or along with other employees within the Committee’s Terms of Reference).
Towers Watson provides pensions advice, advice on health and benefits provision, assistance and technology support for employee surveys and performance management, and remuneration data to the Group. Towers Watson also provides pensions advice and administration services to the Barclays Bank UK Retirement Fund.
The Committee regularly reviews the objectivity and independence of the advice it receives from Towers Watson.
In the course of its deliberations, the Committee considers the views of the Group Chief Executive, Group Human Resources Director and the Group Reward and Performance Director. The Group Finance Director and Chief Risk Officer provide regular updates on Group and business financial performance and the Group’s risk profile respectively.
No Barclays‘ employee or Director participates in discussions with, or decisions of, the Committee relating to his or her own remuneration. No other advisers provided significant services to the Committee in the year.
70 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
Remuneration Committee activities in 2015
The following provides a summary of the Committee’s activities during 2015 and at the January and February 2016 meetings when 2015 remuneration decisions were finalised.
Meeting | Fixed and variable pay issues | Governance, risk and other matters | ||||||
February 2015 |
§ |
Approved executive Directors’ and senior executives’ 2015 fixed pay |
§
§
§
§ |
Risk adjustment and malus review
Approved 2014 Remuneration report
Review of 2014 reward communications strategy
Finance and Risk updates | ||||
§ |
Approved 2015 executive Directors’ annual bonus performance measures | |||||||
§ |
Approved group salary and RBP budgets for 2015 | |||||||
§ |
Approved final 2014 incentive funding | |||||||
§ |
Approved proposals for executive Directors’ and senior executives’ 2014 bonuses and 2015 LTIP awards for executive Directors
| |||||||
May 2015 | § |
2015 early incentive funding projections |
§ |
Consideration of the outcomes of the 2014 Board Committees’ effectiveness review | ||||
§ |
Update on EBA consultation on draft revised remuneration guidelines | |||||||
§ |
Employee compensation adjustment review | |||||||
§ |
Barclays’ remuneration approach review | |||||||
July 2015 |
§ |
Review of Committee activity and Terms of Reference | ||||||
§ |
Consideration of process for appointment of Committee’s independent adviser from April 2016 | |||||||
§ |
Update on July 2014 PRA consultation and resulting changes to the Remuneration part of the PRA Rulebook | |||||||
§ |
Scope of remuneration philosophy review | |||||||
§ |
Employee compensation adjustment review | |||||||
October 2015 |
§ |
Approved Jes Staley’s remuneration arrangements |
§ |
Remuneration philosophy review | ||||
(Two meetings)
| ||||||||
November 2015 |
§ |
2015 incentive funding projections |
§ |
Finance and Risk updates including ex ante risk adjustment | ||||
§ |
2016 LTIP performance measures |
§ |
Updates on headcount and attrition | |||||
§ |
2015 payround shareholder engagement planning | |||||||
§
|
Employee compensation adjustment review
| |||||||
December 2015 |
§ |
Initial considerations on senior executives’ 2016 fixed pay |
§ |
Review of draft 2015 Remuneration report | ||||
§ |
2015 incentive funding proposals and initial proposals for senior executives’ 2015 bonuses |
§
§
|
Finance and Risk updates including ex ante risk adjustment
Updates on headcount and attrition
| |||||
January 2016 |
§ |
2015 incentive funding proposals |
§
|
Finance and Risk updates | ||||
February 2016 (Two meetings) |
§ |
Approved executive Directors’ and senior executives’ 2016 fixed pay |
§
§
§
§ |
Approved 2015 Remuneration report
Finance and Risk updates including ex ante risk adjustment
Appointment of Committee independent adviser
Updates on headcount and attrition | ||||
§ |
Approved 2016 executive Directors’ annual bonus performance measures | |||||||
§ |
Approved Group fixed pay budgets for 2016 | |||||||
§ |
Approved final 2015 incentive funding | |||||||
§ |
Approved proposals for executive Directors’ and senior executives’ 2015 bonuses and 2016 LTIP awards for executive Directors
|
Regular items: market and stakeholder updates including PRA/FCA, US Federal Reserve and other regulatory matters; updates from Remuneration Review Panel meetings; operation of the Committee’s Control Framework on hiring, retention and termination; and LTIP performance updates.
Statement of voting at Annual General Meeting
The table below shows the voting result in respect of our remuneration arrangements at the AGM held on 23 April 2015 and the last policy vote at the AGM held on 24 April 2014:
For % of votes cast Number | Against % of votes cast Number | Withheld Number | ||||
Advisory vote on the 2014 Remuneration report | 97.50% | 2.50% | ||||
11,385,216,004 | 291,926,107 | 63,613,057 | ||||
Binding vote on the Directors’ remuneration policy | 93.21% | 6.79% | ||||
9,936,116,114 | 723,914,712 | 154,598,278 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 71 |
Governance: Remuneration report
Additional remuneration disclosures
This section contains voluntary disclosures about levels of remuneration for our eight most highly paid senior executive officers and levels of remuneration of employees in the Barclays Group.
2015 total remuneration of the eight highest paid senior executive officers below Board level
The table below shows remuneration for the eight highest paid senior executive officers below Board level who were Key Management Personnel in 2015.
Eight highest paid senior executive officers below Board level
| 1 2015 | | | 2 2015 | | | 3 2015 | | | 4 2015 | | | 5 2015 | | | 6 2015 | | | 7 2015 | | | 8 2015 | | |||||||||
Fixed Pay (salary and RBP) | 3,150 | 1,500 | 1,700 | 1,300 | 2,050 | 1,192 | 878 | 661 | ||||||||||||||||||||||||
Current year cash bonus | – | 600 | 320 | 320 | 100 | 140 | 180 | 204 | ||||||||||||||||||||||||
Current year share bonus | – | 600 | 320 | 320 | 100 | 140 | 180 | 204 | ||||||||||||||||||||||||
Deferred cash bonus | 3,150 | 900 | 480 | 480 | 150 | 210 | 270 | 306 | ||||||||||||||||||||||||
Deferred share bonus | 3,150 | 900 | 480 | 480 | 150 | 210 | 270 | 306 | ||||||||||||||||||||||||
Total remuneration | 9,450 | 4,500 | 3,300 | 2,900 | 2,550 | 1,892 | 1,778 | 1,681 |
Total remuneration of the employees in the Barclays Group
The table below shows the number of employees in the Barclays Group in 2014 and 2015 in bands by reference to total remuneration. Total remuneration comprises salary, RBP, other allowances, bonus and the value at award of LTIP awards.
Total remuneration of the employees in the Barclays Group
Number of employees | ||||||||
Remuneration band | 2015 | 2014 | ||||||
£0 to £25,000 | 71,886 | 72,262 | ||||||
£25,001 to £50,000 | 31,804 | 33,760 | ||||||
£50,001 to £100,000 | 21,196 | 20,491 | ||||||
£100,001 to £250,000 | 9,903 | 9,000 | ||||||
£250,001 to £500,000 | 2,266 | 2,323 | ||||||
£500,001 to £1,000,000 | 761 | 871 | ||||||
£1,000,001 to £2,500,000 | 268 | 301 | ||||||
£2,500,001 to £5,000,000 | 50 | 55 | ||||||
Above £5m | 5 | 3 |
Barclays is a global business. Of those employees earning above £1m in total remuneration for 2015 in the table above, 55% are based in the US, 34% in the UK, and 11% in the rest of the world.
The number of employees paid above £1m has reduced from 359 in 2014 to 323 in 2015.
72 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Additional remuneration disclosures
Outstanding share plan and long-term incentive plan awards (audited)
Plan | | Number of shares under award at 1 January 2015 (maximum) | | | Number of shares awarded in year (maximum) | | | Market price on award date | | | Number of shares released | | | Market price on release date | | |||||
Antony Jenkins | ||||||||||||||||||||
Barclays LTIP 2012-2014 | 1,139,217 | – | £1.81 | 332,286 | £2.67 | |||||||||||||||
Barclays LTIP 2012-2014 | 1,371,280 | – | £1.86 | 400,030 | £2.67 | |||||||||||||||
Barclays LTIP 2013-2015 | 1,545,995 | – | £3.06 | – | – | |||||||||||||||
Barclays LTIP 2014-2016 | 1,891,740 | – | £2.31 | – | – | |||||||||||||||
Barclays LTIP 2015-2017 | – | 1,142,248 | £2.54 | – | – | |||||||||||||||
Share Value Plan 2012 | 332,377 | – | £2.53 | 332,377 | £2.54 | |||||||||||||||
Share Value Plan 2012 | 1,079,970 | – | £1.86 | 1,079,970 | £2.54 | |||||||||||||||
Share Value Plan 2015 | – | 260,355 | £2.54 | – | – | |||||||||||||||
Tushar Morzaria | ||||||||||||||||||||
Barclays LTIP 2014-2016 | 1,375,811 | – | £2.31 | – | – | |||||||||||||||
Barclays LTIP 2015-2017 | – | 828,402 | £2.54 | – | – | |||||||||||||||
Share Value Plan 2013 | 733,877 | – | £2.51 | 411,437 | £2.54 | |||||||||||||||
Share Value Plan 2014 | 309,557 | – | £2.31 | 103,185 | £2.54 | |||||||||||||||
Share Value Plan 2015 | – | 213,017 | £2.54 | – | – | |||||||||||||||
Jes Staley | ||||||||||||||||||||
Share Value Plan 2015 | – | 896,450 | £2.34 | – | – | |||||||||||||||
The interests shown in the table above are the maximum number of Barclays’ shares that may be received under each plan (before pro-rating for Antony Jenkins). Executive Directors do not pay for any share plan or long-term incentive plan awards. Antony Jenkins received 178,527 dividend shares from Share Value Plan (SVP) and LTIP awards and Tushar Morzaria received 19,669 dividend shares from SVP awards released in 2015.
The SVP 2015 award granted to Jes Staley was made in respect of awards he forfeited as a result of accepting employment at Barclays. This award was made in line with the Barclays’ recruitment policy and was made on no more favourable terms than those forfeited awards.
Outstanding Cash Value Plan (CVP) awards (audited) |
| |||||||||||||||||||
Plan |
| Value under award at 1 January 2015 (maximum) £000 |
| | Value paid in year £000 | |
| Value under award at 31 December 2015 ((maximum) £000 |
| |||||||||||
Antony Jenkins | ||||||||||||||||||||
Cash Value Plan 2012 | 750 | 750 | – |
A ‘service credit’ was added, on the final vesting date, to the third and final vesting amount which, for the award shown, was 10% of the original award amount. Antony Jenkins received the CVP award as part of his 2011 bonus, which was awarded in respect of performance in his role as CEO of Retail and Business Banking.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 73 |
Number of shares lapsed in 2015 | Number of shares under award at 31 December 2015 (maximum) | Value of release £000 | End of performance period or first scheduled release date | Last scheduled release date | ||||||
806,931 | – | 887 | – | – | ||||||
971,250 | – | 1,068 | – | – | ||||||
– | 1,545,995 | – | 31/12/2015 | 14/03/2016 | ||||||
– | 1,891,740 | – | 31/12/2016 | 06/03/2017 | ||||||
– | 1,142,248 | – | 31/12/2017 | 05/03/2018 | ||||||
– | – | 844 | – | – | ||||||
– | – | 2,743 | – | – | ||||||
– | 260,355 | – | 14/03/2016 | 05/03/2018 | ||||||
– | 1,375,811 | – | 31/12/2016 | 06/03/2017 | ||||||
– | 828,402 | – | 31/12/2017 | 05/03/2018 | ||||||
– | 322,440 | 1,045 | 17/03/2014 | 05/03/2018 | ||||||
– | 206,372 | 262 | 16/03/2015 | 06/03/2017 | ||||||
– | 213,017 | – | 14/03/2016 | 05/03/2018 | ||||||
– | 896,450 | – | 14/03/2016 | 14/03/2016 |
74 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Barclays’ forward looking remuneration policy for Directors was approved at the 2014 AGM held on 24 April 2014 and applies for three years from that date. The full policy can be found on pages 76 to 86 of the 2013 Form20-F or at home.barclays/annualreport.
This section sets out an abridged version of the Directors’ remuneration policy and is provided for information only.
This remuneration policy sets out the framework for how the Committee’s remuneration strategy will be executed for the Directors over the three years beginning on the date of the 2014 AGM. This is to be achieved by having a remuneration policy that seeks to:
§ | provide an appropriate and competitive mix of fixed and variable pay which, through its short and long-term components, incentivises management and is aligned to shareholders; |
§ | provide direct line of sight with Barclays’ strategy through the incentive programmes; and |
§ | comply with and adapt to the changing regulatory landscape. |
Remuneration policy for executive Directors
Element and purpose | Operation | Maximum value and performance measures | ||
A. Fixed pay
| ||||
Salary To reward skills and experience appropriate for the role and provide the basis for a competitive remuneration package |
Salaries are determined with reference to market practice and market data (on which the Committee receives independent advice), and reflect individual experience and role.
Executive Directors’ salaries are benchmarked against comparable roles in the following banks: Bank of America, BBVA, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JP Morgan, Lloyds, Morgan Stanley, RBS, Santander, Société Générale, Standard Chartered and UBS. The Committee may amend the list of comparator companies to ensure it remains relevant to Barclays or if circumstances make this necessary (for example, as a result of takeovers or mergers).
Salaries are reviewed annually and any changes are effective from 1 April in the financial year.
|
Salaries for executive Directors are set at a point within the benchmark range determined by the Committee taking into account their experience and performance. Increases for the current executive Directors over the policy period will be no more than local market employee increases other than in exceptional circumstances where the Committee judges that an increase is needed to bring an executive Director’s salary into line with that of our competitors. In such circumstances Barclays would consult with its major shareholders.
| ||
Role Based Pay To enable competitive remuneration opportunity in recognition of the breadth and depth of the role |
Paid quarterly in shares which are subject to a holding period with restrictions lifting over five years (20% each year). As the executive Directors beneficially own the shares, they will be entitled to any dividends paid on those shares.
RBP will be reviewed and fixed annually and may be reduced or increased in certain circumstances. Any changes are effective from 1 January in the relevant financial year. |
The maximum RBP for executive Directors is set at £950,000 for the Group Chief Executive, Antony Jenkins, and £750,000 for the Group Finance Director, Tushar Morzaria. It is not pensionable (except where required under local law). These amounts may be reduced but are at the maxima and may not be increased above this level.
There are no performance measures.
| ||
Pension To enable executive Directors to build long-term retirement savings |
Executive Directors receive an annual cash allowance in lieu of participation in a pension arrangement. |
The maximum annual cash allowance is 33% of salary for the Group Chief Executive and 25% of salary for the Group Finance Director and any other executive Director.
| ||
Benefits To provide a competitive and cost effective benefits package appropriate to role and location |
Executive Directors’ benefits provision includes private medical cover, annual health check, life and ill health income protection, tax advice, car cash allowance, and use of a company vehicle and driver when required for business purposes.
Additional benefits may be offered that are minor in nature or are normal market practice in a country to which an executive Director relocates or from which an executive Director is recruited.
In addition to the above, if an executive Director were to relocate, additional support would be provided for a defined and limited period of time in line with Barclays’ general employee mobility policy including provision of temporary accommodation, payment of removal costs and relocation flights. Barclays will pay the executive Director’s tax on the relocation costs but will not tax equalise and will also not pay the tax on his or her other employment income.
|
The maximum value of the benefit is determined by the nature of the benefit itself and costs of provision may depend on external factors, e.g. insurance costs. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 75 |
Remuneration policy for executive Directors continued
Element and purpose | Operation | Maximum value and performance measures | ||
B. Variable Pay
| ||||
Annual bonus To reward delivery of short-term financial targets set each year, the individual performance of the executive Directors in achieving those targets, and their contribution to delivering Barclays’ strategic objectives
While financial objectives are important, the Balanced Scorecard (which also includes Group financial targets) plays a significant role in bonus determination, to ensure alignment with Barclays’ strategy
Deferred bonuses encourage long-term focus and retention. Delivery substantially or fully in shares with a holding period increases alignment with shareholders. Deferred bonuses are granted by the Committee (or an authorised sub-committee) at its discretion, subject to the relevant plan rules |
Determination of annual bonus Individual bonuses are discretionary and decisions are based on the Committee’s judgement of executive Directors’ performance in the year, measured against Group and personal objectives.
Delivery structure Executive Directors are Code Staff and their bonuses are therefore subject to deferral of at least the level applicable to all Code Staff, currently 40% (for bonuses of no more than £500,000) or 60% (for bonuses of more than £500,000). The Committee may choose to defer a greater proportion of any bonus awarded to an executive Director than the minimum required by the PRA Remuneration Code. At least half the non-deferred bonus is delivered in shares or share-linked instruments.
Deferred bonuses for executive Directors may be delivered in a combination of shares or other deferral instruments.
Participants may, at the Committee’s discretion, also receive the benefit of any dividends paid between the award date and the relevant release date in the form of dividend shares.
Operation of risk and conduct adjustment and malus Any bonus awarded will reflect appropriate reductions made to incentive pools in relation to risk events. Individual bonus decisions may also reflect appropriate reductions in relation to specific risk and conduct events.
All unvested deferred bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil) for any reason. These include, but are not limited to:
§ A participant deliberately misleading Barclays, the market and/or shareholders in relation to the financial performance of the Barclays Group
§ A participant causing harm to Barclays’ reputation or where his/her actions have amounted to misconduct, incompetence or negligence
§ A material restatement of the financial statements of the Barclays Group or the Group or any business unit suffering a material down turn in its financial performance
§ A material failure of risk management in the Barclays Group
§ A significant deterioration in the financial health of the Barclays Group
Timing of receipt Non-deferred cash components of any bonus are paid following the performance year to which they relate, normally in February. Non-deferred share bonuses are awarded normally in March and are subject to a six-month holding period.
Deferred share bonuses normally vest in three equal portions over a minimum three-year period, subject to the provisions of the plan rules including continued employment and the malus provisions (as explained above). Should the deferred awards vest, the shares are subject to an additional six-month holding period (after payment of tax).
|
The maximum annual bonus opportunity is 80% of fixed pay.
The performance measures by which any executive Director bonuses are assessed include Group, business and personal measures, both financial and non-financial. Financial measures may include, but are not restricted to such measures as net income, adjusted profit before tax, return on equity, CET1 ratio and return on risk weighted assets. Non-financial measures are based on the Balanced Scorecard. Personal objectives may include key initiatives relating to the role of the Director or in support of Barclays’ strategic objectives. The Balanced Scorecard may be updated from time to time in line with the Group’s strategy. In making its assessment of any bonus, the Committee will consider financial factors to guide 50% of the bonus opportunity, the Balanced Scorecard 35%, and personal objectives 15%. Any bonus is discretionary and any amount may be awarded from zero to the maximum value. |
76 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Remuneration policy for executive Directors continued
Element and purpose | Operation | Maximum value and performance measures | ||
B. Variable Pay continued
| ||||
Long Term Incentive Plan (LTIP) award To reward execution of Barclays’ strategy and growth in shareholder value over a multi-year period
Long-term performance measurement, holding periods and the malus provisions discourage excessive risk-taking and inappropriate behaviours, encourage a long-term view and align executive Directors’ interests with those of shareholders
Performance measures balance incentivising management to deliver strong risk-adjusted financial returns, and delivery of strategic progress as measured by the Balanced Scorecard. Delivery in shares with a further two-year holding period increases alignment with shareholders |
Determination of LTIP award LTIP awards are made by the Committee following discussion of recommendations made by the Chairman (for the Group Chief Executive’s LTIP award) and by the Group Chief Executive (for other executive Directors’ LTIP awards).
Delivery structure LTIP awards are granted subject to the plan rules and are satisfied in Barclays’ shares (although they may be satisfied in other instruments as may be required by regulation).
For each award, performance measures are set at grant and there is no retesting allowed of those conditions. The Committee has, within the parameters set out opposite, the flexibility to vary the weighting of performance measures and calibration for each award prior to its grant.
The Committee has discretion, and in line with the plan rules approved by shareholders, in exceptional circumstances to amend targets, measures, or number of awards if an event happens (for example, a major transaction) that, in the opinion of the Committee, causes the original targets or measures to be no longer appropriate or such adjustment to be reasonable. The Committee also has the discretion to reduce the vesting of any award if it deems that the outcome is not consistent with performance delivered, including to zero.
Participants may, at the Committee’s discretion, also receive the benefit of any dividends paid between the award date and the relevant release date in the form of dividend equivalents (cash or securities).
Operation of risk adjustment and malus The achievement of performance measures determines the extent to which LTIP awards will vest. Awards are also subject to malus provisions (as explained in the Annual bonus paragraphs above) which enable the Committee to reduce the vesting level of awards (including to nil).
Timing of receipt Barclays LTIP awards have a five-year period in total from grant to when all restrictions are lifted. This will include a minimum three-year vesting period and an additional two-year holding period once vested (after payment of tax)
|
The maximum annual LTIP award is 120% of fixed pay.
Vesting is dependent on performance measures and service.
Following determination of the financial measures applicable to an LTIP cycle, if the Committee is satisfied with the underlying financial health of the Barclays Group (based on profit before tax) it may, at its discretion, adjust the percentage of shares considered for release up or down by up to 10% (subject to the maximum % for the award calibrated against financial performance measures).
Performance measures will be based on financial performance (e.g. measured on return on risk weighted assets), risk metrics (e.g. measured by loan loss rate) and the Balanced Scorecard which also includes financial measures. The Committee has discretion to change the weightings but financial measures will be at least 50% and the Balanced Scorecard will be a maximum of 30%. The threshold level of performance for each performance measure will be disclosed annually as part of the implementation of remuneration report.
Straight line vesting applies between threshold and maximum for the financial and risk measures. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 77 |
Remuneration policy for executive Directors continued
Element and purpose | Operation | Maximum value and performance measures | ||
C. Other
| ||||
All employee share plans To provide an opportunity for Directors to voluntarily invest in the Company | Executive Directors are entitled to participate in:
(i) Barclays Sharesave under which they can make monthly savings over a period of three or five years linked to the grant of an option over Barclays’ shares which can be at a discount of up to 20% on the share price set at the start.
(ii) Barclays Sharepurchase under which they can make contributions (monthly or lump sum) out of pre-tax pay (if based in the United Kingdom) which are used to acquire Barclays’ shares. | (i) Savings between £5 and the maximum set by Barclays (which will be no more than the HMRC maximum) per month. There are no performance measures.
(ii) Contributions of between £10 and the maximum set by Barclays (which will be no more than the HMRC maximum) per tax year which Barclays may match up to HMRC maximum (current match is £600). There are no performance measures.
| ||
Previous buy out awards | Tushar Morzaria currently holds an unvested buy-out award under the Barclays Joiners Share Value Plan which was granted to him in respect of awards he forfeited as a result of accepting employment at Barclays. This award was made in line with the Barclays’ recruitment policy.
| The award was no more generous than and mirrored as far as possible the expected value and timing of vesting of the forfeited awards granted by JP Morgan.
| ||
Shareholding requirement To further enhance the alignment of shareholders’ and executive Directors’ interests in long-term value creation | Executive Directors must build up a shareholding of 400% of salary over five years from the later of: (i) the introduction of the new requirement in 2013; and (ii) the date of appointment as executive Director. They have a reasonable period to build up to this requirement again if it is not met because of a share price fall.
Shares that count towards the requirement are beneficially owned shares including any vested share awards subject only to holding periods (including vested LTIPs, vested deferred share bonuses and RBP shares). Shares from unvested deferred share bonuses and unvested LTIPs do not count towards the requirement.
| Barclays’ shares worth a minimum of 400% of salary must be held within five years. | ||
Outside appointments To encourageself-development and allow for the introduction of external insight and practice | Executive Directors may accept one board appointment in another listed company.
Chairman’s approval must be sought before accepting appointment. Fees may be retained by the executive Director. None of the executive Directors currently hold an outside appointment.
| Not applicable. |
78 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Notes to the table on pages 75 to 78:
Performance measures and targets
The Committee selected the relevant financial and risk based performance measures because they are key to the bank’s strategy and are important measures used by the executive Directors to oversee the direction of the business. The Balanced Scorecard has been selected as it demonstrates the performance and progress of Barclays as measured across the following dimensions (5Cs): Customers & Clients, Colleagues, Citizenship, Conduct and Company. Each of the 5Cs in the Balanced Scorecard will have equal weighting. All targets are set to be stretching but achievable and aligned to enhancing shareholder value.
The Committee is of the opinion that the performance targets for the annual bonus and Balanced Scorecard element of the LTIP are commercially sensitive in respect of the Company and that it would be detrimental to the interests of the Company to disclose them before the start of the relevant performance period. The performance against those measures will be disclosed after the end of the relevant financial year in that year’s remuneration report subject to the sensitivity no longer remaining.
Differences between the remuneration policy of the executive Directors and the policy for all employees of the Barclays Group
The structure of total remuneration packages for executive Directors and for the broader employee population is similar. Employees receive salary, pension and benefits and are eligible to be considered for a bonus and to participate in all employee share plans. The broader employee population typically does not have a contractual limit on the quantum of their remuneration and does not receive RBP which is paid only to some, but not all, Code Staff. Executive Director RBP is determined on a similar basis to other Code Staff.
The Committee approaches any salary increases for executive Directors by benchmarking against market data for named banks. Incremental annual salary increases remain more common among employees at less senior levels.
As with executive Directors, bonuses for the broader employee population are performance based. Bonuses for executive Directors and the broader employee population are subject to deferral requirements. Executive Directors and other Code Staff are subject to deferral at a minimum rate of 40% (for bonuses of no more than £500,000) or 60% (for bonuses of more than £500,000) but the Committee may choose to operate higher deferral rates. For non-Code Staff, bonuses in excess of £65,000 are subject to a graduated level of deferral. The terms of deferred bonus awards for executive Directors and the wider employee population are broadly the same, in particular the vesting of all deferred bonuses (subject to service and malus conditions).
The broader employee population is not eligible to participate in the Barclays LTIP.
How shareholder views and broader employee pay are taken into account by the Committee in setting policy and making remuneration decisions
We recognise that remuneration is an area of particular interest to shareholders and that in setting and considering changes to remuneration it is critical that we listen to and take into account their views. Accordingly, a series of meetings are held each year with major shareholders and shareholder representative groups (including the Association of British Insurers, National Association of Pension Funds and ISS). The Committee Chairman attends these meetings, accompanied by senior Barclays’ employees (including the Reward and Performance Director and the Company Secretary). The Committee notes that shareholder views on some matters are not always unanimous, but values the insight and engagement that these interactions and the expression of sometimes different views provide. This engagement is meaningful and helpful to the Committee in its work and contributes directly to the decisions made by the Committee.
The Committee takes account of the pay and employment conditions of the broader employee base when it considers the remuneration of the executive Directors. The Committee receives and reviews analysis of remuneration proposals for employees across all of the Group’s businesses. This includes analysis by corporate grade and by performance rating and information on proposed bonuses and salary increases across the employee population and individual proposals for Code Staff and highly paid individuals. When the Committee considers executive Director remuneration, it therefore makes that consideration in the context of a detailed understanding of remuneration for the broader employee population and uses the all employee data to compare remuneration and ensure consistency throughout the Group. Employees are not consulted directly on the Directors’ remuneration policy.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 79 |
Executive Directors’ policy on recruitment
Element of remuneration | Commentary | Maximum value | ||
Salary | Determined by market conditions, market practice and ability to recruit.
For a newly appointed executive Director, whether through external recruitment or internal promotion, if their salary is at a level below the desired market level, the Committee retains the discretion to realign their salary over a transitional period which may mean that annualised salary increases for the new appointee are higher than that set out in the salary section of the remuneration policy.
| In line with policy. | ||
Role Based Pay | Determined by role, market practice and ability to recruit. Percentage may decrease or increase in certain circumstances subject to maximum value.
| 100% of salary. | ||
Benefits | In line with policy.
| In line with policy. | ||
Pension | In line with policy. | 33% of salary (Group Chief Executive), 25% of salary (Group Finance Director) and 25% if another executive Director is appointed.
| ||
Annual Bonus | In line with policy. | 80% of fixed pay. | ||
Long Term Incentive Plan | In line with policy. | 120% of fixed pay. | ||
Buy out | The Committee can consider buying out forfeited bonus opportunity or incentive awards that the new executive Director has forfeited as a result of accepting the appointment with Barclays, subject to proof of forfeiture where applicable.
As required by the PRA Remuneration Code, any award made to compensate for forfeited remuneration from the new executive Director’s previous employment may not be more generous than, and must mirror as far as possible the expected value, timing and form of delivery, the terms of the forfeited remuneration and must be in the best long-term interests of Barclays. Barclays deferral policy shall however apply as a minimum to any buy out of annual bonus opportunity.
| The value of any buy out is not included within the maximum incentive levels above since it relates to a buy out of forfeited bonus opportunity or incentive awards from a previous employer. |
Where a senior executive is promoted to the Board, his or her existing contractual commitments agreed prior to his or her appointment may still be honoured in accordance with the terms of the relevant commitment including vesting of any pre-existing deferred bonus or long-term incentive awards.
80 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Executive Directors’ policy on payment for loss of office (including a takeover)
The Committee’s approach to payments in the event of termination is to take account of the individual circumstances including the reason for termination, individual performance, contractual obligations and the terms of the deferred bonus plans and long-term incentive plans in which the executive Director participates.
Standard provision | Policy | Details | ||
Notice periods in executive Directors’ service contracts | 12 months’ notice from the Company.
6 months’ notice from the executive Director. | Executive Directors may be required to work during the notice period or may be placed on garden leave or if not required to work the full notice period may be provided with pay in lieu of notice (subject to mitigation where relevant).
| ||
Pay during notice period or payment in lieu of notice per service contracts | 12 months’ salary payable and continuation of pension and other contractual benefits while an employee. | Payable in phased instalments (or lump sum) and subject to mitigation if paid in instalments and executive Director obtains alternative employment during the notice period or while on garden leave.
In the event of termination for gross misconduct neither notice nor payment in lieu of notice is given.
| ||
Treatment of Role Based Pay | Ceases to be payable from the executive Director’s termination date. Therefore, RBP will be paid during any notice period and/or garden leave, but not where Barclays elects to make a payment in lieu of notice (unless otherwise required by local law). | Shares to be delivered on the next quarterly delivery date shall be pro rated for the number of days from the start of the relevant quarter to the termination date. Where Barclays elects to terminate the employment with immediate effect by making a payment in lieu of notice, the executive Director will not receive any shares that would otherwise have accrued during the period for which the payment in lieu is made (unless required otherwise by local law).
| ||
Treatment of annual bonus on termination | No automatic entitlement to bonus on termination, but may be considered at the Committee’s discretion and subject to performance measures being met and pro rated for service. No bonus would be payable in the case of gross misconduct or resignation.
| |||
Treatment of unvested deferred bonus awards | Outstanding deferred bonus awards would lapse if the executive Director leaves by reason of resignation or termination for gross misconduct. However in the case of death or if the Director is an ‘eligible leaver’ defined as leaving due to injury, disability or ill health, retirement, redundancy, the business or company which employs the executive Director ceasing to be part of the Group or in circumstances where Barclays terminates the employment (other than in cases of cause or gross misconduct), he or she would continue to be eligible to be considered for unvested portions of deferred awards, subject to the rules of the relevant plan unless the Committee determines otherwise in exceptional circumstances. Deferred awards are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil).
In the event of a takeover or other major corporate event, the Committee has absolute discretion to determine whether all outstanding awards would vest early or whether they should continue in the same or revised form following the change of control. The Committee may also determine that participants may exchange existing awards for awards over shares in an acquiring company with the agreement of that company.
| In an eligible leaver situation, deferred bonus awards may be considered for release in full on the scheduled release date unless the Committee determines otherwise in exceptional circumstances. After release, the awards may be subject to an additional holding period of six months. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 81 |
Executive Directors’ policy on payment for loss of office (including a takeover) continued
Standard provision
| Policy | Details | ||
Treatment of unvested awards under the LTIP | Outstanding unvested awards under the LTIP would lapse if the executive Director leaves by reason of resignation or termination for gross misconduct. However, in line with the plan rules approved by shareholders, in the case of death or if the Director is an ‘eligible leaver’ defined as leaving due to injury, disability or ill health, retirement, redundancy, the business or company which employs the executive Director ceasing to be part of the Group (or for any other reason if the Committee decides at its discretion), he or she would continue to be entitled to be considered for an award. Awards are also subject to malus provisions which enable the Committee to reduce the vesting level of awards (including to nil).
In the event of a takeover or other major corporate event (but excluding an internal reorganisation of the Group), the Committee has absolute discretion to determine whether all outstanding awards vest subject to the achievement of any performance conditions. The Committee has discretion to apply a pro rata reduction to reflect the unexpired part of the vesting period. The Committee may also determine that participants may exchange awards for awards over shares in an acquiring company with the agreement of that company. In the event of an internal reorganisation, the Committee may determine that outstanding awards will be exchanged for equivalent awards in another company.
| In an eligible leaver situation, awards may be considered for release on the scheduled release date, pro rated for time and performance, subject to the Committee’s discretion to determine otherwise in exceptional circumstances. After release, the shares (net of deductions for tax) are subject to an additional holding period of two years. | ||
Repatriation | Except in a case of gross misconduct or resignation, where a Director has been relocated at the commencement of employment, the Company may pay for the Director’s repatriation costs in line with Barclays’ general employee mobility policy including temporary accommodation, payment of removal costs and relocation flights. The company will pay the executive Director’s tax on the relocation costs but will not tax equalise and will also not pay tax on his or her other income relating to the termination of employment.
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Other | Except in a case of gross misconduct or resignation, the Company may pay for the executive Director’s legal fees and tax advice relating to the termination of employment and provide outplacement services. The Company may pay the executive Director’s tax on these particular costs.
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82 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Remuneration policy for non-executive Directors
Element and purpose | Operation | |
Fees Reflect individual responsibilities and membership of Board Committees and are set to attract non-executive Directors who have relevant skills and experience to oversee the implementation of our strategy
| The Chairman and Deputy Chairman are paid an all-inclusive fee for all Board responsibilities. The Chairman has a minimum time commitment equivalent to at least 80% of a full-time role. The other non-executive Directors receive a basic Board fee, with additional fees payable where individuals serve as a member or Chairman of a Committee of the Board.
Fees are reviewed each year by the Board as a whole against those for non-executive Directors in companies of similar scale and complexity. Fees were last increased in May 2011.
The first £30,000 (Chairman: first £100,000) after tax and national insurance contributions of each non- executive Director’s basic fee is used to purchase Barclays’ shares which are retained on the non-executive Director’s behalf until they retire from the Board.
| |
Benefits For Chairman only | The Chairman is provided with private medical cover subject to the terms of the Barclays scheme rules from time to time, and is provided with the use of a Company vehicle and driver when required for business purposes.
No other n on-executive Director receives any benefits from Barclays. Non-executive Directors are not eligible to join Barclays’ pension plans.
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Bonus and share plans | Non-executive Directors are not eligible to participate in Barclays cash, share or long-term incentive plans.
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Notice and termination provisions | Each non-executive Director’s appointment is for an initial six year term, renewable for a single term of three years thereafter and subject to annual re-election by shareholders.
Notice period: Chairman: 12 months from the Company (six months from the Chairman). Non-executive Directors: six months from the Company (six months from the Non-executive Director).
Termination payment policy The Chairman’s appointment may be terminated by Barclays on 12 months’ notice or immediately in which case 12 months’ fees and contractual benefits are payable in instalments at the times they would have been received had the appointment continued, but subject to mitigation if they were to obtain alternative employment. There are similar termination provisions for non-executive Directors based on six months’ fees. No continuing payments of fees (or benefits) are due if a non-executive Director is not re-elected by shareholders at the Barclays Annual General Meeting.
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In accordance with the policy table above, any new Chairman and Deputy Chairman would be paid an all-inclusive fee only and any new non-executive Director would be paid a basic fee for their appointment as a Director, plus fees for their participation on and/or chairing of any Board committees, time apportioned in the first year as necessary. No sign-on payments are offered to non-executive Directors.
Discretion
In addition to the various operational discretions that the Committee can exercise in the performance of its duties (including those discretions set out in the Company’s share plans), the Committee reserves the right to make either minor or administrative amendments to the policy to benefit its operation or to make more material amendments in order to comply with new laws, regulations and/or regulatory guidance. The Committee would only exercise this right if it believed it was in the best interests of the Company to do so and where it is not possible, practicable or proportionate to seek or await shareholder approval in General Meeting.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 83 |
Risk review
Contents
The management of risk plays a central role in the execution of Barclays’ strategy and insight into the level of risk across businesses and portfolios and the material risks and uncertainties the Group face are key areas of management focus.
For a more detailed breakdown of our Risk performance and Risk management contents please see pages 336-409.
Page | ||||||||
Material existing and emerging risks | ||||||||
Insight into the level of risk across our business and portfolios, the material existing and emerging risks and uncertainties we face and the key areas of management focus. | § | Credit risk | 87 | |||||
§ | Market risk | 88 | ||||||
§ | Funding risk | 88 | ||||||
§ | Operational risk | 89 | ||||||
§ | Conduct risk | 91 | ||||||
§ | Material existing and emerging risks potentially impacting more than one Principal risk
| 92 | ||||||
Risk management | ||||||||
Overview of Barclays’ approach to risk management. | § | Risk management strategy | 95 | |||||
§ | Governance structure | 95 | ||||||
§ | Risk governance and assigning responsibilities | 97 | ||||||
§ | Principal risks and Key risks | 98 | ||||||
§ | Credit risk management | 99 | ||||||
§ | Market risk management | 101 | ||||||
§ | Funding risk management | 103 | ||||||
§ | Capital risk management | 103 | ||||||
§ | Liquidity risk management | 105 | ||||||
§ | Operational risk management | 106 | ||||||
§ | Conduct risk management
| 108 | ||||||
Risk performance | ||||||||
Credit risk: The risk of suffering financial loss should the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group. | § | Credit risk overview and summary of performance | 112 | |||||
§ | Analysis of the balance sheet | 112 | ||||||
§ | Maximum exposure and collateral and other credit enhancement held | 113 | ||||||
§ | The Group’s approach to manage and represent credit quality | 115 | ||||||
§ | Loans and advances to customers and banks | 117 | ||||||
§ | Analysis of the concentration of credit risk | 118 | ||||||
§ | Group exposures to specific countries and industries | 119 | ||||||
§ | Analysis of specific portfolios and asset types | 122 | ||||||
§ | Analysis of loans on concession programmes | 131 | ||||||
§ | Analysis of problem loans | 134 | ||||||
§ | Impairment
| 137 | ||||||
Market risk: The risk of a reduction to earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheet and liquidity pools. | § | Market risk overview, measures in the Group and summary of performance | 139 | |||||
§ | Balance sheet view of trading and banking books | 140 | ||||||
§ | Traded market risk | 141 | ||||||
§ | Business scenario stresses | 142 | ||||||
§ | Review of regulatory measures | 142 | ||||||
§ | Non-traded market risk | 143 | ||||||
§ | Foreign exchange risk | 145 | ||||||
§ | Pension risk review | 146 | ||||||
§ | Insurance risk review
| 147 | ||||||
Funding risk – Capital: The risk that the Group has insufficient capital resources. | § | Capital risk overview and summary of performance | 149 | |||||
§ | Regulatory minimum capital and leverage requirements | 149 | ||||||
§ | Capital resources | 150 | ||||||
§ | Leverage ratio requirements
| 153 | ||||||
Funding risk – Liquidity: The risk that the Group, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost. | § | Liquidity risk overview and summary of performance | 155 | |||||
§ | Liquidity risk stress testing | 155 | ||||||
§ | Liquidity pool | 158 | ||||||
§ | Funding structure and funding relationships | 159 | ||||||
§ | Wholesale funding | 160 | ||||||
§ | Term financing | 162 | ||||||
§ | Encumbrance | 162 | ||||||
§ | Credit ratings | 166 | ||||||
§ | Liquidity management at Barclays Africa Group Limited | 167 | ||||||
§ | Contractual maturity of financial assets and liabilities
| 167 |
84 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Contents
Page | ||||||
Risk performance continued | ||||||
Operational risk: Any instance where there is a potential or actual impact to the Group resulting from inadequate or failed internal processes, people, systems, or from an external event. The impacts to the Group can be financial, including losses or an unexpected financial gain, as well as non-financial such as customer detriment, reputational or regulatory consequences.
| § § | Operational risk overview and summary of performance in the period Operational risk profile | 173 173 | |||
Conduct risk: The risk that detriment is caused to our customers, clients, counterparties or the Group because of inappropriate judgement in the execution of our business activities. | § § § § §
| Conduct risk overview Reputation risk Summary of performance Salz recommendations Conduct reputation measure
| 175 175 175 176 176 | |||
Supervision and regulation: 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. | § | Supervision of the Group | 177 | |||
§ | Global regulatory developments | 177 | ||||
§ | Influence of European legislation | 178 | ||||
§ | EU developments | 178 | ||||
§ | Regulation in the UK | 179 | ||||
§ | Resolution of UK banking groups | 179 | ||||
§ | Structural reform of banking groups | 180 | ||||
§ | Compensation schemes | 180 | ||||
§ | Regulation in the US | 181 | ||||
§
| Regulation in Africa
| 182 |
The Pillar 3 report of Barclays published on 1 March 2016 contains additional information on Barclays’ risk as well as capital management. Readers may access the complete Pillar 3 report at the Barclays investor relations web site. The Pillar 3 report is not incorporated by reference into and is not part of the 2015 20-F.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 85 |
Risk review
Material existing and emerging risks
This section describes the material risks which senior management is currently focused on and believe could cause the Group’s future results of operations, financial condition and prospects to differ materially from current expectations.
![]() | For more information about the major risk policies which underlie risk exposures, see the consolidated policy-based qualitative information in the Barclays PLC 2015 Pillar 3 Report. A summary of this information may also be found in this report in the Risk management section between pages 336 to 409. |
86 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
This section describes the material risks to which senior management pays particular attention, which they believe could cause the future results of the Group’s operations, financial condition and prospects to differ materially from current expectations. These expectations include the ability to pay dividends, maintain appropriate levels of capital and meet capital and leverage ratio targets, and achieve stated commitments. In addition, risks relating to the Group that are not currently known, or that are currently deemed immaterial, may individually or cumulatively have the potential to materially affect the future results of the Group’s operations, financial condition and prospects.
Material risks and their impact are described below in two sections: i) risks which senior management believes are likely to impact a single Principal Risk; and ii) risks which senior management believes are likely to affect more than one Principal Risk. Certain risks below have been classified as an ‘emerging risk’, which is a risk that has the potential to have a significant detrimental effect on the Group’s performance, but currently the outcome and the time horizon for the crystallisation of its possible impact is more uncertain and more difficult to predict than for other risk factors that are not identified as emerging risks.
More information on the management of risks may be found in Barclays’ Approach to Managing Risk in the Barclays PLC 2015 Pillar 3 Report.
Material existing and emerging risks by Principal Risk
The financial condition of the Group’s customers, clients and counterparties, including governments and other financial institutions, could adversely affect the Group.
The Group may suffer financial loss if any of its customers, clients or market counterparties fails to fulfil their contractual obligations to the Group. The Group may also suffer loss when the value of its investment in the financial instruments of an entity falls as a result of that entity’s credit rating being downgraded. In addition, the Group may incur significant unrealised gains or losses due to changes in the Group’s credit spreads or those of third parties, as these changes affect the fair value of the Group’s derivative instruments, debt securities that the Group holds or issues, and loans held at fair value.
i) Deterioration in political and economic environment
The Group’s performance is at risk from deterioration in the economic and political environment which may result from a number of uncertainties, including the following:
a) Specific regions
Political instability, economic uncertainty or deflation in regions in which the Group operates could weaken growth prospects and have an adverse impact on customers’ ability to service debt and so result in higher impairment charges for the Group. These include:
China (emerging risk)
Economic uncertainty in China continues to affect a number of emerging economies, particularly those with high fiscal deficits and those reliant on short-term external financing and/or material reliance on commodity exports. Their vulnerability has been further impacted by the fall, and sustained volatility in oil prices, the strong US dollar and the winding down of quantitative easing policies by some central banks. The impact on the Group may vary depending on the vulnerabilities present in each country, but the impact may result in increased impairment charges through sovereign defaults, or the inability or unwillingness of clients and counterparties in that country to meet their debt obligations.
South Africa
The negative economic outlook in South Africa continues, with a challenging domestic and external environment. Recent political events including changes to leaders in the Finance Ministry have added to the domestic challenges. Real GDP growth remains low as a result of declining global demand, in particular China, prices for key mineral exports, a downturn in tourism, persistent power shortages and slowing
house price growth. In the retail sector, concerns remain over the level of consumer indebtedness and affordability as the slowdown in China impacts the mining sector with job losses increasing. Emerging market turmoil has added further pressure on the Rand, which has continued to depreciate against major currencies. The decline in the economic outlook may impact a range of industry sectors in the corporate portfolio, with clients with higher leverage being impacted most.
b) Interest rate rises, including as a result of slowing of monetary stimulus, could impact consumer debt affordability and corporate profitability
To the extent that central banks increase interest rates in certain developed markets, particularly in our main markets, the UK and the US, they are expected to be small and gradual in scale during 2016, albeit following differing timetables. The first of these occurred in the US with a quarter point rise in December 2015. While an increase may support Group income, any sharper than expected changes could cause stress in the loan portfolio and underwriting activity of the Group, particularly in relation to non-investment grade lending, leading to the possibility of the Group incurring higher impairment. Higher credit losses and a requirement to increase the Group’s level of impairment allowance would most notably occur in the Group’s retail unsecured and secured portfolios as a result of a reduction in recoverability and value of the Group’s assets, coupled with a decline in collateral values.
Interest rate increases in developed markets may also negatively impact emerging economies, as capital flows to mature markets to take advantage of the higher returns and strengthening economic fundamentals.
ii) Specific sectors
The Group is subject to risks arising from changes in credit quality and recovery rate of loans and advances due from borrowers and counterparties in a specific portfolio. Any deterioration in credit quality could lead to lower recoverability and higher impairment in a specific sector. The following provides examples of areas of uncertainties to the Group’s portfolio which could have a material impact on performance.
a) UK property
With UK property representing the most significant portion of the overall PCB credit exposure, the Group is at risk from a fall in property prices in both the residential and commercial sectors in the UK. Strong house price growth in London and the South East of the UK, fuelled by foreign investment, strong buy to let (BTL) demand and subdued housing supply, has resulted in affordability levels reaching record levels; average house prices as at the end of 2015 were more than seven times average earnings. A fall in house prices, particularly in London and the South East of the UK, would lead to higher impairment and negative capital impact as loss given default (LGD) rates increase. Potential losses would likely be most pronounced in the higher loan to value (LTV) segments.
The proposal on BTL properties announced by the UK Chancellor of the Exchequer in 2015, changing both the level of tax relief on rental income and increasing levels of stamp duty from April 2016, may cause some dislocation in the BTL market. Possible impacts include a reduced appetite in the BTL market and an influx of properties for sale causing downward pricing pressure, as well as reduced affordability as increased tax liabilities reduce net retail yields. As a consequence this may lead to an increase in BTL defaults at a time when market values may be suppressed, with the potential that, while the Group carefully manages such exposures, it may experience increased credit losses and impairment from loans with high LTV ratios.
b) Natural Resources (emerging risk)
The risk of losses and increased impairment is more pronounced where leverage is higher, or in sectors currently subject to strain, notably oil and gas, mining and metals and commodities. Sustained oil price depression continues and is driven by ongoing global excess supply. While the positioning of these portfolios is relatively defensive and focuses on investment grade customers or collateralised positions, very severe stress in this market does have the potential to significantly increase credit losses and impairment.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 87 |
c) Large single name losses
The Group has large individual exposures to single name counterparties. The default of such counterparties could have a significant impact on the carrying value of these assets. In addition, where such counterparty risk has been mitigated by taking collateral, credit risk may remain high if the collateral held cannot be realised, or has to be liquidated at prices which are insufficient to recover the full amount of the loan or derivative exposure. Any such defaults could have a material adverse effect on the Group’s results due to, for example, increased credit losses and higher impairment charges.
d) Leverage Finance underwriting
The Group takes on significant sub-investment grade underwriting exposure, including single name risk, particularly focused in the US and Europe and to a lesser extent in South Africa and other regions. The Group is exposed to credit events and market volatility during the underwriting period. Any adverse events during this period may potentially result in loss for the Group or an increased capital requirement should there be a need to hold the exposure for an extended period.
The Group’s financial position may be adversely affected by changes in both the level and volatility of prices leading to lower revenues, or reduced capital:
i) Concerns of major unexpected changes in monetary policy and quantitative easing programmes, foreign exchange movements or slowdown in emerging market economies spilling over to global markets (emerging risk)
The trading business model is focused on client facilitation in wholesale markets, involving market making activities, risk management solutions and execution.
The Group’s trading business is exposed to a rapid unwinding of quantitative easing programmes and deterioration in the macro environment driven by concerns in global growth. An extremely high level of volatility in asset prices could affect market liquidity and cause excess market volatility, impacting the Group’s ability to execute client trades and may also result in lower income or portfolio losses.
A sudden and adverse volatility in interest or foreign currency exchange rates also has the potential to detrimentally impact the Group’s income from non-trading activity.
This is because the Group has exposure to non-traded interest rate risk, arising from the provision of retail and wholesale non-traded banking products and services, including, products which do not have a defined maturity date and have an interest rate that does not change in line with base rate movements, e.g. current accounts. The level and volatility of interest rates can impact the Group’s net interest margin, which is the interest rate spread earned between lending and borrowing costs. The potential for future volatility and margin changes remains in key areas such as in the UK benchmark interest rate to the extent such volatility and margin changes are not fully addressed by hedging programmes.
The Group is also at risk from movements in foreign currency exchange rates as these impact the sterling equivalent value of foreign currency denominated assets in the banking book, exposing it to currency translation risk.
ii) Adverse movements in the pension fund
Adverse movements between pension assets and liabilities for defined benefit pension schemes could contribute to a pension deficit. The liabilities discount rate is a key driver and, in accordance with International Financial Reporting Standards (IAS 19), is derived from the yields of high quality corporate bonds (deemed to be those with AA ratings) and consequently includes exposure to both risk-free yields and credit spreads. Therefore, the Group’s defined benefits scheme valuation would be adversely affected by a prolonged fall in the discount rate or a persistent low rate and/or credit spread environment. Inflation is another significant risk driver to the pension fund, as the liabilities are adversely impacted by an increase in long term inflation expectation. However in the long term, inflation and rates risk tend to be negatively correlated and therefore partially offset each other.
The ability of the Group to achieve its business plans may be adversely impacted if it does not effectively manage its capital (including leverage), liquidity and other regulatory requirements.
The Group may not be able to achieve its business plans due to: i) being unable to maintain appropriate capital ratios; ii) being unable to meet its obligations as they fall due; iii) rating agency methodology changes resulting in ratings downgrades; and iv) adverse changes in foreign exchange rates on capital ratios.
i) Inability to maintain appropriate prudential ratios
Should the Group be unable to maintain or achieve appropriate capital ratios this could lead to: an inability to support business activity; a failure to meet regulatory capital requirements including the requirements of regulator set stress tests; increased cost of funding due to deterioration in credit ratings; restrictions on distributions including the ability to meet dividend targets; and/or the need to take additional measures to strengthen the Group’s capital or leverage position. While the requirements in CRD IV are now in force in the UK, further changes to capital requirements could occur, whether as a result of (i) further changes to EU legislation by EU legislators (for example, implementation of Bank of International Settlements (BIS) regulatory update recommendations), (ii) relevant binding regulatory technical standards updates by the European Banking Authority (EBA), (iii) changes to UK legislation by the UK government, (iv) changes to PRA rules by the PRA, or (v) additional capital requirements through Financial Policy Committee (FPC) recommendations. Such changes, either individually and/or in aggregate, may lead to further unexpected additional requirements in relation to the Group’s regulatory capital.
Additional prudential requirements may also arise from other regulatory reforms, including UK, EU and the US proposals on bank structural reform and current proposals for ‘Minimum Requirement for own funds and Eligible Liabilities (MREL) under the EU Bank Recovery and Resolution Directive (BRRD). Included within these reforms are the BoE proposals on MREL requirements for UK banks which were published in December 2015. The BoE stated its intentions to communicate MREL requirements to UK banks during 2016. Many of the proposals are still subject to finalisation and implementation and may have a different impact when in final form. The impact of these proposals is still being assessed. Overall, it is likely that these changes in law and regulation will have an impact on the Group as they are likely, when implemented, to require changes to the legal entity structure of the Group and how businesses are capitalised and funded. Any such increased prudential requirements may also constrain the Group’s planned activities, lead to forced asset sales and balance sheet reductions and could increase the Group’s costs, impact on the Group’s earnings and restrict the Group’s ability to pay dividends. Moreover, during periods of market dislocation, as currently seen, or when there is significant competition for the type of funding that the Group needs, increasing the Group’s capital resources in order to meet targets may prove more difficult and/or costly.
ii) Inability to manage liquidity and funding risk effectively
Failure to manage its liquidity and funding risk effectively may result in the Group either not having sufficient financial resources to meet its payment obligations as they fall due or, although solvent, only being able to meet these obligations at excessive cost. This could cause the Group to fail to meet regulatory liquidity standards, be unable to support day-to-day banking activities, or no longer be a going concern.
iii) Credit rating changes and the impact on funding costs
A credit rating assesses the creditworthiness of the Group, its subsidiaries and branches and is based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings, funding, liquidity, accounting and governance. Any adverse event to one or more of these attributes may lead to a downgrade, which in turn could result in contractual outflows to meet contractual requirements on existing contracts.
88 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
Furthermore, outflows related to a multiple notch credit rating downgrade are included in the LRA stress scenarios and a portion of the liquidity pool held against this risk. There is a risk that any potential downgrades could impact the Group’s performance should borrowing costs and liquidity change significantly versus expectations.
For further information, please refer to Credit Ratings in the Liquidity Risk Performance section on page 166.
iv) Adverse changes in foreign exchange rates on capital ratios
The Group has capital resources and risk weighted assets denominated in foreign currencies. Therefore changes in foreign currency exchange rates may adversely impact 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, and a failure to appropriately manage the Group’s balance sheet to take account of foreign currency movements could result in an adverse impact on regulatory capital ratios. The impact is difficult to predict with any accuracy, but it may have a material adverse effect on the Group if capital and leverage ratios fall below required levels.
The operational risk profile of the Group may change as a result of human factors, inadequate or failed internal processes and systems, or external events.
The Group is exposed to many types of operational risk. This includes: fraudulent and other internal and external criminal activities; breakdowns in processes, controls or procedures (or their inadequacy relative to the size and scope of the Group’s business); systems failures or an attempt, by an external party, to make a service or supporting infrastructure unavailable to its intended users, and the risk of geopolitical cyber threat activity which destabilises or destroys the Group’s information technology, or critical infrastructure the Group depends upon but does not control. The Group is also subject to the risk of business disruption arising from events wholly or partially beyond its control, for example, natural disasters, acts of terrorism, epidemics and transport or utility failures, which may give rise to losses or reductions in service to customers and/or economic loss to the Group. All of these risks are also applicable where the Group relies on outside suppliers or vendors to provide services to it and its customers. The operational risks that the Group is exposed to could change rapidly and there is no guarantee that the Group’s processes, controls, procedures and systems are sufficient to address, or could adapt promptly to, such changing risks to avoid the risk of loss.
i) Cyber attacks (emerging risk)
The risk posed by cyber attacks continues to grow. The proliferation of online marketplaces trading criminal services and stolen data has reduced barriers of entry for criminals to perpetrate cyber attacks, while at the same time increasing motivation.
Attacker capabilities continue to evolve as demonstrated by a marked increase in denial of service attacks, and increased sophistication of targeted fraud attacks by organised criminal networks. We face a growing threat to our information (whether it is held by us or in our supply chain), to the integrity of our financial transactions, and to the availability of our services. All of these necessitate a broad intelligence and response capability.
Given the level of increasing global sophistication and scope of potential cyber attacks, future attacks may lead to significant breaches of security which jeopardise the sensitive information and financial transactions of the Group, its clients, counterparties, or customers, or cause disruption to systems performing critical functions. Failure to adequately manage cyber threats and to continually review and update processes in response to new threats could result in increased fraud losses, inability to perform critical economic functions, customer detriment, regulatory censure and penalty, legal liability and reputational damage.
ii) Infrastructure and technology resilience
As the dependency on digital channels and other technologies grows, the impact of technology issues can become more material and immediate. This is also the case in many other industries and organisations but particularly impactful in the banking sector.
The Group’s technology, real-estate and supplier infrastructure is critical to the operation of its businesses and to the delivery of products and services to customers and clients and to meet our market integrity obligations. Sustained disruption to services provided by Barclays, either directly or through third parties, could have a significant impact to customers and to the Group’s reputation and may also lead to potentially large costs to rectify the issue and reimburse losses incurred by customers, as well as possible regulatory censure and penalties.
iii) Ability to hire and retain appropriately qualified employees
The Group requires a diverse mix of highly skilled and qualified colleagues to deliver its strategy and so is dependent on attracting and retaining appropriately qualified individuals. Barclays ability to attract and retain such talent is impacted by a range of external and internal factors.
External regulatory changes such as the introduction of the Individual Accountability Regime and the required deferral and claw back provisions of our compensation arrangements may make Barclays a less attractive proposition relative to both our international competitors and other industries. Similarly, meeting the requirements of structural reform may increase the competitiveness in the market for talent. Internally, restructuring of our businesses and functions, and an increased focus on costs may all have an impact on employee engagement and retention.
Failure to attract or prevent the departure of appropriately qualified employees who are dedicated to overseeing and managing current and future regulatory standards and expectations, or who have the necessary skills required to deliver the Group strategy, could negatively impact our financial performance, control environment and level of employee engagement.
iv) Losses due to additional tax charges
The Group is subject to the tax laws in all countries in which it operates, including tax laws adopted at the EU level, and is impacted by a number of double taxation agreements between countries. There is risk that the Group could suffer losses due to additional tax charges, other financial costs or reputational damage due to a range of possible factors. This includes a failure to comply with, or correctly assess the application of, relevant tax law, a failure to deal with tax authorities in a timely and effective manner or an incorrect calculation of tax estimates for reported and forecast tax numbers. Such charges, or the conduct of any dispute with a relevant tax authority, could lead to adverse publicity, reputational damage and potentially to costs materially exceeding current provisions, which could have an adverse effect on the Group’s operations, financial conditions and prospects.
v) Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying relevant accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements include provisions for conduct and legal, competition and regulatory matters, fair value of financial instruments, credit impairment charges for amortised cost assets, impairment and valuation of available for sale investments, calculation of current and deferred tax and accounting for pensions and post-retirements benefits. There is a risk that if the judgement exercised, or the estimates or assumptions used, subsequently turn out to be incorrect, this could result in significant loss to the Group, beyond what was anticipated or provided for.
As part of the assets in the Non-Core business, the Group holds a UK portfolio of generally longer term loans to counterparties in ESHLA sectors, which are measured on a fair value basis. The valuation of this portfolio is subject to substantial uncertainty due to the long dated nature of the portfolios, the lack of a secondary market in the relevant loans and unobservable loan spreads. As a result of these factors, the Group may be required to revise the fair values of these portfolios to reflect, among other things, changes in valuation methodologies due to
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 89 |
changes in industry valuation practices and as further market evidence is obtained in connection with the Non-Core asset rundown and exit process. For further information refer to Note 18 Fair value of assets and liabilities of the Group’s consolidated financial statements.
The further development of standards and interpretations under IFRS could also significantly impact the financial results, condition and prospects of the Group. The introduction of the impairment requirements of IFRS 9 Financial Instruments will result in impairment being recognised earlier than is the case under IAS 39 because it requires expected losses to be recognised before the loss event arises. Measurement will involve increased complexity and judgement including estimation of probabilities of defaults, losses given default, a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at default and assessing increases in credit risk. It is expected to have a material financial impact, but it will not be practical to disclose reliable financial impact estimates until the implementation programme is further advanced.
For more information please refer to Note 1 Significant accounting policies on pages218 to 220.
vi) Legal, competition and regulatory matters
Legal disputes, regulatory investigations, fines and other sanctions relating to conduct of business and financial crime may negatively affect the Group’s results, reputation and ability to conduct its business.
The Group conducts diverse activities in a highly regulated global market and is therefore exposed to the risk of fines and other sanctions relating to the conduct of its business. In recent years authorities have increasingly investigated past practices, vigorously pursued alleged breaches and imposed heavy penalties on financial services firms. This trend is expected to continue. In relation to financial crime, a breach of applicable legislation and/or regulations could result in the Group or its staff being subject to criminal prosecution, regulatory censure and other sanctions in the jurisdictions in which it operates, particularly in the UK and the US. Where clients, customers or other third parties are harmed by the Group’s conduct this may also give rise to legal proceedings, including class actions. Other legal disputes may also arise between the Group and third parties relating to matters such as breaches, enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in the Group being liable to third parties seeking damages, or may result in the Group’s rights not being enforced as intended.
Details of material legal, competition and regulatory matters to which the Group is currently exposed are set out in Note29 Legal, competition and regulatory matters. In addition to those material ongoing matters, the Group is engaged in various other legal proceedings in the UK and a number of overseas jurisdictions which arise in the ordinary course of business. The Group is also subject to requests for information, investigations and other reviews by regulators, governmental and other public bodies in connection with business activities in which the Group is or has been engaged. In light of the uncertainties involved in legal, competition and regulatory matters, there can be no assurance that the outcome of a particular matter or matters will not be material to the Group’s results, operations or cash flow for a particular period, depending on, among other things, the amount of the loss resulting from the matter(s) and the amount of income otherwise reported for the period.
The outcome of material, legal, competition and regulatory matters, both those to which the Group is currently exposed and any others which may arise in the future, is difficult to predict. However, it is likely that in connection with any such matters the Group will incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Group to any of the following: substantial monetary damages and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution in certain circumstances; the loss of any existing agreed protection from prosecution; regulatory restrictions on the Group’s business operations including the withdrawal of authorisations; increased regulatory compliance requirements; suspension of operations; public reprimands; loss of significant assets or business; a
negative effect on the Group’s reputation; loss of investor confidence and/or dismissal or resignation of key individuals.
There is also a risk that the outcome of any legal, competition or regulatory matters in which the Group is involved may give rise to changes in law or regulation as part of a wider response by relevant law makers and regulators. An adverse decision in any one matter, either against the Group or another financial institution facing similar claims, could lead to further claims against the Group.
vii) Risks arising from regulation of the financial services industry
The financial services industry continues to be the focus of significant regulatory change and scrutiny which may adversely affect the Group’s business, financial performance, capital and risk management strategies. For further information on regulations affecting the Group, including significant regulatory developments, see the section on Supervision and Regulation.
a) Regulatory change
The Group, in common with much of the financial services industry, remains subject to significant levels of regulatory change and increasing scrutiny in many of the countries in which it operates (including, in particular, the UK and the US). This has led to a more intensive approach to supervision and oversight, increased expectations and enhanced requirements. As a result, regulatory risk will remain a focus for senior management and consume significant levels of business resources. Furthermore, this more intensive approach and the enhanced requirements, uncertainty and extent of international regulatory coordination as enhanced supervisory standards are developed and implemented may adversely affect the Group’s business, capital and risk management strategies and/or may result in the Group deciding to modify its legal entity structure, capital and funding structures and business mix, or to exit certain business activities altogether or not to expand in areas despite otherwise attractive potential.
b) Changes in prudential requirements, including changes to CRD IV
The Group’s results and ability to conduct its business may be negatively affected by changes to, or additional supervisory expectations.
In July 2015, the Financial Policy Committee (FPC) of the BoE published a policy statement directing the PRA to require all major UK banks and building societies to hold enough Tier 1 capital to satisfy a minimum leverage ratio of 3% and a countercyclical leverage ratio buffer of 35% of the institution-specific countercyclical capital buffer rate. The FPC also directed that UK G-SIBs and domestically systemically important banks should meet a supplementary leverage buffer ratio of 35% of corresponding risk-weighted capital buffer rates. The PRA published a policy statement, finalised rules and a supervisory statement implementing the FPC’s directions in December 2015 and the new leverage ratio framework came into force on 1 January 2016.
In January 2016, the BCBS endorsed a new market risk framework, including rules made as a result of its fundamental review of the trading book, which will take effect in 2019. Barclays continues to monitor the potential effects on its capital position arising from these rules and from (i) revisions to the BCBS’s standardised rules for credit risk, counterparty credit risk, CVA volatility risk and operational risk; and (ii) the BCBS considering the position regarding the limitation of the use of internal models in certain areas (for example, removing the Advanced Measurement Approach for operational risk) and applying RWA floors based on the standardised approaches.
Changes to, or additional supervisory expectations, in relation to capital and/or leverage ratio requirements either individually or in aggregate, may lead to unexpected enhanced requirements in relation to the Group’s capital, leverage, liquidity and funding ratios or alter the way such ratios are calculated. This may result in a need for further management actions to meet the changed requirements, such as: increasing capital or liquidity resources, reducing leverage and risk weighted assets; modifying legal entity structure (including with regard to issuance and deployment of capital and funding for the Group); changing the Group’s business mix or exiting other businesses; and/or undertaking other actions to strengthen the Group’s position.
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Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
c) Market infrastructure reforms
The derivatives markets are subject to extensive and increasing regulation in many of the Group’s markets, including, in particular, Europe pursuant to the European Market Infrastructure Regulation (EMIR) and in the US under the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA). Certain of these increased regulatory requirements have already come into force, with further provisions expected to become effective in stages, including through a new recast version of the Markets in Financial Instruments Directive and a new regulation (the Markets in Financial Instruments Regulation) in Europe.
It is possible that additional regulations, and the related expenses and requirements, will increase the cost of and restrict participation in the derivatives markets, thereby increasing the costs of engaging in hedging or other transactions and reducing liquidity and the use of the derivatives markets.
Changes in regulation of the derivatives markets could adversely affect the business of the Group and its affiliates in these markets and could make it more difficult and expensive to conduct hedging and trading activities, which could in turn reduce the demand for swap dealer and similar services of the Group and its subsidiaries. In addition, as a result of these increased costs, the new regulation of the derivatives markets may also result in the Group deciding to reduce its activity in these markets.
d) Recovery and resolution planning
There continues to be a strong regulatory focus on ‘resolvability’ from regulators, particularly in the UK, the US and South Africa. The Group made its first formal Recovery and Resolution Plan (RRP) submissions to the UK and US regulators in mid-2012 and made its first Recovery Plan submission to the South African regulators in 2013. Barclays continues to work with the relevant authorities to identify and address potential impediments to the Group’s ‘resolvability’.
In the UK, RRP work is considered part of continuing supervision. Removal of potential impediments to an orderly resolution of the Group or one or more of its subsidiaries is considered as part of the BoE and PRA’s supervisory strategy for each firm, and the PRA can require firms to make significant changes in order to enhance resolvability. Barclays provides the PRA with a Recovery Plan annually and with a Resolution Pack every other year.
In the US, Barclays is one of several systemically important banks required to file resolution plans with the Board of Governors of the Federal Reserve System (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) (collectively, the Agencies) under provisions of the DFA. Pursuant to the resolution plan regulation in the US, a joint determination by the Agencies that a resolution plan is not credible or would not facilitate an orderly resolution under the US Bankruptcy Code may result in a bank being made subject to more stringent capital, leverage, or liquidity requirements, or restrictions on growth, activities or operations in the US.
Additionally, there are further resolution-related proposals in the US, such as the Federal Reserve’s proposed regulation requiring internal total loss absorbing capital (TLAC) for Barclays’ US Intermediate Holding Company (IHC) that will be established during 2016, and increased record keeping and reporting requirements for obligations under qualified financial contracts (QFC proposal) that may, depending on final rules, materially increase the operational and financing costs of Barclays’ US operations.
In South Africa, the South African Treasury and the South Africa Reserve Bank are considering material new legislation and regulation to adopt a resolution and depositor guarantee scheme in alignment with FSB principles. Barclays Africa Group Limited (BAGL) and its primary subsidiary Absa Bank Limited, will be subject to these schemes when they are adopted. It is not clear what shape these schemes will take, or when the schemes will be adopted, but current proposals for a funded deposit insurance scheme and for operational continuity may result in material increases in operational and financing costs for the BAGL group.
While the Group believes that it is making good progress in reducing potential impediments to resolution, should the relevant authorities ultimately determine that the Group or any significant subsidiary could
not be resolved in an orderly manner, the impact of potential structural changes that may be required to address such a determination (whether in connection with RRP or other structural reform initiatives) may impact capital, liquidity and leverage ratios, as well as the overall profitability of the Group, for example, due to duplicated infrastructure costs, lost cross-rate revenues and/or additional funding costs.
viii) Regulatory action in the event of a bank failure
The EU Bank Recovery and Resolution Directive (BRRD) contains provisions similar to the Banking Act on a European level, many of which augment and increase the powers which national regulators are required to have in the event of a bank failure.
The UK Banking Act 2009, as amended (the Banking Act) provides for a regime to allow the BoE (or, in certain circumstances, HM Treasury) to resolve failing banks in the UK. Under the Banking Act, these authorities are given powers to make share transfer orders and property transfer orders. Amendments introduced by the Banking Reform Act gave the BoE statutory bail-in power from 1 January 2015. This power enables the BoE to recapitalise a failed institution by allocating losses to its shareholders and unsecured creditors. It also allows the BoE to cancel liabilities or modify the terms of contracts for the purposes of reducing or deferring the liabilities of the bank under resolution, and gives it the power to convert liabilities into another form (e.g. equity). In addition to the bail-in power, relevant UK resolution authorities are granted additional powers under the Banking Act including powers to direct the sale or transfer of a relevant financial institution or all or part of its business in certain circumstances. Further, parallel developments such as the implementation in the UK of the FSB’s TLAC requirements may result in increased risks that a bank would become subject to resolution authority requirements by regulators seeking to comply with international standards in this area. Please see Funding risk, inability to maintain appropriate prudential ratios on page 88.
If any of these powers were to be exercised, or there is an increased risk of exercise, in respect of the Group or any entity within the Group, this might result in a material adverse effect on the rights or interests of shareholders and creditors including holders of debt securities and/or could have a material adverse effect on the market price of shares and other securities issued by the Group. Such effects could include losses of shareholdings/associated rights including, the dilution of percentage ownership of the Group’s share capital, and may result in creditors, including debt holders, losing all or a part of their investment in the Group’s securities.
Barclays is committed to Group-wide changes to business practices, governance and mindset and behaviours so that good customer outcomes and protecting market integrity are integral to the way Barclays operates. Improving our reputation will demonstrate to customers that in Barclays they have a partner they can trust. Conduct risk is the risk that detriment is caused to the Group’s customers, clients, counterparties or the Group itself because of inappropriate judgement in the execution of our business activities.
During 2015 potential customer impact and reputation risk inherent in varied emerging risks has been managed across the Group and escalated to senior management for discussion. These risks will remain prevalent in 2016 and beyond and the most significant of these include:
i) Organisational change
The Group is at risk of not being able to meet customer and regulatory expectations due to a failure to appropriately manage the: i) complexity in business practice, processes and systems; ii) challenges faced in product suitability, automation and portfolio-level risk monitoring; iii) resilience of its technology; and, iv) execution strategy, including the failure to fulfil the high level of operational precision required for effective execution in order to deliver positive customer outcomes.
ii) Legacy issues
Barclays remains at risk from the potential outcomes of a number of investigations relating to our past conduct. While we are continuing to embed cultural change and improved governance, many stakeholders
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will remain sceptical and so until there is clear and sustained evidence of consistent cultural and behavioural change, the risk to Barclays’ reputation will remain. Barclays continues to work to rebuild customer trust and market confidence impacted by legacy issues.
For further information in respect of such investigations and related litigation and discussion of the associated uncertainties, please see the Legal, competition and regulatory matters note on page 261.
iii) Market integrity
There are potential risks arising from conflicts of interest, including those related to the benchmark submission process. While primarily relevant to the Investment Bank, these potential risks may also impact the corporate and retail customer base. The Group may be adversely affected if it fails to mitigate the risk of individuals making such inappropriate judgement by the enhancing of operating models, and effective identification and management of conflicts of interest, controls and supervisory oversight.
iv) Financial crime
The Group, as a global financial services firm, is exposed to the risks associated with money laundering, terrorist financing, bribery and corruption and sanctions. As a result, the Group may be adversely affected if it fails to effectively mitigate the risk that its employees or third parties facilitate, or that its products and services are used to facilitate financial crime.
Any one, or combination, of the above risks could have significant impact on the Group’s reputation and may also lead to potentially large costs to both rectify this issue and reimburse losses incurred by customers and regulatory censure and penalties.
Material existing and emerging risks potentially impacting more than one Principal Risk
i) Structural reform (emerging risk)
The UK Financial Services (Banking Reform) Act 2013 (the UK Banking Reform Act) and associated secondary legislation and regulatory rules, require the separation of the Group’s UK and EEA retail and SME deposit taking activities into a legally, operationally and economically separate and independent entity and restrict the types of activity such an entity may conduct (so-called ‘ring fencing’).
The PRA issued a policy statement (PS10/15) in May 2015 setting up legal structures and governance requirements that the UK regulator considers as ‘near-final’. A PRA Consultation was issued in October 2015 relating to post ring fencing prudential requirements and intra-group arrangements among other matters. PRA final rules are expected in 2016. UK ring fencing rules will become binding from January 2019 and Barclays has an internal structural reform programme to implement the changes required by these new regulations (alongside other group structural requirements applicable to or in the course of development for the Group both in the UK and other jurisdictions in which the Group has operations – such as the proposed move towards a single point of entry (Holding Company) resolution model under the BoE’s preferred resolution strategy and the requirement under section 165 of the DFA to create a US intermediate holding company (IHC) to hold the Group’s US banking and non-banking subsidiaries) and to evaluate the Group’s strategic options in light of all current and proposed global structural reform initiatives. Changes resulting from this work will have a material impact in the way the Group operates in the future through increased cost and complexity associated with changes required by ring fencing laws and regulations. Specifically, in order to comply with the UK Banking Reform Act and the DFA, it is proposed that:
§ | Barclays will create a new UK banking entity which will serve as the ring fenced bank (RFB). It is expected to serve retail and small business customers as well as UK Wealth and credit card customers |
§ | Barclays Bank PLC (BBPLC) is expected to serve corporate, institutional and investment banking clients and will also serve international Wealth and credit card customers; it is also expected to house both the Corporate Banking payments and Barclaycard merchant acquiring businesses |
§ | many of the Group’s US businesses (including Barclays Bank Delaware and Barclays Capital Inc., the Group’s US broker-dealer subsidiary) will be organised under an IHC |
§ | the Group will establish a number of service companies in order to support its revised operating entity structure. |
Implementation of these changes involves a number of risks related to both the revised Group entity structure and also the process of transition to that revised Group structure. Those risks include the following:
§ | the establishment and ongoing management of the RFB and BBPLC as separate entities will require the Group to evaluate and restructure its intra-group and external capital, funding and liquidity arrangements to ensure they continue to meet regulatory requirements and support business needs. The changes required by ring fencing will in particular impact the sources of funding available to the different entities, including restricting BBPLC’s access to certain categories of deposit funding |
§ | while the Group will seek to manage the changes to business mix and capital, funding and liquidity resources so as to maintain robust credit ratings for each of its key operating entities, the restructuring required by ring fencing is complex and untested, and there is a risk that the changes may negatively impact the assessment made by credit rating agencies, creditors and other stakeholders of the credit strength of the different entities on a standalone basis. Adverse changes to the credit assessment, including the potential for ratings downgrades, could in turn make it more difficult and costly for the Group’s entities to obtain certain sources of funding |
§ | the Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015 provide that, after 1 January 2026, ring fence banks cannot be or become liable for pension schemes outside of the ring fence. To comply with the regulations, the Group will need to decide which Group entities will participate in the Barclays Bank UK Retirement Fund (UKRF) from 2026, and reach a mutually satisfactory position with the UKRF Trustee regarding past service liabilities. The Group is currently discussing a variety of options with the UKRF Trustee, and engaging with the PRA and the UK Pensions Regulator |
§ | execution risk associated with moving a material number of customer accounts and contracts from one legal entity to another and in particular the risk of legal challenge to the ring-fenced transfer scheme that will be used in order to transfer certain assets and liabilities from BBPLC to the RFB |
§ | customer impacts derived from operational changes related to, for example, the reorganisation of sort codes. In addition, uncertain and potentially varying customer preference in terms of being served by the RFB or BBPLC may increase the execution risk associated with ring fencing; customers may also be impacted by reduced flexibility to provide products through a single entity interface |
§ | at the European level, the draft Bank Structural Reform Regulation contains powers restricting proprietary trading and, if certain conditions are met, for the mandated separation of core retail banking activity from certain trading activities save where a bank is already subject to a national regime which provides for the separation of such activities in a manner compatible with the regulation. The regulation is currently in draft form and no single version (including the scope of any national derogation) has yet been agreed by the Council of Ministers, the European Commission and the European Parliament. The implementation date for these proposals will depend on the date on which any final legislation is agreed. Accordingly, the potential impact on the Group remains unclear. |
These, and other regulatory changes and the resulting actions taken to address such regulatory changes, may have an adverse impact on the Group’s profitability, operating flexibility, flexibility of deployment of capital and funding, return on equity, ability to pay dividends, credit ratings, and/or financial condition.
ii) Business conditions, general economy and geopolitical issues
The Group’s performance could be adversely affected in relation to more than one Principal Risk by a weak or deteriorating global economy or political instability. These factors may also occur in one or more of the Group’s main countries of operation.
The Group offers a broad range of services to retail, institutional and government customers, in a large number of countries. The breadth of
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Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
these operations means that deterioration in the economic environment, or an increase in political instability in countries where it is active, or any other systemically important economy, could adversely affect the Group’s performance.
Global growth is expected to remain modest, with low single digit growth in advanced economies alongside a slowdown in emerging markets. This moderate economic performance, lower commodity prices and increased geopolitical tensions mean that the distribution of risks to global economic activity continues to be biased to the downside.
As the US Federal Reserve embarks on monetary policy tightening, the increasing divergence of policies between major advanced economies risks triggering further financial market volatility. The sharp change in value of the US dollar during 2015 reflected this and, has played a major role in driving asset price volatility and capital reallocation as markets adjusted. Changes to interest rate expectations risk igniting further volatility and US dollar appreciation, particularly if the US Federal Reserve were to increase rates faster than markets currently expect.
Emerging markets have already seen growth slow following increased capital outflows, but a deeper slowdown in growth could emerge if tighter US interest rate policy drives further reallocation of capital. Moreover, sentiment towards emerging markets as a whole continues to be driven in large part by developments in China, where there is significant concern around the ability of authorities to manage the growth transition towards services. A stronger than expected slowdown could result if authorities fail to appropriately manage the end of the investment and credit-led boom, while the consequences from a faster slowdown would flow through both financial and trade channels into other economies, and affect commodity markets.
Commodity prices, particularly oil prices, have already fallen significantly, but could fall further if demand growth remains weak or supply takes longer than expected to adjust. At the same time, countries with high reliance on commodity related earnings have already experienced a tightening of financial conditions. A sustained period of low prices risks triggering further financial distress, default and contagion.
In several countries, reversals of capital inflows, as well as fiscal austerity, have already caused deterioration in political stability. This could be exacerbated by a renewed rise in asset price volatility or sustained pressure on government finances. In addition, geopolitical tensions in some areas of the world, including the Middle East and Eastern Europe are already acute, and are at risk of further deterioration.
While in Europe, risks of stagnation, entrenched deflation and a Eurozone break up have diminished, they remain a risk.
In the UK, the referendum on EU membership gives rise to some political uncertainty and raises the possibility of a disruptive and uncertain exit from the EU, with attendant consequences for investment and confidence. Following the referendum in June 2016, in the event that there is a vote in favour of leaving the EU, a period of negotiation is likely, widely anticipated to be around two years, with unpredictable implications on market conditions.
A drop in business or consumer confidence related to the aforementioned risks may have a material impact on GDP growth in one or more significant markets and therefore Group performance. At the same time, even if output in most advanced economies does grow, it would also be likely to advance at a slower pace than seen in the pre-crisis period. Growth potential could be further eroded by the low levels of fixed asset investment and productivity growth.
For the Group, a deterioration of conditions in its key markets could affect performance in a number of ways including, for example: (i) deteriorating business, consumer or investor confidence leading to reduced levels of client activity; (ii) higher levels of default rates and impairment; and (iii) mark to market losses in trading portfolios resulting from changes in credit ratings, share prices and solvency of counterparties.
iii) Business change/execution (emerging risk)
As Barclays moves towards a single point of entry (Holding Company) resolution model and implementation of the structural reform programme execution, the expected level of structural and strategic change to be implemented over the medium term will be disruptive and is likely to increase funding and operational risks for the Group and could impact its revenues and businesses. These changes will include: the creation and rundown of Non-Core; the delivery against an extensive agenda of operational and technology control and infrastructure improvements; and, planned cost reductions. Execution may be adversely impacted by external factors (such as a significant global macroeconomic downturn or further significant and unexpected regulatory change in countries in which the Group operates) and/or internal factors (such as availability of appropriately skilled resources or resolution of legacy issues). Moreover, progress in regard to Barclays’ strategic plans is unlikely to be uniform or linear and progress on certain targets may be achieved more slowly than others.
If any of the risks outlined above were to occur, singly or in aggregate, they could have a material adverse effect on the Group’s business, results of operations and financial condition.
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Risk review
Risk management
An overview of Barclays’ approach to risk management | ||
Page | ||
Barclays’ risk management strategy | ||
Introduction | 95 | |
Risk management strategy | 95 | |
Governance structure | 95 | |
Risk governance and assigning responsibilities | 97 | |
Principal and Key risks
| 98
| |
Credit risk management | ||
Overview | 99 | |
Organisation and structure | 99 | |
Roles and responsibilities | 100 | |
Credit risk mitigation
| 100 | |
Market risk management | ||
Overview | 101 | |
Organisation and structure | 102 | |
Roles and responsibilities
| 102 | |
Funding and capital risk management | ||
Overview | 103 | |
Organisation and structure | 103 | |
Roles and responsibilities
| 103 | |
Liquidity risk management | ||
Overview | 105 | |
Organisation and structure | 105 | |
Liquidity risk management
| 105 | |
Operational risk management | ||
Overview | 106 | |
Organisation and structure | 106 | |
Roles and responsibilities
| 107 | |
Conduct risk management | ||
Overview | 108 | |
Organisation and structure | 108 | |
Roles and responsibilities | 108 |
For a more detailed breakdown on our Risk review and Risk management contents please see pages 117 and 118. More detailed information on how Barclays manages these risks can be found in Barclays PLC 2015 Pillar 3 Report. |
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Risk review
A more comprehensive overview, together with more specific information on Group policies, can be found in Barclays PLC 2015 Pillar 3 Report or at home.barclays/annualreport
This section outlines the Group’s strategy for managing risk and how risk culture has been developed to ensure that there is a set of objectives and practices which are shared across the Group. It provides details of the Group’s governance, specific information on policies that the Group determines to be of particular significance in the current operating environment, committee structures and how responsibilities are assigned.
The Group has clear risk management objectives and a well established strategy to deliver them through core risk management processes.
At a strategic level, the Group’s risk management objectives are to:
§ | identify the Group’s significant risks |
§ | formulate the Group’s risk appetite and ensure that the business profile and plans are consistent with it |
§ | optimise risk/return decisions by taking them as closely as possible to the business, while establishing strong and independent review and challenge structures |
§ | ensure that business growth plans are properly supported by effective risk infrastructure |
§ | manage the risk profile to ensure that specific financial deliverables remain achievable under a range of adverse business conditions |
§ | help executives improve the control and coordination of risk taking across the business. |
A key element in the setting of clear management objectives is the ERMF, which sets out key activities, tools, techniques and organisational arrangements so that material risks facing the Group are identified and understood, and that appropriate responses are in place to protect Barclays and prevent detriment to its customers, employees or community. This will help the Group meet its goals, and enhance its ability to respond to new opportunities.
The ERMF covers those risks incurred by the Group that were foreseeable, continuous and material enough to merit establishing specific Group-wide control frameworks. These are known as Principal and Key Risks. See Principal and Key Risks on page 98 for more information.
The aim of the risk management process is to provide a structured, practical and easily understood set of three steps, Evaluate, Respond and Monitor (the E-R-M process), that enables management to identify and assess risks, determine the appropriate risk response, and then monitor the effectiveness of the response and changes to the risk profile.
1. Evaluate: risk evaluation must be carried out by those individuals, teams and departments who manage the underlying operational or business process, and so are best placed to identify and assess the potential risks, and also include those responsible for delivering the objectives under review.
2. Respond: the appropriate risk response effectively and efficiently ensures that risks are kept within appetite, which is the level of risk that the Group is prepared to accept while pursuing its business strategy. There are three types of response: i) accept the risk but take necessary mitigating actions such as use of risk controls; ii) stop the existing activity/do not start the proposed activity; or iii) continue the activity but transfer risks to another party via the use of insurance.
Barclays risk management strategy
3. Monitor: once risks have been identified and measured, and controls put in place, progress towards objectives must be tracked. Monitoring must be ongoing and can prompt re-evaluation of the risks and/or changes in responses. Monitoring must be carried out proactively. In addition to ‘reporting’, it includes ensuring risks are maintained within risk appetite, and checking that controls are functioning as intended and remain fit for purpose.
The process is orientated around material risks impacting delivery of objectives, and is used to promote an efficient and effective approach to risk management. This three step risk management process:
§ | can be applied to every objective at every level in the bank, both top-down or bottom-up |
§ | is embedded into the business decision making process |
§ | guides the Group’s response to changes in the external or internal environment in which existing activities are conducted |
§ | involves all staff and all three lines of defence (see pages 97). |
Risk exists when the outcome of taking a particular decision or course of action is uncertain and could potentially impact whether, or how well, the Group delivers on its objectives.
The Group faces risks throughout its business, every day, in everything it does. Some risks are taken after appropriate consideration – such as lending money to a customer. Other risks may arise from unintended consequences of internal actions, for example an IT system failure or poor sales practices. Finally, some risks are the result of events outside the Group but which impact its business – such as major exposure through trading or lending to a market counterparty which later fails.
All employees must play their part in the Group’s risk management, regardless of position, function or location. All employees are required to be familiar with risk management policies that are relevant to their activities, know how to escalate actual or potential risk issues, and have a role appropriate level of awareness of the ERMF (see Risk governance and assigning responsibilities for more information on page 97), risk management process and governance arrangements.
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Board oversight and flow of risk related information
Furthermore, from March 2016 members of the Board, Executive Committee and a limited number of specified senior individuals will be subject to additional rules included within the Senior Managers Regime (SMR), which clarifies their accountability and responsibilities. Members of the SMR are held to four additional specific rules of conduct in which they must:
1. | take reasonable steps to ensure that the Group is effectively controlled |
2. | take reasonable steps to ensure that the Group complies with relevant regulatory requirements and standards |
3. | take reasonable steps to ensure that any delegated responsibilities are to the appropriate individual and that the delegated responsibilities are effectively discharged |
4. | disclose appropriately any information to the FCA or PRA, which they would reasonably expect to be made aware of. |
There are three key board-level forums which review and monitor risk across the Group. These are: the Board itself; the Board Risk Committee and the Board Reputation Committee.
The Board
One of the Board’s (Board of Directors of Barclays PLC) responsibilities is the approval of risk appetite, which is the level of risk the Group chooses to take in pursuit of its business objectives. The Chief Risk Officer regularly presents a report to the Board 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 (Group Control Framework). It oversees the management of the most significant risks through regular review of risk exposures and related key controls. Executive management responsibilities relating to this are set out in the ERMF.
The Board Risk Committee (BRC)
The BRC monitors the Group’s risk profile against the agreed financial appetite. Where actual performance differs from expectations, actions being taken by management are reviewed to ensure that the BRC is comfortable with them. After each meeting, the Chair of the BRC prepares a report for the next meeting of the Board. All members are non-executive directors. The Group Finance Director (GFD) and the Chief Risk Officer (CRO) attend each meeting as a matter of course.
The BRC also considers the Group’s risk appetite statement for operational risk and evaluates the Group’s operational risk profile and operational risk monitoring.
The BRC receives regular and comprehensive reports on risk methodology, the effectiveness of the risk management framework, and the Group’s risk profile, including the key issues affecting each business portfolio and forward risk trends. The Committee also commissions in-depth analyses of significant risk topics, which are presented by the CRO or senior risk managers in the businesses. The Chair of the Committee prepares a statement each year on its activities.
The Board Audit Committee (BAC)
The BAC receives regular reports on the effectiveness of internal control systems, quarterly reports on material control issues of significance, quarterly papers on accounting judgements (including impairment). It also receives 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 methodologies and the performance trends of peer banks. The Chairman of the BAC also sits on the BRC.
The Board Reputation Committee (RepCo)
The RepCo reviews management’s recommendations on conduct and reputational risk and the effectiveness of the processes by which the Group identifies and manages these risks. It also reviews and monitors the effectiveness of Barclays’ Citizenship strategy, including the management of Barclays’ economic, social and environmental contribution.
In addition, the Board Audit and Board Remuneration Committees receive regular risk reports to assist them in the undertaking of their duties.
The Board Remuneration Committee (RemCo)
The RemCo receives a detailed report on risk management performance from the BRC, regular updates on the risk profile and proposals for the ex-ante and ex-post risk adjustments to variable remuneration. These inputs are considered in the setting of performance incentives.
Summaries of the relevant business, professional and risk management experience of the Directors of the Board are presented in the Board of Directors section on pages 3 and 4. The terms of reference and additional details on membership and activities for each of the principal Board Committees are available from the Corporate Governance section at: home.barclays/corporategovernance.
The CRO manages the independent Risk function and chairs the Financial Risk Committees (FRC) and the Operational Risk Review Forum (ORRF), which monitor the Group’s financial and non-financial risk profile relative to agreed risk appetite.
The Group Treasurer heads the Treasury function and chairs the Treasury Committee which manages the Group’s liquidity, maturity transformation and structural interest rate exposure through the setting of policies and controls, monitors the Group’s liquidity and interest rate maturity mismatch, monitors usage of regulatory and economic capital, and has oversight of the Group’s capital plan.
The Head of Compliance chairs the Conduct and Reputational Risk Committee (CRRC) which assesses the quality of the application of the Reputation and Conduct Risk Control Frameworks. It also recommends conduct risk appetite, sets policies to ensure consistent adherence to that appetite, and reviews known and emerging reputational and conduct related risks to consider if action is required.
96 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Risk governance and assigning responsibilities
Responsibility for risk management resides at all levels of the Group, from the Board and the Executive Committee down through the organisation to each business manager and risk specialist. These responsibilities are distributed so that risk/return decisions are taken at the most appropriate level, as close as possible to the business, and are subject to robust and effective review and challenge. Responsibilities for effective review and challenge also reside at all levels.
The ERMF articulates a clear, consistent, comprehensive and effective approach for the management of all risks in the Group and creates the context for setting standards and establishing the right practices throughout the Group. The ERMF sets out a philosophy and approach that is applicable to the whole bank, all colleagues and to all types of risk. It sets out the key activities required for all employees to operate Barclays risk and control environment, with specific requirements for key individuals, including the CRO and CEO, and the overall governance framework designed to support its effective operation. See Risk Culture in Barclays PLC 2015 Pillar 3 Report for more information.
The ERMF supports risk management and control by ensuring that there is a:
§ | sustainable and consistent implementation of the three lines of defence across all businesses and functions |
§ | clear segregation of activities and duties performed by colleagues across the Group |
§ | framework for the management of Principal Risks |
§ | consistent application of Barclays’ risk appetite across all Principal Risks |
§ | clear and simple policy hierarchy. |
Three lines of defence
The enterprise risk management process is the ‘defence’, and organising businesses and functions into three ‘lines’ enhances the E-R-M process by formalising independence and challenge, while still promoting collaboration and the flow of information between all areas. The three lines of defence operating model enables the Group to separate risk management activities:
First line: manage operational and business processes; design, implement, operate, test and remediate controls.
First line activities are characterised by:
§ | ownership of and direct responsibility for the Group’s returns or elements of Barclays’ results |
§ | ownership of major operations, systems and processes fundamental to the operation of the bank |
§ | direct linkage of objective setting, performance assessment and reward to financial performance. |
Second line: oversee and challenge the first line and provide second line risk management activity.
Second line activities are characterised by:
§ | oversight, monitoring and challenge of the first line of defence activities |
§ | design, ownership or operation of Key Risk Control Frameworks impacting the activities of the first line of defence |
§ | operation of certain second line risk management activities (e.g. financial rescue of a firm) |
§ | no direct linkage of objective setting, performance assessment and reward to revenue (measures related to mitigation of losses and balancing risk and reward are permissible). |
Third line: provide assurance that the E-R-M process is fit for purpose, and that it is being carried out as intended.
Third line activities are characterised by:
§ | providing independent and timely assurance to the Board and Executive Management over the effectiveness of governance, risk management and control. |
Following the annual review, in 2016, we have further refined the three lines of defence model by clarifying that responsibilities for risk management and control are defined in relation to the activities individuals undertake as part of their role. The three key activities are: ‘Setting Policy and Conformance’ (second line); ‘Managing Operational or Business Process’ (first and second line); and ‘Providing Independent Assurance’ (third line). Second and third line activities have not changed, however we have emphasised the key responsibilities of the first line, which includes colleagues’ responsibility for understanding and owning the process end to end, and designing, operating, testing and remediating appropriate controls to manage those risks. Performed appropriately and by all colleagues, together these responsibilities will drive a stronger risk and control environment at Barclays, benefitting our customers, clients, shareholders and regulators.
Reporting and control
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 97 |
Principal Risks comprise individual Key Risks to allow for more granular analysis. As at 31 December 2015, the five Principal Risks were: i) Credit; ii) Market; iii) Funding; iv) Operational; and v) Conduct. Since the beginning of 2015, Reputation Risk has been recognised as a Key Risk within Conduct Risk given their close alignment and the fact that as separate Principal Risks they had a common Principal Risk Officer.
Risk management responsibilities for Principal and Key Risks are set out in the ERMF. The ERMF creates clear ownership and accountability; ensures the Group’s most significant risk exposures are understood and managed in accordance with agreed risk appetite and risk tolerances; and ensures regular reporting of risk exposures and control effectiveness.
For each Key Risk, the Key Risk Officer is responsible for developing a risk appetite statement and overseeing and managing the risk in line with the ERMF. This includes the documentation, communication and maintenance of a Key Risk Control Framework which sets out, for every business across the firm, the mandated control requirements in managing exposures to that Key Risk. These control requirements are given further specification, according to the business or risk type, to provide a complete and appropriate system of internal control.
Business and Function Heads are responsible for obtaining ongoing assurance that the key controls they have put in place to manage the risks to their business objectives are operating effectively. Reviews are undertaken on a six-monthly basis and support the regulatory requirement for the Group to make an annual statement about its system of internal controls. At the business level, executive management hold specific Business Risk Oversight Meetings to monitor all Principal Risks.
Key Risk Officers report their assessments of the risk exposure and control effectiveness to Group-level oversight committees and their assessments form the basis of the reports that go to the:
Board Risk Committee:
§ | Financial Risk Committee has oversight of Credit and Market Risks |
§ | Treasury Committee has oversight of Funding Risk |
§ | Operational Risk Review Forum has oversight of the risk profile of all Operational Risk types. |
Board Reputation Committee:
§ | Conduct and Reputation Risk Committee has oversight of Conduct and Reputation Risks. |
The following sections provide an overview of each of the five Principal Risks, and details of the structure and organisation of the relevant management function and its roles and responsibilities, including how the impact of the risk to the Group may be minimised.
98 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Credit risk
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 a Principal Risk, the Group dedicates considerable resources to its control. The credit risk that the Group faces arises mainly from wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts with clients. Other sources of credit risk arise from trading activities, including: debt securities, settlement balances with market counterparties, available for sale assets and reverse repurchase agreements (reverse repos).
Credit risk management objectives are to:
§ | maintain a framework of controls to ensure credit risk taking is based on sound credit risk management principles |
§ | 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 |
§ | control and plan credit risk taking in line with external stakeholder expectations and avoiding undesirable concentrations |
§ | monitor credit risk and adherence to agreed controls |
§ | ensure that risk-reward objectives are met. |
More information of the reporting of credit risk can be found in Barclays PLC 2015 Pillar 3 Report.
Wholesale and retail portfolios are managed separately to reflect the differing nature of the assets; wholesale balances tend to be larger and are managed on an individual basis, while retail balances are larger in number but smaller in value and are, therefore, managed on a homogenous portfolio basis.
Credit risk management responsibilities have been structured so that decisions are taken as close as possible to the business, while ensuring robust review and challenge of performance, risk infrastructure and strategic plans. The credit risk management teams in each business are accountable to the relevant Business Credit Risk Officer (BCRO) who, in turn, reports to the CRO.
Board oversight and flow of risk related information
Organisation and structure
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 99 |
The responsibilities of the credit risk management teams in the businesses, the sanctioning team and other shared services include: sanctioning new credit agreements (principally wholesale); setting policies for approval of transactions (principally retail); setting risk appetite; monitoring risk against limits and other parameters; maintaining robust processes, data gathering, quality, storage and reporting methods for effective credit risk management; performing effective turnaround and workout scenarios for wholesale portfolios via dedicated restructuring and recoveries teams; maintaining robust collections and recovery processes/units for retail portfolios; and review and validation of credit risk measurement models.
For wholesale portfolios, credit risk approval is undertaken by experienced credit risk professionals operating within a clearly defined delegated authority framework, with only the most senior credit officers entrusted with the higher levels of delegated authority. The largest credit exposures, which are outside the Risk Sanctioning Unit or Risk Distribution Committee authority require the support of the Group Senior Credit Officer (GSCO), the Group’s most senior credit risk sanctioner. For exposures in excess of the GSCO’s authority, approval by Group CRO is required. In the wholesale portfolios, credit risk managers are organised in sanctioning teams by geography, industry and/or product.
The role of the Central Risk function is to provide Group-wide direction, oversight and challenge of credit risk taking. Central Risk sets the Credit Risk Control Framework, which provides the structure within which credit risk is managed, together with supporting credit risk policies.
The Group employs a range of techniques and strategies to actively mitigate the counterparty credit risks. These can broadly be divided into three types: netting and set-off; collateral; and risk transfer.
Netting and set-off
In most jurisdictions in which the Group operates, credit risk exposures can be reduced by applying netting and set-off. In exposure terms, this credit risk mitigation technique has the largest overall impact on net exposure to derivative transactions, compared with other risk mitigation techniques.
For derivative transactions, the Group’s normal practice is to enter into standard master agreements with counterparties (e.g. ISDAs). These master agreements allow for netting of credit risk exposure to a counterparty resulting from a derivative transaction against the Group’s obligations to the counterparty in the event of default, and so produce a lower net credit exposure. These agreements may also reduce settlement exposure (e.g. for foreign exchange transactions) by allowing payments on the same day in the same currency to be set-off against one another.
Collateral
The Group has the ability to call on collateral in the event of default of the counterparty, comprising:
§ | home loans: a fixed charge over residential property in the form of houses, flats and other dwellings |
§ | wholesale lending: a fixed charge over commercial property and other physical assets, in various forms |
§ | other retail lending: includes charges over motor vehicles and other physical assets, second lien charges over residential property, and finance lease receivables |
§ | derivatives: the Group also often seeks to enter into a margin agreement (e.g. Credit Support Annex (CSA)) with counterparties with which the Group has master netting agreements in place |
§ | reverse repurchase agreements: collateral typically comprises highly liquid securities which have been legally transferred to the Group subject to an agreement to return them for a fixed price |
§ | financial guarantees and similar off-balance sheet commitments: cash collateral may be held against these arrangements. |
Risk transfer
A range of instruments including guarantees, credit insurance, credit derivatives and securitisation can be used to transfer credit risk from one counterparty to another. These mitigate credit risk in two main ways:
§ | if the risk is transferred to a counterparty which is more credit worthy than the original counterparty, then overall credit risk is reduced |
§ | where recourse to the first counterparty remains, both counterparties must default before a loss materialises. This is less likely than the default of either counterparty individually so credit risk is reduced. |
Detailed policies are in place to ensure that credit risk mitigation is appropriately recognised and recorded and more information can be found in the Barclays PLC 2015 Pillar 3 Report.
100 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Market risk management
Market risk
The risk of a reduction to earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheet and liquidity pools.
Traded market risk
Traded market risk arises primarily as a result of client facilitation in wholesale markets, involving market making activities, risk management solutions and execution of syndications. Upon execution of a trade with a client, the Group will look to hedge against the risk of the trade moving in an adverse direction. Mismatches between client transactions and hedges result in market risk due to changes in asset prices.
Non-traded market risk
Banking book operations generate non-traded market risk, primarily through interest rate risk arising from the sensitivity of net interest margins due to changes in interest rates. The principal banking businesses engage in internal derivative trades with Treasury to manage their interest rate risk to within its defined risk appetite. However, the businesses remain susceptible to market risk from four key sources:
§ | prepayment risk: balance run-off may be faster or slower than expected, due to customer behaviour in response to general economic conditions or interest rates. This can lead to a mismatch between the actual balance of products and the hedges executed with Treasury based on initial expectations |
§ | recruitment risk: the volume of new business may be lower or higher than expected, requiring the business to unwind or execute hedging transactions with Treasury at different rates than expected |
§ | residual risk and margin compression: the business may retain a small element of interest rate risk to facilitate the day-to-day management of customer business. Additionally, in the current low rate environment, deposits on which the Group sets the interest rate are exposed to margin compression. This is because for any further fall in base rate the Group must absorb an increasing amount of the rate move in its margin |
§ | lag risk: the risk of being unable to re-price products immediately after a change in interest rates due to mandatory notification periods. This is highly prevalent in managed rates saving products (e.g. Every Day Saver) where customers must be informed in writing of any planned reduction in their savings rate. |
Pension risk
The Group 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 principally through investments.
Pension risk arises because the estimated market value of the pension fund assets might decline; investment returns might reduce; or the estimated value of the pension liabilities might increase as a result of changes to the market process. The Group monitors the market risks arising from its defined benefit pension schemes, and works with the Trustees to address shortfalls. In these circumstances, the Group could be required or might choose to make extra contributions to the pension fund. The Group’s main defined benefit scheme was closed to new entrants in 2012.
Insurance risk
Insurance risk is managed within Africa Banking, where four categories of insurance risk are recognised: short-term insurance underwriting risk, life insurance underwriting risk, life insurance mismatch risk, and life and insurance investment risk.
Insurance risk arises when:
§ | aggregate insurance premiums received from policyholders under a portfolio of insurance contracts are inadequate to cover the claims arising from those policies and the expenses associated with the management of the portfolio of policies and claims |
§ | premiums are not invested to adequately match the duration, timing and size of expected claims |
§ | unexpected fluctuations in claims arise or excessive exposure (e.g. in individual or aggregate exposures) relative to capacity is retained in the entity. |
Insurance entities also incur market risk (on the investment of accumulated premiums and shareholder capital), credit risk (counterparty exposure on investments and reinsurance transactions), liquidity risk and operational risk from their investments and financial operations.
Organisation and structure
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 101 |
Overview of the business market risk control structure
Traded market risk in the businesses resides primarily in the Investment Bank, Treasury, Africa Banking and Non-Core. These businesses have the mandate to incur traded market risk. Non-traded market risk is mostly incurred in PCB, Barclaycard and Treasury.
Market risk oversight and challenge is provided by business committees, Group committees, including the Market Risk Committee and Group Market Risk. The chart above gives an overview of the business control structure.
The objectives of market risk management are to:
§ | understand and control market risk by robust measurement, limit setting, reporting and oversight |
§ | facilitate business growth within a controlled and transparent risk management framework |
§ | ensure that traded market risk in the businesses is controlled according to the allocated appetite |
§ | control non-traded market risk in line with approved appetite |
§ | control insurance risk in line with approved appetite |
§ | support the Non-Core strategy of asset reductions by ensuring that market risk remains within agreed risk appetite. |
To ensure the above objectives are met, a well-established governance structure is in place to manage these risks consistent with the ERMF (evaluate-respond-monitor). See page 95 on risk management strategy, governance and risk culture.
More information on market risk management can be found in Barclays PLC 2015 Pillar 3 Report.
102 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Funding and capital risk management
Funding risk
The ability of the Group to achieve its business plans may be adversely impacted if it does not effectively manage its capital (including leverage) and liquidity ratios. Group Treasury manage funding risk on a day-to-day basis with the Group Treasury Committee acting as the key governance forum.
Organisation and structure
Capital risk
Capital risk is the risk that the Group has insufficient capital resources to:
§ | meet minimum regulatory requirements in the UK and in other jurisdictions such as the US and South Africa where regulated activities are undertaken. The Group’s authority to operate as a bank is dependent upon the maintenance of adequate capital resources at each level where prudential capital requirements are applied |
§ | support its credit rating. A weaker credit rating would increase the Group’s cost of funds |
§ | support its growth and strategic options. |
Capital management is integral to the Group’s approach to financial stability and sustainability management and is therefore embedded in the way businesses and legal entities operate. Capital demand and supply is actively managed on a centralised basis, at a business level, at a local entity level and on a regional basis taking into account the regulatory, economic and commercial environment in which Barclays operates.
The Group’s capital management strategy is driven by the strategic aims of the Group and the Risk Appetite set by the Board. The Group’s objectives are achieved through well embedded capital management practices.
Capital planning
Capital forecasts are managed on a top-down and bottom-up basis through both short term (one year) and medium term (three to five years) financial planning cycles. Barclays’ capital plans are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group’s risk profile, regulatory and business needs. As a result, the Group holds a diversified capital base that provides strong loss absorbing capacity and optimised returns.
Barclays’ capital forecasts are continually monitored against relevant internal target capital ratios to ensure they remain appropriate, and consider risks to the plan including possible future regulatory changes.
Local management ensures compliance with an entity’s minimum regulatory capital requirements by reporting to local Asset and Liability Committees with oversight by the Group’s Treasury Committee, as required.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 103 |
Regulatory requirements
Capital planning is set in consideration of minimum regulatory requirements in all jurisdictions in which the Group operates. Group regulatory capital requirements are determined by the PRA.
Under these regulatory frameworks, capital requirements are set in consideration of the level of risk that the firm is exposed to which is measured through both risk weighted assets (RWAs) and leverage.
Capital held to support the level of risk identified is set in consideration of minimum ratio requirements and internal buffers. Capital requirements are set in accordance with the firm’s level of risk.
Governance
The Group and legal entity capital plans are underpinned by the Capital Risk Framework, which includes capital management policies and practices approved by the Principal Risk Officer. These plans are implemented consistently in order to deliver on the Group objectives.
The Board approves the Group capital plan, stress tests and recovery plan. The Treasury Committee manages compliance with the Group’s capital management objectives. The Committee reviews actual and forecast capital demand and resources on a bi-monthly basis. The Board Risk Committee annually reviews risk appetite and then analyses the impacts of stress scenarios on the Group capital forecast in order to understand and manage the Group’s projected capital adequacy.
Monitoring and managing capital
Capital is monitored and managed on an ongoing basis through:
Stress testing: internal group-wide stress testing is undertaken to quantify and understand the impact of sensitivities on the capital plan and capital ratios arising from stressed macroeconomic conditions. Actual recent economic, market and regulatory scenarios are used to inform the assumptions of the stress tests and assess the effectiveness of mitigation strategies.
The Group also undertakes stress tests prescribed by the BoE and EBA. Legal entities undertake stress tests prescribed by their local regulators. These stress tests inform decisions on the size and quality of capital buffer required and the results are incorporated into the Group capital plan to ensure adequacy of capital under normal and severe, but plausible, stressed conditions.
Risk mitigation: as part of the stress testing process, actions are identified that should be taken to mitigate the risks that could arise in the event of material adverse changes in the current economic and business outlook.
As an additional layer of protection, the Barclays Recovery Plan defines the actions and implementation strategies available for the Group to increase or preserve capital resources in the event that stress events are more extreme than anticipated.
Senior management awareness and transparency: Treasury works closely with Risk, businesses and legal entities to support a proactive approach to identifying sources of capital ratio volatilities which are considered in the Group’s capital plan. Capital risks against firm-specific and macroeconomic early warning indicators are monitored and reported to the Treasury Committee, associated with clear escalation channels to senior management.
Capital management information is readily available at all times to support the Executive Management’s strategic and day-to-day business decision making, as may be required.
The Group submits its Board approved ICAAP document to the PRA on an annual basis, which forms the basis of the Individual Capital Guidance (ICG) set by the PRA.
Capital allocation:capital allocations are approved by the Group Executive Committee and monitored by the Treasury Committee, taking into consideration the risk appetite, growth and strategic aims of the Group. Regulated legal entities are, at a minimum, allocated adequate capital to meet their current and forecast regulatory and business requirements.
Transferability of capital: the Group’s policy is for surplus capital held in Group entities to be repatriated to BBPLC in the form of dividends and/or capital repatriation, subject to local regulatory requirements, exchange controls and tax implications. This approach provides optimal flexibility on the re-deployment of capital across legal entities. The Group is not aware of any material impediments to the prompt transfer of capital resources, in line with the above policy, or repayment of intra-Group liabilities when due.
More information on capital risk management can be found in pages 402 to 403.
104 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Liquidity risk
The risk that the Group, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost. This also results in a firm’s inability to meet regulatory liquidity requirements. This risk is inherent in all banking operations and can be affected by a wide range of Group-specific and market-wide events.
The Board has formally recognised a series of risks that are continuously present in Barclays and materially impact the achievement of Barclays objectives, one of which is Funding risk. Liquidity risk is recognised as a key risk within Funding risk. The efficient management of liquidity is essential to the Group in retaining the confidence of the financial markets and ensuring that the business is sustainable. Liquidity risk is managed through the Liquidity Risk Management Framework (the Liquidity Framework) which is designed to meet the following objectives:
§ | to maintain liquidity resources that are sufficient in amount and quality and a funding profile that is appropriate to meet the liquidity risk appetite (LRA) as expressed by the Board |
§ | to maintain market confidence in the Group’s name. |
This is achieved via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring. Together, these meet internal and regulatory requirements.
Barclays Treasury operates a centralised governance control process that covers all of the Group’s liquidity risk management activities. As per the ERMF, the Key Risk Officer (KRO) approves the Key Risk Control Framework for Liquidity Risk (Key Risk Control Framework) under which the Treasury function operates. The KRO is in the Risk function. The Key Risk Control Framework is subject to annual review. The Key Risk Control Framework describes liquidity policies and controls that the Group has implemented to manage liquidity risk within the LRA and is subject to annual review.
The Board sets the LRA, over Group stress tests, being the level of risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The approved LRA is implemented and managed by the Treasury Committee through the Key Risk Control Framework.
Barclays has a comprehensive Key Risk Control Framework for managing the Group’s liquidity risk. The Key Risk Control Framework describes liquidity policies and controls that the Group has implemented to manage liquidity risk within the LRA. The Key Risk Control Framework is designed to deliver the appropriate term and structure of funding consistent with the LRA set by the Board.
Liquidity is monitored and managed on an ongoing basis through:
Group Stress test risk appetite and planning: Established Group stress test LRA together with the appropriate limits for the management of liquidity risk. This is the level of liquidity risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations.
Liquidity limits: Management of limits on a variety of on and off-balance sheet exposures and these serve to control the overall extent and composition of liquidity risk taken by managing exposure to the cash outflows.
Internal pricing and incentives: Active management of the composition and duration of the balance sheet and of contingent liquidity risk through the transfer of liquidity premium directly to the business.
Early warning indicators: Monitoring of a range of market indicators for early signs of liquidity risk in the market or specific to Barclays. These are designed to immediately identify the emergence of increased liquidity risk to maximise the time available to execute appropriate mitigating actions.
Contingency Funding Plan: Maintenance of a Contingency Funding Plan (CFP) which is designed to provide a framework where a liquidity stress could be effectively managed. The CFP provides a communication plan and includes management actions to respond to liquidity stresses of varying severity.
RRP: In accordance with the requirements of the PRA Rulebook: Recovery and Resolution, Barclays has developed a Group Recovery Plan. The key objectives are to provide the Group with a range of options to ensure the viability of the firm in a stress, set consistent early warning indicators to identify when the Recovery Plan should be invoked and to enable the Group to be adequately prepared to respond to stressed conditions. The Group continues to work with the authorities on RRP, including identifying and addressing any impediments to resolvability.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 105 |
Risk review
Risk management
Operational risk
Any instance where there is a potential or actual impact to the Group resulting from inadequate or failed internal processes, people, systems, or from an external event. The impacts to the Group can be financial, including losses or an unexpected financial gain, as well as non-financial such as customer detriment, reputational or regulatory consequences.
The management of operational risk has two key objectives:
§ | minimise the impact of losses suffered, both in the normal course of business (small losses) and from extreme events (large losses) |
§ | improve the effective management of the Group and strengthen its brand and external reputation. |
The Group is committed to the management and measurement of operational risk and was granted a waiver by the FSA (now the PRA) to operate an Advanced Measurement Approach (AMA) for operational risk under Basel II, which commenced in January 2008. The majority of the Group calculates regulatory capital requirements using AMA (93% of capital requirements); however, in specific areas, the Basic Indicator Approach (7%) is applied. The Group works to benchmark its internal operational risk management and measurement practices with peer banks and to drive the further development of advanced techniques.
The Group is committed to operating within a strong system of internal control that enables business to be transacted and risk taken without exposing the Group to unacceptable potential losses or reputational damage. The Group has an overarching framework that sets out the approach to internal governance. This guide establishes the mechanisms and processes by which the Board directs the organisation, through setting the tone and expectations from the top, delegating authority and monitoring compliance.
Operational risk comprises a number of specific Key Risks defined as follows:
§ | external supplier: inadequate selection and ongoing management of external suppliers |
§ | financial crime: failure to comply with anti-money laundering, anti-bribery, anti-corruption and sanctions policies. In early January 2016, the oversight of financial crime was transferred to Group Compliance |
§ | financial reporting: reporting misstatement or omission within external financial or regulatory reporting |
§ | fraud: dishonest behaviour with the intent to make a gain or cause a loss to others |
§ | information: inadequate protection of the Group’s information in accordance with its value and sensitivity |
§ | legal: failure to identify and manage legal risks |
§ | payments process: failure in operation of payments processes |
§ | people: inadequate people capabilities, and/or performance/reward structures, and/or inappropriate behaviours |
§ | premises and security: unavailability of premises (to meet business demand) and/or safe working environments, and inadequate protection of physical assets, employees and customers against external threats |
§ | taxation: failure to comply with tax laws and practice which could lead to financial penalties, additional tax charges or reputational damage |
§ | technology (including cyber security): failure to develop and deploy secure, stable and reliable technology solutions which includes risk of loss or detriment to Barclays’ business and customers as a result of actions committed or facilitated through the use of networked information systems |
§ | transaction operations: failure in the management of critical transaction processes. |
In order to ensure complete coverage of the potential adverse impacts on the Group arising from operational risk, the operational risk taxonomy extends beyond the operational key risks listed above to cover areas included within conduct risk. For more information on conduct risk please see pages 108 and 109.
These risks may result in financial and/or non-financial impacts including legal/regulatory breaches or reputational damage.
Reporting and control
106 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Operational risk management
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. The operational risk profile and control environment is reviewed by business unit management through specific meetings which cover governance, risk and control. Businesses are required to report their operational risks on both a regular and an event driven basis. The reports include a profile of the material risks that may threaten the achievement of their objectives and the effectiveness of key controls, material control issues, operational risk events and a review of scenarios.
The Group Head of Operational Risk, as Principal Risk Officer, is responsible for establishing, owning and maintaining an appropriate Group-wide Operational Risk Framework and for overseeing the portfolio of operational risk across the Group.
Operational risk management acts in a second line of defence capacity, and is responsible for implementation of the framework and monitoring operational risk events, risk exposures and material control issues. Through attendance at Business Unit Governance, Risk and Controls meetings, it provides specific risk input into the issues highlighted and the overall risk profile of the business. Operational risk issues escalated from these meetings are considered by the Group Principal Risk Officer through the second line of defence review meetings, which also consider material control issues and their effective remediation. Depending on their nature, the outputs of these meetings are presented to the BRC or the BAC.
Specific reports are prepared by businesses, Key Risk Officers and Group Operational Risk on a regular basis for ORRF, BRC and BAC.
Risk and control self-assessments and key indicators
The Group identifies and assesses all material risks within each business and evaluates the key controls in place to mitigate those risks. Managers in the businesses use self-assessment techniques to identify risks, evaluate the effectiveness of key controls in place, and assess whether the risks are effectively managed within business risk appetite. The businesses are then able to make decisions on what action, if any, is required to reduce the level of risk to the Group. These risk assessments are monitored on a regular basis to ensure that each business continually understands the risks it faces.
Key Indicators (KIs) are metrics which allow the Group to monitor its operational risk profile. KIs include measurable thresholds that reflect the risk appetite of the business and are monitored to alert management when risk levels exceed acceptable ranges or risk appetite levels and drive timely decision making and actions.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 107 |
Risk review
Risk management
Conduct risk
The risk that detriment is caused to customers, clients, counterparties or the Group because of inappropriate judgement in the execution of our business activities.
The Group defines, manages and mitigates conduct risk with the goal of providing good customer outcomes and protecting market integrity.
The Group has defined seven Key Risks that are the main sub risk types to Conduct Risk:
§ | our products or services do not meet customers’ needs or have the potential to cause customer detriment |
§ | the way we design and undertake transaction services has the potential to cause customer detriment |
§ | the way we design or undertake customer servicing has the potential to cause customer detriment |
§ | our strategy or business model has the potential to cause customer detriment |
§ | our governance arrangements or culture has the potential to cause customer detriment |
§ | we fail to obtain and maintain relevant regulatory authorisations, permissions and licence requirements |
§ | damage to Barclays’ reputation is caused during the conduct of our business. |
The Conduct and Reputation Risk Committee (CRRC) derives its authority from the Barclays Group Head of Compliance. The purpose of the CRRC is to review and monitor the effectiveness of Barclays’ management of Conduct and Reputation Risk. In addition, specific committees monitor conduct risk and the control environment at the business level.
The Conduct Risk Principal Risk Framework (PRF) comprises a number of elements that allow the Group to manage and measure its conduct risk profile.
The PRF is implemented across the Group:
§ | vertically, through an organisational structure that requires all businesses to implement and operate their own conduct risk framework that meets the requirements detailed within the ERMF |
§ | horizontally, with Group Key Risk Officers (KROs) required to monitor information relevant to their Key Risk from each element of the Conduct Risk PRF. |
The primary responsibility for managing conduct risk and compliance with control requirements sits with the business where the risk arises. The Conduct Risk Accountable Executive for each business is responsible for ensuring the implementation of, and adherence to, the PRF.
The Conduct Principal Risk Officer is responsible for owning and maintaining an appropriate Group-wide Conduct Risk PRF and for overseeing Group-wide Conduct Risk management.
Businesses are required to report their conduct risks on both a quarterly and an event driven basis. The quarterly reports detail conduct risks inherent within the business strategy and include forward looking horizon scanning analysis as well as backward looking evidence-based indicators from both internal and external sources. For details please refer to the Risk Review, Conduct Risk Performance section of this report (page 175).
Business level reports are reviewed within Compliance. Compliance then creates Group level reports for consideration by CRRC and RepCo. The Group periodically assesses its management of conduct risk through independent audits and addresses issues identified.
Event-driven reporting consists of any risks or issues that breach certain thresholds for severity and probability. Any such risks or issues must be promptly escalated to the business and the appropriate KRO.
In 2015 Reputation Risk was re-designated as a Key Risk under the Conduct Risk Principal Risk. The Reputation Key Risk Framework outlines the processes and actions required of the business. These include regular and forward looking reviews of current and emerging reputation risks so that a topical and comprehensive reputation risk profile of the organisation can be maintained.
Organisation and structure
108 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk management
Conduct risk management
Reputation risk is the risk of damage to the Group’s brand arising from any association, action or inaction which is perceived by stakeholders (e.g. customers, clients, colleagues, shareholders, regulators, opinion formers) to be inappropriate or unethical. Damage to the Group’s brand and consequent erosion of our reputation reduces the attractiveness of the Group to stakeholders and may lead to negative publicity, loss of revenue, regulatory or legislative action, loss of existing and potential client business, reduced workforce morale and difficulties in recruiting talent. Ultimately it may destroy shareholder value.
Reputation risk may arise in many different ways, for example:
§ | failure to act in good faith and in accordance with the Group’s values and code of conduct |
§ | failure (real or perceived) to comply with the law or regulation, or association (real or implied) with illegal activity |
§ | failures in corporate governance, management or technical systems |
§ | failure to comply with internal standards and policies |
§ | association with controversial sectors or clients |
§ | association with controversial transactions, projects, countries or governments |
§ | association with controversial business decisions, including but not restricted to, decisions relating to: products (in particular new products), delivery channels, promotions/advertising, acquisitions, branch representation, sourcing/supply chain relationships, staff locations, treatment of financial transactions |
§ | association with poor employment practices. |
In each case, the risk may arise from failure to comply with either stated norms, which are likely to change over time, so an assessment of reputation risk cannot be static. If not managed effectively, stakeholder expectations of responsible corporate behaviour will not be met.
Reputation risk may also arise and cause damage to the Group’s image, through association with clients, their transactions or their projects if these are perceived by external stakeholders to be environmentally damaging. Where the Group is financing infrastructure projects which have potentially adverse environmental impacts, the Group’s Client Assessment and Aggregation policy and supporting Environmental and Social Risk Standard will apply. This policy identifies the circumstances in which the Group requires due diligence to include assessment of specialist environmental reports. These reports will include consideration of a wide range of the project’s potential impacts including on air, water and land quality, on biodiversity issues, on locally affected communities, including any material upstream and downstream impacts, and working conditions together with employee and community health and safety. Adherence to the Environmental and Social Risk Standard is the mechanism by which Barclays fulfils the requirements of the Equator Principles. These Principles are an internationally recognised framework for environmental due diligence in project finance. Barclays was one of four banks which collaborated in developing the Principles, ahead of their launch in 2003 with 10 adopting banks. There are now more than 80 banks worldwide which have adopted the Equator Principles (see www.equator-principles.com).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 109 |
Risk review
Risk performance
Maintaining our risk profile at an acceptable and appropriate level is essential to ensure our continued performance. This section provides a review of the performance of the Group in 2015 for each of the five Principal Risks, which are credit, market, funding, operational, and conduct risk.
|
Page
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|
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Credit risk |
|
111 |
| |||
Market risk | 138 | |||||
Funding risk – capital risk | 148 | |||||
Funding risk – liquidity risk | 154 | |||||
Operational risk | 172 | |||||
Conduct risk | 174 |
| For a more detailed breakdown on our Risk review and Risk management contents please see pages 84-85 |
110 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk is the risk of the Group suffering financial loss should any of its customers, clients, or market counterparties fail to fulfil their contractual obligations to the Group.
This section details the Group’s credit risk profile and provides information on the Group’s exposure to loans and advances to customer and banks, maximum exposures with collateral held, and net impairment charges raised in the year. It provides information on balances that are categorised as credit risk loans, balances in forbearance, as well as exposure to and performance metrics for specific portfolios and asset types.
Key metrics
§ | Credit impairment charges in 2015 were 2% lower than 2014: |
+£32m Group Core
Loan impairment broadly stable reflecting benign economic conditions in the UK and US
+£30m Retail Core
Performance across key portfolios has remained stable and within expectations
+£2m Wholesale Core
Performance benefiting from economic conditions in the UK and US markets offset by impact of stress in Oil and Gas portfolios
-£139m Non-Core
Lower charge reflects sale of Spanish business and higher recoveries in Portugal
§ | Net Loans and advances to customers and banks decreased by 6% in 2015. |
§ | The loan loss rate was stable at 47bps. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 111 |
Credit risk
Credit risk is the risk of the Group suffering financial loss should any of its customers, clients or market counterparties fails to fulfil their contractual obligations to the Group.
All disclosures in this section (pages 112-137) are unaudited unless otherwise stated
Overview
Credit risk represents a significant risk to the Group and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with clients. A summary of performance may be found below.
This section provides an analysis of areas of particular interest or potentially of higher risk, including: i) balance sheet, including the maximum exposure, and collateral, and loans and advances; ii) areas of concentrations, including the Eurozone; iii) exposure to and performance metrics for specific portfolios and assets types, including home loans, credit cards and UK commercial real estate; iv) exposure and performance of loans on concession programmes, including forbearance; v) problem loans, including credit risk loans (CRLs); and vi) impairment, including impairment stock and management adjustments to model outputs.
The topics covered in this section may be found in the credit risk section of the contents on page 84. Please see risk management section on pages 94-109 for details of governance, policies and procedures.
Summary of performance in the period
Credit impairment charges in 2015 fell 2% to £2.1bn which principally reflected the benign economic conditions in the UK and US and effective risk management, including the strengthening of the Retail Impairment Policy. These supported generally stable delinquency rates in retail and lower default rates in wholesale where large single names were limited in number and focused on the Oil and Gas sector.
The level of CRL reduced to £7.8bn principally due to a reduction in Non-Core and Personal and Corporate Banking. The coverage ratios for home loans, unsecured retail portfolios and corporate loans remain broadly in line with expected severity rates for these types of portfolios.
Net loans and advances to customers and banks reduced 6% to £440.6bn reflecting a decrease in Non-Core businesses, Investment Bank and Africa Banking offset by increases in Personal and Corporate Banking.
The loan loss rate was broadly stable at 47bps (2014: 46bps).
The Group’s maximum exposure and collateral and other credit enhancements held
Basis of preparation
The following tables present a reconciliation between the Group’s maximum exposure and its net exposure to credit risk; reflecting the financial effects of collateral, credit enhancements and other actions taken to mitigate the Group’s exposure.
For financial assets recognised on the balance sheet, maximum exposure to credit risk represents the balance sheet carrying value after allowance for impairment. For off-balance sheet guarantees, the maximum exposure is the maximum amount that the Group would have to pay if the guarantees were to be called upon. For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure is the full amount of the committed facilities.
This and subsequent analyses of credit risk include only financial assets subject to credit risk. They exclude other financial assets not subject to credit risk, mainly equity securities held for trading, as available for sale or designated at fair value, and traded commodities. Assets designated at fair value in respect of linked liabilities to customers under investment contracts have also not been included as the Group is not exposed to credit risk on these assets. Credit losses in these portfolios, if any, would lead to a reduction in the linked liabilities and not result in a loss to the Group. For off-balance sheet exposures certain contingent liabilities not subject to credit risk such as performance guarantees are excluded.
The Group mitigates the credit risk to which it is exposed through netting and set-off, collateral and risk transfer. Further detail on the Group’s policies to each of these forms of credit enhancement is presented on pages 100.
Overview
As at 31 December 2015, the Group’s net exposure to credit risk after taking into account netting and set-off, collateral and risk transfer decreased 6% to £701.4bn, reflecting a decrease in maximum exposure of 14% and a reduction in the level of mitigation held by 21%. Overall, the extent to which the Group holds mitigation against its total exposure reduced slightly to 48% (2014: 53%).
Of the remaining exposure left unmitigated, a significant portion relates to cash held at central banks, available for sale debt securities issued by governments, cash collateral and settlement balances, all of which are considered lower risk. Trading portfolio liability positions, which to a significant extent economically hedge trading portfolio assets but which are not held specifically for risk management purposes, are excluded from the analysis. The credit quality of counterparties to derivative, available for sale and wholesale loan assets are predominantly investment grade. Further analysis on the credit quality of assets is presented on pages 115-116.
Where collateral has been obtained in the event of default, the Group does not, as a rule, use such assets for its own operations and they are usually sold on a timely basis. The carrying value of assets held by the Group as at 31 December 2015, as a result of the enforcement of collateral was £69m (2014: £161m).
112 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Maximum exposure and effects of collateral and other credit enhancements (audited) | ||||||||||||||||||||||||
Maximum | Netting |
| Collateral |
| Risk | Net | ||||||||||||||||||
exposure | and set-off | Cash | Non-cash | transfer | exposure | |||||||||||||||||||
As at 31 December 2015 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 49,711 | – | – | – | – | 49,711 | ||||||||||||||||||
Items in the course of collection from other banks | 1,011 | – | – | – | – | 1,011 | ||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||
Debt securities | 45,576 | – | – | – | – | 45,576 | ||||||||||||||||||
Traded loans | 2,474 | – | – | (607) | (1) | 1,866 | ||||||||||||||||||
Total trading portfolio assets | 48,050 | – | – | (607) | (1) | 47,442 | ||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||
Loans and advances | 17,913 | – | (21) | (5,850) | (515) | 11,527 | ||||||||||||||||||
Debt securities | 1,383 | – | – | – | – | 1,383 | ||||||||||||||||||
Reverse repurchase agreementsa | 49,513 | – | (315) | (49,027) | – | 171 | ||||||||||||||||||
Other financial assets | 375 | – | – | – | – | 375 | ||||||||||||||||||
Total financial assets designated at fair value | 69,184 | – | (336) | (54,877) | (515) | 13,456 | ||||||||||||||||||
Derivative financial instruments | 327,709 | (259,582) | (34,918) | (7,484) | (5,529) | 20,196 | ||||||||||||||||||
Loans and advances to banks | 41,349 | – | (4) | (4,072) | (64) | 37,209 | ||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
Home loans | 155,863 | – | (221) | (154,355) | (634) | 653 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 67,840 | (12) | (1,076) | (14,512) | (1,761) | 50,479 | ||||||||||||||||||
Corporate loans | 175,514 | (8,399) | (593) | (45,788) | (4,401) | 116,333 | ||||||||||||||||||
Total loans and advances to customers | 399,217 | (8,411) | (1,890) | (214,655) | (6,796) | 167,465 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 28,187 | – | (166) | (27,619) | – | 402 | ||||||||||||||||||
Available for sale debt securities | 89,278 | – | – | (832) | (811) | 87,635 | ||||||||||||||||||
Other assets | 1,410 | – | – | – | – | 1,410 | ||||||||||||||||||
Total on-balance sheet | 1,055,106 | (267,993) | (37,314) | (310,146) | (13,716) | 425,937 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 20,576 | – | (604) | (1,408) | (104) | 18,460 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 845 | – | (33) | (57) | (3) | 752 | ||||||||||||||||||
Forward starting reverse repurchase agreementsb | 93 | – | – | (91) | – | 2 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 281,369 | – | (313) | (24,156) | (662) | 256,238 | ||||||||||||||||||
Total off-balance sheet | 302,883 | – | (950) | (25,712) | (769) | 275,452 | ||||||||||||||||||
Total | 1,357,989 | (267,993) | (38,264) | (335,858) | (14,485) | 701,389 |
Notes
a | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
b | Forward starting reverse repurchase agreements were previously disclosed as loan commitments. Following the business designation of reverse repurchase and repurchase agreements at fair value through profit and loss, new forward starting reverse repurchase agreements are within the scope of IAS 39 and are recognised as derivatives on the balance sheet. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 113 |
Maximum exposure and effects of collateral and other credit enhancements (audited) | ||||||||||||||||||||||||
Maximum | Netting |
| Collateral |
| Risk | Net | ||||||||||||||||||
exposure | and set-off | Cash | Non-cash | transfer | exposure | |||||||||||||||||||
As at 31 December 2014 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 39,695 | – | – | – | – | 39,695 | ||||||||||||||||||
Items in the course of collection from other banks | 1,210 | – | – | – | – | 1,210 | ||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||
Debt securities | 65,997 | – | – | – | – | 65,997 | ||||||||||||||||||
Traded loans | 2,693 | – | – | – | – | 2,693 | ||||||||||||||||||
Total trading portfolio assets | 68,690 | – | – | – | – | 68,690 | ||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||
Loans and advances | 20,198 | – | (48) | (6,657) | (291) | 13,202 | ||||||||||||||||||
Debt securities | 4,448 | – | – | – | – | 4,448 | ||||||||||||||||||
Reverse repurchase agreements | 5,236 | – | – | (4,803) | – | 433 | ||||||||||||||||||
Other financial assets | 469 | – | – | – | – | 469 | ||||||||||||||||||
Total financial assets designated at fair value | 30,351 | – | (48) | (11,460) | (291) | 18,552 | ||||||||||||||||||
Derivative financial instruments | 439,909 | (353,631) | (44,047) | (8,231) | (6,653) | 27,347 | ||||||||||||||||||
Loans and advances to banks | 42,111 | (1,012) | – | (3,858) | (176) | 37,065 | ||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
Home loans | 166,974 | – | (274) | (164,389) | (815) | 1,496 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 69,022 | – | (954) | (16,433) | (1,896) | 49,739 | ||||||||||||||||||
Corporate loans | 191,771 | (9,162) | (620) | (40,201) | (5,122) | 136,666 | ||||||||||||||||||
Total loans and advances to customers | 427,767 | (9,162) | (1,848) | (221,023) | (7,833) | 187,901 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 131,753 | – | – | (130,135) | – | 1,618 | ||||||||||||||||||
Available for sale debt securities | 85,539 | – | – | (938) | (432) | 84,169 | ||||||||||||||||||
Other assets | 1,680 | – | – | – | – | 1,680 | ||||||||||||||||||
Total on-balance sheet | 1,268,705 | (363,805) | (45,943) | (375,645) | (15,385) | 467,927 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 21,263 | – | (781) | (848) | (270) | 19,364 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 1,091 | – | (6) | (8) | (3) | 1,074 | ||||||||||||||||||
Forward starting reverse repurchase agreements | 13,856 | – | – | (13,841) | – | 15 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 276,315 | – | (457) | (17,385) | (793) | 257,680 | ||||||||||||||||||
Total off-balance sheet | 312,525 | – | (1,244) | (32,082) | (1,066) | 278,133 | ||||||||||||||||||
Total | 1,581,230 | (363,805) | (47,187) | (407,727) | (16,451) | 746,060 |
114 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk performance
Credit risk
The Group’s approach to managing and representing credit quality
Asset credit quality
All loans and advances are categorised as either ‘neither past due nor impaired’, ‘past due but not impaired’, or ‘past due and impaired’, which includes restructured loans. For the purposes of the disclosures in the balance sheet credit quality section below and the analysis of loans and advances and impairment section (page 117):
§ | a loan is considered past due when the borrower has failed to make a payment when due under the terms of the loan contract |
§ | the impairment allowance includes allowances against financial assets that have been individually impaired and those subject to collective impairment |
§ | loans neither past due nor impaired consist predominantly of wholesale and retail loans that are performing. These loans, although unimpaired, may carry an unidentified impairment |
§ | loans that are past due but not impaired consist predominantly of wholesale loans that are past due but individually assessed as not being impaired. These loans, although individually assessed as unimpaired, may carry an unidentified impairment provision |
§ | impaired loans that are individually assessed consist predominantly of wholesale loans that are past due and for which an individual allowance has been raised |
§ | impaired loans that are collectively assessed consist predominantly of retail loans that are one day or more past due for which a collective allowance is raised. Wholesale loans that are past due, individually assessed as unimpaired, but which carry an unidentified impairment provision, are excluded from this category. |
Home loans, unsecured loans and credit card receivables that are subject to forbearance in the retail portfolios are included in the collectively assessed impaired loans column in the tables in the analysis of loans and advances and impairment section (page 117). Included within wholesale loans that are designated as neither past due nor impaired is a portion of loans that have been subject to forbearance or similar strategies as part of the Group’s ongoing relationship with clients. The loans will have an internal rating reflective of the level of risk to which the Group is exposed, bearing in mind the circumstances of the forbearance, the overall performance and prospects of the client. Loans on forbearance programmes will typically, but not always, attract a higher risk rating than similar loans which are not. A portion of wholesale loans under forbearance is included in the past due but not impaired column, although not all loans subject to forbearance are necessarily impaired or past due. Where wholesale loans under forbearance have been impaired, these form part of individually assessed impaired loans.
The Group uses the following internal measures to determine credit quality for loans that are performing:
Default Grade | | Retail lending Probability of default | | | Wholesale lending Probability of default | | | Credit Quality description | | |||
1-3 | 0.0-0.60% | 0.0-0.05% | Strong | |||||||||
4-5 | 0.05-0.15% | |||||||||||
6-8 | 0.15-0.30% | |||||||||||
9-11 | 0.30-0.60% | |||||||||||
12-14 | 0.60-10.00% | 0.60-2.15% | Satisfactory | |||||||||
15-19 | 2.15-11.35% | |||||||||||
20-21 | 10.00%+ | 11.35%+ | Higher risk |
For loans that are performing, these descriptions can be summarised as follows:
Strong: there is a very high likelihood of the asset being recovered in full.
Satisfactory: while there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Group, the asset may not be collateralised, or may relate to retail facilities, such as credit card balances and unsecured loans, which have been classified as satisfactory, regardless of the fact that the output of internal grading models may have indicated a higher classification. At the lower end of this grade there are customers that are being more carefully monitored, for example, corporate customers which are indicating some evidence of deterioration, mortgages with a high loan to value, and unsecured retail loans operating outside normal product guidelines.
Higher risk: there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency. There may also be doubts over the value of collateral or security provided. However, the borrower or counterparty is continuing to make payments when due and is expected to settle all outstanding amounts of principal and interest.
Loans that are past due are monitored closely, with impairment allowances raised as appropriate and in line with the Group’s impairment policies. These loans are all considered higher risk for the purpose of this analysis of credit quality.
Debt securities
For assets held at fair value, the carrying value on the balance sheet will include, among other things, the credit risk of the issuer. Most listed and some unlisted securities are rated by external rating agencies. The Group mainly uses external credit ratings provided by Standard & Poor’s, Fitch or Moody’s. Where such ratings are not available or are not current, the Group will use its own internal ratings for the securities.
Balance sheet credit quality
The following tables present the credit quality of Group assets exposed to credit risk.
Overview
As at 31 December 2015, the ratio of the Group’s assets classified as strong remained broadly stable at 85% (2014: 84%) of total assets exposed to credit risk.
Traded assets remained mostly investment grade with the following proportions being categorised as strong: 96% (2014: 94%) of total derivative financial instruments, 95% (2014: 91%) of debt securities held for trading and 99% (2014: 98%) of debt securities held as available for sale. The credit quality of counterparties to reverse repurchase agreements held at amortised cost, and designated at fair value categorised as strong was 83% (2014: 78%). The credit risk of these assets is significantly reduced as balances are largely collateralised.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 115 |
In the loan portfolios, 89% of home loans (2014: 86%) to customers are measured as strong. The majority of credit card, unsecured and other retail lending remained satisfactory, reflecting the unsecured nature of a significant proportion of the balance, comprising 76% (2014: 71%) of the total. The credit quality profile of the Group’s wholesale lending remained stable with counterparties rated strong at 72% (2014: 72%).
Further analysis of debt securities by issuer and issuer type and netting and collateral arrangements on derivative financial instruments is presented on pages 129 and 130 respectively.
Balance sheet credit quality (audited) |
| |||||||||||||||||||||||||||||||
| Strong (including investment grade) £m |
| | Satisfactory (BB+ to B) £m | |
| Higher risk (B- and below) £m |
| | Maximum exposure to credit risk £m | |
| Strong (including investment grade) % |
|
| Satisfactory (BB+ to B) % |
|
| Higher risk (B-and below) % |
|
| Maximum exposure to credit risk % |
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Cash and balances at central banks | 49,711 | – | – | 49,711 | 100 | 0 | 0 | 100 | ||||||||||||||||||||||||
Items in the course of collection from other banks | 922 | 62 | 27 | 1,011 | 91 | 6 | 3 | 100 | ||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||
Debt securities | 43,118 | 2,217 | 241 | 45,576 | 95 | 5 | 0 | 100 | ||||||||||||||||||||||||
Traded loans | 329 | 1,880 | 265 | 2,474 | 13 | 76 | 11 | 100 | ||||||||||||||||||||||||
Total trading portfolio assets | 43,447 | 4,097 | 506 | 48,050 | 90 | 9 | 1 | 100 | ||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||
Loans and advances | 16,751 | 790 | 372 | 17,913 | 94 | 4 | 2 | 100 | ||||||||||||||||||||||||
Debt securities | 1,378 | 3 | 2 | 1,383 | 100 | 0 | 0 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 41,145 | 8,352 | 16 | 49,513 | 83 | 17 | 0 | 100 | ||||||||||||||||||||||||
Other financial assets | 313 | 62 | – | 375 | 83 | 17 | 0 | 100 | ||||||||||||||||||||||||
Total financial assets designated at fair value | 59,587 | 9,207 | 390 | 69,184 | 86 | 13 | 1 | 100 | ||||||||||||||||||||||||
Derivative financial instruments | 313,114 | 13,270 | 1,325 | 327,709 | 96 | 4 | 0 | 100 | ||||||||||||||||||||||||
Loans and advances to banks | 39,059 | 1,163 | 1,127 | 41,349 | 94 | 3 | 3 | 100 | ||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||
Home loans | 139,252 | 9,704 | 6,907 | 155,863 | 89 | 6 | 5 | 100 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 12,347 | 51,294 | 4,199 | 67,840 | 18 | 76 | 6 | 100 | ||||||||||||||||||||||||
Corporate loans | 125,743 | 39,600 | 10,171 | 175,514 | 72 | 22 | 6 | 100 | ||||||||||||||||||||||||
Total loans and advances to customers | 277,342 | 100,598 | 21,277 | 399,217 | 70 | 25 | 5 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 23,040 | 5,147 | – | 28,187 | 82 | 18 | 0 | 100 | ||||||||||||||||||||||||
Available for sale debt securities | 88,536 | 632 | 110 | 89,278 | 99 | 1 | 0 | 100 | ||||||||||||||||||||||||
Other assets | 1,142 | 233 | 35 | 1,410 | 81 | 17 | 2 | 100 | ||||||||||||||||||||||||
Total assets | 895,900 | 134,409 | 24,797 | 1,055,106 | 85 | 13 | 2 | 100 | ||||||||||||||||||||||||
As at 31 December 2014 | �� | |||||||||||||||||||||||||||||||
Cash and balances at central banks | 39,695 | – | – | 39,695 | 100 | 0 | 0 | 100 | ||||||||||||||||||||||||
Items in the course of collection from other banks | 1,134 | 47 | 29 | 1,210 | 94 | 4 | 2 | 100 | ||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||
Debt securities | 60,290 | 5,202 | 505 | 65,997 | 91 | 8 | 1 | 100 | ||||||||||||||||||||||||
Traded loans | 446 | 1,935 | 312 | 2,693 | 16 | 72 | 12 | 100 | ||||||||||||||||||||||||
Total trading portfolio assets | 60,736 | 7,137 | 817 | 68,690 | 89 | 10 | 1 | 100 | ||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||
Loans and advances | 18,544 | 844 | 810 | 20,198 | 92 | 4 | 4 | 100 | ||||||||||||||||||||||||
Debt securities | 4,316 | 130 | 2 | 4,448 | 97 | 3 | 0 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 4,876 | 346 | 14 | 5,236 | 93 | 7 | 0 | 100 | ||||||||||||||||||||||||
Other financial assets | 269 | 168 | 32 | 469 | 57 | 36 | 7 | 100 | ||||||||||||||||||||||||
Total financial assets designated at fair value | 28,005 | 1,488 | 858 | 30,351 | 92 | 5 | 3 | 100 | ||||||||||||||||||||||||
Derivative financial instruments | 414,980 | 24,387 | 542 | 439,909 | 94 | 6 | 0 | 100 | ||||||||||||||||||||||||
Loans and advances to banks | 39,453 | 1,651 | 1,007 | 42,111 | 94 | 4 | 2 | 100 | ||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||
Home loans | 143,700 | 13,900 | 9,374 | 166,974 | 86 | 8 | 6 | 100 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 15,369 | 49,255 | 4,398 | 69,022 | 23 | 71 | 6 | 100 | ||||||||||||||||||||||||
Corporate loans | 137,102 | 42,483 | 12,186 | 191,771 | 72 | 22 | 6 | 100 | ||||||||||||||||||||||||
Total loans and advances to customers | 296,171 | 105,638 | 25,958 | 427,767 | 69 | 25 | 6 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 102,609 | 29,142 | 2 | 131,753 | 78 | 22 | 0 | 100 | ||||||||||||||||||||||||
Available for sale debt securities | 84,405 | 498 | 636 | 85,539 | 98 | 1 | 1 | 100 | ||||||||||||||||||||||||
Other assets | 1,336 | 282 | 62 | 1,680 | 79 | 17 | 4 | 100 | ||||||||||||||||||||||||
Total assets | 1,068,524 | 170,270 | 29,911 | 1,268,705 | 84 | 13 | 3 | 100 |
Note
a | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
116 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
As the principal source of credit risk to the Group, loans and advances to customers and banks is analysed in detail below:
Loans and advances to customers and banks
Analysis of loans and advances and impairment to customers and banks | ||||||||||||||||||||||||||||
| Gross L&A £m |
| | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment chargesa £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Personal & Corporate Banking | 137,212 | 713 | 136,499 | 1,591 | 1.2 | 199 | 15 | |||||||||||||||||||||
Africa Banking | 17,412 | 539 | 16,873 | 859 | 4.9 | 273 | 157 | |||||||||||||||||||||
Barclaycard | 43,346 | 1,835 | 41,511 | 1,601 | 3.7 | 1,251 | 289 | |||||||||||||||||||||
Barclays Core | 197,970 | 3,087 | 194,883 | 4,051 | 2.0 | 1,723 | 87 | |||||||||||||||||||||
Barclays Non-Core | 11,610 | 369 | 11,241 | 845 | 7.3 | 85 | 73 | |||||||||||||||||||||
Total Group Retail | 209,580 | 3,456 | 206,124 | 4,896 | 2.3 | 1,808 | 86 | |||||||||||||||||||||
Investment Bank | 92,321 | 83 | 92,238 | 241 | 0.3 | 47 | 5 | |||||||||||||||||||||
Personal & Corporate Banking | 87,855 | 914 | 86,941 | 1,794 | 2.0 | 182 | 21 | |||||||||||||||||||||
Africa Banking | 14,955 | 235 | 14,720 | 541 | 3.6 | 80 | 53 | |||||||||||||||||||||
Head Office and Other Operations | 5,922 | – | 5,922 | – | – | – | – | |||||||||||||||||||||
Barclays Core | 201,053 | 1,232 | 199,821 | 2,576 | 1.3 | 309 | 15 | |||||||||||||||||||||
Barclays Non-Core | 34,854 | 233 | 34,621 | 345 | 1.0 | (20 | ) | (6 | ) | |||||||||||||||||||
Total Group Wholesale | 235,907 | 1,465 | 234,442 | 2,921 | 1.2 | 289 | 12 | |||||||||||||||||||||
Group Total | 445,487 | 4,921 | 440,566 | 7,817 | 1.8 | 2,097 | 47 | |||||||||||||||||||||
Traded loans | 2,474 | n/a | 2,474 | |||||||||||||||||||||||||
Loans and advances designated at fair value | 17,913 | n/a | 17,913 | |||||||||||||||||||||||||
Loans and advances held at fair value | 20,387 | n/a | 20,387 | |||||||||||||||||||||||||
Total loans and advances | 465,874 | 4,921 | 460,953 | |||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Personal & Corporate Bankingb,c | 136,544 | 766 | 135,778 | 1,733 | 1.3 | 215 | 16 | |||||||||||||||||||||
Africa Banking | 21,334 | 681 | 20,653 | 1,093 | 5.1 | 295 | 138 | |||||||||||||||||||||
Barclaycard | 38,376 | 1,815 | 36,561 | 1,765 | 4.6 | 1,183 | 308 | |||||||||||||||||||||
Barclays Core | 196,254 | 3,262 | 192,992 | 4,591 | 2.3 | 1,693 | 86 | |||||||||||||||||||||
Barclays Non-Core | 20,259 | 428 | 19,831 | 1,209 | 6.0 | 151 | 75 | |||||||||||||||||||||
Total Group Retail | 216,513 | 3,690 | 212,823 | 5,800 | 2.7 | 1,844 | 85 | |||||||||||||||||||||
Investment Bank | 106,377 | 44 | 106,333 | 71 | 0.1 | (14) | (1) | |||||||||||||||||||||
Personal & Corporate Bankingb | 88,192 | 873 | 87,319 | 2,112 | 2.4 | 267 | 30 | |||||||||||||||||||||
Africa Banking | 16,312 | 246 | 16,066 | 665 | 4.1 | 54 | 33 | |||||||||||||||||||||
Head Office and Other Operations | 3,240 | – | 3,240 | – | – | – | – | |||||||||||||||||||||
Barclays Core | 214,121 | 1,163 | 212,958 | 2,848 | 1.3 | 307 | 14 | |||||||||||||||||||||
Barclays Non-Core | 44,699 | 602 | 44,097 | 841 | 1.9 | 53 | 12 | |||||||||||||||||||||
Total Group Wholesale | 258,820 | 1,765 | 257,055 | 3,689 | 1.4 | 360 | 14 | |||||||||||||||||||||
Group Total | 475,333 | 5,455 | 469,878 | 9,489 | 2.0 | 2,204 | 46 | |||||||||||||||||||||
Traded loans | 2,693 | n/a | 2,693 | |||||||||||||||||||||||||
Loans and advances designated at fair value | 20,198 | n/a | 20,198 | |||||||||||||||||||||||||
Loans and advances held at fair value | 22,891 | n/a | 22,891 | |||||||||||||||||||||||||
Total loans and advances | 498,224 | 5,455 | 492,769 |
Loans and advances at amortised cost net of impairment decreased to £440.6bn (2014: £469.9bn):
§ | Non-Core decreased £18.1bn to £45.9bn driven by reclassification of Portuguese and Italian loans now held for sale and a reduction in Europe Retail driven by a run-off of assets |
§ | Investment Bank decreased by £14.1bn to £92.2bn reflecting a decrease in cash collateral balances and a decrease in settlement balances as a result of reduced trading volumes |
§ | Barclaycard increased by £5.0bn to £41.5bn as a result of business growth across the portfolio. |
CRLs decreased £1.7bn to £7.8bn primarily due to a reduction of £0.9bn in Non-Core relating to the reclassification of the Portuguese business as held for sale and improved economic conditions for Corporate portfolios.
Loan impairment charges improved 5% to £2,097m, with a loan loss rate of 47bps (2014: 46bps). This reflected higher recoveries in Europe and the sale of the Spanish business in Non-Core, lower impairments in PCB due to the benign economic environment in the UK resulting in lower default rates and charges, partially offset by increased impairment in Barclaycard driven by growth in the business and updates to impairment model methodologies. Loan loss rates for Africa Banking increased reflecting lower year-end loans and advances balances due to Rand depreciation.
Notes
a | Excluding impairment charges on available for sale investments and reverse repurchase agreements. |
b | UK Business Banking has been reclassified from Retail to Wholesale in line with how the business is now managed. 2014 figures have been revised to reflect this, with net loans and advances of £8.4bn, credit risk loans of £482m and impairment charges of £48m reclassified to Wholesale. |
c | 2014 PCB Credit Risk Loans have been revised by £151m to align the methodology for determining arrears categories with other Home Finance risk disclosures. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 117 |
Analysis of gross loans and advances by product | ||||||||||||||||
| Home Loans £m | |
| Credit cards, unsecured and other retail lending £m |
|
| Corporate Loans £m |
|
| Group Total £m |
| |||||
As at 31 December 2015 | ||||||||||||||||
Personal & Corporate Banking | 135,380 | 21,026 | 68,661 | 225,067 | ||||||||||||
Africa Banking | 10,368 | 7,633 | 14,366 | 32,367 | ||||||||||||
Barclaycard | – | 41,559 | 1,787 | 43,346 | ||||||||||||
Investment Bank | – | – | 92,321 | 92,321 | ||||||||||||
Head Office and Other Operations | – | – | 5,922 | 5,922 | ||||||||||||
Total Core | 145,748 | 70,218 | 183,057 | 399,023 | ||||||||||||
Barclays Non-Core | 10,633 | 1,016 | 34,815 | 46,464 | ||||||||||||
Group Total | 156,381 | 71,234 | 217,872 | 445,487 | ||||||||||||
As at 31 December 2014 | ||||||||||||||||
Personal & Corporate Banking | 136,022 | 23,837 | 64,877 | 224,736 | ||||||||||||
Africa Banking | 12,959 | 8,375 | 16,312 | 37,646 | ||||||||||||
Barclaycard | – | 38,376 | – | 38,376 | ||||||||||||
Investment Bank | – | – | 106,377 | 106,377 | ||||||||||||
Head Office and Other Operations | – | – | 3,240 | 3,240 | ||||||||||||
Total Core | 148,981 | 70,588 | 190,806 | 410,375 | ||||||||||||
Barclays Non-Core | 18,540 | 1,779 | 44,639 | 64,958 | ||||||||||||
Group Total | 167,521 | 72,367 | 235,445 | 475,333 |
Analysis of the concentration of credit risk
A concentration of credit risk exists when a number of counterparties are located in a geographical region or 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. The Group implements limits on concentrations in order to mitigate the risk. The analyses of credit risk concentrations presented below are based on the location of the counterparty or customer or the industry in which they are engaged. Further detail on the Group’s policies with regard to managing concentration risk is presented on page 126 of the Barclays PLC 2015 Pillar 3 Report.
Geographic concentrations
As at 31 December 2015, the geographic concentration of the Group’s assets remained broadly consistent with 2014. 40% (2014: 38%) of the exposure is concentrated in the UK, 31% (2014: 31%) in the Americas and 20% (2014: 22%) in Europe.
Information on exposures to selected Eurozone countries is presented on page 119.
Credit risk concentrations by geography (audited) | ||||||||||||||||||||||||
As at 31 December 2015 | | United Kingdom £m | |
| Europe £m |
| | Americas £m | | | Africa and Middle East £m | |
| Asia £m |
|
| Total £m |
| ||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 14,061 | 19,094 | 13,288 | 2,055 | 1,213 | 49,711 | ||||||||||||||||||
Items in the course of collection from other banks | 543 | 72 | – | 396 | – | 1,011 | ||||||||||||||||||
Trading portfolio assets | 7,150 | 10,012 | 23,641 | 2,111 | 5,136 | 48,050 | ||||||||||||||||||
Financial assets designated at fair value | 22,991 | 5,562 | 35,910 | 3,039 | 1,682 | 69,184 | ||||||||||||||||||
Derivative financial instruments | 99,658 | 103,498 | 101,592 | 3,054 | 19,907 | 327,709 | ||||||||||||||||||
Loans and advances to banks | 10,733 | 9,918 | 13,078 | 2,900 | 4,720 | 41,349 | ||||||||||||||||||
Loans and advances to customers | 239,086 | 47,372 | 69,803 | 33,461 | 9,495 | 399,217 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 5,905 | 4,361 | 15,684 | 915 | 1,322 | 28,187 | ||||||||||||||||||
Available for sale debt securities | 20,509 | 40,344 | 20,520 | 3,999 | 3,906 | 89,278 | ||||||||||||||||||
Other assets | 868 | 4 | 131 | 314 | 93 | 1,410 | ||||||||||||||||||
Total on-balance sheet | 421,504 | 240,237 | 293,647 | 52,244 | 47,474 | 1,055,106 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 9,543 | 3,020 | 5,047 | 2,505 | 461 | 20,576 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 594 | 58 | – | 193 | – | 845 | ||||||||||||||||||
Forward starting reverse repurchase agreementsb | 9 | 5 | 65 | – | 14 | 93 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 104,797 | 34,370 | 125,456 | 13,600 | 3,146 | 281,369 | ||||||||||||||||||
Total off-balance sheet | 114,943 | 37,453 | 130,568 | 16,298 | 3,621 | 302,883 | ||||||||||||||||||
Total | 536,447 | 277,690 | 424,215 | 68,542 | 51,095 | 1,357,989 |
Note
a | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
b | Forward starting reverse repurchase agreements were previously disclosed as loan commitments. Following the business designation of reverse repurchase and repurchase agreements at fair value through profit and loss, new forward starting reverse repurchase agreements are within the scope of IAS 39 and are recognised as derivatives on the balance sheet. |
118 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Credit risk concentrations by geography (audited) | ||||||||||||||||||||||||
As at 31 December 2014 | | United Kingdom £m | |
| Europe £m |
| | Americas £m | | | Africa and Middle East £m | |
| Asia £m |
|
| Total £m |
| ||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 13,770 | 12,224 | 9,365 | 2,161 | 2,175 | 39,695 | ||||||||||||||||||
Items in the course of collection from other banks | 644 | 158 | – | 408 | – | 1,210 | ||||||||||||||||||
Trading portfolio assets | 12,921 | 15,638 | 31,061 | 2,498 | 6,572 | 68,690 | ||||||||||||||||||
Financial assets designated at fair value | 21,274 | 1,591 | 3,986 | 2,999 | 501 | 30,351 | ||||||||||||||||||
Derivative financial instruments | 133,400 | 147,421 | 129,771 | 2,332 | 26,985 | 439,909 | ||||||||||||||||||
Loans and advances to banks | 7,472 | 12,793 | 13,227 | 3,250 | 5,369 | 42,111 | ||||||||||||||||||
Loans and advances to customers | 241,543 | 60,018 | 76,561 | 39,241 | 10,404 | 427,767 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 20,551 | 22,655 | 81,368 | 928 | 6,251 | 131,753 | ||||||||||||||||||
Available for sale debt securities | 22,888 | 33,368 | 22,846 | 4,770 | 1,667 | 85,539 | ||||||||||||||||||
Other assets | 837 | – | 232 | 483 | 128 | 1,680 | ||||||||||||||||||
Total on-balance sheet | 475,300 | 305,866 | 368,417 | 59,070 | 60,052 | 1,268,705 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Acceptances, endorsements and other contingent liabilities | ||||||||||||||||||||||||
Contingent liabilities | 10,222 | 2,542 | 5,517 | 2,757 | 225 | 21,263 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 851 | 36 | – | 186 | 18 | 1,091 | ||||||||||||||||||
Forward starting reverse repurchase agreements | 4,462 | 5,936 | 701 | 2 | 2,755 | 13,856 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 108,025 | 34,886 | 116,343 | 14,911 | 2,150 | 276,315 | ||||||||||||||||||
Total off-balance sheet | 123,560 | 43,400 | 122,561 | 17,856 | 5,148 | 312,525 | ||||||||||||||||||
Total | 598,860 | 349,266 | 490,978 | 76,926 | 65,200 | 1,581,230 |
Group exposures to specific countries (audited)
The Group recognises the credit and market risk resulting from the ongoing volatility in the Eurozone and continues to monitor events closely while taking coordinated steps to mitigate the risks associated with the challenging economic environment. These contingency plans have been reviewed and refreshed to ensure they remain effective.
The following table shows Barclays’ exposure to specific Eurozone countries monitored internally as being higher risk and thus being the subject of particular management focus. The basis of preparation is consistent with that described in the 2014 Form 20-F.
The net exposure provides the most appropriate measure of the credit risk to which the Group is exposed. The gross exposure is also presented below, alongside off-balance sheet contingent liabilities and commitments.
During 2015, the Group’s net on-balance sheet exposures to Spain, Italy, Portugal, Ireland, Cyprus and Greece decreased by £17.2bn to £26.1bn primarily due to a £13.4bn reduction in Spain following the sale of the Spanish business. The £7.0bn decrease in residential mortgages relates predominantly to Portuguese and Italian loans reclassified to held for sale within the Financial institutions category.
As at 31 December 2015, the local net funding deficit in Italy was€3.8bn (2014:€9.9bn) and the deficit in Portugal was€1.4bn (2014:€1.9bn). The net funding surplus in Spain was€0.2bn (2014:€4.3bn).
Net exposure by country and counterparty (audited) | ||||||||||||||||||||||||||||||||
| Sovereign £m | | | Financial institutions £m | | | Corporate £m | | | Residential mortgages £m | |
| Other retail lending £m |
| | Net on-balance | | | Gross on-balance sheet exposure £m | | | Contingent liabilities and commitments £m | | |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Spain | 90 | 623 | 1,176 | 7 | 311 | 2,207 | 7,944 | 2,073 | ||||||||||||||||||||||||
Italy | 1,708 | 2,283 | 1,039 | 9,505 | 675 | 15,210 | 20,586 | 2,701 | ||||||||||||||||||||||||
Portugal | 87 | 3,346 | 152 | 6 | 700 | 4,291 | 4,555 | 1,299 | ||||||||||||||||||||||||
Ireland | 9 | 2,824 | 1,282 | 37 | 51 | 4,203 | 7,454 | 2,673 | ||||||||||||||||||||||||
Cyprus | 29 | 6 | 59 | 16 | 46 | 156 | 391 | 1 | ||||||||||||||||||||||||
Greece | 1 | 3 | 14 | 4 | 3 | 25 | 975 | – | ||||||||||||||||||||||||
Total | 1,924 | 9,085 | 3,722 | 9,575 | 1,786 | 26,092 | 41,905 | 8,747 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Spain | 108 | 14,043 | 1,149 | 12 | 248 | 15,560 | 24,873 | 2,863 | ||||||||||||||||||||||||
Italy | 1,716 | 485 | 1,128 | 13,530 | 1,114 | 17,973 | 25,967 | 3,033 | ||||||||||||||||||||||||
Portugal | 105 | 7 | 531 | 2,995 | 1,207 | 4,845 | 5,050 | 1,631 | ||||||||||||||||||||||||
Ireland | 37 | 3,175 | 1,453 | 43 | 50 | 4,758 | 9,445 | 2,070 | ||||||||||||||||||||||||
Cyprus | 28 | 12 | 61 | 6 | 16 | 123 | 707 | 26 | ||||||||||||||||||||||||
Greece | 1 | 11 | 15 | – | – | 27 | 1,279 | – | ||||||||||||||||||||||||
Total | 1,995 | 17,733 | 4,337 | 16,586 | 2,635 | 43,286 | 67,321 | 9,623 |
Other country risks being closely monitored include exposures to Russia and China.
Net exposure to Russia of £1.4bn (2014: £1.9bn) largely consists of retail loans and advances of £1.0bn (2014: £0.6bn). The retail loans and advances are predominantly secured against property in the UK and south of France. Gross exposure to Russia was £2.5bn (2014: £3.8bn) including derivative assets with financial institutions. The gross exposure is mitigated by offsetting derivative liabilities.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 119 |
Net exposure to China of £3.7bn (2014: £4.8bn) largely consists of loans and advances (mainly cash collateral and settlement balances) to sovereign of £1.4bn (2014: £1.7bn) and financial institutions of £1.1bn (2014: £1.4bn). The gross exposure to China excluding offsetting derivative liabilities was £3.9bn (2014: £5.0bn).
Industrial concentrations (audited)
As at 31 December 2015, the industrial concentration of the Group’s assets remained broadly consistent year on year. 42% (2014: 49%) of total assets were concentrated towards banks and other financial institutions, predominantly within derivative financial instruments which decreased during the year. The proportion of the overall balance concentrated towards governments and central banks remained stable at 12% (2014: 11%) and home loans at 12% (2014: 12%).
Credit risk concentrations by industry (audited) | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2015 |
| Banks £m |
| | Other financial insti- tutions £m | | | Manu- facturing £m | | | Const- ruction and property £m | |
| Govern- ment and central bank £m |
|
| Energy and water £m |
|
| Wholesale and retail distribu- tion and leisure £m |
| | Business and other services £m | |
| Home loans £m |
|
| Cards, unsecured loans and other personal lending £m |
|
| Other £m |
|
| Total £m |
| ||||||||||||
On-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | – | – | – | – | 49,711 | – | – | – | – | – | – | 49,711 | ||||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,011 | – | – | – | – | – | – | – | – | – | – | 1,011 | ||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 1,897 | 11,826 | 970 | 538 | 25,797 | 2,554 | 315 | 2,727 | 550 | – | 876 | 48,050 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 14,015 | 35,109 | 104 | 8,642 | 7,380 | 33 | 191 | 3,402 | 229 | – | 79 | 69,184 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | 185,782 | 114,727 | 2,701 | 2,940 | 6,113 | 4,538 | 1,063 | 5,346 | – | – | 4,499 | 327,709 | ||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 36,829 | – | – | – | 4,520 | – | – | – | – | – | – | 41,349 | ||||||||||||||||||||||||||||||||||||
Loans and advances to customers | – | 80,729 | 12,297 | 23,519 | 5,940 | 7,743 | 13,830 | 25,728 | 155,863 | 60,162 | 13,406 | 399,217 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 8,676 | 18,022 | – | 1,011 | 305 | – | 35 | 138 | – | – | – | 28,187 | ||||||||||||||||||||||||||||||||||||
Available for sale debt securities | 9,745 | 6,114 | 68 | 43 | 67,645 | 182 | 107 | 5,134 | – | – | 240 | 89,278 | ||||||||||||||||||||||||||||||||||||
Other assets | 312 | 1,077 | – | – | 20 | – | – | – | – | – | 1 | 1,410 | ||||||||||||||||||||||||||||||||||||
Total on-balance sheet | 258,267 | 267,604 | 16,140 | 36,693 | 167,431 | 15,050 | 15,541 | 42,475 | 156,642 | 60,162 | 19,101 | 1,055,106 | ||||||||||||||||||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 1,152 | 4,698 | 3,142 | 958 | 9 | 3,073 | 1,301 | 4,645 | 100 | 548 | 950 | 20,576 | ||||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 378 | 17 | 142 | 1 | – | 3 | 129 | 50 | �� | – | 123 | 2 | 845 | |||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreementsb | 78 | 15 | – | – | – | – | – | – | – | – | – | 93 | ||||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 946 | 31,152 | 35,865 | 11,337 | 871 | 26,217 | 15,054 | 23,180 | 11,708 | 111,988 | 13,051 | 281,369 | ||||||||||||||||||||||||||||||||||||
Total off-balance sheet | 2,554 | 35,882 | 39,149 | 12,296 | 880 | 29,293 | 16,484 | 27,875 | 11,808 | 112,659 | 14,003 | 302,883 | ||||||||||||||||||||||||||||||||||||
Total | 260,821 | 303,486 | 55,289 | 48,989 | 168,311 | 44,343 | 32,025 | 70,350 | 168,450 | 172,821 | 33,104 | 1,357,989 |
Net on-balance sheet exposure to the Oil and Gas sector was £4.4bn (2014: £5.8bn), with contingent liabilities and commitments to this sector of £13.8bn (2014: £12.5bn). Impairment charges were £106m (2014: £1m). The ratio of the Group’s total net exposures classified as strong or satisfactory was 97% (2014: 99%) of the total net exposure to credit risk in this sector.
If average oil prices remained at $30 per barrel throughout 2016, estimated additional impairment of approximately £250m would result. If average oil prices were to reduce to $25 per barrel throughout 2016, estimated additional impairment of approximately £450m would result.
Note
a | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
b | Forward starting reverse repurchase agreements were previously disclosed as loan commitments. Following the business designation of reverse repurchase and repurchase agreements at fair value through profit and loss, new forward starting reverse repurchase agreements are within the scope of IAS 39 and recognised as derivatives on the balance sheet. |
120 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Credit risk concentrations by industry (audited) | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2014 |
| Banks £m |
| | Other financial insti- tutions £m | | | Manu- facturing £m | | | Const- ruction and property £m | |
| Govern- ment and central bank £m |
|
| Energy and water £m |
|
| Wholesale and retail distribu- tion and leisure £m |
| | Business and other services £m | |
| Home loans £m |
|
| Cards, unsecured loans and other personal lending £m |
|
| Other £m |
|
| Total £m |
| ||||||||||||
On-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | – | – | – | – | 39,695 | – | – | – | – | – | – | 39,695 | ||||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,210 | – | – | – | – | – | – | – | – | – | – | 1,210 | ||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 2,894 | 17,718 | 1,466 | 593 | 39,201 | 2,745 | 385 | 2,751 | – | – | 937 | 68,690 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 5,113 | 1,548 | 70 | 9,358 | 10,378 | 73 | 207 | 3,127 | 393 | – | 84 | 30,351 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | 257,463 | 149,050 | 2,519 | 3,454 | 7,691 | 7,794 | 1,510 | 6,227 | – | – | 4,201 | 439,909 | ||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 40,265 | – | – | – | 1,846 | – | – | – | – | – | – | 42,111 | ||||||||||||||||||||||||||||||||||||
Loans and advances to customers | – | 103,388 | 11,647 | 22,842 | 7,115 | 8,536 | 13,339 | 22,372 | 166,974 | 58,914 | 12,640 | 427,767 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 38,946 | 86,588 | – | 4,845 | 739 | – | 24 | 611 | – | – | – | 131,753 | ||||||||||||||||||||||||||||||||||||
Available for sale debt securities | 11,122 | 8,365 | 68 | 45 | 61,341 | 194 | 27 | 4,084 | – | – | 293 | 85,539 | ||||||||||||||||||||||||||||||||||||
Other assets | 635 | 995 | – | 14 | 24 | – | – | 12 | – | – | – | 1,680 | ||||||||||||||||||||||||||||||||||||
Total on-balance sheet | 357,648 | 367,652 | 15,770 | 41,151 | 168,030 | 19,342 | 15,492 | 39,184 | 167,367 | 58,914 | 18,155 | 1,268,705 | ||||||||||||||||||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 1,159 | 5,177 | 2,709 | 698 | – | 2,757 | 1,157 | 6,496 | 45 | 191 | 874 | 21,263 | ||||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 470 | 12 | 197 | 14 | – | 1 | 218 | 62 | 55 | 28 | 34 | 1,091 | ||||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreements | 2,128 | 11,724 | – | – | 4 | – | – | – | – | – | – | 13,856 | ||||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 2,643 | 29,645 | 28,589 | 11,449 | 2,400 | 24,830 | 12,771 | 24,534 | 16,119 | 110,091 | 13,244 | 276,315 | ||||||||||||||||||||||||||||||||||||
Total off-balance sheet | 6,400 | 46,558 | 31,495 | 12,161 | 2,404 | 27,588 | 14,146 | 31,092 | 16,219 | 110,310 | 14,152 | 312,525 | ||||||||||||||||||||||||||||||||||||
Total | 364,048 | 414,210 | 47,265 | 53,312 | 170,434 | 46,930 | 29,638 | 70,276 | 183,586 | 169,224 | 32,307 | 1,581,230 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 121 |
Analysis of specific portfolios and asset types
This section provides an analysis of principal portfolios and businesses in the retail and wholesale segments. In particular, home loans, credit cards, overdrafts and unsecured loans are covered for retail segments while exposures in Investment Bank and PCB including watch list analysis are covered for wholesale segments.
In general, benign economic conditions in the UK and US aided better performance in 2015. South African portfolios were resilient despite challenging market conditions with economic growth being affected by weak manufacturing and low commodity prices.
Secured home loans
Total home loans to retail customers of £156bn (2014: £161bn) represented 75% (2014: 72%) of the Group’s total retail balances. The reduction in balances was principally driven by: Portuguese home loans and part of the Italian home loans portfolio being redesignated as held for sale; and, South African home loans due to the depreciation of the Rand.
The two principal portfolios listed below account for 88% of home loans in the Group’s retail portfolios, and comprise first lien mortgages.
Home loans principal portfolios | ||||||||||||||||||||||||
| Gross loans and advances £m | |
| >90 day arrears % |
|
| Non- performing proportion of outstanding balances % |
|
| Gross charge-off rates % |
|
| Recoveries proportion of outstanding balances % |
|
| Recoveries impairment coverage ratio % |
| |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
PCB – UK | 127,750 | 0.2 | 0.7 | 0.3 | 0.4 | 10.1 | ||||||||||||||||||
Africa Banking – South Africa | 9,180 | 0.9 | 4.0 | 1.6 | 3.2 | 26.4 | ||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
PCB – UK | 126,668 | 0.2 | 0.6 | 0.4 | 0.4 | 8.3 | ||||||||||||||||||
Africa Banking – South Africa | 11,513 | 0.7 | 4.8 | 1.9 | 4.1 | 31.1 |
PCB – UK:Portfolio performance remained steady reflecting the continuing low base rate environment, house price appreciation, and benign economic conditions.
Within the UK home loans portfolio:
§ | owner-occupied interest only home loans comprised 32% (2014: 33%) of total balances. The average balance weighted LTV on these loans reduced to 44.7% (2014: 48.7%), and >90 day arrears remained broadly steady at 0.2% (2014: 0.1%) |
§ | buy-to-let home loans comprised 9% (2014: 8%) of total balances. The average balance weighted LTV reduced to 54.6% (2014: 57.6%), and >90 day arrears remained steady at 0.2% (2014: 0.1%). |
The recoveries impairment coverage increased to 10.1% (2014: 8.3%). In 2015, management adjustments to impairment allowances were better aligned to appropriate segments of the portfolio, resulting in a reduction of the impairment allocated to the recoveries book. The overall impairment coverage of the total home loans portfolio remained unchanged.
Africa Banking – South Africa:Gross loans and advances reduced by 20%, primarily driven by the depreciation of the Rand and repayments on the existing book. The improvement in the charge-off rates to 1.6% (2014: 1.9%) resulted from the focus on collections strategies and reduced rolls through delinquency cycles.
122 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Home loans principal portfolios – distribution of balances by LTVa | ||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution of balances | | | Impairment coverage ratio | | | Non-performing proportion of outstanding balances | | | Non-performing balances impairment coverage ratio | | | Recoveries proportion of outstanding balances | | | Recoveries impairment coverage ratio | | |||||||||||||||||||||||||||||||
As at 31 December | | 2015 % | | | 2014 % | |
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
| ||||||||||||
PCB UK | ||||||||||||||||||||||||||||||||||||||||||||||||
<=75% | 92.1 | 90.2 | 0.1 | – | 0.6 | 0.6 | 4.7 | 2.8 | 0.4 | 0.3 | 6.8 | 4.6 | ||||||||||||||||||||||||||||||||||||
>75% and <=80% | 3.4 | 4.2 | 0.2 | 0.2 | 1.0 | 1.2 | 13.5 | 6.9 | 0.8 | 0.8 | 15.7 | 9.2 | ||||||||||||||||||||||||||||||||||||
>80% and <=85% | 2.1 | 2.3 | 0.3 | 0.2 | 1.0 | 1.4 | 16.7 | 8.9 | 0.7 | 0.9 | 21.4 | 11.3 | ||||||||||||||||||||||||||||||||||||
>85% and <=90% | 1.4 | 1.4 | 0.3 | 0.4 | 1.3 | 1.7 | 15.7 | 13.0 | 1.0 | 1.3 | 17.8 | 15.9 | ||||||||||||||||||||||||||||||||||||
>90% and <=95% | 0.6 | 1.0 | 0.6 | 0.4 | 1.8 | 1.9 | 25.7 | 13.7 | 1.5 | 1.3 | 28.2 | 17.8 | ||||||||||||||||||||||||||||||||||||
>95% and <=100% | 0.2 | 0.4 | 1.3 | 1.0 | 4.0 | 2.9 | 25.4 | 21.4 | 3.5 | 2.2 | 27.9 | 26.4 | ||||||||||||||||||||||||||||||||||||
>100% | 0.2 | 0.5 | 3.4 | 2.4 | 7.0 | 6.0 | 35.6 | 28.6 | 5.6 | 4.3 | 41.2 | 36.1 | ||||||||||||||||||||||||||||||||||||
Africa Banking – | ||||||||||||||||||||||||||||||||||||||||||||||||
South Africa | ||||||||||||||||||||||||||||||||||||||||||||||||
<=75% | 76.1 | 74.6 | 0.7 | 0.7 | 0.6 | 0.5 | 13.6 | 16.2 | 1.8 | 1.9 | 17.9 | 20.4 | ||||||||||||||||||||||||||||||||||||
>75% and <=80% | 6.8 | 7.7 | 1.6 | 1.5 | 1.0 | 0.9 | 18.4 | 20.0 | 3.3 | 3.0 | 21.4 | 23.5 | ||||||||||||||||||||||||||||||||||||
>80% and <=85% | 5.3 | 5.9 | 1.9 | 2.0 | 1.0 | 1.1 | 19.2 | 21.1 | 3.5 | 4.2 | 21.1 | 23.7 | ||||||||||||||||||||||||||||||||||||
>85% and <=90% | 3.8 | 4.3 | 2.3 | 2.5 | 0.9 | 1.0 | 20.2 | 22.3 | 4.8 | 5.1 | 21.8 | 24.3 | ||||||||||||||||||||||||||||||||||||
>90% and <=95% | 2.6 | 2.5 | 3.7 | 4.3 | 1.2 | 1.4 | 23.8 | 26.3 | 5.9 | 8.7 | 24.2 | 27.6 | ||||||||||||||||||||||||||||||||||||
>95% and <=100% | 1.8 | 1.5 | 4.8 | 5.4 | 1.3 | 1.5 | 25.6 | 23.4 | 7.8 | 11.6 | 26.0 | 24.1 | ||||||||||||||||||||||||||||||||||||
>100% | 2.8 | 3.5 | 14.1 | 16.4 | 1.9 | 1.9 | 29.7 | 32.5 | 26.7 | 37.1 | 29.7 | 32.9 |
Home loans principal portfolios – Average LTV | ||||||||||||||||
PCB – UK | Africa Banking – South Africa | |||||||||||||||
As at 31 December |
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
| ||||
Portfolio marked to market LTV (%): | ||||||||||||||||
Balance weighted | 49.2 | 51.6 | 58.4 | 59.9 | ||||||||||||
Valuation weighted | 37.3 | 39.8 | 39.1 | 40.2 | ||||||||||||
Performing balances (%): | ||||||||||||||||
Balance weighted | 48.8 | 51.5 | 57.5 | 58.6 | ||||||||||||
Valuation weighted | 37.3 | 39.7 | 38.6 | 39.5 | ||||||||||||
Non-performing balances (%): | ||||||||||||||||
Balance weighted | 56.5 | 62.1 | 79.3 | 87.0 | ||||||||||||
Valuation weighted | 45.1 | 49.8 | 59.3 | 64.7 | ||||||||||||
For >100% LTVs: | ||||||||||||||||
Balances (£m) | 310 | 641 | 257 | 390 | ||||||||||||
Marked to market collateral (£m) | 260 | 558 | 218 | 324 | ||||||||||||
Average LTV: balance weighted (%) | 123.0 | 120.9 | 121.1 | 124.2 | ||||||||||||
Average LTV: valuation weighted (%) | 118.5 | 114.8 | 117.7 | 120.3 | ||||||||||||
% of balances in recoveries | 5.6 | 4.4 | 26.6 | 37.1 |
Balance weighted LTV in the UK reduced to 49.2% (2014: 51.6%) due to an increase in average house prices, particularly in London and the South East. The overall non-performing impairment coverage in the UK remained flat year on year but increased across LTV ranges, due to granular alignment of management adjustments across portfolio segments.
PCB – UK: The house price appreciation resulted in a 52% reduction in home loans that have LTV >100% to £310m (2014: £641m).
Africa Banking – South Africa: Balances with >100% LTV reduced 34% to £257m (2014: £390m), primarily due to a reduction in the size of the recovery book as older and higher risk loans were written off, in addition to the depreciation of the Rand.
Home loans principal portfolios – new lending | ||||||||||||||||
PCB – UK | Africa Banking – South Africa | |||||||||||||||
As at 31 December | 2015 | 2014 | 2015 | 2014 | ||||||||||||
New bookings (£m) | 18,812 | 20,349 | 1,621 | 1,590 | ||||||||||||
New mortgages proportion above 85% LTV (%) | 8.2 | 6.6 | 40.8 | 33.5 | ||||||||||||
Average LTV on new mortgages: balance weighted (%) | 63.9 | 64.8 | 75.7 | 74.8 | ||||||||||||
Average LTV on new mortgages: valuation weighted (%) | 55.0 | 57.0 | 66.9 | 65.4 |
PCB – UK:New lending during 2015 reduced by 8%, reflecting an unchanged risk profile against heightened market activity in the prime residential segment.
Africa Banking – South Africa:The proportion of new home loans with LTV above 85% increased to 40.8% (2014: 33.5%) due to a revised strategy which allowed a greater proportion of higher LTV loans to be booked for lower risk customers.
Note
a | Portfolio marked to market based on the most updated valuation including recoveries balances. Updated valuations reflect the application of the latest house price index available in the country as at 31 December 2015. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 123 |
Exposure to interest only owner-occupied home loans excluding part and part interest only (P&P IO)a | ||||||||
As at 31 December | 2015 | 2014 | ||||||
Interest only balances, excluding P&P IO (£m) | 33,901 | 35,328 | ||||||
Interest only home loans maturity years (£m): | ||||||||
2016 | 703 | 864 | ||||||
2017 | 1,043 | 1,180 | ||||||
2018 | 1,131 | 1,249 | ||||||
2019 | 1,080 | 1,195 | ||||||
2020 | 1,090 | 1,176 | ||||||
2021-2025 | 7,359 | 7,632 | ||||||
Post 2025 | 21,155 | 21,104 | ||||||
Total Impairment coverage (bps) | 11 | 8 | ||||||
Marked to market LTV: total balances (%) | ||||||||
Balance weighted | 44.7 | 48.7 | ||||||
Valuation weighted | 34.7 | 37.6 | ||||||
For >100% LTVs: (£m) | ||||||||
Balances | 178 | 349 | ||||||
Marked to market collateral | 150 | 302 | ||||||
Overview of performing portfolio | ||||||||
Performing balances (£m) | 33,690 | 35,155 | ||||||
Marked to market LTV: performing balances (%) | ||||||||
Balance weighted | 44.6 | 48.6 | ||||||
Valuation weighted | 34.6 | 37.5 | ||||||
Overview of non-performing portfolio | ||||||||
Non-performing balances (£m) | 211 | 173 | ||||||
Non-performing proportion of interest only balances excluding P&P IO (%) | 0.6 | 0.5 | ||||||
Marked to market LTV: non-performing balances (%) | ||||||||
Balance weighted | 61.4 | 66.2 | ||||||
Valuation weighted | 49.8 | 54.1 |
Interest only mortgages account for £50bn (2014: £51bn) of the total balance of £128bn (2014: £127bn) of UK home loans. This comprised £40bn (2014: £42bn) to owner-occupied customers, and £10bn (2014: £9bn) to buy-to-let customers.
Of the £40bn exposure to owner-occupied customers, £34bn (2014: £35bn) was interest only, with the remaining £6bn (2014: £7bn) representing the interest only component of part and part mortgages.
The average balance weighted LTV for interest only owner-occupied balances reduced to 44.7% (2014: 48.7%) as property prices appreciated. The increase in impairment coverage to 11bps (2014: 8bps) was due to (i) enhancements in methodology, where management adjustments to impairment allowances were allocated on a more granular basis to their appropriate segments; and (ii) a broadening of the high risk definition used on interest only mortgages. The overall impairment coverage of the total home loans portfolio remained unchanged.
Exposures to mortgage current accounts (MCA) reserves
The MCA reserve is a secured overdraft facility previously available to home loan customers in the UK on either a fully amortising or interest only mortgage loan, which allows them to borrow against the equity in their home. It permits draw-down up to an agreed available limit on a separate but connected account to the main mortgage loan facility. The balance drawn must be repaid on redemption of the mortgage.
Of the total 917k home loan customers in the UK, 442k have MCA reserves, with total reserve limits of £11.3bn (2014: £17.9bn).
As at 31 December | 2015 | 2014 | ||||||
Total outstanding of home loans with MCA reserve balances (£bn) | 53.6 | 62.2 | ||||||
As a proportion of outstanding UK home loan balances (%) | 42.0 | 49.1 | ||||||
Home loan customers with active reserves (000s) | 442 | 505 | ||||||
Total reserve limits (£bn) | 11.3 | 17.9 | ||||||
Utilisation rate (%) | 48.9 | 32.3 | ||||||
Utilisation (£bn) | 5.5 | 5.8 | ||||||
Marked to market LTV: balance weighted (%) | 43.7 | 47.7 |
Total outstanding balances which are an aggregate of the mortgage account and the drawn reserve, reduced 14% to £53.6bn (2014: £62.2bn), during the period reflecting paydowns in the main mortgage account.
Reduction in portfolio reserve limits to £11.3bn (2014: £17.9bn) is due to an active limit management programme, combined with natural mortgage redemptions from the existing book during the period. As a result, the utilisation rate increased to 48.9% (2014: 32.3%). MCA balances have remained broadly stable at £5.5bn (2014: £5.8bn), while the average balance weighted LTV reduced to 43.7% (2014: 47.7%) due to an increase in average house prices and repayment on the main mortgage loan.
Although the product has been withdrawn from sale, existing customers can continue to draw against their available reserves.
Note
a | A part and part home loan is a product in which part of the loan is interest only and part is amortising. Analysis excludes the interest only portion of the part and part book which contributes £6.2bn (2014: £6.6bn) to the total owner occupied interest only balance of the £40.1bn (2014: £41.9bn). The total exposure on part and part book is £9.9bn (2014, £9.8bn) and represents 8% of total UK home loans portfolio. |
124 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Credit cards, overdrafts, and unsecured loans
The principal portfolios listed below accounted for 91% (2014: 88%) of the Group’s credit cards, overdrafts and unsecured loans.
Principal portfolios | | Gross loans and advances £m | |
| 30 day arrears, excluding recoveries % |
|
| 90 day arrears, excluding recoveries % |
|
| Gross charge-off rates % |
|
| Recoveries proportion of outstanding balances % |
|
| Recoveries impairment coverage ratio % |
| ||||||
As at 31 December 2015 | ||||||||||||||||||||||||
Barclaycard | ||||||||||||||||||||||||
UK cardsa | 18,502 | 2.3 | 1.2 | 5.2 | 3.6 | 82.6 | ||||||||||||||||||
US cardsa | 16,699 | 2.2 | 1.1 | 3.9 | 2.0 | 84.8 | ||||||||||||||||||
Barclays Partner Finance | 3,986 | 1.5 | 0.6 | 2.4 | 2.5 | 85.2 | ||||||||||||||||||
Germany cards | 1,419 | 2.3 | 1.0 | 3.8 | 2.7 | 81.2 | ||||||||||||||||||
Personal & Corporate Banking | ||||||||||||||||||||||||
UK personal loans | 5,476 | 1.9 | 0.8 | 3.0 | 7.5 | 73.9 | ||||||||||||||||||
Africa Banking | ||||||||||||||||||||||||
South Africa cards | 1,886 | 8.5 | 5.0 | 8.4 | 7.4 | 72.6 | ||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
Barclaycard | ||||||||||||||||||||||||
UK cardsa | 17,447 | 2.5 | 1.2 | 4.3 | 4.9 | 87.6 | ||||||||||||||||||
US cardsa | 14,005 | 2.1 | 1.0 | 3.7 | 1.8 | 87.1 | ||||||||||||||||||
Barclays Partner Finance | 3,399 | 1.5 | 0.7 | 2.4 | 2.7 | 76.8 | ||||||||||||||||||
Germany cards | 1,355 | 2.5 | 1.1 | 3.8 | 3.4 | 82.8 | ||||||||||||||||||
Personal & Corporate Banking | ||||||||||||||||||||||||
UK personal loans | 4,953 | 2.0 | 0.9 | 3.4 | 10.0 | 76.3 | ||||||||||||||||||
Africa Banking | ||||||||||||||||||||||||
South Africa cards | 2,364 | 8.1 | 4.6 | 7.6 | 5.9 | 75.7 |
UK cards: In 2015, both early and late stage arrears remained stable within UK cards. The increase in charge-off rate and the reduction in recoveries as a proportion of outstanding was due to the acceleration of delinquent accounts to charge-off prior to debt sale. The decrease in recovery coverage ratio was driven by enhancements to impairment methodology, which took into account the improvement in recoveries and the impact of debt sales.
US cards: Gross loans and advances increased 19% to £16.7bn (2014: £14bn) principally driven by increased new business volumes. Arrears and charge-off rates remained broadly in line with 2014. The decrease in recoveries impairment coverage ratio was due to enhancements to impairment methodology and improvements in recovery expectation.
UK personal loans: Arrears and charge-off rates fell despite a 11% growth in gross loans and advances and reflected the benign economic conditions in the UK.
Barclays Partner Finance: Gross loans and advances increased 17% to £4.0bn (2014: £3.4bn). Portfolio arrears and charge-off rates remained broadly steady in 2015. The recoveries impairment coverage ratio increased following a management adjustment for the secured motor segment (portfolio started in 2012), which took into account changes to expected recoveries performance as the portfolio matured.
Germany cards: The decrease in recoveries proportion of outstanding balances was due to write off of legacy accounts previously held in recoveries until system migration activities were concluded.
South Africa cards: The increased arrears reflected bookings growth in 2015 in line with business strategy and weaker economic conditions. The gross charge-off rate and the recoveries proportion of outstanding balances percentage increased during 2015 due to additional charge-off in the Edcon portfolio as it was aligned with the Group’s charge-off policy.
Note
a | For UK and US cards, outstanding recoveries balances for acquired portfolios recognised at fair value (which have no related impairment allowance) have been excluded from the recoveries impairment coverage ratio. Losses have been recognised where related to additional spend from acquired accounts in the period post acquisition. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 125 |
Exposure to UK Commercial Real Estate (CRE)
The UK CRE portfolio includes property investment, development, trading, and house builders but excludes social housing and contractors.
UK CRE summary | ||||||||
2015 | 2014 | |||||||
As at 31 December | ||||||||
UK CRE loans and advances (£m) | 11,617 | 11,681 | ||||||
Past due balances (£m) | 183 | 393 | ||||||
Balances past due as % of UK CRE balances (%) | 1.6 | 3.4 | ||||||
Impairment allowances (£m) | 99 | 100 | ||||||
Past due coverage ratio (%) | 54.1 | 25.7 | ||||||
Total collateral (£m)a | 27,062 | 25,205 | ||||||
Twelve months ended 31 December | ||||||||
Impairment charge (£m) | 4 | 23 |
Maturity analysis of exposure to UK CRE | ||||||||||||||||||||||||||||||||
Contractual maturity of UK CRE loans and advances at amortised cost | ||||||||||||||||||||||||||||||||
As at 31 December | | Past due balances £m | | | Not more than six months £m | | | Over six months but not more than one year £m | | | Over one year but not more than two years £m | | | Over two years but not more than five years £m | | | Over five years but not more than ten years £m | | | Over ten years £m | | | Total loans & advances £m | | ||||||||
2015 | 183 | 801 | 751 | 941 | 5,779 | 1,076 | 2,087 | 11,617 | ||||||||||||||||||||||||
2014 | 393 | 838 | 839 | 1,287 | 4,161 | 1,939 | 2,224 | 11,681 |
Total loans and advances at amortised cost remained broadly stable at £11.6bn (2014: £11.7bn) with growth limited to high quality assets. The total collateral increased by 7% to £27.1bn.
The UK CRE businesses operate to specific lending criteria and the portfolio of assets is continually monitored through a range of mandates and limits. The improvement in the past due coverage ratio in 2015 was driven by the sale of three unimpaired real estate loans.
UK CRE LTV analysis | ||||||||||||||||||||||||
Balances | | Balances as proportion of total | | Collateral held | ||||||||||||||||||||
As at 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2015 % |
|
| 2014 % |
|
| 2015 £m |
|
| 2014 £m |
| ||||||
Group | ||||||||||||||||||||||||
<=100% | 9,045 | 9,011 | 78 | 78 | 26,927 | 25,036 | ||||||||||||||||||
>100% and <=125% | 119 | 149 | 1 | 1 | 106 | 138 | ||||||||||||||||||
>125% | 47 | 167 | – | 1 | 29 | 31 | ||||||||||||||||||
Unassessed balancesb | 1,636 | 1,748 | 14 | 15 | – | – | ||||||||||||||||||
Unsecured balances | 770 | 606 | 7 | 5 | – | – | ||||||||||||||||||
Total | 11,617 | 11,681 | 100 | 100 | 27,062 | 25,205 |
Portfolio LTVs have reduced due to appreciating commercial property values. Unsecured balances primarily relate to working capital facilities granted to CRE companies.
Notes
a | Based on the most recent valuation assessment. |
b | Corporate Banking balances under £1m. |
126 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Investment Bank
Analysis of loans and advances at amortised cost | ||||||||||||||||||||||||||||
| Gross L&A £m | | | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment charges £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 10,174 | – | 10,174 | – | – | – | – | |||||||||||||||||||||
Cash collateral and settlement balances | 7,259 | – | 7,259 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 31,451 | 83 | 31,368 | 241 | 0.8 | 47 | 15 | |||||||||||||||||||||
Cash collateral and settlement balances | 43,437 | – | 43,437 | – | – | – | – | |||||||||||||||||||||
Total | 92,321 | 83 | 92,238 | 241 | 0.3 | 47 | 5 | |||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 10,275 | – | 10,275 | – | – | (3) | (3) | |||||||||||||||||||||
Cash collateral and settlement balances | 9,626 | – | 9,626 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 28,436 | 44 | 28,392 | 71 | 0.2 | (11) | (4) | |||||||||||||||||||||
Cash collateral and settlement balances | 58,040 | – | 58,040 | – | – | – | – | |||||||||||||||||||||
Total | 106,377 | 44 | 106,333 | 71 | 0.1 | (14) | (1) |
Non-Core Wholesale
The table below details Non-Core loans and advances which form part of the Wholesale risk portfolio.
Analysis of loans and advances at amortised cost | ||||||||||||||||||||||||||||
| Gross L&A £m | | | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment charges £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 258 | – | 258 | – | – | (7) | (271) | |||||||||||||||||||||
Cash collateral and settlement balances | 10,131 | – | 10,131 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 5,277 | 233 | 5,044 | 345 | 6.5 | (13) | (25) | |||||||||||||||||||||
Cash collateral and settlement balances | 19,188 | – | 19,188 | – | – | – | – | |||||||||||||||||||||
Total | 34,854 | 233 | 34,621 | 345 | 1.0 | (20) | (6) | |||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 373 | – | 373 | – | – | – | – | |||||||||||||||||||||
Cash collateral and settlement balances | 11,622 | – | 11,622 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 8,978 | 602 | 8,376 | 841 | 9.4 | 53 | 59 | |||||||||||||||||||||
Cash collateral and settlement balances | 23,726 | – | 23,726 | – | – | – | – | |||||||||||||||||||||
Total | 44,699 | 602 | 44,097 | 841 | 1.9 | 53 | 12 |
Wholesale lending decreased £3.7bn to £5.3bn driven by the reclassification of Portuguese loans now held for sale and rundown of legacy loan portfolios. Wholesale loans predominantly relate to capital equipment loans, legacy Collateralised Loan Obligations (CLO) and legacy Collateralised Debt Obligations (CDO).
Loan impairment charges improved £73m to a release of £20m reflecting higher recoveries in Europe and the sale of the Spanish business.
CRLs decreased to £345m (2014: £841m) as a result of the reclassification of Portuguese loans now held for sale and continued rundown of the Non-Core Investment Bank portfolio.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 127 |
Wholesale Personal and Corporate Banking
The table below details Personal and Corporate Banking loans and advances which form part of the Wholesale risk portfolio.
Analysis of loans and advances at amortised cost | ||||||||||||||||||||||||||||
| Gross L&A £m | | | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment charges £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Banks | 3,593 | – | 3,593 | – | – | – | – | |||||||||||||||||||||
Other financial institutions | 6,321 | 16 | 6,305 | 46 | 0.7 | 2 | 3 | |||||||||||||||||||||
Manufacturing | 6,762 | 37 | 6,725 | 51 | 0.8 | 2 | 3 | |||||||||||||||||||||
Construction | 3,267 | 38 | 3,229 | 47 | 1.4 | 1 | 3 | |||||||||||||||||||||
Property | 15,309 | 166 | 15,143 | 645 | 4.2 | 2 | 1 | |||||||||||||||||||||
Government and central bank | 1,304 | – | 1,304 | – | – | – | – | |||||||||||||||||||||
Energy and water | 2,216 | 79 | 2,137 | 103 | 4.6 | 82 | 370 | |||||||||||||||||||||
Wholesale and retail distribution and leisure | 11,333 | 165 | 11,168 | 261 | 2.3 | (8 | ) | (7 | ) | |||||||||||||||||||
Business and other services | 16,536 | 223 | 16,313 | 271 | 1.6 | 54 | 33 | |||||||||||||||||||||
Home loansa | 5,730 | 20 | 5,710 | 142 | 2.5 | – | – | |||||||||||||||||||||
Cards, unsecured loans and other personal lendinga | 8,714 | 1 | 8,713 | 14 | 0.2 | 4 | 5 | |||||||||||||||||||||
Other | 6,770 | 169 | 6,601 | 214 | 3.2 | 43 | 64 | |||||||||||||||||||||
Total | 87,855 | 914 | 86,941 | 1,794 | 2.0 | 182 | 21 | |||||||||||||||||||||
As at 31 December 2014b | ||||||||||||||||||||||||||||
Banks | 5,507 | – | 5,507 | – | – | 1 | 2 | |||||||||||||||||||||
Other financial institutions | 5,357 | 13 | 5,344 | 85 | 1.6 | 26 | 49 | |||||||||||||||||||||
Manufacturing | 7,174 | 47 | 7,127 | 106 | 1.5 | – | – | |||||||||||||||||||||
Construction | 3,094 | 40 | 3,054 | 58 | 1.9 | 7 | 21 | |||||||||||||||||||||
Property | 15,480 | 194 | 15,286 | 833 | 5.4 | 36 | 23 | |||||||||||||||||||||
Government and central bank | 1,187 | – | 1,187 | – | – | – | – | |||||||||||||||||||||
Energy and water | 1,950 | 2 | 1,948 | 2 | 0.1 | 3 | 16 | |||||||||||||||||||||
Wholesale and retail distribution and leisure | 10,928 | 175 | 10,753 | 342 | 3.1 | 56 | 52 | |||||||||||||||||||||
Business and other services | 14,160 | 177 | 13,983 | 344 | 2.4 | 54 | 38 | |||||||||||||||||||||
Home loansa | 6,864 | 36 | 6,828 | 96 | 1.4 | 34 | 50 | |||||||||||||||||||||
Cards, unsecured loans and other personal lending | 9,628 | 60 | 9,568 | 16 | 0.2 | 22 | 23 | |||||||||||||||||||||
Other | 6,863 | 129 | 6,734 | 229 | 3.3 | 28 | 40 | |||||||||||||||||||||
Total | 88,192 | 873 | 87,319 | 2,111 | 2.4 | 267 | 30 |
Wholesale PCB loans and advances and CRLs remained broadly stable at £87.9bn (2014: £88.2bn) and £1.8bn (2014: £2.1bn) respectively.
Loan impairment charges improved 32% to £182m due to the benign economic environment in the UK. This led to a decrease in the loan loss rate to 21bps (2014: 30bps).
Analysis of Wholesale balances on watch list
Wholesale accounts that are deemed to contain heightened levels of risk are recorded on a graded watch list comprising four categories graded in line with the perceived severity of the risk attached to the lending, and its probability of default:
§ | Category 1: a temporary classification for performing obligors who exhibit some unsatisfactory features |
§ | Category 2: performing obligors where some doubt exists, but the belief is that the obligor can meet obligations over the short term |
§ | Category 3: obligors where definite concern exists with well defined weaknesses and failure in the short term could arise should further deterioration occur |
§ | Category 4: non-performing obligors, insolvent or regulatory default. High risk of loss. |
Notes
a | Included in the above analysis are Wealth and Investment Management exposures measured on an individual customer exposure basis. |
b | UK Business Banking has been reclassified from Retail to Wholesale in line with how the business is now managed. 2014 figures have been restated to reflect this, with net loans and advances of £8.4bn, credit risk loans of £482m and impairment charges of £48m being reclassified to Wholesale. |
128 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Watch list rating of wholesale balancesa | ||||||||||||||||||||||||||||||||||||||||
Watch list 1 | Watch list 2 | Watch list 3 | Watch list 4 | Total | ||||||||||||||||||||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | ||||||||||
Energy and Water | 1,247 | 160 | 314 | 1,011 | 447 | 480 | 285 | 49 | 2,293 | 1,700 | ||||||||||||||||||||||||||||||
Manufacturing | 928 | 483 | 539 | 347 | 138 | 162 | 267 | 395 | 1,872 | 1,387 | ||||||||||||||||||||||||||||||
Agriculture, Forestry, Fishing & Miscellaneous Activities | 425 | 277 | 496 | 517 | 544 | 324 | 275 | 445 | 1,740 | 1,563 | ||||||||||||||||||||||||||||||
Wholesale and Retail, Distribution and Leisure | 626 | 249 | 582 | 939 | 272 | 388 | 260 | 536 | 1,740 | 2,112 | ||||||||||||||||||||||||||||||
Property | 424 | 513 | 410 | 600 | 378 | 1,458 | 498 | 1,212 | 1,710 | 3,782 | ||||||||||||||||||||||||||||||
Business and Other Services | 220 | 241 | 516 | 583 | 639 | 214 | 149 | 157 | 1,524 | 1,196 | ||||||||||||||||||||||||||||||
Transport | 86 | 98 | 121 | 148 | 208 | 285 | 98 | 111 | 513 | 641 | ||||||||||||||||||||||||||||||
Construction | 65 | 47 | 175 | 131 | 108 | 136 | 84 | 147 | 432 | 461 | ||||||||||||||||||||||||||||||
Financial Institutions/Services | (59 | ) | 29 | 69 | 391 | 62 | 345 | 302 | 325 | 374 | 1,090 | |||||||||||||||||||||||||||||
Other | 53 | 75 | 69 | 91 | 119 | 72 | 88 | 29 | 329 | 268 | ||||||||||||||||||||||||||||||
Total | 4,015 | 2,172 | 3,291 | 4,758 | 2,915 | 3,865 | 2,306 | 3,405 | 12,527 | 14,200 | ||||||||||||||||||||||||||||||
As a percentage of total balances | 32% | 15% | 26% | 34% | 23% | 27% | 19% | 24% | 100% | 100% |
Total watch list balances fell by 12% to £12.5bn principally reflecting the sale of the corporate business in Spain.
Total watch list balances to energy and water increased by 35% to £2,293m (2014: £1,700m), reflecting the increased stress in the oil and gas sector as a result of the oil price. Watch list balances in manufacturing increased due to increased stress in the automotive sector.
Analysis of debt securities
Debt securities include government securities held as part of the Group’s treasury management portfolio for liquidity and regulatory purposes, and are for use on a continuing basis in the activities of the Group.
The following tables provide an analysis of debt securities held by the Group for trading and investment purposes by issuer type, and where the Group held government securities exceeding 10% of shareholders’ equity.
Further information on the credit quality of debt securities is presented on pages 115 to 116. Further disclosure on sovereign exposures to selected Eurozone countries is presented on page 119.
Debt securities | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December | £m | % | £m | % | ||||||||||||
Of which issued by: | ||||||||||||||||
Governments and other public bodies | 96,537 | 70.9 | 106,292 | 68.1 | ||||||||||||
Corporate and other issuers | 26,166 | 19.2 | 29,557 | 19.0 | ||||||||||||
US agency | 8,927 | 6.6 | 11,460 | 7.3 | ||||||||||||
Mortgage and asset backed securities | 4,009 | 2.9 | 8,396 | 5.4 | ||||||||||||
Bank and building society certificates of deposit | 598 | 0.4 | 279 | 0.2 | ||||||||||||
Total | 136,237 | 100.0 | 155,984 | 100.0 | ||||||||||||
Government securities | ||||||||||||||||
As at 31 December |
| 2015 Fair value £m |
| | 2014 Fair value | | ||||||||||
US | 26,119 | 32,096 | ||||||||||||||
UK | 22,372 | 28,938 | ||||||||||||||
France | 8,874 | 6,259 | ||||||||||||||
Germany | 6,619 | 7,801 |
Note
a | Balances represent on-balance sheet exposures and comprise PCB, Barclays Africa, Non-Core and Investment Bank. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 129 |
Analysis of derivatives (audited)
The tables below set out the fair value 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 | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
As at 31 December | | Balance sheet assets £m | |
| Counterparty netting £m |
| | Net exposure £m | | | Balance sheet assets £m | |
| Counterparty netting £m |
| | Net exposure £m | | ||||||
Foreign exchange | 54,936 | 40,301 | 14,635 | 74,470 | 58,153 | 16,317 | ||||||||||||||||||
Interest rate | 231,426 | 190,513 | 40,913 | 309,946 | 253,820 | 56,126 | ||||||||||||||||||
Credit derivatives | 18,181 | 14,110 | 4,071 | 23,507 | 19,829 | 3,678 | ||||||||||||||||||
Equity and stock index | 13,799 | 8,358 | 5,441 | 14,844 | 10,523 | 4,321 | ||||||||||||||||||
Commodity derivatives | 9,367 | 6,300 | 3,067 | 17,142 | 11,306 | 5,836 | ||||||||||||||||||
Total derivative assets | 327,709 | 259,582 | 68,127 | 439,909 | 353,631 | 86,278 | ||||||||||||||||||
Cash collateral held | 34,918 | 44,047 | ||||||||||||||||||||||
Net exposure less collateral | 33,209 | 42,231 |
Derivative asset exposures would be £295bn (2014: £398bn) lower than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty, or for which the Group holds cash collateral. Similarly, derivative liabilities would be £295bn (2014: £397bn) lower reflecting counterparty netting and collateral placed. In addition, non-cash collateral of £7bn (2014: £8bn) was held in respect of derivative assets. The Group received collateral from clients in support of over the counter derivative transactions. These transactions are generally undertaken under International Swaps and Derivative Association (ISDA) agreements governed by either UK or New York law.
Exposure relating to derivatives, repurchase agreements, reverse repurchase agreements, stock borrowing and loan transactions is calculated using internal PRA 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).
The table below sets out the fair value and notional amounts of Over the Counter (OTC) derivative instruments by type of collateral arrangement.
Derivatives by collateral arrangement | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
| Notional contract amount £m |
|
|
Fair value |
|
| Notional contract amount £m |
|
|
Fair value |
| |||||||||||||
| Assets £m |
|
| Liabilities £m |
|
| Assets £m |
|
| Liabilities £m |
| |||||||||||||
Unilateral in favour of Barclays | ||||||||||||||||||||||||
Foreign exchange | 15,645 | 242 | (308 | ) | 15,067 | 191 | (158 | ) | ||||||||||||||||
Interest rate | 4,365 | 846 | (65 | ) | 5,826 | 940 | (72 | ) | ||||||||||||||||
Credit derivatives | 277 | 2 | (7 | ) | 226 | 3 | (4 | ) | ||||||||||||||||
Equity and stock index | 303 | 4 | (146 | ) | 310 | 3 | (8 | ) | ||||||||||||||||
Commodity derivatives | 905 | 150 | (30 | ) | 2,455 | 158 | (120 | ) | ||||||||||||||||
Total unilateral in favour of Barclays | 21,495 | 1,244 | (556 | ) | 23,884 | 1,295 | (362 | ) | ||||||||||||||||
Unilateral in favour of counterparty | ||||||||||||||||||||||||
Foreign exchange | 50,343 | 810 | (2,107 | ) | 24,861 | 681 | (2,713 | ) | ||||||||||||||||
Interest rate | 121,231 | 4,436 | (6,981 | ) | 138,396 | 6,073 | (8,751 | ) | ||||||||||||||||
Credit derivatives | 140 | 3 | (1 | ) | 403 | 6 | (19 | ) | ||||||||||||||||
Equity and stock index | 827 | 100 | (83 | ) | 1,100 | 133 | (137 | ) | ||||||||||||||||
Commodity derivatives | 74 | – | (3 | ) | 2,881 | 359 | (138 | ) | ||||||||||||||||
Total unilateral in favour of counterparty | 172,615 | 5,349 | (9,175 | ) | 167,641 | 7,252 | (11,758 | ) | ||||||||||||||||
Bilateral arrangement | ||||||||||||||||||||||||
Foreign exchange | 2,878,125 | 46,831 | (50,899 | ) | 3,350,366 | 67,496 | (70,919 | ) | ||||||||||||||||
Interest rate | 7,315,345 | 197,900 | (188,293 | ) | 9,032,753 | 263,812 | (256,697 | ) | ||||||||||||||||
Credit derivatives | 663,090 | 13,617 | (11,985 | ) | 887,041 | 18,290 | (17,002 | ) | ||||||||||||||||
Equity and stock index | 144,108 | 4,991 | (8,297 | ) | 162,615 | 6,033 | (10,498 | ) | ||||||||||||||||
Commodity derivatives | 36,794 | 3,164 | (3,104 | ) | 68,400 | 6,254 | (6,377 | ) | ||||||||||||||||
Total bilateral arrangement | 11,037,462 | 266,503 | (262,578 | ) | 13,501,175 | 361,885 | (361,493 | ) | ||||||||||||||||
Uncollateralised derivatives | ||||||||||||||||||||||||
Foreign exchange | 271,819 | 7,008 | (5,424 | ) | 303,341 | 6,028 | (5,452 | ) | ||||||||||||||||
Interest rate | 193,565 | 6,091 | (2,907 | ) | 199,615 | 8,572 | (3,524 | ) | ||||||||||||||||
Credit derivatives | 7,881 | 467 | (700 | ) | 8,716 | 565 | (800 | ) | ||||||||||||||||
Equity and stock index | 6,672 | 2,204 | (3,075 | ) | 5,789 | 2,115 | (2,406 | ) | ||||||||||||||||
Commodity derivatives | 13,347 | 1,733 | (1,667 | ) | 26,099 | 2,806 | (2,766 | ) | ||||||||||||||||
Total uncollateralised derivatives | 493,284 | 17,503 | (13,773 | ) | 543,560 | 20,086 | (14,948 | ) | ||||||||||||||||
Total OTC derivative assets/(liabilities) | 11,724,856 | 290,599 | (286,082 | ) | 14,236,260 | 390,518 | (388,561 | ) |
130 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Analysis of loans on concession programmes
Re-age activity
Re-age is applicable only to revolving products where a minimum due payment is required. Re-age refers to returning of a delinquent account to up to date status without collecting the full arrears (principal, interest and fees).
The following are the principal portfolios in which re-age activity occurs.
Principal portfolios – core portfolios | ||||||||||||||||||||||||
New re-ages in the year | | New re-ages as proportion of total outstanding | |
| 30 day arrears at 12 months since re-age |
| ||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | |
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
| ||||||
UK cards | 117 | 163 | 0.7 | 1.0 | 40.5 | 43.4 | ||||||||||||||||||
US cards | 36 | 31 | 0.2 | 0.2 | 47.2 | 46.8 | ||||||||||||||||||
UK cards: The reduction of new to re-ages in the year is due to changes in operational and qualification criteria resulting in reduced volume of accounts qualifying for re-age. Enhanced criteria has also led to lower 30 day arrears at 12 months after re-age.
US cards: The increase in new to re-ages is in line with portfolio growth, the ratio as a proportion of total outstanding remained stable at 0.2%.
Re-age activity in South Africa and Europe card portfolios are not considered to be material. For further detail on policy relating to the re-ageing of loans, please refer to page 368.
Forbearance
|
| |||||||||||||||||||||||
Analysis of forbearance programmes | ||||||||||||||||||||||||
Balances | Impairment allowance | Impairment coverage | ||||||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | |
| 2015 £m |
|
| 2014 £m |
|
| 2015 % |
|
| 2014 % |
| ||||||
Personal and Corporate Bankinga | 589 | 931 | 33 | 63 | 5.6 | 6.8 | ||||||||||||||||||
Africa Banking | 209 | 299 | 29 | 45 | 13.8 | 15.1 | ||||||||||||||||||
Barclaycard | 729 | 972 | 247 | 394 | 33.9 | 40.5 | ||||||||||||||||||
Barclays Core | 1,527 | 2,202 | 309 | 502 | 20.2 | 22.8 | ||||||||||||||||||
Barclays Non-Core | 246 | 419 | 20 | 49 | 8.3 | 11.7 | ||||||||||||||||||
Total retail | 1,773 | 2,621 | 329 | 551 | 18.5 | 21.0 | ||||||||||||||||||
Investment Bank | 210 | 106 | 4 | 10 | 2.1 | 9.4 | ||||||||||||||||||
Personal and Corporate Banking | 1,764 | 1,590 | 253 | 225 | 14.3 | 14.2 | ||||||||||||||||||
Africa Banking | 228 | 132 | 17 | 7 | 7.5 | 5.3 | ||||||||||||||||||
Barclays Core | 2,202 | 1,828 | 274 | 242 | 12.4 | 13.2 | ||||||||||||||||||
Barclays Non-Core | 230 | 651 | 117 | 271 | 50.7 | 41.6 | ||||||||||||||||||
Total wholesale | 2,432 | 2,479 | 391 | 513 | 16.1 | 20.7 | ||||||||||||||||||
Group total | 4,205 | 5,100 | 720 | 1,064 | 17.1 | 20.9 |
Balances on forbearance programmes reduced 18% to £4.2bn (2014: £5.1bn) driven primarily by; (i) fewer customers requiring forbearance as macroeconomic conditions improved; and (ii) the ongoing impact of enhanced qualification criteria. The decrease in impairment coverage to 17.1% (2014: 20.9%) reflected coverage reduction across both the wholesale and retail portfolios.
Retail balances on forbearance reduced by 32% to £1.8bn and reflected a decrease across all businesses.
§ | PCB:Migration of Business Banking from Retail to Corporate amounting to £239m. |
§ | Barclaycard:Primarily due to multiple asset sales through the year and updated entry criteria for forbearance programmes, which reduced inflows in the UK cards portfolio. |
§ | Africa Banking:Updated qualifying criteria in South African home loans and depreciation of the Rand. |
Wholesale balances on forbearance reduced by 2% to £2.4bn as the removal of assets following the sale of the Spanish corporate business was partially offset by the migration of Business Banking forborne assets into the UK Corporate Bank. Excluding these movements, the overall level of forborne balances was broadly stable.
See over for more information on these portfolios.
Note
a | The forbearance definition has been tightened during the year based on observed performance to more accurately reflect signs of financial distress. As a result an element of the MCA population has been reclassified as high risk instead of forbearance. 2014 forbearance balances have been restated for a like for like comparison. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 131 |
Retail forbearance programmes
Forbearance on the Group’s principal retail portfolios in the UK, US and South Africa is presented below. The principal portfolios listed below account for 70% (2014: 83%) of total retail forbearance balances.
Analysis of key portfolios in forbearance programmes | ||||||||||||||||||||||||||||||||||||
Balances on forbearance programmes | Marked | Marked | Impairment | |||||||||||||||||||||||||||||||||
Of which: | to market | to market | allowances | Total | ||||||||||||||||||||||||||||||||
Past due of which: | LTV of | LTV of | marked | balances on | ||||||||||||||||||||||||||||||||
forbearance | forbearance | against | forbearance | |||||||||||||||||||||||||||||||||
% of gross | 91 or more | balances: | balances: | balances on | programmes | |||||||||||||||||||||||||||||||
loans and | 1-90 days | days past | balance | valuation | forbearance | coverage | ||||||||||||||||||||||||||||||
Total | advances | Up-to-date | past due | due | weighted | weighted | programmes | ratio | ||||||||||||||||||||||||||||
£m | % | £m | £m | £m | % | % | £m | % | ||||||||||||||||||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||
Home loans | ||||||||||||||||||||||||||||||||||||
PCB – UKa | 445 | 0.3 | 211 | 177 | 57 | 48.0 | 34.1 | 4 | 0.8 | |||||||||||||||||||||||||||
Africa Banking – South Africa | 125 | 1.3 | 50 | 64 | 11 | 67.5 | 53.6 | 7 | 5.5 | |||||||||||||||||||||||||||
Credit cards | ||||||||||||||||||||||||||||||||||||
UK | 448 | 2.4 | 414 | 31 | 3 | n/a | n/a | 159 | 35.5 | |||||||||||||||||||||||||||
US | 133 | 0.8 | 92 | 30 | 11 | n/a | n/a | 30 | 22.7 | |||||||||||||||||||||||||||
Unsecured loans | ||||||||||||||||||||||||||||||||||||
UK | 85 | 1.6 | 59 | 22 | 3 | n/a | n/a | 21 | 24.6 | |||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||
Home loans | ||||||||||||||||||||||||||||||||||||
PCB – UK | 522 | 0.4 | 257 | 206 | 59 | 52.1 | 36.8 | 3 | 0.6 | |||||||||||||||||||||||||||
Africa Banking – South Africa | 207 | 1.8 | 95 | 99 | 13 | 71.1 | 57.4 | 13 | 6.5 | |||||||||||||||||||||||||||
Credit cards | ||||||||||||||||||||||||||||||||||||
UK | 724 | 4.3 | 679 | 41 | 4 | n/a | n/a | 324 | 44.8 | |||||||||||||||||||||||||||
US | 98 | 0.7 | 67 | 22 | 9 | n/a | n/a | 22 | 22.1 | |||||||||||||||||||||||||||
Unsecured loans | ||||||||||||||||||||||||||||||||||||
UK | 121 | 2.4 | 83 | 33 | 5 | n/a | n/a | 25 | 20.9 |
Loans in forbearance in the principal home loans portfolios decreased 22% to £570m (2014: £729m).
§ | PCB – UK (home loans): Balances under forbearance decreased 15% to £445m, principally due to an update to the entry criteria, and fewer customers requiring forbearance in a stable macroeconomic environment. Total past due balances reduced 12% to £234m in line with falling total balances under forbearance. |
§ | Africa Banking – South Africa (home loans): Reduction in forbearance balances to £125m (2014: £207m) was due to enhanced qualification criteria which resulted in a more appropriate and sustainable programme for customers, and depreciation of the Rand. |
Forbearance balances on principal credit cards, overdrafts and unsecured loan portfolios decreased by 29% to £666m.
§ | UK Cards: The reduction in forbearance balances was driven by the implementation of enhanced qualification criteria and asset sales. Balances in arrears and coverage ratio reduced in line with balance reduction. |
§ | US Cards: The increase in balances on forbearance programmes was in line with asset growth on the US portfolio. Balances in arrears remained low as a proportion of the total and coverage was stable. |
Forbearance by type | ||||||||||||||||
Home loans – Barclays Core portfolios | ||||||||||||||||
UK | South Africa | |||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | ||||
Interest only conversion | 94 | 100 | – | – | ||||||||||||
Interest rate reduction | – | – | 1 | 1 | ||||||||||||
Payment concession | 103 | 106 | 97 | 161 | ||||||||||||
Term extension | 248 | 316 | 28 | 45 | ||||||||||||
Total | 445 | 522 | 125 | 207 |
Note
a | The forbearance definition has been tightened during the year based on observed performance to more accurately reflect signs of financial distress. As a result, an element of the MCA population has been reclassified as high-risk instead of forbearance. 2014 forbearance balances have been restated for a like for like comparison. (2014 MCA balances: £1.3bn). |
132 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Forbearance by type | ||||||||||||||||||||||||
Credit cards and unsecured loans – Barclays Core portfolios | ||||||||||||||||||||||||
UK cards | US cards | UK personal loans | ||||||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | |
| 2015 £m |
| | 2014 £m | | | 2015 £m | | | 2014 £m | | ||||||
Payment concession | 21 | 31 | – | – | – | – | ||||||||||||||||||
Term extension | – | – | – | – | 6 | 28 | ||||||||||||||||||
Fully amortising | – | – | 69 | 58 | �� | 79 | 93 | |||||||||||||||||
Repayment plana | 427 | 693 | 64 | 40 | – | – | ||||||||||||||||||
Total | 448 | 724 | 133 | 98 | 85 | 121 |
Payment concessions reduced to £21m (2014: £31m) in UK cards following its withdrawal from forbearance offering in 2014.
Repayment plan balances in UK cards decreased to £427m (2014: £693m) driven by a debt sale and the continued reduction in new repayment plan volumes, following the implementation of enhanced qualification criteria in 2012.
Wholesale forbearance programmes
The tables below detail balance information for wholesale forbearance cases.
Analysis of wholesale balances in forbearance programmes | ||||||||||||||||||||||||||||||||
Balances on forbearance programmes | Impairment | |||||||||||||||||||||||||||||||
Of which: | allowances | Total | ||||||||||||||||||||||||||||||
| Total balances £m | | | % of gross loans and advances % | | | Performing balances £m | | | Impaired up-to-date balances £m | | | Balances between 1 and 90 days past due £m | |
| Balances 91 days or more past due £m |
|
| marked against balances on forbearance programmes £m |
|
| balances on forbearance programmes coverage ratio % |
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Investment Bank | 210 | 0.2 | 81 | – | 100 | 29 | 4 | 2.1 | ||||||||||||||||||||||||
Personal & Corporate Banking | 1,764 | 2.0 | 578 | 661 | 93 | 432 | 253 | 14.3 | ||||||||||||||||||||||||
Africa Banking | 228 | 1.5 | 103 | 4 | – | 121 | 17 | 7.5 | ||||||||||||||||||||||||
Total Barclays Core | 2,202 | 1.1 | 762 | 665 | 193 | 582 | 274 | 12.4 | ||||||||||||||||||||||||
Barclays Non-Core | 229 | 0.7 | 38 | 103 | 2 | 87 | 117 | 50.7 | ||||||||||||||||||||||||
Group | 2,431 | 1.0 | 800 | 768 | 195 | 669 | 391 | 16.1 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Investment Bank | 106 | 0.1 | 52 | – | 22 | 32 | 10 | 9.4 | ||||||||||||||||||||||||
Personal & Corporate Banking | 1,590 | 2.0 | 574 | 587 | 38 | 391 | 225 | 14.1 | ||||||||||||||||||||||||
Africa Banking | 132 | 0.8 | 30 | 47 | 13 | 42 | 7 | 5.0 | ||||||||||||||||||||||||
Total Barclays Core | 1,828 | 0.9 | 656 | 634 | 73 | 465 | 242 | 13.2 | ||||||||||||||||||||||||
Barclays Non-Core | 651 | 1.5 | 36 | 336 | 41 | 238 | 271 | 41.6 | ||||||||||||||||||||||||
Group | 2,479 | 1.0 | 692 | 970 | 114 | 703 | 513 | 20.7 |
Wholesale forbearance reporting split by exposure class | ||||||||||||||||
| Corporate £m | | | Personal and trusts £m | | | Other £m | | | Total £m | | |||||
As at 31 December 2015 | ||||||||||||||||
Restructure: reduced contractual cash flows | 158 | – | – | 158 | ||||||||||||
Restructure: maturity date extension | 716 | 24 | 62 | 801 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 317 | 1 | – | 318 | ||||||||||||
Restructure: payment other than cash | 12 | – | – | 12 | ||||||||||||
Change in security | 7 | 1 | – | 8 | ||||||||||||
Adjustments or non-enforcement of covenants | 295 | 92 | – | 387 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 538 | 208 | – | 746 | ||||||||||||
Total | 2,043 | 326 | 62 | 2,431 | ||||||||||||
As at 31 December 2014 | ||||||||||||||||
Restructure: reduced contractual cash flows | 180 | – | – | 180 | ||||||||||||
Restructure: maturity date extension | 600 | 79 | 4 | 683 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 335 | 25 | 4 | 364 | ||||||||||||
Restructure: payment other than cash | 7 | 9 | – | 16 | ||||||||||||
Change in security | 17 | – | – | 17 | ||||||||||||
Adjustments or non-enforcement of covenants | 383 | 53 | – | 436 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 607 | 175 | 1 | 783 | ||||||||||||
Total | 2,129 | 341 | 9 | 2,479 |
Note
a | Repayment plan represents a reduction to the minimum payment due requirements and interest rate. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 133 |
Wholesale forbearance reporting split by business unit | ||||||||||||||||||
| Personal & Corporate Banking £m | |
| Investment Bank £m |
|
| Africa Banking £m |
|
| Barclays Non-Core £m |
| Total £m | ||||||
As at 31 December 2015 | ||||||||||||||||||
Restructure: reduced contractual cash flows | 131 | – | 4 | 23 | 158 | |||||||||||||
Restructure: maturity date extension | 370 | 162 | 153 | 116 | 801 | |||||||||||||
Restructure: changed cash flow profile (other than extension) | 248 | 2 | 68 | – | 318 | |||||||||||||
Restructure: payment other than cash | 1 | 11 | – | – | 12 | |||||||||||||
Change in security | 8 | – | – | – | 8 | |||||||||||||
Adjustments or non-enforcements of covenants | 338 | 2 | – | 47 | 387 | |||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 668 | 33 | 3 | 43 | 747 | |||||||||||||
Total | 1,764 | 210 | 228 | 229 | 2,431 | |||||||||||||
As at 31 December 2014 | ||||||||||||||||||
Restructure: reduced contractual cash flows | 125 | – | 1 | 54 | 181 | |||||||||||||
Restructure: maturity date extension | 314 | 72 | 78 | 219 | 683 | |||||||||||||
Restructure: changed cash flow profile (other than extension) | 178 | 2 | 49 | 135 | 364 | |||||||||||||
Restructure: payment other than cash | 13 | – | – | 3 | 16 | |||||||||||||
Change in security | 11 | – | – | 6 | 17 | |||||||||||||
Adjustments or non-enforcements of covenants | 329 | – | – | 107 | 436 | |||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 620 | 32 | 4 | 127 | 783 | |||||||||||||
Total | 1,589 | 106 | 134 | 651 | 2,479 |
Wholesale forbearance decreased 2% to £2.4bn with an impairment coverage ratio of 16.1% (2014: 20.7%). Personal & Corporate Banking accounted for the largest portion with 73% (2014: 64%) of total balances held as forbearance.
Overall forbearance balances in Core portfolios rose by 20% to £2.2bn, driven primarily by the migration of forborne Business Banking assets into the PCB UK Corporate Banking portfolio from PCB Retail.
Non-Core balances remain focused on the European corporate portfolios and reduced by 65% to £230m following the sale of the Spanish corporate business.
Wholesale forbearance flows in 2015a | ||||
| Balance £m |
| ||
As at 1 January 2015 | 2,479 | |||
Added to forbearanceb | 1,302 | |||
Removed from forbearance (credit improvement) | (190 | ) | ||
Fully or partially repaid and other movementsc | (936 | ) | ||
Written off/moved to recoveries | (224 | ) | ||
As at 31 December 2015 | 2,431 |
Impaired loans and loans past due within this section are reflected in the balance sheet credit quality tables on page 116 as being Higher Risk.
Age analysis of loans and advances that are past due but not impaired (audited)
The following table presents an age analysis of loans and advances that are past due but not impaired.
Loans and advances past due but not impaired (audited) | ||||||||||||||||||||||||
| Past due up to 1 month £m | | | Past due 1-2 months £m | | | Past due 2-3 months £m | | | Past due 3-6 months £m | | | Past due 6 months and over £m | | | Total £m | | |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
Loans and advances designated at fair value | 70 | 14 | – | – | 209 | 293 | ||||||||||||||||||
Home loans | 22 | 8 | 6 | 24 | 80 | 140 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 288 | 14 | 15 | 93 | 120 | 530 | ||||||||||||||||||
Corporate loans | 5,862 | 897 | 207 | 226 | 280 | 7,472 | ||||||||||||||||||
Total | 6,242 | 933 | 228 | 343 | 689 | 8,435 | ||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
Loans and advances designated at fair value | 594 | 48 | 1 | – | 33 | 676 | ||||||||||||||||||
Home loans | 46 | 6 | 17 | 135 | 230 | 434 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 64 | 29 | 14 | 139 | 194 | 440 | ||||||||||||||||||
Corporate loansd | 5,251 | 630 | 874 | 190 | 387 | 7,332 | ||||||||||||||||||
Total | 5,955 | 713 | 906 | 464 | 844 | 8,882 |
Notes
a | Refer to sustainability of loans under forbearance in Barclays PLC 2015 Pillar 3 Report for more information. |
b | Includes £239m transitioned to wholesale forbearance categories within the UK SME Businesses previously in Retail. |
c | Includes £321m removed following the sale of the Non-Core Business in Spain. |
d | Corporate loan balances past due up to 1 month have been revised down by £1,953m to better reflect the ageing of the loans. |
134 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Impaired loans
The following table represents an analysis of impaired loans in line with the disclosure requirements from the Enhanced Disclosure Taskforce. For further information on definitions of impaired loans refer to the identifying potential credit risk loans section of Barclays PLC 2015 Pillar 3 Report.
Movement in impaired loans | ||||||||||||||||||||||||||||||||
| At beginning of year £m |
|
| Classified as impaired during the year £m |
|
| Transferred to not impaired during the year £m |
|
| Repayments £m |
|
| Amounts written off £m |
| | Acquisitions and disposals £m | | | Exchange and other adjustmentsa £m | | | Balance at 31 December £m | | |||||||||
2015 | ||||||||||||||||||||||||||||||||
Home loans | 1,503 | 602 | (192 | ) | (272 | ) | (97 | ) | – | (207 | ) | 1,337 | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 2,613 | 2,226 | (112 | ) | (269 | ) | (1,873 | ) | – | (385 | ) | 2,200 | ||||||||||||||||||||
Corporate loans | 2,683 | 1,032 | (558 | ) | (208 | ) | (333 | ) | (43 | ) | (475 | ) | 2,098 | |||||||||||||||||||
Total impaired loans | 6,799 | 3,860 | (862 | ) | (749 | ) | (2,303 | ) | (43 | ) | (1,067 | ) | 5,635 | |||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Home loans | 1,983 | 762 | (352 | ) | (412 | ) | (161 | ) | – | (317 | ) | 1,503 | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,385 | 2,089 | (108 | ) | (361 | ) | (1,885 | ) | – | (507 | ) | 2,613 | ||||||||||||||||||||
Corporate loans | 5,142 | 1,167 | (729 | ) | (658 | ) | (1,211 | ) | – | (1,028 | ) | 2,683 | ||||||||||||||||||||
Total impaired loans | 10,510 | 4,018 | (1,189 | ) | (1,431 | ) | (3,257 | ) | – | (1,852 | ) | 6,799 | ||||||||||||||||||||
For information on restructured loans refer to disclosures on forbearance on pages 131 to 134.
Analysis of loans and advances assessed as impaired (audited) The following table presents an age analysis of loans and advances collectively impaired and total individually impaired loans.
|
| |||||||||||||||||||||||||||||||
Loans and advances assessed as impaired (audited) | ||||||||||||||||||||||||||||||||
| Past due up to 1 month £m | | | Past due 1-2 months £m | | | Past due 2-3 months £m | | | Past due 3-6 months £m | �� | | Past due 6 months and over £m | |
| Total £m |
| | Individually assessed for impairment £m | |
| Total £m |
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Home loans | 3,672 | 1,036 | 278 | 364 | 812 | 6,162 | 648 | 6,810 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 1,241 | 691 | 284 | 541 | 1,792 | 4,549 | 964 | 5,513 | ||||||||||||||||||||||||
Corporate loans | 251 | 76 | 45 | 76 | 96 | 544 | 1,786 | 2,330 | ||||||||||||||||||||||||
Total | 5,164 | 1,803 | 607 | 981 | 2,700 | 11,255 | 3,398 | 14,653 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Home loans | 5,155 | 1,424 | 335 | 470 | 1,050 | 8,434 | 455 | 8,889 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 1,196 | 738 | 299 | 532 | 2,225 | 4,990 | 800 | 5,790 | ||||||||||||||||||||||||
Corporate loans | 284 | 30 | 24 | 25 | 148 | 511 | 2,679 | 3,190 | ||||||||||||||||||||||||
Total | 6,635 | 2,192 | 658 | 1,027 | 3,423 | 13,935 | 3,934 | 17,869 |
The decrease in collectively impaired loans to £11.3bn (2014: £13.9bn) predominantly relates to home loans within the past due up to 1 month category. MCA forbearance balances previously allocated into this category (2014 MCA balances: £1.3bn) no longer form part of the forbearance programme nor collectively assessed for impairment.
Note
a | Exchange and other adjustments includes the reclassification of the Portuguese loans now held for sale and the Spanish loans held for sale in 2014. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 135 |
Potential credit risk loans (PCRLs) and coverage ratios
The Group reports potentially and actually impaired loans as PCRLs. PCRLs comprise two categories of loans: credit risk loans (CRLs) and potential problem loans (PPLs). For further information on definitions of CRLs and PPLs refer to the identifying potential credit risk loans section of the Barclays PLC 2015 Pillar 3 Report.
Potential credit risk loans and coverage ratios by business | ||||||||||||||||||||||||
CRLs | PPLs | PCRLs | ||||||||||||||||||||||
As at 31 December |
| 2015 £m |
|
| 2014 £m |
| | 2015 £m | | | 2014 £m | | | 2015 £m | |
| 2014 £m |
| ||||||
Personal & Corporate Bankinga | 1,591 | 1,733 | 263 | 264 | 1,854 | 1,997 | ||||||||||||||||||
Africa Banking | 859 | 1,093 | 154 | 161 | 1,013 | 1,254 | ||||||||||||||||||
Barclaycard | 1,601 | 1,765 | 249 | 227 | 1,850 | 1,992 | ||||||||||||||||||
Barclays Core | 4,051 | 4,591 | 666 | 652 | 4,717 | 5,243 | ||||||||||||||||||
Barclays Non-Core | 845 | 1,209 | 13 | 26 | 858 | 1,234 | ||||||||||||||||||
Total Group retail | 4,896 | 5,800 | 679 | 678 | 5,575 | 6,477 | ||||||||||||||||||
Investment Bank | 241 | 71 | 450 | 107 | 691 | 178 | ||||||||||||||||||
Personal & Corporate Bankinga | 1,794 | 2,112 | 567 | 614 | 2,361 | 2,726 | ||||||||||||||||||
Africa Banking | 541 | 665 | 245 | 94 | 786 | 759 | ||||||||||||||||||
Barclays Core | 2,576 | 2,848 | 1,262 | 815 | 3,838 | 3,663 | ||||||||||||||||||
Barclays Non-Core | 345 | 841 | 109 | 119 | 454 | 960 | ||||||||||||||||||
Total Group wholesale | 2,921 | 3,689 | 1,371 | 934 | 4,292 | 4,623 | ||||||||||||||||||
Group total | 7,817 | 9,489 | 2,050 | 1,612 | 9,867 | 11,100 | ||||||||||||||||||
Impairment allowance | CRL coverage | PCRL coverage | ||||||||||||||||||||||
As at 31 December |
| 2015 £m |
|
| 2014 £m |
| | 2015 % | | | 2014 % | | | 2015 % | |
| 2014 % |
| ||||||
Personal & Corporate Bankinga,b | 713 | 766 | 44.8 | 44.2 | 38.5 | 38.4 | ||||||||||||||||||
Africa Banking | 539 | 681 | 62.7 | 62.3 | 53.2 | 54.3 | ||||||||||||||||||
Barclaycard | 1,835 | 1,815 | 114.6 | 102.8 | 99.2 | 91.1 | ||||||||||||||||||
Barclays Core | 3,087 | 3,262 | 76.2 | 71.1 | 65.4 | 62.2 | ||||||||||||||||||
Barclays Non-Core | 369 | 428 | 43.7 | 35.4 | 43.0 | 34.7 | ||||||||||||||||||
Total Group retail | 3,456 | 3,690 | 70.6 | 63.6 | 62.0 | 57.0 | ||||||||||||||||||
Investment Bank | 83 | 44 | 34.4 | 62.0 | 12.0 | 24.7 | ||||||||||||||||||
Personal & Corporate Bankinga | 914 | 873 | 50.9 | 41.3 | 38.7 | 32.0 | ||||||||||||||||||
Africa Banking | 235 | 246 | 43.4 | 37.0 | 29.9 | 32.4 | ||||||||||||||||||
Barclays Core | 1,232 | 1,163 | 47.8 | 40.8 | 32.1 | 31.7 | ||||||||||||||||||
Barclays Non-Core | 233 | 602 | 67.5 | 71.6 | 51.3 | 62.7 | ||||||||||||||||||
Total Group wholesale | 1,465 | 1,765 | 50.2 | 47.8 | 34.1 | 38.2 | ||||||||||||||||||
Group total | 4,921 | 5,455 | 63.0 | 57.5 | 49.9 | 49.1 |
§ | CRLs decreased 17.6% to £7.8bn, with the Group’s CRL coverage ratio increasing to 63.0% (2014: 57.5%). |
§ | CRLs in retail portfolios have decreased 15.6% to £4.9bn. This is primarily driven by Non-Core as a result of the sale of the Portuguese business and rundown of assets in Europe. Another driver of the decrease is the Africa retail portfolios reducing as a result of improved recoveries. Retail CRL coverage increased to 70.6% (2014: 63.6%), due to the decrease in the retail CRL portfolio. |
§ | Wholesale CRL portfolios decreased by 20.8% to £2.9bn. This is primarily driven by reductions in Non-Core as a result of the sale of the Portuguese corporate loans and continued rundown of the Non-Core Investment Bank portfolio; and within PCB due to the improved economic environment. Investment Bank CRLs increased £170m to £241m predominantly relating to the Oil and Gas sector. Wholesale CRL coverage increased to 50.2% (2014: 47.8%), driven by the decrease in CRLs in 2015. |
Notes
a | UK Business Banking has been reclassified from Retail to Wholesale in line with how the business is now managed. |
b | 2014 PCB CRLs, PPLs and PCRLs have been revised by £151m, £121m and £273m respectively to align methodology for determining arrears categories with other Home Finance risk disclosures. |
136 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Credit risk
Impairment allowances
Impairment allowances decreased 10% to £4,921m primarily within Non-Core as a result of the reclassification of impairments held against the Portuguese loans now held for sale.
Movements in allowance for impairment by asset class (audited) | ||||||||||||||||||||||||||||||||
| At beginning of year £m |
| | Acquisitions and disposals £m | | | Unwind of discount £m | | | Exchange and other adjustmentsa £m | | | Amounts written off £m | | | Recoveries £m | | | Amounts charged to income statement £m | | | Balance at 31 December £m | | |||||||||
2015 | ||||||||||||||||||||||||||||||||
Home loans | 547 | – | (32) | (64) | (94) | 7 | 154 | 518 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,345 | – | (105) | (170) | (1,848) | 301 | 1,871 | 3,394 | ||||||||||||||||||||||||
Corporate loans | 1,563 | – | (12) | (383) | (335) | 92 | 84 | 1,009 | ||||||||||||||||||||||||
Total impairment allowance | 5,455 | – | (149) | (617) | (2,277) | 400 | 2,109 | 4,921 | ||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Home loans | 788 | – | (23) | (200) | (191) | 17 | 156 | 547 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,603 | 13 | (116) | (307) | (1,679) | 126 | 1,705 | 3,345 | ||||||||||||||||||||||||
Corporate loans | 2,867 | – | (14) | (540) | (1,167) | 78 | 339 | 1,563 | ||||||||||||||||||||||||
Total impairment allowance | 7,258 | 13 | (153) | (1,047) | (3,037) | 221 | 2,200 | 5,455 |
Management adjustments to models for impairment
Management adjustments to models for impairment are applied in order to factor in certain conditions or changes in policy that are not incorporated into the relevant impairment models, or to ensure that the impairment allowance reflects all known facts and circumstances at the period end. Adjustments typically increase the model derived impairment allowance. Where applicable, management adjustments are reviewed and incorporated into future model development.
Management adjustments to models of more than £10m with respect to impairment allowance in our principal portfolios are presented below.
Principal portfolios that have management adjustments greater than £10m (unaudited) | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December |
| Total management adjustments to impairment stock, including forbearance £m |
| | Proportion of total impairment stock % | |
| Total management adjustments to impairment stock, including forbearance £m |
| | Proportion of total impairment stock % | | ||||
PCB | ||||||||||||||||
UK home loans | 68 | 67 | 52 | 55 | ||||||||||||
UK personal loans | 75 | 16 | 48 | 10 | ||||||||||||
UK overdrafts | 37 | 29 | 30 | 19 | ||||||||||||
UK large corporate and business lending | 183 | 26 | 98 | 14 | ||||||||||||
Africa Banking | ||||||||||||||||
South Africa home loans | 22 | 17 | 22 | 11 | ||||||||||||
Barclaycard | ||||||||||||||||
UK cards | 147 | 17 | 62 | 5 | ||||||||||||
US Cards | 58 | 9 | 10 | 2 | ||||||||||||
Barclays Partner Finance | 41 | 28 | 9 | 7 | ||||||||||||
Germany Cards | 20 | 21 | 3 | 3 |
During 2015, the Retail Impairment Policy was significantly strengthened and models enhanced.
UK home loans: Adjustments to capture the potential impact from increase in the house price to earnings ratio, change in the impairment methodology and increased coverage on interest only loans maturing in the next five years.
UK personal loans: Adjustments to incorporate revised impairment policy requirements, and for updated model requirements.
UK overdrafts: Principally for updated model-related requirements and adjustments to align to revised impairment policy.
UK large corporate and business lending: In business lending to reflect policy changes affecting customers on forbearance and impairment treatment. In corporate lending to account for single name losses, adjustment to allow for small names yet to emerge within the oil and gas sector, and the susceptibility of minimum debt service customers to interest rate raises not currently captured in models.
South Africa home loans: Primarily to incorporate the uncertainty in the macroeconomic outlook. The adjustment has increased by 27% in local currency.
Barclaycard: Predominantly to align to new impairment policy requirements in models, and to increase coverage on forbearance programmes and accounts in recoveries.
Note
a | Exchange and other adjustments includes the reclassification of impairments held against the Portuguese loans now held for sale and the Spanish loans held for sale in 2014. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 137 |
Risk review
Risk performance
Analysis of market risk
Market risk is the risk of a reduction in earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheet and liquidity pools.
This section contains key disclosures describing the Group’s market risk profile, highlighting regulatory as well as management measures.
Key metrics
Measures of traded market risk, such as Value at Risk (VaR), decreased in the year primarily due to the removal of certain banking book assets from VaR, reduced client activity, and risk reduction in Non-Core businesses.
We saw a reduction in associated risk measures and lower income from reduced activity
85%
of days generated positive trading revenue
-23%
reduction in management VaR
10%
increase in average daily trading revenue
138 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Market risk
Market risk is the risk of a reduction in earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheet and liquidity pool.
All disclosures in this section (page 139 to 147) are unaudited unless otherwise stated.
This section contains key statistics describing the market risk profile of the Group. This includes risk weighted assets by major business line, as well as Value at Risk (VaR) measures. A distinction is made between regulatory and management measures within the section. The market risk management section on pages 376 to 391 provides descriptions of these metrics:
§ | page 140 provides a view of market risk in the context of the Group’s balance sheet |
§ | pages 101 to 102 cover the management of traded market risk. Management measures are shown from page 141 and regulatory equivalent measures are shown from page 142 |
§ | non-traded market risk, arising from our banking books, is reviewed from page 143. |
Measures of market risk in the Group and accounting measures
Traded market risk measures such as VaR and balance sheet exposure measures have fundamental differences:
§ | balance sheet measures show accruals-based balances or marked to market values as at the reporting date |
§ | VaR measures also take account of current marked to market values but in addition hedging effects between positions are considered |
§ | market risk measures are expressed in terms of changes in value or volatilities as opposed to static values. |
For these reasons, it is not possible to present direct reconciliations of traded market risk and accounting measures. The table ‘Balance sheet view of trading and banking books’, on page 140, helps the reader understand the main categories of assets and liabilities subject to regulatory market risk measures.
Summary of performance in the period
The Group has seen a decrease in market risk from reduced risk positions, notably in equities and interest rates, in addition to risk reduction in Non-Core businesses:
§ | measures of traded market risk, such as VaR, decreased in the year mainly due to the removal of certain banking book assets from the measure (now reported as non-traded market risks), reduced client activity, and risk reduction in Non-Core businesses |
§ | average trading revenue, in contrast, increased 10% compared with the previous year |
§ | market risk RWAs fell from 2014 levels due to the implementation of diversification of the general and specific market risk VaR charges, partially offset by the inclusion of cost of funding RNIV into VaR |
§ | Annual Earnings at Risk (AEaR), a key measure of interest rate risk volatility in the banking book (IRRBB), decreased in 2015, primarily driven by PCB due to increased hedging; and in Treasury driven by increased exposure in the short dated available for sale bond portfolio, partially offset by reduced mismatch between assets and liabilities in the wholesale funding portfolio |
§ | other market risks, such as pension risk and insurance risk, are disclosed from page 146 onwards. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 139 |
Balance sheet view of trading and banking books
As defined by the regulatory rules, a trading book consists of positions held for trading intent or to hedge elements of the trading book. Trading intent must be evidenced in the basis of the strategies, policies and procedures set up by the firm to manage the position or portfolio. The table below provides a Group-wide overview of where assets and liabilities on the Group’s balance sheet are managed within regulatory traded and non-traded books.
The balance sheet split by trading book and banking books is shown on an IFRS scope of consolidation. The reconciliation between the accounting and regulatory scope of consolidation is shown in the Barclays PLC 2015 Pillar 3 Report. The reconciling items are all part of the banking book.
Balance sheet split by trading and banking books | ||||||||||||
As at 31 December 2015 |
| Banking book £m | a
|
| Trading book £m |
|
| Total £m |
| |||
Cash and balances at central banks | 49,711 | – | 49,711 | |||||||||
Items in course of collection from other banks | 1,011 | – | 1,011 | |||||||||
Trading portfolio assets | 3,355 | 73,993 | 77,348 | |||||||||
Financial assets designated at fair value | 25,263 | 51,567 | 76,830 | |||||||||
Derivative financial instruments | 296 | 327,413 | 327,709 | |||||||||
Available for sale financial investments | 90,267 | – | 90,267 | |||||||||
Loans and advances to banks | 39,779 | 1,570 | 41,349 | |||||||||
Loans and advances to customers | 380,406 | 18,811 | 399,217 | |||||||||
Reverse repurchase agreements and other similar secured lending | 28,187 | – | 28,187 | |||||||||
Prepayments, accrued income and other assets | 3,010 | – | 3,010 | |||||||||
Investments in associates and joint ventures | 573 | – | 573 | |||||||||
Property, plant and equipment | 3,468 | – | 3,468 | |||||||||
Goodwill and intangible assets | 8,222 | – | 8,222 | |||||||||
Current tax assets | 415 | – | 415 | |||||||||
Deferred tax assets | 4,495 | – | 4,495 | |||||||||
Retirement benefit assets | 836 | – | 836 | |||||||||
Non-current assets classified as held for disposal | 7,364 | – | 7,364 | |||||||||
Total assets | 646,658 | 473,354 | 1,120,012 | |||||||||
Deposits from banks | 45,344 | 1,736 | 47,080 | |||||||||
Items in course of collection due to other banks | 1,013 | – | 1,013 | |||||||||
Customer accounts | 401,927 | 16,315 | 418,242 | |||||||||
Repurchase agreements and other similar secured borrowing | 25,035 | – | 25,035 | |||||||||
Trading portfolio liabilities | – | 33,967 | 33,967 | |||||||||
Financial liabilities designated at fair value | 7,027 | 84,718 | 91,745 | |||||||||
Derivative financial instruments | 1,699 | 322,553 | 324,252 | |||||||||
Debt securities in issue | 69,150 | – | 69,150 | |||||||||
Subordinated liabilities | 21,467 | – | 21,467 | |||||||||
Accruals, deferred income and other liabilities | 10,610 | – | 10,610 | |||||||||
Provisions | 4,142 | – | 4,142 | |||||||||
Current tax liabilities | 903 | – | 903 | |||||||||
Deferred tax liabilities | 122 | – | 122 | |||||||||
Retirement benefit liabilities | 423 | – | 423 | |||||||||
Liabilities included in disposal groups classified as held for sale | 5,997 | – | 5,997 | |||||||||
Total liabilities | 594,859 | 459,289 | 1,054,148 |
Included within the trading book are assets and liabilities which are included in the market risk regulatory measures. For more information on these measures (VaR, SVaR, IRC and APR) see the risk management section on page 383.
Note
a | The primary risk factors for banking book assets and liabilities are interest rates and, to a lesser extent, foreign exchange rates. Credit spreads and equity prices will also be factors where the Group holds debt and equity securities respectively, either as financial assets designated at fair value (see Note 14) or as available for sale (see Note 16). |
140 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Market risk
Review of management measures
The following disclosures provide details on management measures of market risk. See the risk management section on page 383 for more detail on management measures and the differences when compared to regulatory measures.
The table below shows the Total management VaR on a diversified basis by risk factor. Total management VaR includes all trading positions in the Investment Bank, Non-Core, Africa Banking and Head Office.
Limits are applied against each risk factor VaR as well as Total management VaR, which are then cascaded further by risk managers to each business.
The daily average, maximum and minimum values of management VaR (audited) |
| |||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Management VaR (95%) | Average | High | a | Low | a | Average | High | a | Low | a | ||||||||||||||
For the year ended 31 December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Credit risk | 11 | 17 | 8 | 11 | 15 | 9 | ||||||||||||||||||
Interest rate risk | 6 | 14 | 4 | 11 | 17 | 6 | ||||||||||||||||||
Equity risk | 8 | 18 | 4 | 10 | 16 | 6 | ||||||||||||||||||
Basis risk | 3 | 4 | 2 | 4 | 8 | 2 | ||||||||||||||||||
Spread risk | 3 | 6 | 2 | 4 | 8 | 3 | ||||||||||||||||||
Foreign exchange risk | 3 | 6 | 1 | 4 | 23 | 1 | ||||||||||||||||||
Commodity risk | 2 | 3 | 1 | 2 | 8 | 1 | ||||||||||||||||||
Inflation risk | 3 | 5 | 2 | 2 | 4 | 2 | ||||||||||||||||||
Diversification effecta | (22 | ) | n/a | n/a | (26 | ) | n/a | n/a | ||||||||||||||||
Total management VaR | 17 | 25 | 12 | 22 | 36 | 17 |
Average interest rate VaR decreased by £5m to £6m (Dec 14: £11m) during 2015 as certain banking book positions were transferred from the Investment Bank to Head Office Treasury, reflecting the operational transfer of responsibility (see page 143). These positions are high quality and liquid banking book assets and are now reported as non-traded market risk exposures. Similarly, lower spread risk and basis risk VaR in 2015 reflect reduced risk taking.
Average equities risk VaR reduced by 20% to £8m, reflecting reduced cash portfolio activities and a more conservative risk profile maintained in the derivatives portfolio.
Average foreign exchange risk VaR decreased by 25% to £3m as a result of lower activity in the first half of the year, partially offset by higher volatility in the global foreign exchange market seen in the second half of the year.
Inflation risk VaR increased by £1m to £3m, primarily due to increased volatility in the inflation market.
Average commodity risk VaR remained stable at £2m, but the high levels reduced significantly year-on-year due to the portfolio having been largely divested, and reduced client flows impacted by lower oil prices.
Group management VaR | Daily trading revenue | |||
|
|
The chart above presents the frequency distribution of our daily trading revenues for all material positions included in VaR for 2015. This includes daily trading revenue generated in the Investment Bank (except for Private Equity and Principal Investments), Treasury, Africa Banking and Non-Core.
The basis of preparation for trading revenue was changed in 2015 to align better with and reflect the portfolio structure included in Group Management VaR. 2014 figures have been presented on a comparable basis. Disclosed trading revenue includes realised and unrealised mark to market gains and losses from intraday market moves but excludes commission and advisory fees. The trading revenue measure is based on actual trading results and holding periods. In contrast, the VaR shows the volatility of a hypothetical measure. To construct this measure, positions are assumed to be held for one day, and the aggregate unrealised gain or loss is the measure. VaR and the actual revenue figure are not directly comparable. VaR informs risk managers of the risk implications of current portfolio decisions.
Note
a | Diversification effects recognise that forecast losses from different assets or businesses are unlikely to occur concurrently, hence the expected aggregate loss is lower than the sum of the expected losses from each risk factor area. Historic correlations between losses are taken into account in making these assessments. The high and low VaR reported for each category did not necessarily occur on the same day as the high and low VaR reported as a whole. Consequently, diversification effect balances for the high and low VaR would not be meaningful and are therefore omitted from the above table. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 141 |
The average daily net revenue increased by 10% to £10.1m; there were more positive trading revenue days in 2015 than in 2014, with 85% (2014: 82%) of days generating positive trading revenue.
The daily VaR chart illustrates an average declining trend in 2015. Intermittent VaR increases were due to increased client flow in periods of heightened volatility in specific markets and subsequent risk management of the position.
As part of the Group’s risk management framework, on a regular basis the performance of the trading business in hypothetical scenarios characterised by severe macroeconomic conditions is modelled. Up to six global scenarios are modelled on a regular basis, for example, a sharp deterioration in liquidity, a slowdown in the global economy, terrorist attacks and a sovereign peripheral crisis.
Throughout 2015 the scenario analyses showed the biggest market risk related impact would be due to a severe deterioration in market liquidity and a sovereign peripheral crisis.
The following disclosures provide details on regulatory measures of market risk.
The Group’s market risk capital requirement comprises of two elements:
§ | trading book positions booked to legal entities within the scope of the Group’s PRA waiver where the market risk is measured under a PRA approved internal models approach, including Regulatory VaR, Stressed Value at Risk (SVaR), Incremental Risk Charge (IRC) and All Price Risk (APR) as required |
§ | trading book positions that do not meet the conditions for inclusion within the approved internal models approach. The capital requirement for these positions is calculated using standardised rules. |
The table below summarises the regulatory market risk measures under the internal models approach.
Analysis of Regulatory VaR, SVaR, IRC and APR | ||||||||||||||||
| Year end £m | | | Average £m | | | Max £m | | | Min £m | | |||||
As at 31 December 2015 | ||||||||||||||||
Regulatory VaR | 26 | 28 | 46 | 20 | ||||||||||||
SVaR | 44 | 54 | 68 | 38 | ||||||||||||
IRC | 129 | 142 | 254 | 59 | ||||||||||||
APR | 12 | 15 | 27 | 11 | ||||||||||||
As at 31 December 2014 | ||||||||||||||||
Regulatory VaR | 29 | 39 | 66 | 29 | ||||||||||||
SVaR | 72 | 74 | 105 | 53 | ||||||||||||
IRC | 80 | 118 | 287 | 58 | ||||||||||||
APR | 24 | 28 | 39 | 24 |
Overall, there was a lower risk profile during 2015:
§ | Regulatory VaR/SVaR:reduction in a Regulatory VaR/SVaR is driven by application of diversification to the general and specific market risk VaR charges which resulted in an overall RWA reduction |
§ | IRC:the IRC increase was mainly driven by the implementation of an updated IRC model in Q4 15 which features a more refined correlation structure, adoption of a continuous transition matrix and a local currency adjustment for sovereign issuance |
§ | APR:reduced as a result of further reductions in a specific legacy portfolio. |
Breakdown of the major regulatory risk measures by portfolio |
| |||||||||||||||||||||||||||
As at 31 December 2015 |
| Macro £m |
|
| Equities £m |
| | Credit £m | | | Client Capital Management | | | Treasury £m | | | Africa £m | | | Non-Core £m | | |||||||
Regulatory VaR | 10 | 8 | 5 | 12 | 4 | 4 | 3 | |||||||||||||||||||||
SVaR | 25 | 33 | 15 | 18 | 11 | 6 | 12 | |||||||||||||||||||||
IRC | 197 | 5 | 79 | 99 | 13 | – | 62 | |||||||||||||||||||||
APR | – | – | – | – | – | – | 12 |
The table above shows the primary portfolios which are driving the trading businesses’ modelled capital requirement as at 2015 year end. The standalone portfolio results diversify at the total level and are not necessarily additive. Regulatory VaR, SVaR, IRC and APR in the prior table show the diversified results at a group level.
142 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Market risk
Overview
The non-traded market risk framework covers exposures in the banking book, mostly consisting of exposures relating to accrual accounted and available for sale instruments. The potential volatility of the net interest income of the bank is measured by an Annual Earnings at Risk (AEaR) metric that is monitored regularly and reported to senior management and the Board Risk Committee as part of the limit monitoring framework.
Net interest income sensitivity
The table below shows a sensitivity analysis on pre-tax net interest income for the non-trading financial assets and financial liabilities including the effect of any hedging. The sensitivity has been measured using the Annual Earnings at Risk (AEaR) methodology. Note that this metric is simplistic in that it assumes a large parallel shock occurs instantaneously across all major currencies and ignores the impact of any management actions on customer products.
Net interest income sensitivity (AEaR) by business unit | ||||||||||||||||||||||||
| Personal & Corporate Banking £m | | | Barclaycard £m | | | Africa £m | |
| Non-Core £m | a
|
| Treasury £m | b
| | Total £m | | |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
+200bps | 305 | (31 | ) | 28 | 27 | (131 | ) | 198 | ||||||||||||||||
+100bps | 152 | (14 | ) | 14 | 14 | (63 | ) | 103 | ||||||||||||||||
-100bps | (385 | ) | 10 | (11 | ) | – | (26 | ) | (412 | ) | ||||||||||||||
-200bps | (433 | ) | 14 | (14 | ) | – | (36 | ) | (469 | ) | ||||||||||||||
As at 31 December 2014c | ||||||||||||||||||||||||
+200bps | 464 | (59 | ) | 26 | 6 | 14 | 451 | |||||||||||||||||
+100bps | 239 | (27 | ) | 13 | 3 | 10 | 238 | |||||||||||||||||
-100bps | (426 | ) | 26 | (9 | ) | (1 | ) | (29 | ) | (439 | ) | |||||||||||||
-200bps | (430 | ) | 29 | (17 | ) | (1 | ) | (39 | ) | (458 | ) |
Overall the NII sensitivity of the Group to sudden changes in interest rates has decreased. The main drivers of the change in NII sensitivities are:
§ | PCB:The reduction in NII sensitivity was due to increased hedging of certain deposit products exposure to interest rate changes |
§ | Barclaycard:The reduction in NII is due to a decrease in the period of time that the book can be repriced post a change in interest rates |
§ | Non-Core:The increase is predominantly due to a change in the hedge profile following the announced disposals in Europe |
§ | Treasury:The increase in NII sensitivity is primarily driven by an increased exposure in the short dated available for sale bond portfolio This results in a higher duration mismatch between assets and liabilities which an up-shock scenario creates a negative impact. In a down shock scenario the full benefit of this is not realised due to the rates being floored as zero, resulting in a net negative Nil impact from Treasury under these simple modelling assumptions. |
Net interest income sensitivity (AEaR) by currency (audited) | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December |
| +100 basis points £m |
|
| -100 basis points £m |
|
| +100 basis points £m |
|
| -100 basis points £m |
| ||||
GBP | 94 | (368 | ) | 184 | (406 | ) | ||||||||||
USD | (15 | ) | (30 | ) | (11 | ) | (11 | ) | ||||||||
EUR | (6 | ) | (8 | ) | 21 | 3 | ||||||||||
ZAR | 6 | (5 | ) | 10 | (8 | ) | ||||||||||
Other currencies | 24 | (1 | ) | 34 | (17 | ) | ||||||||||
Total | 103 | (412 | ) | 238 | (439 | ) | ||||||||||
As percentage of net interest income | 0.82 | % | (3.28 | )% | 1.97 | % | (3.63 | )% |
Notes
a | Only retail exposures within Non-Core are included in the calculation. |
b | Treasury includes both accrual and fair value accounted positions modelled with an appropriate holding period. It excludes hedge accounting ineffectiveness. Although hedge accounting ineffectiveness is recorded within net interest income, it is excluded in this analysis as it is driven by fair value movements rather than interest accruals. |
c | 2014 comparatives have been revised to reflect the inclusion of all Treasury banking books and the exclusion of hedge ineffectiveness. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 143 |
Economic Capital by business unit
Barclays measures some non-traded market risks using an economic capital (EC) methodology. EC is predominantly calculated using a daily VaR model and then scaled up to a one-year EC confidence interval (99.98%). For more information on definitions of prepayment, recruitment and residual risk, and on how EC is used to manage market risk, see the market risk management section on page 389.
Economic capital for non-trading risk by business unit | ||||||||||||||||||||
| Personal & Corporate Banking £m | | | Barclaycard £m | | | Africa Banking | |
| Non-Core £m | a
| | Total £m | | ||||||
As at 31 December 2015 | ||||||||||||||||||||
Prepayment risk | 35 | 7 | – | – | 42 | |||||||||||||||
Recruitment risk | 64 | 1 | – | 5 | 70 | |||||||||||||||
Residual risk | 7 | 2 | 126 | 5 | 140 | |||||||||||||||
Total | 106 | 10 | 126 | 10 | 252 | |||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||
Prepayment risk | 32 | 15 | – | – | 47 | |||||||||||||||
Recruitment risk | 148 | 1 | – | – | 149 | |||||||||||||||
Residual risk | 12 | 3 | 34 | 16 | 65 | |||||||||||||||
Total | 192 | 19 | 34 | 16 | 261 |
PCB recruitment risk:The reduction of EC for PCB is driven by lower levels of recruitment risk associated with hedging mismatch for savings and mortgage products as at 31 December 2015. The mortgage book in particular saw significant falls in recruitment risk due to lower levels of pre-hedging, particularly within mortgages of longer tenor.
Africa Banking residual risk: The significant changes in EC for Africa Banking are mainly due to the adoption of new behavioural assumptions for residual risk which went live on 1 January 2015.
Analysis of equity sensitivity
The table below measures the overall impact of a +/- 100bps movement in interest rates on available for sale and cash flow hedge reserves. This data is captured using PV01 which is an indicator of the shift in asset value for a 1 basis point shift in the yield curve. Note that the methodology used to estimate the impact of the negative movement applied a 0% floor to interest rates.
Analysis of equity sensitivity | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December |
| +100 basis points £m |
|
| -100 basis points £m |
|
| +100 basis points £m |
|
| -100 basis points £m |
| ||||
Net interest income | 103 | (412) | 238 | (439) | ||||||||||||
Taxation effects on the above | (31) | 124 | (57) | 105 | ||||||||||||
Effect on profit for the year | 72 | (288) | 181 | (334) | ||||||||||||
As percentage of net profit after tax | 11.56% | (46.23) | % | 21.42% | (39.53)% | |||||||||||
Effect on profit for the year (per above) | 72 | (288) | 181 | (334) | ||||||||||||
Available for sale reserve | (751) | 1,052 | (698) | 845 | ||||||||||||
Cash flow hedge reserve | (3,104) | 1,351 | (3,058) | 2,048 | ||||||||||||
Taxation effects on the above | 1,157 | (721) | 901 | (694) | ||||||||||||
Effect on equity | (2,626) | 1,394 | (2,674) | 1,865 | ||||||||||||
As percentage of equity | (3.99) | % | 2.12% | (4.05) | % | 2.83% |
As discussed in relation to the net interest income sensitivity table on page 143, the impact of a 100bps movement in rates is largely driven by PCB and Treasury. The available for sale reserve change in sensitivity was mainly driven by changes in portfolio composition, primarily due to an increase in available for sale assets held on a shorter dated outright basis. Note that the movement in the available for sale reserve would impact CRD IV fully loaded Common Equity Tier 1 (CET1) capital but the movement in the cash flow hedge reserve would not impact CET1 capital.
Note
a | Only the retail exposures within Non-Core are captured in the measure. |
144 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Market risk
Volatility of the available for sale portfolio in the liquidity pool
Changes in value of the available for sale exposures flow directly through capital via the equity reserve. The volatility of the value of the available for sale investments in the liquidity pool is captured and managed through a value measure rather than an earning measure, i.e. the non-traded market risk VaR.
Although the underlying methodology to calculate the non-traded VaR is the same as the one used to calculate traded management VaR, the two measures are not directly comparable. The non-traded VaR represents the volatility to capital driven by the available for sale exposures. This is used for internal management purposes and although it is not formally backtested like the regulatory VaR (as shown on page 142), it is reviewed on a regular basis by risk managers to ensure it remains adequate for risk appetite and monitoring purposes.
These exposures are in the banking book and do not meet the criteria for trading book treatment. As such available for sale volatility is a risk which is taken into account in the IRRBB internal capital assessment, which is covered by the Pillar 2 capital framework.
Volatility of the Available for sale portfolio in liquidity pool
Analysis of volatility of the available for sale portfolio in liquidity pool | ||||||||||||
2015 | ||||||||||||
For the year ended 31 December | | Average £m | | | High £m | | | Low £m | | |||
Non-traded market VaR (daily, 95%) | 41.6 | 48.5 | 37.0 |
The non-traded VaR is mainly driven by volatility of interest rates in developed markets in the chart above.
The increase in VaR seen in H215 is due to the volatility in the government and swap rate markets observed in that period, particularly in the US and the UK. The subsequent decrease was due to subsiding market volatility in combination with a reduction in exposure.
The Group is exposed to two sources of foreign exchange risk.
a) Transactional foreign currency exposure
Transactional foreign exchange exposure represents exposure on banking assets and liabilities denominated in currencies other than the functional currency of the transacting entity.
The Group’s risk management policies prevent the holding of significant open positions in foreign currencies outside the trading portfolio managed by the Investment Bank which is monitored through VaR.
Banking book transactional foreign exchange risk outside of the Investment Bank is monitored on a daily basis by the market risk functions and minimised by the businesses.
b) Translational foreign exchange exposure
The Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies, principally USD, EUR and ZAR. Changes in the GBP value of the net investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET1 capital.
The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by ensuring that the CET1 capital movements broadly match the revaluation of the Group’s foreign currency RWA exposures.
The economic hedges primarily represent the USD and EUR preference shares and Additional Tier 1 (AT1) instruments that are held as equity, which are accounted for at historic cost under IFRS and do not qualify as hedges for accounting purposes.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 145 |
Functional currency of operations (audited) | ||||||||||||||||||||||||
| Foreign currency net investments £m |
|
| Borrowings which hedge the net investments £m |
|
| Derivatives which hedge the net investments £m |
|
| Structural currency exposures pre-economic hedges £m |
|
| Economic hedges £m |
|
| Remaining structural currency exposures £m |
| |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
USD | 24,712 | 8,839 | 1,158 | 14,715 | 7,008 | 7,707 | ||||||||||||||||||
EUR | 2,002 | 630 | 14 | 1,358 | 1,764 | (406 | ) | |||||||||||||||||
ZAR | 3,201 | 4 | 99 | 3,098 | – | 3,098 | ||||||||||||||||||
JPY | 383 | 168 | 205 | 10 | – | 10 | ||||||||||||||||||
Other | 2,927 | – | 1,294 | 1,633 | – | 1,633 | ||||||||||||||||||
Total | 33,225 | 9,641 | 2,770 | �� | 20,814 | 8,772 | 12,042 | |||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
USD | 23,728 | 5,270 | 1,012 | 17,446 | 6,655 | 10,791 | ||||||||||||||||||
EUR | 3,056 | 328 | 238 | 2,490 | 1,871 | 619 | ||||||||||||||||||
ZAR | 3,863 | – | 103 | 3,760 | – | 3,760 | ||||||||||||||||||
JPY | 364 | 164 | 208 | (8 | ) | – | (8 | ) | ||||||||||||||||
Other | 2,739 | – | 1,198 | 1,541 | – | 1,541 | ||||||||||||||||||
Total | 33,750 | 5,762 | 2,759 | 25,229 | 8,526 | 16,703 |
During 2015, total structural currency exposure net of hedging instruments decreased by £4.7bn to £12.0bn (2014: £16.7bn). The decrease is broadly in line with the overall RWA currency profile, with a reduction in USD RWAs in the year. Foreign currency net investments remained stable at £33.2bn (2014: £33.8bn).
The UK Retirement Fund (UKRF) represents approximately 92% (2014: 92%) of the Group’s total retirement benefit obligations globally. The other material overseas schemes are in South Africa and in the US and they represent approximately 4% (2014: 4%) and 2% (2014: 2%) respectively of the Group’s total retirement benefit obligations. As such, this risk review section focuses exclusively on the UKRF. Note that the scheme is closed to new entrants.
Pension risk arises as the estimated market value of the pension fund assets might decline, or the investment returns might reduce; or the estimated value of the pension liabilities might increase.
See page 390 for more information on how pension risk is managed.
Assets
The Board of Trustees defines an overall long term investment strategy for the UKRF, with investments across a broad range of asset classes. This ensures an appropriate mix of return seeking assets to generate future returns as well as liability matching assets to better match the future pension obligations. The main market risks within the asset portfolio are due to movements in interest rates and equities, as shown by the analysis of scheme assets within Note 35 Pensions and retirement benefits.
The fair value of the UKRF plan assets was £26.8bn. See Note 35 Pensions and retirement benefits.
146 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Market risk
Liabilities
The retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS 19 basis these cash flows are sensitive to changes in the expected long term inflation rate and the discount rate (AA corporate bond yield curve):
§ | an increase in long term inflation corresponds to an increase in liabilities |
§ | an increase in the discount rate corresponds to a decrease in liabilities. |
Pension risk is generated through the Group’s defined benefit schemes and this risk is set to reduce over time as our main defined benefit schemes are closed to new entrants, and in many cases closed to future accruals. The chart below outlines the shape of the UKRF’s liability cash flow profile that takes account of future inflation indexing of payments to beneficiaries, with the majority of the cash flows (approximately 83%) falling between 0 and 40 years, peaking within the 21 to 30 year band and reducing thereafter. The shape may vary depending on changes in inflation expectation and mortality and it is updated in line with the triennial valuation process.
For more detail on liability assumptions see Note 35 to the financial statements.
Proportion of the IAS 19 liability cash flows
Risk measurement
In line with Barclays risk management framework, the assets and liabilities of the UKRF are modelled within a VaR framework to show the volatility of the pension positions on a total portfolio level. This ensures that the risks, diversification and liability matching characteristics of the UKRF obligations and investments are adequately captured. VaR is measured and monitored on a monthly basis. It is discussed at pension risk fora such as the Market Risk Committee, Pensions Management Group and Pension Executive Board. The VaR model takes into account the valuation of the liabilities following an IAS 19 basis (see Note 35 Pension and post-retirement benefits in the financial statements). The trustees receive quarterly VaR measures on a funding basis.
The pension liability is also sensitive to post-retirement mortality assumptions (see Note 35).
In addition to this, the impact of pension risk to the Group is taken into account as part of the stress testing process. Stress testing is performed internally at least on an annual basis. The UKRF exposure is also included as part of the regulatory stress tests and exercises indicated that the UKRF risk profile is resilient to severe stress events.
The defined benefit pension scheme affects capital in two ways. An IAS 19 deficit impacts the CET1 capital ratio, and pension risk is also taken into account in the Pillar 2A capital assessment.
Triennial valuation
Please see Note 35 Pensions and retirement benefits for information on the funding position of the UKRF.
Insurance risk is managed within Africa Banking primarily in the Wealth, Investment Management & Insurance (WIMI) portfolios and is reported across four significant categories. Please see page 138 of the Barclays PLC 2015 Pillar 3 Report for more information on the definitions and governance procedure.
The risk types below mainly determine the regulatory capital requirements. The year-on-year decrease in risk appetite was agreed as part of the medium-term planning process.
Analysis of insurance riska | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December | | Position £m | | | Appetite £m | | | Position £m | | | Appetite £m | | ||||
Short term insurance underwriting risk | 30 | 32 | 40 | 44 | ||||||||||||
Life insurance underwriting risk | 17 | 20 | 21 | 28 | ||||||||||||
Life insurance mismatch risk | 12 | 20 | 16 | 40 | ||||||||||||
Life and short-term insurance investment risk | 11 | 18 | 12 | 14 |
In 2015, the largest year-on-year movement was in short-term insurance underwriting risk where the reduction in the position reflected the closure of the Agriculture book to new insurance business.
For mismatch risk, the 2015 Appetite was materially lower than the 2014 Appetite as the level of mismatch between policyholder assets and policyholder liabilities decreased following the adoption of improved reserving methodologies and sign off by the independent statutory actuary function. As a result, while 2015 Position has reduced in absolute terms, the utilisation against appetite has increased.
From 2016 onwards, the methodology for assessment of Insurance Risk will change from a CAR-based approach to a Solvency Assessment and Management (SAM) based approach (the Solvency II equivalent) which is considered to be a more robust risk management approach with well-developed methodologies.
Note
a | The figures in the table are reported using Capital Adequacy Requirement (CAR) approach. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 147 |
Risk review
Risk performance
Analysis of capital risk
Capital risk is the risk that the Group has insufficient capital resources, which could lead to: (i) a failure to meet regulatory requirements; (ii) a change to credit rating; or (iii) an inability to support business activity and growth.
This section details Barclays’ capital position providing information on both capital resources and capital requirements. It also provides detail of the leverage ratio and exposures.
Key metrics
11.4% fully loaded
Common Equity Tier 1 ratio
RWAs decreased by £44bn to £358bn. Non-Core RWAs decreased £29bn to £47bn as a result of the sale of the Spanish business and the rundown of legacy structured and credit products. Investment Bank RWAs decreased by £14bn to £108bn mainly due to a reduction in securities and derivatives, and improved RWA efficiency.
CET1 capital decreased £0.7bn to £40.7bn after absorbing adjusting items and dividends paid and foreseen.
4.5% leverage ratio
The leverage ratio increased significantly to 4.5% (2014: 3.7%) driven by a reduction in the leverage exposure of £205bn to £1,028bn predominantly due to the rundown in Non-Core of £156bn to £121bn.
148 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – Capital
Capital risk is the risk that the Group has insufficient capital resources to:
§ | meet minimum regulatory requirements in the UK and in other jurisdictions such as the US and South Africa where regulated activities are undertaken. The Group’s authority to operate as a bank is dependent upon the maintenance of adequate capital resources at each level where prudential capital requirements are applied |
§ | support its credit rating. A weaker credit rating would increase the Group’s cost of funds and |
§ | support its growth and strategic options. |
More details on monitoring and managing capital risk may be found in the Risk Management sections on pages 103 to 104.
All disclosures in this section (pages 149 to 153) are unaudited unless otherwise stated.
The fully loaded CRD IV CET1 ratio, among other metrics, is a measure of the capital strength and resilience of Barclays. Maintenance of our capital is vital in order to meet the minimum capital requirements of regulatory authorities and to fund growth within our businesses.
This section provides an overview of the Group’s: i) regulatory minimum capital and leverage requirements; ii) capital resources; iii) risk weighted assets (RWAs); and iv) leverage ratio and exposures.
Summary of performance in the period
Barclays continues to be in excess of minimum CRD IV transitional and fully loaded capital ratios and PRA capital and leverage ratios.
The fully loaded CRD IV CET1 ratio increased to 11.4% (2014: 10.3%) driven by a £43.5bn reduction in RWAs to £358.4bn partially offset by a decrease in fully loaded CRD IV CET1 capital of £0.7bn to £40.7bn.
The RWA reduction was primarily driven by a £29bn decrease in the Non-Core RWAs to £47bn as a result of the sale of the Spanish business and a rundown of legacy structured and credit products. Investment Bank RWAs decreased £14bn to £108bn mainly due to a reduction in securities and derivatives, and improved RWA efficiency.
CET1 capital decreased £0.7bn to £40.7bn after absorbing adjusting items and dividends paid and foreseen.
The leverage ratio increased significantly to 4.5% (2014: 3.7%), driven by a reduction in the leverage exposure to £1,028bn (2014: £1,233bn). This was predominantly due to the rundown of the Non-Core business of £156bn to £121bn.
Regulatory minimum capital and leverage requirements
Capital – Fully loaded
Barclays’ current regulatory requirement is to meet a fully loaded CRD IV CET1 ratio of 9% by 2019, plus a Pillar 2A add-on. The 9% comprises the required 4.5% minimum CET1 ratio and, phased in from 2016, a Combined Buffer Requirement made up of a Capital Conservation Buffer (CCB) of 2.5% and a Globally Systemically Important Institution (G-SII) buffer of 2%.
Barclays’ Pillar 2A requirement as per the PRA’s Individual Capital Guidance (ICG) is subject to review at least annually. Under current PRA guidance, the Pillar 2A add-on for 2016, will be 3.9% of which 56% will need to be met in CET1 form, equating to approximately 2.2% of RWAs. Basel Committee consultations and reviews might further impact the Pillar 2A requirement in the future.
In addition, a Counter-Cyclical Capital Buffer (CCCB) and/or additional Sectoral Capital Requirements (SCR) may be required by the BoE to protect against perceived threats to financial stability. These buffers could be applied at the Group level or at a legal entity, sub-consolidated or portfolio level. No SCR has been set to date by the BoE, while the CCCB is currently 0% for UK exposures. Other national authorities determine the appropriate CCCBs that should be applied to exposures in their jurisdiction. During 2016, CCCBs will start to apply for our exposures in Hong Kong, Norway and Sweden. Based on current exposures we do not expect this to be material.
Capital – Transitional
On a transitional basis, the PRA has implemented a minimum requirement CET1 ratio of 4%, Tier 1 ratio of 5.5% and Total Capital ratio of 8%.
From 1 January 2015, the transitional capital ratios are equal to the fully loaded ratios following the PRA’s acceleration of transitional provisions relating to CET1 deductions and filters. The adjustment relating to unrealised gains on available for sale debt and equity that was applied throughout 2014 as an exception no longer applies.
Grandfathering limits on capital instruments, previously qualifying as Tier 1 and Tier 2, are unchanged under the PRA transitional rules.
Leverage
In addition to the Group’s capital requirements, minimum ratios have also been set in respect of leverage. The leverage ratio applicable to the Group has been calculated in accordance with the requirements of the EU Capital Requirements Regulation (CRR) which was amended effective from January 2015. The leverage calculation uses the end-point CRR definition of Tier 1 capital for the numerator and the CRR definition of leverage exposure. During 2015 Barclays was measured against the PRA leverage ratio requirement of 3%.
In December 2015, the PRA finalised the UK leverage ratio framework in which it adopted the FPC’s recommendations on leverage ratio requirements. These recommendations have been finalised in the Supervisory Statement SS45/15 and have been incorporated as part of the updated PRA rulebook, effective January 2016. This would result in a fully phased in leverage ratio requirement of 3.7% for Barclays. The minimum requirement would increase in the event that Barclays was subject to: (i) an increased CCCB; and/or (ii) Barclays was reclassified into a higher G-SII category. Furthermore from January 2016, firms are required to report quarterly leverage ratio information, including an average ratio.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 149 |
The CRR and Capital Requirements Directive (CRD) implemented Basel III within the EU (collectively known as CRD IV) on 1 January 2014. The rules are supplemented by Regulatory Technical Standards and the PRA’s rulebook, including the implementation of transitional rules. However, rules and guidance are still subject to change as certain aspects of CRD IV are dependent on final technical standards and clarifications to be issued by the EBA and adopted by the European Commission and the PRA. All capital, RWA and leverage calculations reflect Barclays’ interpretation of the current rules.
Key capital ratios | ||||||
As at 31 December | 2015 | 2014 | ||||
Fully Loaded CET1 | 11.4% | 10.3% | ||||
PRA Transitional CET1a | 11.4% | 10.2% | ||||
PRA Transitional Tier 1b,c | 14.7% | 13.0% | ||||
PRA Transitional Total Capitalb,c | 18.6% | 16.5% | ||||
Capital resources (audited) | ||||||
As at 31 December |
| 2015 £m |
| 2014 £m | ||
Shareholders’ equity (excluding non-controlling interests) per the balance sheet | 59,810 | 59,567 | ||||
Less: other equity instruments (recognised as AT1 capital) | (5,305) | (4,322) | ||||
Adjustment to retained earnings for foreseeable dividends | (631) | (615) | ||||
Minority interests (amount allowed in consolidated CET1) | 950 | 1,227 | ||||
Other regulatory adjustments and deductions | ||||||
Additional value adjustments (PVA) | (1,602) | (2,199) | ||||
Goodwill and intangible assets | (8,234) | (8,127) | ||||
Deferred tax assets that rely on future profitability excluding temporary differences | (855) | (1,080) | ||||
Fair value reserves related to gains or losses on cash flow hedges | (1,231) | (1,814) | ||||
Excess of expected losses over impairment | (1,365) | (1,772) | ||||
Gains or losses on liabilities at fair value resulting from own credit | 127 | 658 | ||||
Defined benefit pension fund assets | (689) | – | ||||
Direct and indirect holdings by an institution of own CET1 instruments | (57) | (25) | ||||
Other regulatory adjustments | (177) | (45) | ||||
Fully loaded CET1 capital | 40,741 | 41,453 | ||||
Regulatory adjustments relating to unrealised gains | – | (583) | ||||
PRA transitional CET1 capital | 40,741 | 40,870 | ||||
Additional Tier 1 (AT1) capital | ||||||
Capital instruments and the related share premium accounts | 5,305 | 4,322 | ||||
Qualifying AT1 capital (including minority interests) issued by subsidiaries | 6,718 | 6,870 | ||||
Other regulatory adjustments and deductions | (130) | – | ||||
Transitional AT1 capitald | 11,893 | 11,192 | ||||
PRA transitional Tier 1 capital | 52,634 | 52,062 | ||||
Tier 2 capital | ||||||
Capital instruments and the related share premium accounts | 1,757 | 800 | ||||
Qualifying Tier 2 capital (including minority interests) issued by subsidiaries | 12,389 | 13,529 | ||||
Other regulatory adjustments and deductions | (253) | (48) | ||||
PRA transitional total regulatory capital | 66,527 | 66,343 |
Notes
a | The CRD IV CET1 ratio (FSA October 2012 transitional statement) as applicable to Barclays’ Tier 2 Contingent Capital Notes was 13.1% based on £46.8bn of transitional CRD IV CET1 capital and £358bn RWAs. The transitional CET1 ratio according to the FSA October 2012 transitional statement would be 13.1%. This is calculated as CET1 capital as adjusted for the transitional relief (£46.8bn), divided by CRD IV RWAs. The following transitional relief items are added back to CET1 capital: Goodwill and Intangibles (£4.9bn), Deferred tax asset (£0.5bn), Debt valuation adjustment (£0.1bn), Expected losses over impairment (£0.8bn) and Excess minority interest (£0.2bn), partially offset by the defined benefit pension adjustment of £0.5bn. |
b | The PRA transitional capital is based on the PRA Rulebook and accompanying supervisory statements. |
c | As at 31 December 2015, Barclays’ fully loaded Tier 1 capital was £46,173m, and the fully loaded Tier 1 ratio was 12.9%. Fully loaded total regulatory capital was £62,103m and the fully loaded total capital ratio was 17.3%. The fully loaded Tier 1 capital and total capital measures are calculated without applying the transitional provisions set out in CRD IV and assessing compliance of AT1 and Tier 2 instruments against the relevant criteria in CRD IV. |
d | Of the £11.9bn transitional AT1 capital, fully loaded AT1 capital used for the leverage ratio comprises the £5.3bn capital instruments and related share premium accounts, £0.3bn qualifying minority interests and £0.1bn capital deductions. It excludes legacy Tier 1 capital instruments issued by subsidiaries that are subject to grandfathering. |
150 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – Capital
Movement in CET1 capital | ||
2015 £m | ||
Opening balance as at 1 January | 41,453 | |
Loss for the period attributable to equity holders | (49) | |
Own credit | (531) | |
Dividends paid and foreseen | (1,372) | |
Decrease in regulatory capital generated from earnings | (1,952) | |
Net impact of share awards | 609 | |
Available for sale reserves | (245) | |
Currency translation reserves | (41) | |
Other reserves | 9 | |
Increase in other qualifying reserves | 332 | |
Retirement benefit reserve | 916 | |
Defined benefit pension fund asset deduction | (689) | |
Net impact of pensions | 227 | |
Minority interests | (277) | |
Additional value adjustments (PVA) | 597 | |
Goodwill and intangible assets | (107) | |
Deferred tax assets that rely on future profitability excluding those arising from temporary differences | 225 | |
Excess of expected loss over impairment | 407 | |
Direct and indirect holdings by an institution of own CET1 instruments | (32) | |
Other regulatory adjustments | (132) | |
Decrease in regulatory adjustments and deductions | 681 | |
Closing balance as at 31 December | 40,741 |
§ | During 2015, the fully loaded CET1 ratio increased to 11.4% (2014: 10.3%) driven by a significant reduction in RWAs. |
§ | CET1 capital decreased by £0.7bn to £40.7bn, after absorbing adjusting items, with the following significant movements: |
– | a £1.4bn reduction for dividends paid and foreseen |
– | a £0.2bn net increase as the retirement benefit reserve increased £0.9bn, offset by £0.7bn pension asset deduction |
– | a £0.7bn increase due to lower regulatory deductions and adjustments including a £0.6bn decrease in PVA, a £0.4bn decrease in expected losses due to the sale of the Spanish business and disposals across the Investment Bank, partially offset by a £0.3bn decrease in eligible minority interests. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 151 |
Risk weighted assets (RWAs) by risk type and business | ||||||||||||||||||||||||||||||||
Credit risk | Counterparty credit riska | Market riskb | | Operational risk | | Total RWAs | ||||||||||||||||||||||||||
| Std £m |
|
| IRB £m |
|
| Std £m |
|
| IRB £m |
|
| Std £m |
|
| IMA £m |
| £m | £m | |||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Personal & Corporate Banking | 31,506 | 71,352 | 242 | 1,122 | 30 | – | 16,176 | 120,428 | ||||||||||||||||||||||||
Barclaycard | 17,988 | 17,852 | – | – | – | – | 5,505 | 41,345 | ||||||||||||||||||||||||
Africa Banking | 8,556 | 17,698 | 22 | 487 | 885 | 682 | 5,604 | 33,934 | ||||||||||||||||||||||||
Investment Bank | 4,808 | 39,414 | 11,020 | 10,132 | 9,626 | 13,713 | 19,620 | 108,333 | ||||||||||||||||||||||||
Head Office and Other Operations | 1,513 | 2,763 | 32 | 59 | 48 | 1,230 | 2,104 | 7,749 | ||||||||||||||||||||||||
Total Core | 64,371 | 149,079 | 11,316 | 11,800 | 10,589 | 15,625 | 49,009 | 311,789 | ||||||||||||||||||||||||
Barclays Non-Core | 5,078 | 11,912 | 1,397 | 9,231 | 679 | 10,639 | 7,651 | 46,587 | ||||||||||||||||||||||||
Total risk weighted assets | 69,449 | 160,991 | 12,713 | 21,031 | 11,268 | 26,264 | 56,660 | 358,376 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Personal & Corporate Banking | 32,657 | 70,080 | 238 | 1,049 | 26 | – | 16,176 | 120,226 | ||||||||||||||||||||||||
Barclaycard | 15,910 | 18,492 | – | – | – | – | 5,505 | 39,907 | ||||||||||||||||||||||||
Africa Banking | 9,015 | 21,794 | 10 | 562 | 948 | 588 | 5,604 | 38,521 | ||||||||||||||||||||||||
Investment Bank | 5,773 | 36,829 | 13,739 | 11,781 | 18,179 | 16,480 | 19,621 | 122,402 | ||||||||||||||||||||||||
Head Office and Other Operations | 506 | 2,912 | 234 | 62 | 7 | 521 | 1,326 | 5,568 | ||||||||||||||||||||||||
Total Core | 63,861 | 150,107 | 14,221 | 13,454 | 19,160 | 17,589 | 48,232 | 326,624 | ||||||||||||||||||||||||
Barclays Non-Core | 10,679 | 19,416 | 3,023 | 18,406 | 2,236 | 13,088 | 8,428 | 75,276 | ||||||||||||||||||||||||
Total risk weighted assets | 74,540 | 169,523 | 17,244 | 31,860 | 21,396 | 30,677 | 56,660 | 401,900 | ||||||||||||||||||||||||
Movement analysis of risk weighted assets | ||||||||||||||||||||||||||||||||
Risk weighted assets | | Credit risk £bn | |
| Counterparty credit risk £bn | a
|
| Market risk £bn | b
|
| Operational risk £bn |
| | Total RWAs £bn | | |||||||||||||||||
As at 1 January 2015 | 244.0 | 49.1 | 52.1 | 56.7 | 401.9 | |||||||||||||||||||||||||||
Book size | 8.3 | (10.6 | ) | (9.5 | ) | – | (11.8 | ) | ||||||||||||||||||||||||
Acquisitions and disposals | (14.2 | ) | – | (0.4 | ) | – | (14.6 | ) | ||||||||||||||||||||||||
Book quality | 0.1 | (1.7 | ) | 0.7 | – | (0.9 | ) | |||||||||||||||||||||||||
Model updates | (2.1 | ) | (1.1 | ) | (2.7 | ) | – | (5.9 | ) | |||||||||||||||||||||||
Methodology and policy | 2.3 | (1.9 | ) | (2.6 | ) | – | (2.2 | ) | ||||||||||||||||||||||||
Foreign exchange movementc | (8.0 | ) | (0.1 | ) | – | – | (8.1 | ) | ||||||||||||||||||||||||
Other | – | – | – | – | – | |||||||||||||||||||||||||||
As at 31 December 2015 | 230.4 | 33.7 | 37.6 | 56.7 | 358.4 |
RWAs decreased £43.5bn to £358.4bn, driven by:
§ | Book size: RWAs decreased £11.8bn primarily due to a reduction in holdings of US bonds and equities and a reduction in derivatives and securities financing transactions. This was partially offset by a growth in corporate lending, particularly in Africa and the UK |
§ | Acquisitions and disposals: RWAs decreased £14.6bn primarily due to disposals in Non-Core, including the sale of the Spanish business |
§ | Model updates: RWAs decreased £5.9bn primarily due to implementation of diversification benefits across advanced general and specific market risk, as well as a recalibration of a credit risk model within the Investment Bank and Non-Core |
§ | Methodology and policy: RWAs decreased £2.2bn primarily due to the implementation of collateral modelling for mismatched FX collateral, and a transfer of securities financing transactions in certain businesses from the banking book to trading book, enabling further collateral offset |
§ | Foreign exchange movements decreased RWAs by £8.1bn primarily due to depreciation of ZAR against GBP. |
Notes
a | RWAs in relation to default fund contributions are included in counterparty credit risk. |
b | RWAs in relation to credit valuation adjustment (CVA) are included in market risk. |
c | Foreign exchange movement does not include FX for modelled counterparty risk or modelled market risk. |
152 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – Capital
The leverage ratio applicable to the Group has been calculated in accordance with the requirements of the CRR which was amended effective from January 2015. The leverage calculation below uses the end point CRR definition of Tier 1 capital for the numerator and the CRR definition of leverage exposure.
At 31 December 2015, Barclays’ leverage ratio was 4.5%, which exceeds the expected end point minimum requirement of 3.7% as outlined by the PRA Supervisory Statement SS45/15 and the updated PRA rulebook, comprising of the 3% minimum requirement, and the fully phased in G-SII buffer.
Leverage exposure | ||||||||
| As at 31.12.15 £bn |
|
| As at 31.12.14 £bn | a
| |||
Accounting assets | ||||||||
Derivative financial instruments | 328 | 440 | ||||||
Cash collateral | 62 | 73 | ||||||
Reverse repurchase agreements and other similar secured lending | 28 | 132 | ||||||
Financial assets designated at fair valueb | 77 | 38 | ||||||
Loans and advances and other assets | 625 | 675 | ||||||
Total IFRS assets | 1,120 | 1,358 | ||||||
Regulatory consolidation adjustments | (10 | ) | (8 | ) | ||||
Derivatives adjustments | ||||||||
Derivatives netting | (293 | ) | (395 | ) | ||||
Adjustments to cash collateral | (46 | ) | (53 | ) | ||||
Net written credit protection | 15 | 27 | ||||||
Potential Future Exposure (PFE) on derivatives | 129 | 179 | ||||||
Total derivatives adjustments | (195 | ) | (242 | ) | ||||
Securities financing transactions (SFTs) adjustments | 16 | 25 | ||||||
Regulatory deductions and other adjustments | (14 | ) | (15 | ) | ||||
Weighted off-balance sheet commitments | 111 | 115 | ||||||
Total fully loaded leverage exposure | 1,028 | 1,233 | ||||||
Fully loaded CET1 capital | 40.7 | 41.5 | ||||||
Fully loaded AT1 capital | 5.4 | 4.6 | ||||||
Fully loaded Tier 1 capital | 46.2 | 46.0 | ||||||
Fully loaded leverage ratio | 4.5% | 3.7% |
§ | During 2015 the leverage ratio increased significantly to 4.5% (2014: 3.7%) driven by a reduction in the leverage exposure of £205bn to £1,028bn. |
§ | Total derivative exposurescdecreased £76bn to £195bn: |
– | PFE decreased £50bn to £129bn, mainly as a result of continued Non-Core rundown and optimisations including trade compressions and tear-ups |
– | other derivative assets decreased £14bn to £51bn, driven by a net decrease in IFRS derivatives. The decrease was mainly within interest rate and foreign exchange derivatives due to net trade reduction and an increase in major interest forward curves |
– | net written credit protection decreased £12bn to £15bn due to a reduction in business activity and improved portfolio netting. |
§ | Taken together, reverse repurchase agreements and other similar secured lending and financial assets designated at fair value decreased £65bn to £105bn, reflecting a reduction in matched book trading and general firm financing due to balance sheet deleveraging. |
§ | Loans and advances and other assets decreased £50bn to £625bn driven by £37bn reduction in trading portfolio assets primarily due to Non-Core rundown, a reduction in trading activities in the Investment Bank, as well as a £10bn decrease in settlement balances and a £5bn decrease in Africa reflecting the depreciation of ZAR against GBP. This was partially offset by lending growth of £3bn in Barclaycard. |
§ | SFT adjustments decreased by £9bn to £16bn due to maturity of trades and a reduction in trading volumes. |
Notes
a | 2014 comparatives have been prepared on a BCBS 270 basis. Barclays does not believe that there is a material difference between the BCBS 270 leverage exposure and a leverage exposure calculated in accordance with the EU delegated act. |
b | Included within financial assets designated at fair value are reverse repurchase agreements designated at fair value of £50bn (2014: £5bn). |
c | Total derivative exposures includes IFRS derivative financial instruments, cash collateral and total derivative adjustments. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 153 |
Risk review
Risk performance
Analysis of liquidity risk
Liquidity risk is the risk that a firm, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.
This section details the Group’s liquidity risk profile and provides information on the way the Group manages that risk.
Key metrics
133% LCR
The Group strengthened its liquidity position during the year, increasing its surplus to internal and regulatory requirements.
£9bn Term Issuance
The Group maintains access to stable and diverse sources of funding across customer deposits and wholesale debt.
154 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Liquidity risk is the risk that the Group, although solvent, either does not have sufficient financial resources available to meet its obligations as they fall due, or can secure such resources only at excessive cost. This also results in a firm’s inability to meet regulatory liquidity requirements. This risk is inherent in all banking operations and can be affected by a range of Group-specific and market-wide events.
All disclosures in this section (pages 155 to 171) are unaudited and exclude BAGL unless otherwise stated.
The Group has a comprehensive Key Risk Control Framework for managing the Group’s liquidity risk. The Liquidity Framework meets the PRA’s standards and is designed to ensure the Group maintains liquidity resources that are sufficient in amount and quality, and a funding profile that is appropriate to meet the liquidity risk appetite. The Liquidity Framework is delivered via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring.
Liquidity risk is managed separately at Barclays Africa Group Limited (BAGL) due to local currency and funding requirements. Unless stated otherwise, all disclosures in this section exclude BAGL and they are reported on a stand-alone basis. Adjusting for local requirements, BAGL liquidity risk is managed on a consistent basis to the Group.
This section provides an analysis of the Group’s: i) liquidity risk stress testing; ii) internal and regulatory stress tests; iii) liquidity pool; iv) funding structure and funding relationships; v) wholesale funding; vi) term financing; vii) encumbrance; viii) repurchase agreements; ix) credit ratings; x) liquidity management at BAGL and xi) contractual maturity of financial assets and liabilities.
For further detail on liquidity risk governance and framework see page 105.
Summary of performance in the period
The Group maintained a surplus to its internal and regulatory requirements in 2015. The liquidity pool was £145bn (2014: £149bn) and Liquidity Coverage Ratio (LCR) was 133% (2014: 124%), equivalent to a surplus of £37bn (2014: £30bn). While the liquidity pool may reduce in future, the Group intends to continue to maintain a prudent surplus to regulatory requirements.
Wholesale funding outstanding excluding repurchase agreements reduced to £142bn (2014: £171bn). The Group issued £9bn of term funding net of early redemptions during 2015, of which £4bn was in public and private senior unsecured debt issued by the holding company, Barclays PLC. During Q415, Barclays PLC also issued EUR Tier 2 securities of £1bn equivalent. All the capital and debt proceeds raised by Barclays PLC have been used to subscribe for instruments at Barclays Bank PLC, the operating company with a ranking corresponding to the securities issued by Barclays PLC.
Under the Liquidity Framework, the Group has established a Liquidity Risk Appetite (LRA) together with the appropriate limits for the management of the liquidity risk. This is the level of liquidity risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The key expression of the liquidity risk is through internal stress tests. It is measured with reference to the liquidity pool compared to anticipated stressed net contractual and contingent outflows for each of three stress scenarios.
Liquidity Risk Appetite
As part of the LRA, the Group runs three primary liquidity stress scenarios, aligned to the PRA’s prescribed stresses:
§ | a 90-day market-wide stress event |
§ | a 30-day Barclays-specific stress event |
§ | a combined 30-day market-wide and Barclays-specific stress event. |
Under normal market conditions, the liquidity pool is managed to be at a target of at least 100% of anticipated outflows under each of these stress scenarios. The 30-day Barclays-specific stress scenario, results in the greatest net outflows of each of the liquidity stress tests .The combined 30-day scenario assumes outflows consistent with a firm specific stress for the first two weeks of the stress period, followed by relatively lower outflows consistent with a market-wide stress for the remainder of the stress period.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 155 |
Key LRA assumptions include:
For the year ended 31 December 2015
Liquidity risk driver | Barclays-specific stress | |
Wholesale secured and unsecured funding | § Zero rollover of wholesale unsecured liabilities maturing, senior unsecured debt and conduit commercial paper. | |
§ No benefit assumed from reverse repos covering firm short positions. | ||
§ Rollover of trades secured on extremely liquid collateral. | ||
§ Varying rollover of trades secured on liquid collateral, subject to haircut widening. | ||
§ Zero rollover of trades secured on less-liquid collateral. | ||
§ 100% of contractual buybacks will occur. | ||
§ Haircuts applied to the market value of marketable assets held in the liquidity buffer.
| ||
Deposit outflow
| § Substantial deposit outflows in PCB and Barclaycard as the Group is seen as greater credit risk than competitors. | |
Funding concentration
| § Additional outflows recognised against concentration of providers of wholesale financing (largest unsecured counterparty unwilling to roll). | |
Intra-day liquidity
| § Anticipated liquidity required to support additional intra-day requirements at cash payment and securities settlement venues based on historical peak usage and triparty settlement based on forward maturities of trades.
| |
Intra-group
|
§ Anticipated liquidity required to support material subsidiaries, based on stand-alone stress tests. Surplus liquidity held within certain subsidiaries is not taken as a benefit to the wider Group.
| |
Off-balance sheet | § Drawdown on committed facilities based on facility type, counterparty type and counterparty creditworthiness. | |
§ Outflow of all collateral owed to counterparties but not yet called. | ||
§ Collateral outflows based on Monte Carlo simulation and historical stress outflows. | ||
§ Increase in the Group’s initial margin requirement across all major exchanges. | ||
§ Outflows as a result of a multi-notch downgrade in credit rating.
| ||
Franchise viability
| § Liquidity required in order to meet outflows that are non-contractual in nature but necessary in order to support the Group’s ongoing franchise (for example, market-making activities and non contractual debt buyback).
| |
Cross currency risk |
§ Net settlement cash flows at contractual maturity for physically settled FX forwards and cross currency swaps are reflected. | |
§ No benefit assumed from surplus net inflows in non-G10 currencies.
| ||
Mitigating actions
| § Monetisation of unencumbered assets that are of known liquidity value to the firm but held outside the liquidity pool (subject to haircut/valuation adjustment).
| |
Internalisation Risk |
§ Loss of internal sources of funding within the Prime Brokerage Synthetic Business. | |
§ Acceleration of term profile associated with Prime Brokerage Clients deleveraging their portfolios asymmetrically by closing short positions.
|
Liquidity regulation
Since October 2015, the Group manages its liquidity profile against the new CRD IV liquidity regime implemented by PRA. The CRD IV regime defines the liquidity risk ratio, liquidity pool asset eligibility and net stress outflow applied against Barclays reported balances.
The Group monitors its position against the CRD IV Interim LCR and the Basel III Net Stable Funding Ratio (NSFR). The LCR is designed to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has a time horizon of at least six months and has been developed to promote a sustainable maturity structure of assets and liabilities.
The PRA regime requires phased compliance with the LCR standard from 1 October 2015 at a minimum of 80% increasing to 100% by January 2018. The methodology for the LCR is based off the final published Delegated Act which became EU law in October 2015.
In October 2014, the BCBS published a final standard for the NSFR with the minimum requirement to be introduced in January 2018 at 100% on an ongoing basis. The methodology for calculating the NSFR is based on an interpretation of the Basel standards published in October 2014 and includes a number of assumptions which are subject to change prior to adoption by the European Commission through the CRD IV.
Based on the CRD IV and Basel III standards respectively, as at 31 December 2015, the Group had a surplus to both of these metrics with a CRD IV Interim LCR of 133% (2014: 124%) and a Basel III NSFR of 106% (2014: 102%).
156 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Comparing internal and regulatory liquidity stress tests
The LRA stress scenarios and the CRD IV Interim LCR are all broadly comparable short-term stress scenarios in which the adequacy of defined liquidity resources is assessed against contractual and contingent stress outflows. The CRD IV Interim LCR stress tests provide an independent assessment of the Group’s liquidity risk profile.
Stress Test | Barclays LRA | CRD IV Interim LCR | Basel III NSFR | |||
Time Horizon | 30 – 90 days | 30 days | 6+ months | |||
Calculation | Liquid assets to net cash outflows | Liquid assets to net cash outflows | Stable funding resources to stable funding requirements |
As at 31 December 2015, the Group held eligible liquid assets in excess of 100% of stress requirements for all three LRA scenarios and the CRD IV Interim LCR requirement.
Compliance with internal and regulatory stress tests | ||||||||
As at 31 December 2015 |
| Barclays’ LRA (one month Barclays specific £bn |
|
| CRD IV Interim LCR £bn | b
| ||
Total eligible liquidity pool | 145 | 147 | ||||||
Asset inflows | 1 | 18 | ||||||
Stress outflows | ||||||||
Retail and commercial deposit outflows | (50 | ) | (72 | ) | ||||
Wholesale funding | (15 | ) | (12 | ) | ||||
Net secured funding | (12 | ) | (1 | ) | ||||
Derivatives | (8 | ) | (6 | ) | ||||
Contractual credit rating downgrade exposure | (6 | ) | (5 | ) | ||||
Drawdowns of loan commitments | (7 | ) | (32 | ) | ||||
Intraday | (13 | ) | – | |||||
Total stress net cash flows | (110 | ) | (110 | ) | ||||
Surplus | 35 | 37 | ||||||
Liquidity pool as a percentage of anticipated net cash flows | 131% | 133% | ||||||
As at 31 December 2014 | 124% | 124% |
In 2015, the Group strengthened its liquidity position, building a larger surplus to its internal and regulatory requirements. The Group plans to maintain its surplus to the internal and regulatory stress requirements at an efficient level, while considering risks to market funding conditions and its liquidity position. The continuous reassessment of these risks may lead to appropriate actions being taken with respect to sizing of the liquidity pool.
Note
a | Of the three stress scenarios monitored as part of the LRA, the 30-day Barclays-specific scenario results in the lowest ratio at 131% (2014: 124%). This compares to 144% (2014: 135%) under the 90-day market-wide scenario, and 133% (2014: 127%) under the 30-day combined scenario. |
b | Includes BAGL. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 157 |
The Group liquidity pool as at 31 December 2015 was £145bn (2014: £149bn). During 2015, the month-end liquidity pool ranged from £142bn to £168bn (2014: £134bn to £156bn), and the month-end average balance was £155bn (2014: £145bn). The liquidity pool is held unencumbered and is not used to support payment or clearing requirements. Such requirements are treated as part of our regular business funding. The liquidity pool is intended to offset stress outflows, and comprises the following cash and unencumbered assets.
Composition of the Group liquidity pool as at 31 December 2015 | ||||||||||||||||||||
Liquidity pool of which CRD IV LCR eligible | ||||||||||||||||||||
|
| |||||||||||||||||||
| Liquidity pool £bn |
|
| Cash £bn |
|
| Level 1 £bn |
|
| Level 2A £bn |
| | 2014 Liquidity pool | | ||||||
Cash and deposits with central banksa | 48 | 45 | 1 | – | 37 | |||||||||||||||
Government bondsb | ||||||||||||||||||||
AAA rated | 63 | – | 63 | – | 73 | |||||||||||||||
AA+ to AA- rated | 11 | – | 7 | 4 | 12 | |||||||||||||||
Other government bonds | 1 | – | 1 | – | – | |||||||||||||||
Total government bonds | 75 | – | 71 | 4 | 85 | |||||||||||||||
Other | ||||||||||||||||||||
Supranational bonds and multilateral development banks | 7 | – | 7 | – | 9 | |||||||||||||||
Agencies and agency mortgage-backed securities | 8 | – | 6 | 2 | 11 | |||||||||||||||
Covered bonds (rated AA- and above) | 4 | – | 2 | 2 | 3 | |||||||||||||||
Other | 3 | – | – | – | 4 | |||||||||||||||
Total Other | 22 | – | 15 | 4 | 27 | |||||||||||||||
Total as at 31 December 2015 | 145 | 45 | 87 | 8 | ||||||||||||||||
Total as at 31 December 2014 | 149 | 37 | 99 | 7 | ||||||||||||||||
The Group liquidity pool is well diversified by major currency and the Group monitors LRA stress scenarios for major currencies.
|
| |||||||||||||||||||
Liquidity pool by currency | ||||||||||||||||||||
|
USD £bn |
|
|
EUR £bn |
|
|
GBP £bn |
|
|
Other £bn |
|
|
Total £bn |
| ||||||
Liquidity pool as at 31 December 2015 | 41 | 33 | 46 | 25 | 145 | |||||||||||||||
Liquidity pool as at 31 December 2014 | 46 | 27 | 54 | 22 | 149 |
Management of the Group liquidity pool
The composition of the Group liquidity pool is efficiently managed. The maintenance of the liquidity pool increases the Group’s costs as the interest expense paid on the liabilities used to fund the liquidity pool is greater than the interest income received on liquidity pool assets. This cost can be reduced by investing a greater portion of the Group liquidity pool in highly liquid assets other than cash and deposits with central banks while maintaining a minimum level of cash in the liquidity pool to meet cash outflows on the first day of a Barclays-specific stress and enough cash and same day settlement securities to meet all outflows in the first three days of the stress. These assets in the liquidity pool primarily comprise highly rated government bonds, and their inclusion in the liquidity pool does not compromise the liquidity position of the Group.
The composition of the liquidity pool is subject to limits set by the Board, Treasury Committee and the independent Credit risk and Market risk functions. In addition, the investment of the liquidity pool is monitored for concentration risk by issuer, currency and asset type. Given the incremental returns generated by these highly liquid assets, the risk and reward profile is continuously managed.
The Group manages the liquidity pool on a centralised basis. As at 31 December 2015, 94% of the liquidity pool was located in Barclays Bank PLC (2014: 92%) and was available to meet liquidity needs across the Group. The residual liquidity pool is held predominantly within Barclays Capital Inc. (BCI). The portion of the liquidity pool outside of Barclays Bank PLC is held against entity-specific stressed outflows and regulatory requirements. To the extent the use of this portion of the liquidity pool is restricted due to regulatory requirements, it is assumed to be unavailable to the rest of the Group.
Notes
a | Of which over 97% (2014: over 95%) was placed with the BoE, US Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank. |
b | Of which over 92% (2014: over 95%) are UK, US, Japanese, French, German, Danish, Swiss and Dutch securities. |
158 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Contingent liquidity
In addition to the Group liquidity pool, the Group has access to other unencumbered assets which provide a source of contingent liquidity. While these are not relied on in the Group’s LRA, a portion of these assets may be monetised in a stress to generate liquidity through use as collateral for secured funding or through outright sale.
In either a Barclays-specific or market-wide liquidity stress, liquidity available via market sources could be severely disrupted. In circumstances where market liquidity is unavailable or available only at heavily discounted prices, the Group could generate liquidity via central bank facilities. The Group maintains a significant amount of collateral pre-positioned at central banks and available to raise funding.
For more detail on the Group’s other unencumbered assets see page 163.
Funding structure and funding relationships
The basis for sound liquidity risk management is a solid funding structure that reduces the probability of a liquidity stress leading to an inability to meet funding obligations as they fall due. The Group’s overall funding strategy is to develop a diversified funding base (geographically, by type and by counterparty) and maintain access to a variety of alternative funding sources, to provide protection against unexpected fluctuations, while minimising the cost of funding.
Within this, the Group aims to align the sources and uses of funding. As such, retail and commercial customer loans and advances are largely funded by customer deposits, with the surplus funding the liquidity pool. Other assets, together with other loans and advances and unencumbered assets are funded by long-term wholesale debt and equity.
The majority of reverse repurchase agreements are matched by repurchase agreements. The liquidity pool is predominantly funded through wholesale markets. These funding relationships are summarised below:
Assets | | 2015 £bn | | | 2014 £bn | | Liabilities | | 2015 £bn | | | 2014 £bn | | |||||||
Loans and advances to customersa | 336 | 346 | Customer accountsa | 374 | 366 | |||||||||||||||
Group liquidity pool | 145 | 149 | < 1 Year wholesale funding | 54 | 75 | |||||||||||||||
> 1 Year wholesale funding | 88 | 96 | ||||||||||||||||||
Other assetsb | 135 | 153 | Equity and other liabilitiesb | 104 | 112 | |||||||||||||||
Reverse repurchase agreements and other similar secured lendingc | 178 | 271 | Repurchase agreements and other similar secured borrowingc | 178 | 271 | |||||||||||||||
Derivative financial instruments | 326 | 439 | Derivative financial instruments | 322 | 438 | |||||||||||||||
Total assets | 1,120 | 1,358 | Total liabilities and equity | 1,120 | 1,358 |
Deposit funding (Includes BAGL) (audited) |
| |||||||||||||||
2015 | 2014 | |||||||||||||||
Funding of loans and advances to customers | | Loans and advances to customers | | | Customer deposits | | | Loan to deposit ratio | | | Loan to deposit ratio | | ||||
As at 31 December 2015 | £bn | £bn | % | % | ||||||||||||
Personal and Corporate Banking | 218 | 305 | ||||||||||||||
Barclaycard | 40 | 10 | ||||||||||||||
Africa Banking | 30 | 31 | ||||||||||||||
Non-Core (retail) | 12 | 2 | ||||||||||||||
Total retail and corporate funding | 300 | 348 | 86 | 89 | ||||||||||||
Investment Bank, Non-Core (wholesale) and Other | 99 | 70 | ||||||||||||||
Total | 399 | 418 | 95 | 100 |
Notes
a | Excluding cash collateral and settlement balances. |
b | BAGL Group balances other than customer loans and advances of £29bn and customer deposits of £29bn are included in other assets and liabilities. |
c | Comprised of reverse repurchase that provide financing to customers collateralised by highly liquid securities on a short-term basis or are used to settle short-term inventory positions and repo financing of trading portfolio assets. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 159 |
PCB, Barclaycard, Non-Core (Retail) and Africa Banking activities are largely funded with customer deposits. As at 31 December 2015, the loan to deposit ratio for these businesses was 86% (2014: 89%). The Group loan to deposit ratio as at 31 December 2015 was 95% (2014: 100%).
The excess of the Investment Bank’s loans and advances over customer deposits is funded with long-term debt and equity. The Investment Bank does not rely on customer retail deposit funding from PCB.
As at 31 December 2015, £129bn (2014: £128bn) of total customer deposits were insured through the UK Financial Services Compensation Scheme (FSCS) and other similar schemes. In addition to these customer deposits, there were £4bn (2014: £4bn) of other liabilities insured by governments.
Although, contractually, current accounts are repayable on demand and savings accounts at short notice, the Group’s broad base of customers, numerically and by depositor type, helps protect against unexpected fluctuations in balances. Such accounts form a stable funding base for the Group’s operations and liquidity needs. The Group assesses the behavioural maturity of both customer assets and liabilities to identify structural balance sheet funding gaps. Customer behaviour is determined by quantitative modelling combined with qualitative assessment taking into account for historical experience, current customer composition, and macroeconomic projections. These behavioural profiles represent our forward looking expectation of the run-off profile. The relatively low cash outflow within one year demonstrates that customer funding remains broadly matched with customer assets from a behavioural perspective.
Behavioural maturity profile (Includes BAGL) | ||||||||||||||||||||||||||||
Behavioural maturity profile cash outflow/(inflow) | ||||||||||||||||||||||||||||
| Loans and advances to customers £bn | | | Customer deposits £bn | |
| Customer funding surplus/ (deficit) £bn |
|
| Not more than one year £bn |
| | Over one year but not more than five years £bn | | | More than five years £bn | | | Total £bn | | ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Personal and Corporate Banking | 218 | 305 | 87 | 18 | 3 | 66 | 87 | |||||||||||||||||||||
Barclaycard | 40 | 10 | (30 | ) | (10 | ) | (10 | ) | (10 | ) | (30 | ) | ||||||||||||||||
Africa Banking | 30 | 31 | 1 | 2 | 1 | (2 | ) | 1 | ||||||||||||||||||||
Non-Core (Retail) | 12 | 2 | (10 | ) | (1 | ) | (2 | ) | (7 | ) | (10 | ) | ||||||||||||||||
Total | 300 | 348 | 48 | 9 | (8 | ) | 47 | 48 | ||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Personal and Corporate Banking | 217 | 299 | 82 | 19 | 3 | 60 | 82 | |||||||||||||||||||||
Barclaycard | 37 | 7 | (30 | ) | (10 | ) | (10 | ) | (10 | ) | (30 | ) | ||||||||||||||||
Africa Banking | 35 | 35 | – | 2 | (2 | ) | – | – | ||||||||||||||||||||
Non-Core (Retail) | 20 | 8 | (12 | ) | – | (2 | ) | (10 | ) | (12 | ) | |||||||||||||||||
Total | 309 | 349 | 40 | 11 | (11 | ) | 40 | 40 |
Wholesale funding relationships are summarised below:
Assets |
| 2015 £bn |
| | 2014 £bn | | Liabilities | | 2015 £bn | | | 2014 £bn | | |||||||
Trading portfolio assets | 28 | 37 | Repurchase agreements | 70 | 124 | |||||||||||||||
Reverse repurchase agreements | 42 | 87 | ||||||||||||||||||
Reverse repurchase agreements | 34 | 45 | Trading portfolio liabilities | 34 | 45 | |||||||||||||||
Derivative financial instruments | 326 | 440 | Derivative financial instruments | 322 | 439 | |||||||||||||||
Liquidity pool | 97 | 109 | Less than one year wholesale debt | 54 | 75 | |||||||||||||||
Other assetsa | 103 | 122 | Greater than one year wholesale debt and equity | 150 | 157 |
Repurchase agreements fund reverse repurchase agreements and trading portfolio assets. Trading portfolio liabilities are settled by the remainder of reverse repurchase agreements (see Note 19 Offsetting financial assets and liabilities for further detail on netting).
Derivative liabilities and assets are largely matched. A substantial proportion of balance sheet derivative positions qualify for counterparty netting and the remaining portions are largely offset once netted against cash collateral received and paid.
Wholesale debt, along with the surplus of customer deposits to loans and advances to customers, is used to fund the liquidity pool. Term wholesale debt and equity largely fund other assets.
Note
a | Predominantly available for sale investments, financial assets designated at fair value and loans and advances to banks funded by greater than one year wholesale debt and equity and trading portfolio assets. |
160 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Composition of wholesale funding
The Group maintains access to a variety of sources of wholesale funds in major currencies, including those available from term investors across a variety of distribution channels and geographies, money markets, and repo markets. The Group has direct access to US, European and Asian capital markets through its global investment banking operations and long-term investors through its clients worldwide, and is an active participant in money markets. As a result, wholesale funding is well diversified by product, maturity, geography and major currency.
As at 31 December 2015, the Group’s total wholesale funding outstanding (excluding repurchase agreements) was £142bn (2014: £171bn). £54bn (2014: £75bn) of wholesale funding matures in less than one year, of which £14bn (2014: £22bn)a relates to term funding.
As at 31 December 2015, outstanding wholesale funding comprised £25bn (2014: £33bn) of secured funding and £117bn (2014: £138bn) of unsecured funding.
In preparation for a Single Point of Entry resolution model, Barclays continues to issue debt capital and term senior unsecured funding out of Barclays PLC, the holding company, replacing maturing debt in Barclays Bank PLC.
Maturity profile of wholesale fundingb |
| |||||||||||||||||||||||||||||||||||||||||||
| Not more than one month £bn |
|
| Over one month but not more than three months £bn |
|
| Over three months but not more than six months £bn |
|
| Over six months but not more than one year £bn |
|
| Sub-total less than one year £bn |
|
| Over one year but not more than two years £bn |
|
| Over two years but not more than three years £bn |
|
| Over three years but not more than four years £bn |
|
| Over four years but not more than five years £bn |
|
| More than five years £bn |
|
| Total £bn |
| ||||||||||||
Barclays PLC | ||||||||||||||||||||||||||||||||||||||||||||
Senior unsecured (public benchmark) | – | – | – | – | – | – | 0.8 | 1.3 | 0.9 | 3.1 | 6.1 | |||||||||||||||||||||||||||||||||
Senior unsecured (privately placed) | – | – | – | – | – | – | 0.1 | – | – | – | 0.1 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | – | – | – | – | – | – | – | 0.9 | 0.9 | 1.8 | |||||||||||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 9.5 | 3.1 | 1.3 | 0.8 | 14.7 | 0.1 | – | – | – | 0.3 | 15.1 | |||||||||||||||||||||||||||||||||
Certificates of deposit and commercial paper | 0.5 | 4.9 | 3.4 | 5.3 | 14.1 | 1.0 | 0.6 | 0.9 | 0.4 | 0.5 | 17.5 | |||||||||||||||||||||||||||||||||
Asset backed commercial paper | 2.2 | 3.3 | 0.2 | – | 5.7 | – | – | – | – | – | 5.7 | |||||||||||||||||||||||||||||||||
Senior unsecured (public benchmark) | – | 1.3 | – | 1.4 | 2.7 | 3.6 | – | 4.3 | 1.3 | 3.9 | 15.8 | |||||||||||||||||||||||||||||||||
Senior unsecured (privately | 0.6 | 1.6 | 2.3 | 4.8 | 9.3 | 5.1 | 5.4 | 3.7 | 3.0 | 8.5 | 35.0 | |||||||||||||||||||||||||||||||||
Covered bonds | – | – | 1.1 | – | 1.1 | 4.4 | 1.0 | 1.6 | – | 4.2 | 12.3 | |||||||||||||||||||||||||||||||||
Asset backed securities | 0.7 | – | – | – | 0.7 | 0.5 | 1.4 | 1.3 | 0.5 | 0.3 | 4.7 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | – | – | – | – | 1.1 | 3.0 | 0.2 | 0.9 | 14.0 | 19.2 | |||||||||||||||||||||||||||||||||
Otherd | 2.3 | 1.1 | 0.3 | 1.5 | 5.2 | 0.7 | 0.3 | 0.4 | 0.4 | 1.6 | 8.6 | |||||||||||||||||||||||||||||||||
Total as at 31 December 2015 | 15.8 | 15.3 | 8.6 | 13.8 | 53.5 | 16.5 | 12.6 | 13.7 | 8.3 | 37.3 | 141.9 | |||||||||||||||||||||||||||||||||
Of which secured | 4.2 | 3.9 | 1.6 | 0.3 | 10.0 | 5.1 | 2.4 | 2.8 | 0.5 | 4.5 | 25.3 | |||||||||||||||||||||||||||||||||
Of which unsecured | 11.6 | 11.4 | 7.0 | 13.5 | 43.5 | 11.4 | 10.2 | 10.9 | 7.8 | 32.8 | 116.6 | |||||||||||||||||||||||||||||||||
Total as at 31 December 2014 | 16.8 | 23.2 | 14.4 | 21.0 | 75.4 | 14.0 | 16.1 | 6.5 | 14.0 | 45.4 | 171.4 | |||||||||||||||||||||||||||||||||
Of which secured | 5.3 | 7.8 | 1.7 | 2.2 | 17.0 | 2.7 | 5.1 | 0.1 | 2.4 | 6.0 | 33.3 | |||||||||||||||||||||||||||||||||
Of which unsecured | 11.5 | 15.4 | 12.7 | 18.8 | 58.4 | 11.3 | 11.0 | 6.4 | 11.6 | 39.4 | 138.1 |
Outstanding wholesale funding includes £35bn (2014: £45bn) of privately placed senior unsecured notes in issue. These notes are issued through a variety of distribution channels including intermediaries and private banks. Although not a requirement, the liquidity pool exceeded wholesale funding maturing in less than one year by £91bn (2014: £74bn).
Notes
a | Term funding maturities comprise public benchmark and privately placed senior unsecured notes, covered bonds/asset backed securities (ABS) and subordinated debt where the original maturity of the instrument was more than one year. |
b | The composition of wholesale funds comprises the balance sheet reported deposits from banks, financial liabilities at fair value, debt securities in issue and subordinated liabilities, excluding cash collateral and settlement balances. It does not include collateral swaps, including participation in the BoE’s Funding for Lending Scheme. Included within deposits from banks are £6bn of liabilities drawn in the European Central Bank’s facilities. |
c | Includes structured notes of £28bn, £8bn of which mature within one year. |
d | Primarily comprised of fair value deposits £5bn and secured financing of physical gold £3bn. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 161 |
Currency composition of wholesale debt
As at 31 December 2015, the proportion of wholesale funding by major currencies was as follows:
Currency composition of wholesale funding | ||||||||||||||||
| USD % | | | EUR % | | | GBP % | | | Other % | | |||||
Deposits from banks | 25 | 51 | 19 | 5 | ||||||||||||
Certificates of deposits and commercial paper | 25 | 60 | 14 | 1 | ||||||||||||
Asset backed commercial paper | 92 | 8 | – | – | ||||||||||||
Senior unsecured (public benchmark) | 43 | 20 | 28 | 9 | ||||||||||||
Senior unsecured (privately placed) | 39 | 21 | 18 | 22 | ||||||||||||
Covered bonds/ABS | 27 | 41 | 31 | 1 | ||||||||||||
Subordinated liabilities | 44 | 19 | 37 | – | ||||||||||||
Total as at 31 December 2015 | 38 | 31 | 23 | 8 | ||||||||||||
Total as at 31 December 2014 | 35 | 32 | 25 | 8 |
To manage cross-currency refinancing risk the Group manages to foreign exchange cash flow limits, which limit risk at specific maturities. Across wholesale funding, the composition of wholesale funding is materially unchanged.
The Group issued £9bn (2014: £15bn) of term funding net of early redemptions during 2015. The Group has £14bn of term debt maturing in 2016 and £16bn maturing in 2017a.
The Group expects to continue issuing public wholesale debt in 2016, in order to maintain a stable and diverse funding base by type, currency and distribution channel.
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. Barclays funds a portion of trading portfolio assets and other securities via repurchase agreements and other similar borrowing, and pledges a portion of customer loans and advances as collateral in securitisations, covered bond and other similar secured structures. Barclays monitors the mix of secured and unsecured funding sources within the Group’s funding plan and seeks to efficiently utilise available collateral to raise secured funding and meet other collateralised obligations.
Encumbered assets have been defined consistently with the Group’s reporting requirements under Article 100 of the CRR. Securities and commodities assets are considered encumbered when they have been pledged or used to secure, collateralise or credit enhance a transaction which impacts their transferability and free use. This includes external repurchase or other similar agreements with market counterparts.
Excluding assets positioned at central banks, as at 31 December 2015, £157bn (2014: £176bn) of the Group’s assets were encumbered, primarily due to cash collateral posted, firm financing of trading portfolio assets and other securities and funding secured against loans and advances to customers.
Assets may also be encumbered under secured funding arrangements with central banks, such as the Funding for Lending Scheme. In advance of such encumbrance, assets are often positioned with central banks to facilitate efficient future draw down. £88bn (2014: £99bn) of on-balance sheet assets were positioned at the central banks, consisting of encumbered assets and collateral pre-positioned and available for use in secured financing transactions.
£212bn (2014: £270bn) of on and off-balance sheet assets not positioned at the central bank were identified as readily available and available for use in secured financing transactions. Additionally, they include cash and securities held in the Group liquidity pool as well as unencumbered assets which provide a source of contingent liquidity. While these additional assets are not relied upon in the Group’s LRA, a portion of these assets may be monetised to generate liquidity through use as collateral for secured funding or through outright sale. Loans and advances to customers are only classified as readily available if they are already in a form, such that, they can be used to raise funding without further management actions. This includes excess collateral already in secured funding vehicles.
£208bn (2014: £208bn) of assets not positioned at the central bank were identified as available as collateral. These assets are not subject to any restrictions on their ability to secure funding, to be offered as collateral, or to be sold to reduce potential future funding requirements, but are not immediately available in the normal course of business in their current form. They primarily consist of loans and advances which would be suitable for use in secured funding structures but are conservatively classified as not readily available because they are not in transferable form.
Not available as collateral consist of assets that cannot be pledged or used as security for funding due to restrictions that prevent their pledge or use as security for funding in the normal course of business.
Derivatives and reverse repo assets relate specifically to derivatives, reverse repurchase agreements and other similar secured lending. These are shown separately as these on-balance sheet assets cannot be pledged. However, these assets can give rise to the receipt of non-cash assets which are held off-balance sheet, and can be used to raise secured funding or meet additional funding requirements.
In addition, £265bn (2014: £313bn) of the total £306bn (2014: £396bn) securities accepted as collateral, and held off-balance sheet, were on-pledged, the significant majority of which related to matched-book activity where reverse repurchase agreements are matched by repurchase agreements entered into to facilitate client activity. The remainder relates primarily to reverse repurchases used to settle trading portfolio liabilities as well as collateral posted against derivative margin requirements.
Note
a | Includes £0.6bn of bilateral secured funding in 2016 and £0.4bn in 2017. |
162 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Asset encumbrancea |
| |||||||||||||||||||||||||||||||||||||||||||||
| Assets encumbered as a result of transactions with counterparties other than central banks | |
| Other assets (comprising assets encumbered at the central bank and unencumbered assets) |
| |||||||||||||||||||||||||||||||||||||||||
Assets | Assets not positioned at the central bank | |||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet As at 31 December 2015 | | Assets £bn | |
| As a result of covered £bn |
|
| As a result of £bn |
| | Other £bn | |
| Total £bn |
| positioned at central banksc £bn |
| | Readily available assets £bn | |
| Available as collateral |
| | Not available as collateral £bn | |
| Derivatives and Reverse repos £bn |
| | Total £bn | | ||||||||||||||
Cash and balances at central banks | 47.9 | – | – | – | – | – | 47.9 | – | – | – | 47.9 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 74.8 | – | – | 49.1 | 49.1 | – | 25.7 | – | – | – | 25.7 | |||||||||||||||||||||||||||||||||||
Financial assets at fair value | 72.5 | – | – | 2.5 | 2.5 | – | 3.2 | 17.7 | 1.3 | 47.8 | 70.0 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 325.5 | – | – | – | – | – | – | – | – | 325.5 | 325.5 | |||||||||||||||||||||||||||||||||||
Loans and advances – banksb | 19.6 | – | – | – | – | – | 7.9 | 10.2 | 1.5 | – | 19.6 | |||||||||||||||||||||||||||||||||||
Loans and advances – customersb | 307.3 | 16.4 | 5.9 | 8.0 | 30.3 | 86.4 | 14.8 | 175.8 | – | – | 277.0 | |||||||||||||||||||||||||||||||||||
Cash collateral | 62.6 | – | – | 62.6 | 62.6 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
Settlement balances | 20.4 | – | – | – | – | – | – | – | 20.4 | – | 20.4 | |||||||||||||||||||||||||||||||||||
Available for sale financial investments | 87.0 | – | – | 12.2 | 12.2 | – | 72.2 | 1.0 | 1.6 | – | 74.8 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 28.2 | – | – | – | – | – | – | – | – | 28.2 | 28.2 | |||||||||||||||||||||||||||||||||||
Non-current assets held for sale | 7.3 | – | – | – | – | 1.9 | 1.2 | 3.2 | 1.0 | – | 7.3 | |||||||||||||||||||||||||||||||||||
Other financial assets | 19.9 | – | – | – | – | – | – | – | 19.9 | – | 19.9 | |||||||||||||||||||||||||||||||||||
Total on-balance sheet | 1,073.0 | 16.4 | 5.9 | 134.4 | 156.7 | 88.3 | 172.9 | 207.9 | 45.7 | 401.5 | 916.3 |
Off-balance sheet | ||||||||||||||||||||
| Collateral received £bn | | | Collateral received of which on- | | | Readily available assets £bn | | | Available as collateral £bn | | | Not available as collateral £bn | | ||||||
Fair value of securities accepted as collateral | 305.9 | 265.4 | 39.0 | – | 1.5 | |||||||||||||||
Total unencumbered collateral | – | – | 211.9 | 207.9 | 47.2 |
Notes
a | The format of this disclosure has been updated following the issuance of a ‘Dear CFO’ letter by the PRA. The revised format continues to satisfy the recommendations of the Enhanced Disclosure Task Force on encumbrance disclosure. |
b | Excluding cash collateral and settlement balances. |
c | Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 40 to the financial statements. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 163 |
Asset encumbrancea |
| |||||||||||||||||||||||||||||||||||||||||||||
| Assets encumbered as a result of transactions with counterparties other than central banks |
|
| Other assets (comprising assets encumbered at the central bank and unencumbered assets) |
| |||||||||||||||||||||||||||||||||||||||||
Assets | Assets not positioned at the central bank | |||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet As at 31 December 2014 |
| Assets £bn |
|
| As a result of covered bonds £bn |
|
| As a result of securitis- ations £bn |
|
| Other £bn |
|
| Total £bn |
| positioned at the central banksc £bn |
|
| Readily available assets £bn |
|
| Available as collateral £bn |
|
| Not available as collateral £bn |
|
| Derivatives and Reverse repos £bn |
|
| Total £bn |
| ||||||||||||||
Cash and balances at central banks | 37.8 | – | – | – | – | – | 37.8 | – | – | – | 37.8 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 111.9 | – | – | 50.7 | 50.7 | – | 61.2 | – | – | – | 61.2 | |||||||||||||||||||||||||||||||||||
Financial assets at fair value | 34.2 | – | – | 2.3 | 2.3 | – | 3.5 | 20.7 | 2.5 | 5.2 | 31.9 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 438.6 | – | – | – | – | – | – | – | – | 438.6 | 438.6 | |||||||||||||||||||||||||||||||||||
Loans and advances – banksb | 19.5 | – | – | – | – | – | 8.6 | 9.2 | 1.7 | – | 19.5 | |||||||||||||||||||||||||||||||||||
Loans and advances – customersb | 311.1 | 20.4 | 9.2 | 10.3 | 39.9 | 93.4 | 8.7 | 169.1 | – | – | 271.2 | |||||||||||||||||||||||||||||||||||
Cash collateral | 72.6 | – | – | 72.6 | 72.6 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
Settlement balances | 30.8 | – | – | – | – | – | – | – | 30.8 | – | 30.8 | |||||||||||||||||||||||||||||||||||
Available for sale financial investments | 82.0 | – | – | 9.3 | 9.3 | – | 70.0 | 0.5 | 2.2 | – | 72.7 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 131.7 | – | – | – | – | – | – | – | – | 131.7 | 131.7 | |||||||||||||||||||||||||||||||||||
Non-current assets held for sale | 15.6 | – | 1.5 | – | 1.5 | 5.1 | 0.2 | 8.3 | 0.5 | – | 14.1 | |||||||||||||||||||||||||||||||||||
Other financial assets | 18.8 | – | – | – | – | – | – | – | 18.8 | – | 18.8 | |||||||||||||||||||||||||||||||||||
Total on-balance sheet | 1,304.6 | 20.4 | 10.7 | 145.2 | 176.3 | 98.5 | 190.0 | 207.8 | 56.5 | 575.5 | 1,128.3 |
Off-balance sheet | ||||||||||||||||||||||
| Collateral received £bn |
|
| Collateral received of which on- pledged £bn |
|
| Readily available assets £bn |
|
| Available as collateral £bn |
|
| Not available as collateral £bn |
| ||||||||
Fair value of securities accepted as collateral | 395.7 | 313.0 | 79.9 | – | 2.8 | |||||||||||||||||
Total unencumbered collateral | 269.9 | 207.8 | 59.3 |
Notes
a | The format of this disclosure has been updated following the issuance of a ‘Dear CFO’ letter by the PRA. The revised format continues to satisfy the recommendations of the Enhanced Disclosure Task Force on encumbrance disclosure. |
b | Excluding cash collateral and settlement balances. |
c | Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 40 to the financial statements. |
164 | ��Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Repurchase agreements and reverse repurchase agreements
Barclays enters into repurchase and other similar secured borrowing agreements to finance its trading portfolio assets. The majority of reverse repurchase agreements are matched by offsetting repurchase agreements entered into to facilitate client activity. The remainder are used to settle trading portfolio liabilities.
Due to the high quality of collateral provided against secured financing transactions, the liquidity risk associated with this activity is significantly lower than unsecured financing transactions. Nonetheless, Barclays manages to gross and net secured mismatch limits to limit refinancing risk under a severe stress scenario and a portion of the Group’s liquidity pool is held against stress outflows on these positions. The Group secured mismatch limits are calibrated based on market capacity, liquidity characteristics of the collateral and risk appetite of the Group.
The cash value of repurchase and reverse repurchase transactions will typically differ from the market value of the collateral against which these transactions are secured by an amount referred to as a haircut (or over-collateralisation). Typical haircut levels vary depending on the quality of the collateral that underlies these transactions. For transactions secured against extremely liquid fixed income collateral, lenders demand relatively small haircuts (typically ranging from 0-2%). For transactions secured against less liquid collateral, haircuts vary by asset class (typically ranging from 5-10% for corporate bonds and other less liquid collateral).
As at 31 December 2015, the significant majority of repurchases related to matched-book activity. The Group may face refinancing risk on the net maturity mismatch for matched-book activity.
Net matched-book activitya,b | ||||||||||
Negative number represents net repurchase agreement (net liability) | | Less than one month £bn | | | One month to three months £bn | | Over three months £bn | |||
As at 31 December 2015 | ||||||||||
Extremely liquid fixed income | (12.9) | 7.3 | 5.6 | |||||||
Liquid fixed income | 0.3 | 0.6 | (0.9) | |||||||
Equities | 7.0 | (1.5) | (5.5) | |||||||
Less liquid fixed income | 1.6 | (0.4) | (1.2) | |||||||
Total | (4.0) | 6.0 | (2.0) | |||||||
As at 31 December 2014 | ||||||||||
Extremely liquid fixed income | (8.9) | 6.3 | 2.6 | |||||||
Liquid fixed income | (0.1) | 0.5 | (0.4) | |||||||
Equities | 8.9 | (3.0) | (5.9) | |||||||
Less liquid fixed income | 1.2 | 0.3 | (1.5) | |||||||
Total | 1.1 | 4.1 | (5.2) |
The residual repurchase agreement activity is the firm-financing component and reflects the Group funding of a portion of its trading portfolio assets. The primary risk related to firm-financing activity is the inability to roll-over transactions as they mature. However, 50% (2014: 54%) of firm-financing activity was secured against highly liquid assets.
Firm financing repurchase agreementsa,b |
| |||||||||||||
| Less than one month £bn | |
| One month to three months £bn |
|
| Over three months £bn |
| Total £bn | |||||
As at 31 December 2015 | ||||||||||||||
Extremely liquid fixed income | 28.8 | 8.3 | 0.3 | 37.4 | ||||||||||
Liquid fixed income | 2.0 | 0.6 | 1.1 | 3.7 | ||||||||||
Highly liquid | 10.9 | 6.3 | 10.2 | 27.4 | ||||||||||
Less liquid | 2.7 | 1.1 | 1.9 | 5.7 | ||||||||||
Total | 44.4 | 16.3 | 13.5 | 74.2 | ||||||||||
As at 31 December 2014 | ||||||||||||||
Extremely liquid fixed income | 33.4 | 4.1 | 2.2 | 39.7 | ||||||||||
Liquid fixed income | 3.6 | 0.3 | 0.6 | 4.5 | ||||||||||
Highly liquid | 13.1 | 5.0 | 4.1 | 22.2 | ||||||||||
Less liquid | 2.3 | 1.3 | 3.3 | 6.9 | ||||||||||
Total | 52.4 | 10.7 | 10.2 | 73.3 |
Notes
a | Includes collateral swaps. |
b | Includes financing positions for prime brokerage clients which are reported as customer payables/receivables on-balance sheet. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 165 |
In addition to monitoring and managing key metrics related to the financial strength of the Group, Barclays also subscribe to independent credit rating agency reviews by Standard & Poor’s (S&P), Moody’s, Fitch and Rating and Investment Information (R&I). These ratings assess the creditworthiness of the Group, its subsidiaries and branches and are based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings, funding, liquidity, accounting and governance.
Credit ratingsa | ||||||||||
As at 31 December 2015 | Standard & Poor’s | Moody’s | Fitch | |||||||
Barclays Bank PLC | ||||||||||
Long-term | A- (Stable) | A2 (Stable) | A (Stable) | |||||||
Short-term | A-2 | P-1 | F1 | |||||||
Stand-alone rating | BBB+ | BAA2 | A | |||||||
Barclays PLC | ||||||||||
Long-term | BBB (Stable) | Baa3 (Stable) | A (Stable) | |||||||
Short-term | A-2 | P-3 | F1 |
Barclays’ ratings carry a stable outlook with S&P, Moody’s and Fitch. Fitch affirmed the ratings in December 2015 as part of its periodic review, noting the balance of Barclays’ stable PCB and strong Barclaycard businesses against the Investment Bank and Barclays Non-Core performance.
Credit rating agencies took industry wide actions in 2015 driven by evolving resolution frameworks. This involved the reassessment of the likelihood of sovereign support resulting in downward pressure on senior credit ratings. They also updated their methodologies which provided some mitigation to reflect the subordination of junior debt available to absorb losses ahead of senior bank creditors.
As a consequence, S&P downgraded Barclays PLC, the holding company, by two notches and Barclays Bank PLC, the operating company, by one notch in H115. Moody’s downgraded Barclays PLC by three notches while affirming the rating of Barclays Bank PLC also in H115. There was no impact on Barclays’ stand-alone credit ratings with all credit rating agencies.
During the year, Barclays also solicited issuer ratings from R&I for which they assigned ratings of A- for Barclays PLC and A for Barclays Bank PLC with stable outlooks.
Contractual credit rating downgrade exposure (cumulative cash flow) | ||||||||
Cumulative cash outflow | ||||||||
| One-notch downgrade £bn | | | Two-notch downgrade £bn | | |||
As at 31 December 2015 | ||||||||
Securitisation derivatives | 2 | 3 | ||||||
Contingent liabilities | 1 | 1 | ||||||
Derivatives margining | – | 1 | ||||||
Liquidity facilities | 1 | 1 | ||||||
Total contractual funding or margin requirements | 4 | 6 | ||||||
As at 31 December 2014 | ||||||||
Securitisation derivatives | 5 | 6 | ||||||
Contingent liabilities | 8 | 8 | ||||||
Derivatives margining | – | 1 | ||||||
Liquidity facilities | 1 | 2 | ||||||
Total contractual funding or margin requirements | 14 | 17 |
Note
a | Refers to Standard & Poor’s Stand-Alone Credit Profile (SACP), Moody’s Bank Financial Strength Ratio (BFSR)/Baseline Credit Assessment (BCA) and Fitch Viability Rating (VR). |
166 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Liquidity management at BAGL Group (audited)
Liquidity risk is managed separately at BAGL Group due to local currency, funding and regulatory requirements.
In addition to the Group liquidity pool, as at 31 December 2015, BAGL Group held £6bn (2014: £7bn) of liquidity pool assets against BAGL specific anticipated stressed outflows. The liquidity pool consists of notes and coins, central bank deposits, government bonds and Treasury bills.
The BAGL loan to deposit ratio as at 31 December 2015 was 102% (2014: 102%).
As at 31 December 2015, BAGL had £9bn (2014: £9bn) of wholesale funding outstanding, of which £5bn (2014: £5bn) matures in less than 12 months.
Additional information on liquidity management at BAGL can be found in the Barclays Africa Group Annual Report.
Contractual maturity of financial assets and liabilities (audited)
The table on the next page provides detail on the contractual maturity of all financial instruments and other assets and liabilities. Derivatives (other than those designated in a hedging relationship) and trading portfolio assets and liabilities are included in the ‘on demand’ column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity since they are not held for settlement according to such maturity and will frequently be settled before contractual maturity at fair value. Derivatives designated in a hedging relationship are included according to their contractual maturity.
Financial assets designated at fair value in respect of linked liabilities to customers under investment contracts have been included in other assets and other liabilities as the Group is not exposed to liquidity risk arising from them; any request for funds from creditors would be met by simultaneously liquidating or transferring the related investment.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 167 |
Contractual maturity of financial assets and liabilities (including BAGL) (audited) | ||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2015 | | On demand £m | | | Not more than three months £m | | | Over three months but not more than six | | | Over six months but not more than nine months £m | | | Over nine months but not more than one year £m | | | Over one year but not | |
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten £m |
|
| Over ten years £m |
| Total £m | |||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 49,580 | 131 | – | – | – | – | – | – | – | – | 49,711 | |||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 631 | 380 | – | – | – | – | – | – | – | – | 1,011 | |||||||||||||||||||||||||||||||||
Trading portfolio assets | 77,348 | – | – | – | – | – | – | – | – | – | 77,348 | |||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 5,692 | 46,941 | 1,722 | 1,372 | 583 | 1,021 | 587 | 424 | 867 | 16,172 | 75,381 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 326,772 | 28 | 3 | 1 | 53 | 328 | 61 | 257 | 147 | 59 | 327,709 | |||||||||||||||||||||||||||||||||
Loans and advances to banks | 5,354 | 31,539 | 1,954 | 366 | 468 | 588 | 991 | 43 | 12 | 34 | 41,349 | |||||||||||||||||||||||||||||||||
Loans and advances to customers | 29,117 | 76,337 | 13,935 | 7,084 | 12,332 | 27,616 | 27,318 | 48,707 | 50,737 | 106,034 | 399,217 | |||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 2 | 24,258 | 3,296 | 292 | 205 | 74 | 35 | 1 | 24 | – | 28,187 | |||||||||||||||||||||||||||||||||
Available for sale investments | 467 | 2,396 | 1,792 | 4,936 | 2,088 | 11,537 | 14,659 | 17,898 | 21,445 | 13,049 | 90,267 | |||||||||||||||||||||||||||||||||
Other financial assets | – | 1,304 | – | – | – | 100 | – | – | – | – | 1,404 | |||||||||||||||||||||||||||||||||
Total financial assets | 494,963 | 183,314 | 22,702 | 14,051 | 15,729 | 41,264 | 43,651 | 67,330 | 73,232 | 135,348 | 1,091,584 | |||||||||||||||||||||||||||||||||
Other assetsa | 28,428 | |||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,120,012 | |||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 5,717 | 38,720 | 1,355 | 540 | 335 | 97 | 9 | 67 | 236 | 4 | 47,080 | |||||||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,013 | – | – | – | – | – | – | – | – | – | 1,013 | |||||||||||||||||||||||||||||||||
Customer accounts | 312,921 | 80,114 | 7,605 | 4,253 | 5,304 | 2,845 | 912 | 1,654 | 622 | 2,012 | 418,242 | |||||||||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 66 | 17,346 | 3,479 | 1,975 | 876 | 843 | 52 | – | 398 | – | 25,035 | |||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 33,967 | – | – | – | – | – | – | – | – | – | 33,967 | |||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 319 | 52,185 | 3,152 | 3,470 | 2,317 | 6,093 | 5,458 | 7,446 | 4,139 | 5,533 | 90,112 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 323,786 | 80 | 92 | 49 | 49 | 42 | 13 | 57 | 70 | 14 | 324,252 | |||||||||||||||||||||||||||||||||
Debt securities in issue | 50 | 14,270 | 5,615 | 4,322 | 4,469 | 10,164 | 4,797 | 13,037 | 10,028 | 2,398 | 69,150 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | 2 | – | – | 9 | 28 | 1,254 | 2,994 | 2,194 | 8,741 | 6,245 | 21,467 | |||||||||||||||||||||||||||||||||
Other financial liabilities | – | 2,685 | – | – | – | 1,075 | – | – | – | – | 3,760 | |||||||||||||||||||||||||||||||||
Total financial liabilities | 677,841 | 205,400 | 21,298 | 14,618 | 13,378 | 22,413 | 14,235 | 24,455 | 24,234 | 16,206 | 1,034,078 | |||||||||||||||||||||||||||||||||
Other liabilitiesa | 20,070 | |||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,054,148 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative liquidity gap | (182,878 | ) | (204,964 | ) | (203,560 | ) | (204,127 | ) | (201,776 | ) | (182,925 | ) | (153,509 | ) | (110,634 | ) | (61,636 | ) | 57,506 | 65,864 |
Note
a | Other assets includes balances of £7,364m (2014: £15,574m) and other liabilities includes balances of £5,997m (2014: £13,115m) relating to amounts held for sale. Please refer to Note 44 for details. |
168 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Contractual maturity of financial assets and liabilities (including BAGL) (audited) | ||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2014 | | On demand £m | | | Not more than three months £m | | | Over three months but not more than six | |
| Over six months but not than nine months |
| | Over nine months but not more than one year £m | | | Over one year but not | |
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
|
| Over ten years £m |
| Total £m | |||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 39,466 | 229 | – | – | – | – | – | – | – | – | 39,695 | |||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 828 | 382 | – | – | – | – | – | – | – | – | 1,210 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 114,717 | – | – | – | – | – | – | – | – | – | 114,717 | |||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 5,732 | 3,139 | 1,540 | 797 | 602 | 2,696 | 1,322 | 1,253 | 1,038 | 18,538 | 36,657 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 438,270 | 26 | 6 | 8 | 7 | 204 | 274 | 443 | 439 | 232 | 439,909 | |||||||||||||||||||||||||||||||||||
Loans and advances to banks | 5,875 | 31,138 | 3,236 | 225 | 944 | 404 | 233 | 20 | 36 | – | 42,111 | |||||||||||||||||||||||||||||||||||
Loans and advances to customers | 24,607 | 99,208 | 9,225 | 6,900 | 9,241 | 35,477 | 24,653 | 48,486 | 54,168 | 115,802 | 427,767 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 144 | 117,977 | 9,857 | 2,013 | 941 | 28 | 116 | 109 | 22 | 546 | 131,753 | |||||||||||||||||||||||||||||||||||
Available for sale investments | 513 | 1,324 | 2,045 | 3,576 | 844 | 10,804 | 16,705 | 10,107 | 23,683 | 16,465 | 86,066 | |||||||||||||||||||||||||||||||||||
Other financial assets | – | 1,469 | – | – | – | 176 | – | – | – | – | 1,645 | |||||||||||||||||||||||||||||||||||
Total financial assets | 630,152 | 254,892 | 25,909 | 13,519 | 12,579 | 49,789 | 43,303 | 60,418 | 79,386 | 151,583 | 1,321,530 | |||||||||||||||||||||||||||||||||||
Other assetsa | 36,376 | |||||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,357,906 | |||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 7,978 | 48,155 | 1,041 | 504 | 298 | 187 | 95 | 69 | 57 | 6 | 58,390 | |||||||||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,177 | – | – | – | – | – | – | – | – | – | 1,177 | |||||||||||||||||||||||||||||||||||
Customer accounts | 317,449 | 86,626 | 7,284 | 5,442 | 3,245 | 4,208 | 494 | 1,219 | 713 | 1,024 | 427,704 | |||||||||||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 40 | 111,766 | 7,175 | 2,847 | 1,989 | 119 | 116 | – | 427 | – | 124,479 | |||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 45,124 | – | – | – | – | – | – | – | – | – | 45,124 | |||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 665 | 6,554 | 3,493 | 4,056 | 3,244 | 7,015 | 5,524 | 9,573 | 6,174 | 8,851 | 55,149 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 438,623 | 29 | 7 | 12 | 5 | 62 | 69 | 78 | 268 | 167 | 439,320 | |||||||||||||||||||||||||||||||||||
Debt securities in issue | 10 | 19,075 | 11,146 | 9,712 | 4,791 | 7,568 | 10,560 | 10,350 | 11,376 | 1,511 | 86,099 | |||||||||||||||||||||||||||||||||||
Subordinated liabilities | – | 235 | 48 | 15 | – | 37 | 1,259 | 1,947 | 10,938 | 6,674 | 21,153 | |||||||||||||||||||||||||||||||||||
Other financial liabilities | – | 3,060 | – | – | – | 815 | – | – | – | – | 3,875 | |||||||||||||||||||||||||||||||||||
Total financial liabilities | 811,066 | 275,500 | 30,194 | 22,588 | 13,572 | 20,011 | 18,117 | 23,236 | 29,953 | 18,233 | 1,262,470 | |||||||||||||||||||||||||||||||||||
Other liabilitiesa | 29,478 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,291,948 | |||||||||||||||||||||||||||||||||||||||||||||
Cumulative liquidity gap | (180,914 | ) | (201,522 | ) | (205,807 | ) | (214,876 | ) | (215,869 | ) | (186,091 | ) | (160,905 | ) | (123,723 | ) | (74,290 | ) | 59,060 | 65,958 |
Expected maturity dates do not differ significantly from the contract dates, except for:
§ | trading portfolio assets and liabilities and derivative financial instruments, which may not be held to maturity as part of the Group’s trading strategies |
§ | retail deposits, which are included within customer accounts, are repayable on demand or at short notice on a contractual basis. In practice, these instruments form a stable base for the Group’s operations and liquidity needs because of the broad base of customers, both numerically and by depositor type (see behavioural maturity profile on page 160) and |
§ | financial assets designated at fair value held in respect of linked liabilities, which are managed with the associated liabilities. |
Note
a | Other assets includes balances of £7,364m (2014: £15,574m) and other liabilities includes balances of £5,997m (2014: £13,115m) relating to amounts held for sale. Please refer to Note 44 for details. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 169 |
Contractual maturity of financial liabilities on an undiscounted basis (audited)
The table below presents the cash flows payable by the Group under financial liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows of all financial liabilities (i.e. nominal values).
The balances in the below table do not agree directly to the balances in the consolidated balance sheet as the table incorporates all cash flows, on an undiscounted basis, related to both principal as well as those associated with all future coupon payments.
Derivative financial instruments held for trading and trading portfolio liabilities are included in the on demand column at their fair value.
Financial liabilities designated at fair value in respect of linked liabilities under investment contracts have been excluded from this analysis as the Group is not exposed to liquidity risk arising from them.
Contractual maturity of financial liabilities – undiscounted (including BAGL Group) (audited) | ||||||||||||||||||||||||||||||||||||||
| 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 year but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
|
| Over ten years £m |
|
| Total £m |
| ||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||||
Deposits from banks | 5,717 | 38,721 | 1,357 | 877 | 108 | 70 | 239 | 10 | 47,099 | |||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,013 | – | – | – | – | – | – | – | 1,013 | |||||||||||||||||||||||||||||
Customer accounts | 312,921 | 80,142 | 7,640 | 9,655 | 3,858 | 1,854 | 744 | 3,087 | 419,901 | |||||||||||||||||||||||||||||
Repurchase agreements and other similar secured lending | 66 | 17,349 | 3,482 | 2,853 | 898 | – | 491 | – | 25,139 | |||||||||||||||||||||||||||||
Trading portfolio liabilities | 33,967 | – | – | – | – | – | – | – | 33,967 | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 319 | 52,202 | 3,165 | 5,830 | 11,851 | 7,840 | 4,690 | 8,694 | 94,591 | |||||||||||||||||||||||||||||
Derivative financial instruments | 323,786 | 81 | 94 | 102 | 57 | 59 | 80 | 16 | 324,275 | |||||||||||||||||||||||||||||
Debt securities in issue | 50 | 14,352 | 5,845 | 9,277 | 16,777 | 14,175 | 11,276 | 4,547 | 76,299 | |||||||||||||||||||||||||||||
Subordinated liabilities | 2 | 253 | 403 | 344 | 6,057 | 3,737 | 9,969 | 6,313 | 27,078 | |||||||||||||||||||||||||||||
Other financial liabilities | – | 2,685 | – | – | 1,075 | – | – | – | 3,760 | |||||||||||||||||||||||||||||
Total financial liabilities | 677,841 | 205,785 | 21,986 | 28,938 | 40,681 | 27,735 | 27,489 | 22,667 | 1,053,122 | |||||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||||
Deposits from banks | 7,978 | 48,155 | 1,042 | 804 | 287 | 75 | 62 | 29 | 58,432 | |||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,177 | – | – | – | – | – | – | – | 1,177 | |||||||||||||||||||||||||||||
Customer accounts | 317,449 | 86,659 | 7,364 | 8,854 | 4,851 | 1,399 | 1,046 | 2,218 | 429,840 | |||||||||||||||||||||||||||||
Repurchase agreements and other similar secured lending | 40 | 111,769 | 7,178 | 4,837 | 236 | – | 428 | – | 124,488 | |||||||||||||||||||||||||||||
Trading portfolio liabilities | 45,124 | – | – | – | – | – | – | – | 45,124 | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 665 | 6,561 | 3,508 | 7,378 | 12,854 | 10,285 | 7,170 | 14,273 | 62,694 | |||||||||||||||||||||||||||||
Derivative financial instruments | 438,623 | 30 | 7 | 17 | 137 | 85 | 314 | 341 | 439,554 | |||||||||||||||||||||||||||||
Debt securities in issue | 10 | 19,481 | 11,406 | 14,952 | 19,416 | 11,352 | 12,075 | 2,760 | 91,452 | |||||||||||||||||||||||||||||
Subordinated liabilities | – | 380 | 324 | 171 | 1,403 | 4,339 | 11,218 | 6,683 | 24,518 | |||||||||||||||||||||||||||||
Other financial liabilities | – | 3,060 | – | – | 815 | – | – | – | 3,875 | |||||||||||||||||||||||||||||
Total financial liabilities | 811,066 | 276,095 | 30,829 | 37,013 | 39,999 | 27,535 | 32,313 | 26,304 | 1,281,154 |
170 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Funding risk – liquidity
Maturity of off-balance sheet commitments received and given (audited)
The table below presents the maturity split of the Group’s off-balance sheet commitments received and given at the balance sheet date. The amounts disclosed in the table are the undiscounted cash flows (i.e. nominal values) on the basis of earliest opportunity at which they are available.
Maturity analysis of off-balance sheet commitments received (including BAGL) | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 nine months £m | |
| Over nine months but not more than one year £m |
|
| Over one year but not more than two years £m |
|
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
| | Over ten years £m | |
| Total £m |
| ||||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Guarantees, letters of credit and credit insurance | 6,329 | 138 | 4 | 5 | 32 | 84 | 12 | 97 | 4 | 17 | 6,722 | |||||||||||||||||||||||||||||||||||
Forward starting repurchase agreementsa | – | 392 | – | 73 | – | – | – | – | – | – | 465 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments received | 6,329 | 530 | 4 | 78 | 32 | 84 | 12 | 97 | 4 | 17 | 7,187 | |||||||||||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||||||||||||
Guarantees, letters of credit and credit insurance | 6,571 | 60 | 37 | 38 | 39 | 152 | 138 | 203 | 65 | – | 7,303 | |||||||||||||||||||||||||||||||||||
Forward starting repurchase agreementsa | – | 10,778 | – | – | – | – | – | – | – | – | 10,778 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments received | 6,571 | 10,838 | 37 | 38 | 39 | 152 | 138 | 203 | 65 | – | 18,081 | |||||||||||||||||||||||||||||||||||
Maturity analysis of off-balance sheet commitments given (including BAGL) (audited) | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 nine months £m | |
| Over nine months but not more than one year £m |
|
| Over one year but not more than two years £m |
|
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
| | Over ten years £m | |
| Total £m |
| ||||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 17,421 | 933 | 493 | 140 | 590 | 423 | 158 | 161 | 164 | 138 | 20,621 | |||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 617 | 30 | 10 | – | 61 | 119 | – | 8 | – | – | 845 | |||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreementsa | – | 93 | – | – | – | – | – | – | – | – | 93 | |||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 274,020 | 1,152 | 1,564 | 1,116 | 1,071 | 873 | 554 | 906 | 78 | 35 | 281,369 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments given | 292,058 | 2,208 | 2,067 | 1,256 | 1,722 | 1,415 | 712 | 1,075 | 242 | 173 | 302,928 | |||||||||||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 17,304 | 1,770 | 352 | 162 | 102 | 410 | 55 | 83 | 1,037 | 49 | 21,324 | |||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 869 | 75 | 13 | – | 19 | 115 | – | – | – | – | 1,091 | |||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreementsa | – | 13,735 | – | 121 | – | – | – | – | – | – | 13,856 | |||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 262,540 | 4,045 | 1,722 | 844 | 646 | 3,638 | 877 | 1,846 | 137 | 20 | 276,315 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments given | 280,713 | 19,625 | 2,087 | 1,127 | 767 | 4,163 | 932 | 1,929 | 1,174 | 69 | 312,586 |
Note
a | Forward starting reverse repurchase and repurchase agreements were previously disclosed as loan commitments. Following the business designation of reverse repurchase and repurchase agreements at fair value through profit and loss, new forward starting reverse repurchase and repurchase agreements are within the scope of IAS 39 and are recognised as derivatives on the balance sheet. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 171 |
Risk review
Risk performance
Analysis of operational risk
Operational risk is the risk of direct or indirect impacts resulting from human factors, inadequate or failed internal processes and systems or external events.
This section provides an analysis of the Group’s operational risk profile, including events which have had a significant impact in 2015.
A small reduction in the number of recorded incidents occurring during the period
83%
of the Group’s net reportable operational risk events had a loss value of £50,000 or less
67%
of events are due to external fraud
172 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Operational risk
Operational risk is defined as any instance where there is a potential or actual impact to the Group resulting from inadequate or failed internal processes, people, systems, or from an external event. The impacts to the Group can be financial, including losses or an unexpected financial gain, as well as non-financial such as customer detriment, reputational or regulatory consequences.
All disclosures in this section (page 173) are unaudited.
Operational risks are inherent in all the Group’s business activities and are typical of any large enterprise. It is not cost effective to attempt to eliminate all operational risks and in any event it would not be possible to do so. Small losses from operational risks are expected to occur and are accepted as part of the normal course of business. More material losses are less frequent and the Group seeks to reduce the likelihood of these in accordance with its risk appetite.
The Operational Principal Risk comprises the following Key Risks: External suppliers, Financial crime, Financial reporting, Fraud, Information, Legal, Payments process, People, Premises and security, Taxation, Technology (including cyber security) and Transaction operations. For definitions of these key risks see page 106. In order to ensure complete coverage of the potential adverse impacts on the Group arising from Operational risk, the Operational risk taxonomy extends beyond the Operational key risks listed above to cover areas included within Conduct risk.
This section provides an analysis of the Group’s operational risk profile, including events, those which are above the Bank’s reportable threshold, which have had a financial impact in 2015.
For more information on Conduct risk events please see page 175.
Summary of performance in the period
During 2015, total operational risk lossesa increased to £241.3m (2014: £143.9m) with a 3% reduction in number of recorded events as compared to last year driven by a limited number of events in execution, delivery and process management category.
Losses were mainly due to execution, delivery and process management impacts, external fraud and business disruption and system failures.
Within operational risk a high proportion of risk events have a low associated financial cost and a very small proportion of operational risk events will have a material impact on the financial results of the Group. In 2015, 82.6% (2014: 78.0%) of the Group’s net reportable operational risk events had a value of £50,000 or less and accounted for 11.1% (2014: 30.5%) of the Group’s total net loss impact.
The analysis below presents the Group’s operational risk events by Basel event category:
§ | Execution, delivery and process management impacts increased to £137.5m (2014: £81.3m) and accounted for 57.0% (2014: 56.5%) of overall operational risk losses. The events in this category are typical of the banking industry as a whole where high volumes of transactions are processed on a daily basis. The increases in impacts were largely driven by limited number of events with higher loss values |
§ | External fraud (66.6%) is the category with the highest frequency of events where high volume, low value events are also consistent with industry experience, driven by debit and credit card fraud. This accounted for 27.4% of overall operational risk losses in the year from 29.7% last year. |
The Group’s operational risk profile is informed by bottom-up risk assessments undertaken by each business unit and top-down qualitative review from the Governance Risk and Control Committees for each of the key risks. External fraud and technology are highlighted as key operational risk exposures. Developments of enhanced fraud prevention and transaction profiling tools underway to combat increasing external fraud frequency especially in the credit cards, digital banking, unauthorised trading and social engineering.
Cyber security risk continues to be an area of attention given the increasing sophistication and scope of potential cyber-attack. Risks to technology and Cyber security change rapidly and require continued focus and investment.
For further information see Risk management section pages 106 to 107.
Note
a | Figures include operational risk losses for reportable events having impact of +/- £10,000 and exclude events that are conduct risk, aggregated and boundary events. A boundary event is an operational risk event that results in a credit risk impact. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 173 |
Risk review
Risk performance
Analysis of conduct risk
Conduct risk is the risk that detriment is caused to our customers, clients, counterparties or Barclays because of inappropriate judgement in the execution of our business activities.
This section details Barclays’ conduct risk profile and provides information on key 2015 risk events and risk mitigation actions Barclays has taken.
Conduct risk
5.4/10 on the conduct
Reputation Balanced
Scorecard Measure
Driven by improvements in the following components:
§ | Operates openly and transparently |
§ | Has high quality products and services |
§ | Delivers value for money for customers and clients |
174 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Risk performance
Conduct risk
Conduct risk is the risk that detriment is caused to our customers, clients, counterparties or Barclays because of inappropriate judgement in the execution of our business activities.
All disclosures in this section (pages 175 to 176) are unaudited unless otherwise stated
Doing the right thing in the right way and providing suitable products and services for customers and clients is central to Barclays’ strategy. Barclays is committed to Group-wide changes to business practices, governance and mindset and behaviours so that good customer outcomes and protecting market integrity are integral to the way Barclays operates. Improving our reputation in the market will demonstrate to customers that in Barclays they have a partner they can trust.
The FCA expects Barclays Board and Senior Management, supported by a governance structure and suitable management information to: have oversight of and mitigate conduct risks; consistently promote appropriate conduct outcomes; and drive the embedding of a conduct focused culture.
A key driver in delivering effective structural reform is balancing regulatory requirements and ensuring good outcomes for customers. The structural reform programme expects conduct risks to be managed through existing committees with escalation to the Structural Reform Programme Implementation Steering Committee as appropriate.
Furthermore, Barclays is working to implement new regulatory requirements related to Individual Accountability which apply to all UK banks and certain investment firms. The three new interlinking elements under the new rules on Strengthening Personal Accountability are: Senior Managers Regime, Certification Regime and a new set of Conduct Rules. These represent some of the most important regulatory changes in banking to date. At Barclays, we welcome these changes, and recognise the importance of how strengthening personal accountability will enhance the way we work, and will provide us with a framework to demonstrate our integrity and professionalism.
Reputation risk is designated as a key risk by Barclays. It is defined as the risk of damage to the Group’s brand arising from any association, action or inaction which is perceived by stakeholders to be inappropriate or unethical. While reputation risk can arise anywhere in the business, it is aligned with the Conduct Principal Risk due to the significant correlation between them as issues relating to conduct have material reputation impact.
The Reputation Key Risk Framework governs how Barclays’ businesses and functions implement effective risk management in this area, including identification, evaluation, prioritisation, mitigation, escalation and reporting of current and emerging reputation risks. Forward looking reputation risk horizon scanning is undertaken centrally and validated via ongoing stakeholder dialogue with a variety of relevant opinion formers. This provides an informed and broad view of the external reputation environment and identifies issues and themes likely to impact the reputation of Barclays and the finance sector.
Summary of performance in the period
Throughout 2014 the Conduct Risk Programme designed relevant governance, reporting, training, and definition of roles and responsibilities, and from January 2015 conduct risk management was fully integrated within the businesses.
Following stakeholder feedback additional improvements have been made to enhance conduct risk management in 2015. The main aims have been to:
§ | simplify the governance processes |
§ | improve the quality, completeness and reliability of Management information reported, including reporting against forward looking risk indicators |
§ | improve the quality of Conduct Material Risk Assessment through more explanation of what good looks like and provision of targeted support to both the business and Compliance |
§ | develop more productive relationships with internal stakeholders and other control functions, including colleagues across Compliance |
§ | increase staff awareness of Conduct risk through e-learning |
§ | align Conduct risk management more closely with HR colleagues |
§ | build a relationship with Operational risk to leverage technology and in recognition of the high level of crossover between the two risks |
§ | improve the consideration of Conduct risk in strategy setting and review processes. |
Throughout 2015, conduct risks were raised by businesses for consideration by the RepCo. RepCo has reviewed the risks raised and whether the management actions proposed were appropriate to ensure conduct risks were managed effectively.
Below are general themes of conduct risk and control discussed by Senior Management at the RepCo in 2015.
§ | Barclays continues to be party to litigation and regulatory actions involving claimants who consider that inappropriate conduct by the Group has caused damage. Details in respect of such investigations and related litigation are included in Note 29 Legal, competition and regulatory matters on page (261). |
§ | The need to ensure that customers, and especially vulnerable customers, experiencing financial difficulty are treated appropriately and with due regard to their circumstances as a means to ensuring good customer outcomes. |
§ | There are potential risks arising from conflicts of interest, including those related to the benchmark submission process. While primarily relevant to the Investment Bank, these potential risks may also impact the corporate and retail customer base. Barclays seeks to mitigate these risks by the maintaining of clear operating models and effective identification and management of conflicts of interest controls and supervisory oversight. |
§ | The risk of mismanagement of customer data. |
§ | Due to the volume and pace of strategic change, good customer outcomes are not sufficiently considered and achieved. |
§ | Customers have degraded access to systems and information such as transaction delays, inability to access funds and incorrect information, increased risk of fraudulent activity and payment delays. |
§ | The risk of digitisation that automated channels may not deliver the services that customers expect, the impact on vulnerable customers, fraud and cyber security risk. The need for strong and robust product design to ensure the minimisation or avoidance of adverse customer outcomes through the sale of products, services and advice inappropriate for a target market. |
§ | Client assets sourcebook (CASS) – Due to the unprecedented level of change the firm is to implement over the next 12 months, the current stable environment relating to CASS is affected. |
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Such conduct related themes also carry material reputation risk implications. Another area of reputation risk that continues to intensify relates to public, regulatory and political concerns around the integration of climate change issues and impacts into finance sector operations and strategy.
§ | The intergovernmental conference on climate change in December 2015 agreed to keep global warming to within 2ºC, which will require significant and far reaching policy and regulation to constrain the combustion of fossil fuel reserves. This will impact many sectors, however, there has been significant activity during 2015 on furthering the finance sector’s understanding of the potential financial, operational and strategic implications of climate change. In particular, the Financial Stability Board (FSB) recommended a proposal to the G20 for the creation of an industry-led disclosure task force on climate-related risks in November 2015. This taskforce has been established with the mandate to consider the physical, liability and transition risks associated with climate change; identify effective corporate financial disclosures and develop a set of recommendations for climate-related disclosures. Improving the quality and consistency of climate financial risk disclosures by companies will enable the effective disclosure and analysis of material information by lenders, insurers, investors and other stakeholders. |
Barclays participates in a number of industry groups looking at these issues and is assessing the implications for our global business.
Increasing the awareness of all staff of the importance of good customer outcomes and protecting market integrity has been a priority in 2015. Over 97% of Barclays staff have successfully completed training in this area.
The Group continued to incur significant costs in relation to litigation and conduct matters, please refer to Note 29 Legal, competition and regulatory matters and Note 27 Provisions for further detail. Litigation and conduct charges include customer redress as well as expenses including damages, fines, remediation of affected customers or clients, other penalties or settlements incurred in connection with legal, competition and regulatory matters.
Resolution of these matters remains a necessary and important part of delivering the Group’s strategy, but there are early signs that we are driving better outcomes for customers from a more thoughtful consideration of our customers’ needs.
As a result of increased awareness and early consideration of conduct risk in the business, a number of actions have been taken to improve customer outcomes including:
§ | proactive consideration and management of potential customer detriment associated with Barclays’ strategy to simplify its business and product. For example, change programmes monitoring customers subject to multiple changes including platform and online migrations |
§ | application of more stringent residential mortgage requirements to buy-to-let mortgage applicants, ensuring better lending decisions |
§ | enhanced surveillance monitoring in the Investment Bank identifying and proactively managing activity which appear to cause unusual market impact |
§ | improvements in key areas such as bereavement and power of Attorney and ongoing training to equip staff to support customers in vulnerable circumstances and |
§ | separation plans of Non-Core businesses to consider customer outcomes. |
The Board commissioned a review of Barclays’ business practices in July 2012, led by Sir Anthony Salz. The report contained 34 recommendations that can be categorised broadly under Regulatory, Culture, Board Governance, People Pay and Management Oversight and Risk Management. Please refer to previous annual updates for further detail of past actions taken. All actions to implement the recommendations have been completed and independently validated. The Group continues to monitor the actions to ensure that they become fully embedded throughout the organisation.
To aid monitoring of progress in the management of conduct, a ‘Conduct Reputation’ measure is included within Barclays’ Balanced Scorecard. The conduct measure is developed through a conduct and reputation survey, undertaken by YouGov, across a range of respondents including business and political stakeholders, the media, NGOs, charities and other opinion formers across key geographies (the UK, Europe, Africa, the US and Asia).
In 2015 Barclays made progress on its Conduct measure recording a score of 5.4 (2014: 5.3). ‘Operates openly and transparently’, ‘Has high quality products and services’ and ‘Delivers value for money for customers and clients’ have all improved according to audience perception. Performance on two components, ‘Treats staff well at all levels of the business’ and ‘it can be trusted’ have declined slightly. In terms of target we are below where we would like to be for 2015, although overall progress on the measure is in line with our expectations and puts our 2018 target within reach.
176 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Supervision and regulation
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. These apply to business operations, affect financial returns and include reserve and reporting requirements and prudential and conduct of business regulations. These requirements are set by the relevant central banks and regulatory authorities that authorise, regulate and 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 (BCBS) and the International Organization of Securities Commissions. They also reflect requirements imposed directly by, or derived from, EU legislation.
In the UK, the BoE has responsibility for monitoring the UK financial system as a whole. The day-to-day regulation and supervision of the Group is divided between the PRA – which is established as part of the Bank of England – and the Financial Conduct Authority (FCA).
In addition, the Financial Policy Committee (FPC) of the BoE has significant influence on the prudential requirements that may be imposed on the banking system through powers of direction and recommendation. The FPC has direction powers over leverage ratios and sectoral capital requirements, which it sets in relation to exposures to specific sectors judged to pose a risk to the financial system as a whole and which apply to all UK banks and building societies generally, rather than to the Group specifically. The government has also made the FPC responsible for the Basel III countercyclical capital buffer, introduced in the EU under the CRD and CRR (collectively known as CRD IV).
The Financial Services and Markets Act 2000 (as amended)(FSMA) remains the principal statute under which financial institutions are regulated in the UK. Barclays Bank PLC is authorised under FSMA to carry on a range of regulated activities within the UK. It is also authorised and subject to solo and consolidated prudential supervision by the PRA and subject to conduct regulation and supervision by the FCA.
In its role as supervisor, the PRA seeks to maintain the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers and the financial system. The PRA’s continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of 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 regulation and supervision of conduct matters is the responsibility of the FCA. FCA regulation of the Group is carried out through a combination of continuous assessment; regular thematic and project work based on the FCA’s sector assessments, which analyse the different areas of the market and the risks that may lie ahead; and responding to crystallised risks, seeking to ensure remediation as appropriate.
Global regulatory developments
Regulatory change continues to affect all large financial institutions; globally notably through the G20, Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS), regionally through the EU and nationally, especially in the UK and US. Further changes to prudential requirements and further refinements to the definitions of capital and liquid assets may affect the Group’s planned activities and could increase costs and contribute to adverse impacts on the Group’s earnings. Similarly, increased requirements in relation to capital markets activities and to market conduct requirements may affect the Group’s planned activities and could increase costs and thereby contribute to adverse impacts on the Group’s earnings.
The programme of reform of the global regulatory framework previously agreed by G20 Heads of Government in April 2009 has continued to be taken forward throughout 2015 and into 2016.
The FSB has been designated by the G20 as the body responsible for co-ordinating the delivery of the global reform programme in relation to the financial services industry. It has focused particularly on the risks posed by systemically important financial institutions. In 2011, G20 Heads of Government adopted FSB proposals to reform the regulation of Global Systematically Important Financial Institutions (G-SIFIs), including Global Systematically Important Banks (G-SIBs). A key element of this programme is that G-SIFIs should be capable of being resolved without recourse to taxpayer support. Barclays has been designated a G-SIB by the FSB. G-SIBs are subject to a number of requirements, including additional loss absorption capacity above that required by Basel III standards (see below). The surcharges rise in increments from 1% to 2.5% of risk weighted assets (with an empty category of 3.5% for institutions that increase the extent of the systemic risk they pose which is intended to discourage institutions from developing their business in a way that heightens their systemic nature). This additional buffer must be met with common equity.
In its November 2015 list of G-SIBs, the FSB confirmed Barclays position in a category that requires it to meet a 2% surcharge. The additional loss absorbency requirements apply to those financial institutions identified in November 2014 as G-SIBs and will be phased in starting from January 2016, with full implementation due to have taken place by January 2019. G-SIBs have also been required to meet higher supervisory expectations for data aggregation capabilities since 1 January 2016. In the EU the requirements for a systemic risk buffer have been implemented through mechanisms under CRD IV.
The BCBS issued the final guidelines on Basel III capital and liquidity standards in June 2011, with revisions to counterparty credit risk in July and November 2011. Regulatory liquidity revisions were agreed in January 2013 to the definitions of high quality liquid assets and net cash outflows for the purpose of calculating the Liquidity Coverage Ratio, as well as establishing a timetable for phasing in the standard from January 2016. The requirements of Basel III as a whole are subject to a number of transitional provisions that run to the end of 2018. The Group is, however, primarily subject to the EU’s implementation of the Basel III standard through CRD IV (see below).
The BCBS also maintains a number of active workstreams that will affect the Group. In January 2016, the BCBS endorsed a new market risk framework, including rules made as a result of its fundamental review of the trading book, which will take effect in 2019. The Committee also continues to focus on the consistency of risk weighting of assets and explaining the variations between banks. This includes revisions to the standardised rules for credit risk, counterparty credit risk, CVA volatility risk and operational risk. The Committee is also considering whether to limit the use of internal models in certain areas (for example, removing the Advanced Measurement Approach for operational risk) and applying RWA floors based on the standardised approaches. The final standards for measuring and controlling large exposures were published by the Basel Committee in April 2014 to take effect in 2019. Also in April 2014, the Basel Committee published the final standard for calculating regulatory capital for banks’ exposure to Central Counterparties (CCPs). In conjunction with the International Organization of Securities Commissions, the BCBS published a revised version of the framework for margin requirements for non-centrally cleared derivatives in March 2015, which recommends the phasing in of requirements for initial and variation margin from 1 September 2016.
In November 2015 the FSB finalised its proposals to enhance the loss absorbing capacity of G-SIBs to ensure that there is sufficient loss absorbing and recapitalisation capacity available in resolution to implement an orderly resolution which minimises the impact on financial stability, ensures the continuity of critical functions and avoids exposing taxpayers to losses. To this end, the FSB has set a new minimum requirement for ‘Total Loss Absorbing Capacity’ (TLAC). From 1 January 2019, the FSB will expect Barclays and other G-SIBs to meet a minimum TLAC requirement of 16% of the risk weighted assets of their respective resolution groups, rising to 18% from 1 January 2022. From that time, G-SIBs will also be expected to hold TLAC equivalent to at least 6% of the Basel III leverage ratio denominator, rising to 6.75% from 1 January 2022. The BCBS is also consulting on the capital treatment of banks’ TLAC holdings from other issuers.
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Also in November 2015, Barclays re-adhered to a protocol which was developed by the International Swaps and Derivatives Association (ISDA) in coordination with the FSB to support cross-border resolution and reduce systemic risk. By re-adhering to this protocol Barclays is able, in ISDA Master Agreements and related credit support agreements, as well as certain repo and stock lending agreements, entered into with other adherents, to opt in to different resolution regimes such that cross-default and direct default rights that would otherwise arise under the terms of such agreements would be stayed temporarily (and in some circumstances overridden) on the resolution of one of the parties.
Influence of European legislation
Financial regulation in the UK is to a significant degree shaped and influenced by EU legislation. This provides the structure of the European Single Market, 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 and host regulators.
The EU continues to develop its regulatory structure in response to the financial and Eurozone crises. At the December 2012 meeting of EU Finance Ministers it was agreed to establish a single supervisory mechanism within the Eurozone. The European Central Bank (ECB) has had responsibility for the supervision of the most significant credit institutions, financial holding companies or mixed financial holding companies within the Eurozone since November 2014. The ECB can also extend its supervision to institutions of significant relevance that have established subsidiaries in more than one participating member state and with significant cross-border assets or liabilities.
Notwithstanding the new responsibilities of the ECB, the European Banking Authority (EBA), along with the other European Supervisory Authorities, remains charged with the development of a single rulebook for the EU as a whole and with enhancing co-operation between national supervisory authorities. The European Securities Markets Authority (ESMA) has a similar role in relation to the capital markets and to banks and other firms doing investment and capital markets business. The progressive reduction of national discretion on the part of national regulatory authorities within the EU may lead to the elimination of prudential arrangements that have been agreed with those authorities. This may serve to increase or decrease the amount of capital and other resources that the Group is required to hold. The overall effect is not clear and may only become evident over a number of years. The EBA and ESMA each have the power to mediate between and override national authorities under certain circumstances.
Responsibility for day-to-day supervision remains with national authorities and for banks, like Barclays Bank PLC, that are incorporated in countries that will not participate in the single supervisory mechanism, is expected to remain so. Barclays Bank PLC Italian and French branches are, however, also subject to direct supervision by the ECB.
Basel III and the capital surcharge for G-SIBs have been, or will be, implemented in the EU by CRD IV. The provisions of CRD IV either entered into force automatically on, or had to be implemented in member states by, 1 January 2014. Much of the ongoing and outstanding implementation is expected to be done through binding technical standards being developed by the EBA, that are intended to ensure a harmonised application of rules through the EU, some of which are still in the process of being developed and adopted.
A significant addition to the EU legislative framework for financial institutions has been the Bank Recovery and Resolution Directive (BRRD) which establishes a framework for the recovery and resolution of EU credit institutions and investment firms. The BRRD is intended to implement many of the requirements of the FSB’s ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’. The BRRD entered into force in July 2014. All of the provisions of the BRRD had to be implemented in the law of EU Member States by 1 January 2015 except for those relating to bail-in which had to be implemented in Member States by 1 January 2016.
As implemented, the BRRD gives resolution authorities powers to intervene in and resolve a financial institution that is no longer viable, including through the transfers of business and, when implemented in relevant member states, creditor financed recapitalisation (bail-in within resolution) that allocates losses to shareholders and unsecured and uninsured creditors in their order of seniority, at a regulator determined point of non-viability that may precede insolvency. The concept of bail-in will affect the rights of unsecured creditors subject to any bail-in in the event of a resolution of a failing bank.
The BRRD also requires competent authorities to impose a ‘Minimum Requirement for own funds and Eligible Liabilities’ (‘MREL’) on financial institutions to facilitate the effective exercise of the bail-in tool referred to above. This will have to be co-ordinated with the FSB’s TLAC standards mentioned above and, as set out in more detail below, the BoE has stated that MREL for UK G-SIBs will be set consistently with those standards. The BRRD also requires the development of recovery and resolution plans at group and firm level. The BRRD sets out a harmonised set of resolution tools across the EU, including the power to impose a temporary stay on the rights of creditors to terminate, accelerate or close out contracts. There are also significant funding implications for financial institutions, which include the establishment of pre-funded resolution funds of 1% of covered deposits to be built up over 10 years, although the proposal envisages that national deposit guarantee schemes may be able to fulfil this function (see directly below). The UK Government uses the bank levy to meet the ex ante funding requirements set out in the BRRD.
The Directive on Deposit Guarantee Schemes provides that national deposit guarantee schemes should be pre-funded, with the funds to be raised over a number of years. The funds of national deposit guarantee scheme are to total 0.8% of the covered deposits of its members by the date 10 years after the entry into force of the recast directive. In the UK, the pre-funding requirements of the UK Financial Services Compensation Scheme are met through the bank levy.
In October 2012, a group of experts set up by the European Commission to consider possible reform of the structure of the EU banking sector presented its report. Among other things, the Group recommended the mandatory separation of proprietary trading and other high risk trading activities from other banking activities. The European Commission issued proposals to implement these recommendations in January 2014. These proposals would apply to institutions that have been identified as G-SIBs under CRD IV and envisage, among other things: (i) a ban on proprietary trading in financial instruments and commodities; and (ii) rules on the economic, legal, governance, and operational links between the separated trading entity and the rest of the banking group.
Contemporaneously, the European Commission also adopted proposals to enhance the transparency of shadow banking, especially in relation to securities financing transactions. These proposals have still yet to be considered formally by the European Parliament and by the Council.
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Risk review
Supervision and regulation
The European Market Infrastructure Regulation (EMIR) has introduced requirements designed to improve transparency and reduce the risks associated with the derivatives market, some of which are still to be brought in. When it is fully in force, EMIR will require entities that enter into any form of derivative contract, including interest rate, foreign exchange, equity, credit and commodity derivatives: to report specified details of every derivative contract that they enter to a trade repository (this requirement is already in force); implement risk management standards for all bilateral over-the-counter derivatives trades that are not cleared by a central counterparty (this requirement is also partly in force, but requirements relating to the mandatory provision of margin are to be phased in from 2016); and clear, through a central counterparty, over-the-counter derivatives, but only where those derivatives are subject to a mandatory clearing obligation. The obligation to clear derivatives will only apply to certain counterparties and specified types of derivative. EMIR has potential operational and financial impacts on the Group, including by imposing collateral requirements.
CRD IV aims to complement EMIR by applying higher capital requirements for bilateral, uncleared over-the-counter derivative trades. Lower capital requirements for cleared derivatives trades are only available if the central counterparty through which the trade is cleared is recognised as a ‘qualifying central counterparty’ which has been authorised or recognised under EMIR (in accordance with binding technical standards).
Amendments to the Markets in Financial Instruments Directive (known as MiFID II) came into force in July 2014. These amendments take the form of a directive and a regulation, and will affect many of the investment markets in which the Group operates and the instruments in which it trades, and how it transacts with market counterparties and other customers. Changes to the MiFID regime include the introduction of a new type of trading venue (the organised trading facility), to capture non-equity trading that falls outside the current regime.
Investor protections have been strengthened, and new curbs imposed on high frequency and commodity trading. Pre- and post-trade transparency has been increased, and a new regime for third country firms introduced. The changes also include new requirements for non-discriminatory access to trading venues, central counterparties, and benchmarks, and harmonised supervisory powers and sanctions across the EU. While the final implementation date of MiFID II remains subject to discussions between various European bodies, member states will not have to apply the provisions of MiFID II until 3 January 2017 at the earliest, although recent communications by several European bodies has suggested that this date might be delayed by 12 months. Many of the provisions of MiFID II and its accompanying regulation will be implemented by means of technical standards to be drafted by ESMA. While ESMA has published its final report in respect of some of these technical standards, the impacts on the Group will not be clear until all of the relevant technical standards have been finalised and adopted.
Recent developments in banking law and regulation in the UK have been dominated by legislation designed to ring-fence the retail and SME deposit-taking business of large banks. The content and the impact of this legislation are outlined above. The Banking Reform Act put in place a framework for this ring-fencing and secondary legislation passed in 2014 elaborated on the operation and application of the ring-fence. Ring-fencing rules have been consulted on by the PRA and the FCA and it is expected that final rules will be published during the first half of 2016 which will further determine how ring-fenced banks will be permitted to operate.
In addition to, and complementing a EU-wide stress testing exercise conducted on a sample of EU banks by the EBA, and in response to recommendations from the FPC, the BoE conducted a variant of the EU-wide stress test in 2014. The ‘UK variant’ test explored particular UK macroeconomic vulnerabilities facing the UK banking system. Key parameters of the test – including the design of the UK elements of the stress scenario – were designed by the BoE and approved by the FPC and the PRA. The BoE published key elements of its 2014 stress test in March 2015 and the results of its 2015 stress test on 1 December 2015. The FPC determined that no macroprudential actions on bank capital were required in response to the results of either test.
Both the PRA and the FCA have continued to develop and apply a more assertive approach to supervision and the application of existing standards. This may include application of standards that either anticipate or go beyond requirements established by global or EU standards, whether in relation to capital, leverage and liquidity, resolvability and resolution or matters of conduct. The PRA has implemented the European capital regime under CRD IV in the UK and has required banks to meet a 4.5% Pillar 1 CET1 requirement since 1 January 2015, which is up from 4% in 2014. The PRA has expected Barclays, in common with six other major UK banks and building societies, to meet a 7% CET1 ratio at the level of the consolidated Group since 1 January 2016.
The FCA has retained an approach to enforcement based on credible deterrence that has continued to see significant growth in the size of regulatory fines. The FCA has focused strongly on conduct risk and on customer outcomes and will continue to do so. This has included a focus on the design and operation of products, the behaviour of customers and the operation of markets. This may impact both the incidence of conduct costs and increase the cost of remediation.
On 1 April 2014 the FCA took over the regulation of consumer credit in the UK. This has led to a regulatory regime for consumer credit which is considerably more intensive and intrusive than was the case when consumer credit was regulated by the Office of Fair Trading.
In 2014 the PRA and the FCA consulted on new accountability mechanisms for individuals working in banks, including the introduction of a new ‘Senior Managers Regime’ (aimed at a limited number of individuals with senior management responsibilities within a firm) and a ‘Certification Regime’ (aimed at assessing and monitoring the fitness and propriety of a wider range of employees who could pose a risk of significant harm to the firm or any of its customers). This represents the implementation of recommendations made by the Parliamentary Committee on Banking Standards in this area. The FCA and PRA have published final rules on most aspects of the Senior Managers Regime and the regime will enter into force on 7 March 2016.
Resolution of UK banking groups
The Banking Act 2009 (the Banking Act) provides a regime to allow the BoE (or, in certain circumstances, HM Treasury) to resolve failing banks in the UK, in consultation with the PRA and HM Treasury as appropriate. Under the Banking Act the BoE is given powers to: (i) make share transfer instruments pursuant to which all or some of the securities issued by a UK bank may be transferred to a commercial purchaser; (ii) the power to transfer all or some of the property, rights and liabilities of a UK bank to a commercial purchaser or a ‘bridge bank’, which is a company wholly owned by the BoE; and (iii) transfer the impaired or problem assets of the relevant financial institution to an asset management vehicle to allow them to be managed over time. In addition, under the Banking Act, HM Treasury is given the power to take a bank into temporary public ownership by making one or more share transfer orders in which the transferee is a nominee of HM Treasury or a company wholly owned by HM Treasury. A share transfer instrument or 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. Certain of these powers also extend to companies within the same group as a UK bank.
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The Banking Act also gives the authorities powers to override events of default or termination rights that might otherwise be invoked as a result of the exercise of the resolution powers. The Banking Act powers apply regardless of any contractual restrictions and compensation that may be payable in the context of both share transfer orders and property appropriation.
The resolution powers described above were supplemented with effect from 31 December 2014 by a ‘bail-in’ power introduced under the Banking Reform Act. This power allows for the cancellation or modification of one or more liabilities (with the exception of ‘excluded liabilities’).
Excluded liabilities include (among other things): deposits protected under a deposit insurance scheme, secured liabilities (to the extent that they are secured), client assets and assets with an original maturity of less than seven days which are owed to a credit institution or investment firm. The BoE’s new bail-in powers were brought into force with effect from 1 January 2015.
In a consultation paper published in 2015, the BoE indicated that during 2016 it would notify banks of the final MREL requirements which would apply to them from 1 January 2020, when the regime will become fully effective. The Bank intends to apply MREL standards on a transitional basis from 2016 until that time. As noted above, during the consultation process, the BoE announced that it intends to set MREL for UK G-SIBs consistently with the FSB’s TLAC standards, and will not set any TLAC requirement for a UK G-SIB which is separate from or different to its MREL.
Since 20 February 2015, UK banks and their parents have also been required to include in debt instruments, issued by them under the law of a non-EEA country, terms under which the relevant creditor recognises that the liability is subject to the exercise of bail-in powers by the BoE. Similar terms will be required in contracts governing other liabilities of UK banks and their parents if those liabilities are governed by the law of a non-EEA country, are not excluded liabilities under the Banking Act 2009 and are issued, entered into or arise after 31 December 2015. The PRA has made rules and will be consulting further in relation to contractual recognition of bail-in of liabilities governed by third country laws.
The Banking Act also gives the BoE the power to override, vary, or impose conditions or contractual obligations between a UK bank, its holding company and its group undertakings, in order to enable any transferee or successor bank to operate effectively after any of the resolution tools have been applied. There is also power for HM 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.
The Financial Services Act 2010, among other things, requires the UK regulators to make rules about remuneration and to require regulated firms to have a remuneration policy that is consistent with effective risk management. The Banking Act also amended FSMA to allow the FCA to make rules requiring firms to operate a collective consumer redress scheme to deal with cases of widespread failure by regulated firms to meet regulatory requirements, that may have created consumer detriment.
The PRA has made rules that require authorised firms to draw up recovery plans and resolution packs. Recovery plans are designed to outline credible recovery actions that authorised firms could implement in the event of severe stress in order to restore their business to a stable and sustainable condition. The resolution pack contains detailed information on the authorised firm in question which will be used to develop resolution strategies for that firm, assess its current level of resolvability against the strategy, and to inform work on identifying barriers to the implementation of operational resolution plans.
In addition to establishing the FPC, PRA and FCA, the Financial Services Act 2012 among other things clarifies responsibilities between HM Treasury and the BoE in the event of a financial crisis by giving the Chancellor of the Exchequer powers to direct the BoE where public funds are at risk and there is a serious threat to financial stability. The Financial Services Act 2012 also establishes the objectives and accountabilities of the FPC, PRA and FCA; amends the conditions which need to be met by a firm before it can be authorised; gives the FPC, PRA and FCA additional powers, including powers of direction over unregulated parent undertakings (such as Barclays PLC) where this is necessary to ensure effective consolidated supervision of the Group; and gives the FCA a power to make temporary product intervention rules for a maximum period of six months, if necessary without consultation. The Financial Services Act 2013 also created a new criminal offence relating to the making of a false or misleading statement, or the creation of a false or misleading impression, in connection with the setting of a benchmark.
Structural reform of banking groups
In addition to providing for the bail-in stabilisation power referred to above, the Banking Reform Act requires, among other things: (i) the separation of the retail and SME deposit-taking activities of UK banks in the UK and branches of UK banks in the European Economic Area (EEA) into a legally distinct, operationally separate and economically independent entity, which will not be permitted to undertake a range of activities (so called ring-fencing); (ii) the increase of the loss absorbing capacity of ring-fenced banks and UK headquartered global systemically important banks to levels higher than required under CRD IV and (iii) preference to deposits protected under the Financial Services Compensation Scheme if a bank enters insolvency.
The Banking Reform Act also implements key recommendations of the Parliamentary Commission on Banking Standards. Recommendations that have been implemented include: (i) the establishment of a reserve power for the PRA to enforce full separation of UK banks under certain circumstances; (ii) the creation of a ‘senior manager’s’ regime for senior individuals in the banking and investment banking sectors to ensure better accountability for decisions made; (iii) the establishment of a criminal offence of causing a financial institution to fail; and (iv) the establishment of a regulator for payment systems.
The Banking Reform Act is primarily an enabling statute which provides HM Treasury with the requisite powers to implement the policy underlying the legislation through secondary legislation. Secondary legislation relating to the ring-fencing of banks has now been passed. Parts of the secondary legislation became effective on 1 January 2015 and the rest will come into effect on 1 January 2019 by which date UK banks will be required to be compliant with the structural reform requirements. The PRA published ‘near final’ rules on the legal structure and governance of ring-fenced banks in May 2015 and a consultation paper on post-ring-fencing prudential requirements and intra-group arrangements (among other things) in October 2015. PRA final rules are expected in 2016.
Banks, insurance companies and other financial institutions in the UK are subject to a single compensation scheme (the Financial Services Compensation Scheme – FSCS) which operates when an authorised firm is unable or is likely to be unable to meet claims made against it by its customers because of its financial circumstances. Most deposits made with branches of Barclays Bank PLC within the EEA are covered by the 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 question 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 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.
180 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Risk review
Supervision and regulation
In the US, Barclays PLC, Barclays Bank PLC and their US subsidiaries are subject to a comprehensive regulatory framework involving numerous statutes, rules and regulations, including the International Banking Act of 1978, the Bank Holding Company Act of 1956 (BHC Act), the USA PATRIOT Act of 2001 and the DFA. This legislation regulates the activities of Barclays, including its US banking subsidiaries and the US branches of Barclays Bank PLC, as well as imposing prudential restrictions, such as limits on extensions of credit by Barclays Bank PLC’s US branches and the US banking subsidiaries to a single borrower and to affiliates. The New York and Florida branches of Barclays Bank PLC are subject to extensive federal and state supervision and regulation by the Board of Governors of the Federal Reserve System (FRB) and, as applicable, the New York State Department of Financial Services and the Florida Office of Financial Regulation. Barclays Bank Delaware, a Delaware chartered commercial bank, is subject to supervision and regulation by the Federal Deposit Insurance Corporation (FDIC), the Delaware Office of the State Bank Commissioner and the Consumer Financial Protection Bureau (CFPB). The deposits of Barclays Bank Delaware are insured by the FDIC. The licensing authority of each US branch of Barclays Bank PLC 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 or to revoke or suspend such licence. Such circumstances generally include violations of law, unsafe business practices and insolvency.
Barclays PLC and Barclays Bank PLC are bank holding companies registered with the FRB, which exercises umbrella supervisory authority over Barclays’ US operations. Barclays is required to implement by July 2016 a US intermediate holding company (IHC) which will hold substantially all of Barclays’ US subsidiaries and assets (including Barclays Capital Inc. and Barclays Bank Delaware, other than Barclays’ US branches and certain other assets and subsidiaries). This IHC will also be a US bank holding company and generally regulated as such under the BHC Act. As part of this supervision, the IHC will also generally be subject to substantially similar enhanced prudential supervision requirements as US bank holding companies of similar size, including: (i) regulatory capital requirements and leverage limits; (ii) mandatory stress testing of capital levels , and submission of a capital plan; (iii) supervisory approval of capital distributions by the IHC to Barclays Bank PLC; (iv) additional substantive liquidity requirements, including requirements to conduct monthly internal liquidity stress tests for the IHC (and also, separately, for Barclays Bank PLC’s US branch network), and to maintain a 30-day buffer of highly liquid assets; (v) other liquidity risk management requirements, including compliance with liquidity risk management standards established by the FRB, and maintenance of an independent function to review and evaluate regularly the adequacy and effectiveness of the liquidity risk management practices of Barclays’ combined US operations; and (vi) overall risk management requirements, including a US risk committee and a US chief risk officer. The IHC will also be subject to TLAC requirements pursuant to proposed regulations issued by the Federal Reserve in the fall of 2015. Barclays is well advanced in its plans to transfer the relevant US subsidiaries and assets into a newly incorporated IHC, and to implement the related DFA and other requirements, to meet the prescribed deadlines.
Barclays PLC and Barclays Bank PLC have each elected to be treated as a financial holding company under the BHC Act. Financial holding companies may generally engage in a broader range of financial and related activities, including underwriting and dealing in all types of securities, than are permitted to registered bank holding companies that do not maintain financial holding company status. Financial holding companies such as Barclays PLC and Barclays Bank PLC are required to meet or exceed certain regulatory capital ratios and other requirements to be considered ‘well capitalised’ and be deemed to be ‘well managed’ in order to maintain their status as such. Once established, Barclays’ IHC would also need to meet similar requirements for FHC purposes. Barclays Bank Delaware is also required to meet certain capital ratio requirements and be deemed to be ‘well managed’. In addition, Barclays Bank Delaware must have at least a ‘satisfactory’ rating under the Community Reinvestment Act of 1977 (CRA). Entities ceasing to meet any of these requirements are allotted a period of time in which to restore capital levels or the management or CRA rating. Should the relevant Barclays entities fail to meet the above requirements, during the allotted period of time they could be prohibited from engaging in new types of financial activities or making certain types of acquisitions in the US. If the capital level or rating is not restored, the Group may ultimately be required by the FRB to cease certain activities in the US. More generally, Barclays’ US activities and operations may be subject to other requirements and restrictions by the FRB under its supervisory authority, including with respect to safety and soundness.
Under the Federal Deposit Insurance Act, as amended by the DFA, Barclays and the IHC (once established) are required to act as a source of financial strength for Barclays Bank Delaware. This could, among other things, require Barclays and/or the IHC to inject capital into Barclays Bank Delaware if it fails to meet applicable regulatory capital requirements.
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 countries, nationals and others. The enforcement of these regulations has been a major focus of US government policy relating to financial institutions in recent years. 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.
Barclays’ US securities broker/dealer, investment advisory and investment banking operations are also subject to ongoing supervision and regulation by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and other government agencies and self-regulatory organisations (SROs) as part of a comprehensive scheme of regulation of all aspects of the securities and commodities business under the US federal and state securities laws.
Similarly, Barclays US commodity futures and commodity options-related operations are subject to ongoing supervision and regulation by the Commodity Futures Trading Commission (CFTC), the National Futures Association and other SROs.
Barclays’ US credit card activities are subject to ongoing supervision and regulation by the CFPB, which was established by the DFA. The statute gave the CFPB the authority to examine and take enforcement action against any US financial institution with over $10bn in total assets, such as Barclays Bank Delaware, with respect to its compliance with federal laws and regulations regarding the provision of consumer financial services (including credit card and deposit services) and with respect to ‘unfair, deceptive or abusive acts and practices.’ One of the laws the CFPB enforces is the Credit Card Accountability, Responsibility and Disclosure Act of 2009 which prohibits certain pricing and marketing practices for consumer credit card accounts.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 181 |
The DFA’s ultimate impact on the Group continues to remain uncertain and some rules are not yet fully implemented. In addition, market practices and structures may change in response to the requirements of the DFA in ways that are difficult to predict but that could impact Barclays business. Nonetheless, certain provisions of the DFA are particularly likely to have a significant effect on the Group, including:
§ | Restrictions on proprietary trading and fund-related activities:Theso-called ‘Volcker Rule’ which was promulgated by the relevant US regulatory agencies, including the FRB, the FDIC, the SEC, and the CFTC, prohibits banking entities, including Barclays PLC, Barclays Bank PLC and their various subsidiaries and affiliates, from undertaking certain ‘proprietary trading’ activities and will limit the sponsorship of, and investment in, private equity funds (including non-conforming real estate and credit funds) and hedge funds, in each case broadly defined, by such entities. These restrictions are subject to certain exceptions and exemptions, including exemptions for underwriting, market-making and risk-mitigating hedging activities as well as exemptions applicable to transactions and investments occurring solely outside of the US. As required by the rule, Barclays has developed and implemented an extensive compliance and monitoring programme (both inside and outside of the US) addressing proprietary trading and covered fund activities. These efforts are expected to continue as the FRB and the other relevant US regulatory agencies further implement and monitor these requirements and Barclays may incur additional costs in relation to such efforts. The Volcker Rule is highly complex and its full impact will not be known with certainty until market practices and structures further develop under it. The prohibition on proprietary trading and the requirement to develop an extensive compliance programme came into effect in July 2015. The FRB subsequently extended the compliance period through July 2016 for investments in and relationships with covered funds that were in place prior to 31 December 2013, and indicated that it intends to further extend the compliance period through July 2017. |
§ | Resolution plans:The DFA requires non-bank financial companies supervised by the FRB, such as Barclays, and bank holding companies with total consolidated assets of $50bn or more to submit annually to the FRB, the FDIC, and the Financial Stability Oversight Council (FSOC), a plan for a ‘the firm’s rapid and orderly’ resolution in the event of material financial distress or failure. As required, Barclays submitted its most recent annual US resolution plan to the US regulators on 1 July 2015. |
§ | Regulation of derivatives markets:Among the changes mandated by the DFA is a requirement that many types of derivatives that used to be traded in the over-the-counter markets be traded on an exchange or swap execution facility and centrally cleared through a regulated clearing house. The DFA also mandates that many swaps and security-based swaps be reported and that certain of that information be made available to the public on an anonymous basis. In addition, certain participants in these markets are required to register with the CFTC as ‘swap dealers’ or ‘major swap participants’ and/or, following the compliance date for relevant SEC rules, with the SEC as ‘security based swap dealers’ or ‘major security- based swap participants’. Such registrants would be subject to CFTC and SEC regulation and oversight. SEC finalised the rules for security based swap dealers in August 2015 with an effective date of October 2015. The SEC clarified that registration timing is contingent upon the finalisation of rules under Title VII of DFA in 2016 and no earlier than six months after such date. Barclays Bank PLC has registered as a swap dealer. Entities required to register are subject to business conduct and record-keeping requirements and will be subject to capital and margin requirements. |
In this regard, US prudential regulators and the CFTC recently finalised and issued their respective rules imposing initial and variation margin requirements on transactions in uncleared swaps and security-based swaps. Such requirements will become effective over a period of time beginning in September, 2016. The margin requirements can be expected to increase the costs of over-the-counter derivative transactions and could adversely affect market liquidity.
These registration, execution, clearing, reporting and compliance requirements could adversely affect the business of Barclays Bank PLC and its affiliates, including by reducing market liquidity and increasing the difficulty and cost of hedging and trading activities.
§ | CFPB and consumer protection regulations and enforcement:Since its creation, the CFPB has issued a number of regulations aimed at protecting consumers of financial products including credit card and deposit customers. The CFPB has also initiated several high-profile public actions against financial companies, including major credit card issuers. Settlements of those actions have included monetary penalties, customer remediation requirements, and commitments to modify business practices. |
§ | TLAC in the US:In 2015, the FRB also issued its own TLAC proposal that, while generally following the FSB framework, contains a number of provisions that are more restrictive. If ultimately adopted in its current form, the US TLAC proposal would require the Barclays IHC, subject to certain phase-in provisions between 2019 and 2022: (i) a specified outstanding amount of eligible long term debt (LDT), (ii) a specified outstanding amount of TLAC (consisting of common and preferred equity regulatory capital plus LTD), and (iii) a specified internal common equity buffer, in each case issued to a controlling parent of the IHC. The US TLAC proposal also contains certain other requirements, including that the LTD must be cancellable or convertible into equity of the IHC upon the order to the FRB if the IHC is in default or danger of default and certain other requirements are met. If finally adopted by the FRB, these requirements may increase the funding costs of the IHC. |
Barclays’ operations in South Africa, including Barclays Africa Group Limited, are supervised and regulated mainly by the South African Reserve Bank (SARB), the Financial Services Board (SAFSB) as well as the Department of Trade and Industry (DTI). The SARB oversees the banking industry and follows a risk-based approach to supervision, while the SAFSB oversees financial services such as insurance and investment business and focuses on enhancing consumer protection and regulating market conduct. The DTI regulates consumer credit through the National Credit Regulator, established under the National Credit Act (NCA) 2005, as well as other aspects of consumer protection not regulated under the jurisdiction of the SAFSB through the Consumer Protection Act (CPA) 2008. It is intended that regulatory responsibilities in South Africa will in future be divided between the SARB which will be responsible for prudential regulation and the SAFSB will be responsible for matters of market conduct. The transition to ‘twin peaks’ regulation will commence in 2016. Barclays’ operations in other African countries are primarily supervised and regulated by the central banks in the jurisdictions where Barclays has a banking presence. In some African countries, the conduct of Barclays’ operations and the non-banking activities are also regulated by Financial Market Authorities.
182 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Financial review
Contents
A review of the performance of Barclays, including the key performance indicators, and our businesses’ contribution to the overall performance of the Group.
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Financial review | ||||||||
§ Key performance indicators | 184 | |||||||
§ Consolidated summary income statement | 186 | |||||||
§ Income statement commentary | 187 | |||||||
§ Consolidated summary balance sheet | 189 | |||||||
§ Balance sheet commentary | 190 | |||||||
§ Analysis of results by business | 191 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 183 |
Financial review
In assessing the financial performance of the Group, management uses a range of Key Performance Indicators (KPIs) which focus on the Group’s financial strength, the delivery of sustainable returns and cost management.
Definition | Why is it important and how the Group performed | |||||||
CRD IV fully loaded Common Equity Tier 1 (CET1) ratio
Capital requirements are part of the regulatory framework governing how banks and depository institutions are supervised. Capital ratios express a bank’s capital as a percentage of its risk weighted assets (RWAs) as defined by the PRA.
In the context of CRD IV, the fully loaded CET1 ratio is a measure of capital that is predominantly common equity as defined by the Capital Requirements Regulation. |
The Group’s capital management objective is to maximise shareholders’ value by prudently optimising the level, mix, and distribution to businesses of its capital resources, while maintaining sufficient capital resources to: ensure the Group is well capitalised relative to its minimum regulatory capital requirements set by the PRA and other regulatory authorities; support its credit rating; and support its growth and strategic objectives.
The Group’s CRD IV fully loaded CET1 ratio increased to 11.4% (2014: 10.3%) due to a £44bn reduction in RWAs to £358bn, demonstrating continued progress on the Non-Core rundown together with reductions in the Investment Bank, which was partially offset by a decrease in CET1 capital to £40.7bn (2014: £41.5bn).
| 2015:11.4% 2014: 10.3% 2013: 9.1% | ||||||
Leverage ratio The ratio is calculated as fully loaded Tier 1 Capital divided by leverage exposure. |
The leverage ratio is non-risk based and is intended to act as a supplementary measure to the risk based capital metrics such as the CET1 ratio.
The leverage ratio increased to 4.5% (2014: 3.7%), reflecting a reduction in the leverage exposure of £205bn to £1,028bn and an increase in Tier 1 Capital to £46.2bn (2014: £46.0bn). Tier 1 Capital includes £5.4bn (2014: £4.6bn) of Additional Tier 1 (AT1) securities.
| 2015:4.5% 2014: 3.7% 2013: n/a | ||||||
Return on average shareholders’ equity (RoE) RoE is calculated as profit for the year attributable to ordinary equity holders of the parent, divided by average shareholders’ equity for the year excluding non-controlling and other equity interests.
Adjusted RoE excludes post tax adjusting items for gains on US Lehman acquisition assets, movements in own credit, the revision to the Education, Social Housing and Local Authority (ESHLA) valuation methodology, provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange, the gain on valuation of a component of the defined retirement benefit liability, impairment of goodwill and other assets relating to businesses being disposed, and losses on sale relating to the Spanish, Portuguese and Italian businesses.
Average shareholders’ equity for adjusted
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This measure indicates the return generated by the management of the business based on shareholders’ equity. Achieving a target RoE demonstrates the Group’s ability to execute its strategy and align management’s interests with the shareholders’. RoE lies at the heart of the Group’s capital allocation and performance management process.
Adjusted RoE for the Group decreased to 4.9% (2014: 5.1%) driven by a 3% reduction in Group adjusted attributable profit, as average shareholders’ equity remained in line at £56bn (2014: £56bn).
Statutory RoE for the Group decreased to negative 0.6% (2014: negative 0.2%) driven by an increase in attributable loss. | Group adjusted RoE 2015:4.9%
2014: 5.1% 2013: 4.3%a
Group statutory RoE 2015: (0.6%)
2014: (0.2%) 2013: 1.0% |
Note
a | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage-related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigations and litigation including Foreign Exchange to aid comparability. |
184 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Definition | Why is it important and how the Group performed | |||||||
Operating expenses excluding costs to achieve Defined as adjusted total operating expenses excluding costs to achieve.
Adjusted operating expenses exclude provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange, the gain on valuation of a component of the defined retirement benefit liability, impairment of goodwill and other assets relating to businesses being disposed, and losses on sale relating to the Spanish, Portuguese and Italian businesses. |
Barclays views the active management and control of operating expenses as a key strategic objective.
Adjusted operating expenses excluding costs to achieve of £793m (2014: £1,165m), decreased 4% to £16,205m.
Statutory operating expenses, excluding costs to achieve of £793m (2014: £1,165m), increased 3% to £19,884m.
Operating expenses in the Core business, excluding costs to achieve of £693m (2014: £953m), were broadly in line at £15,106m (2014: £15,105m). |
Group adjusted
2015: £16,205m
2014: £16,904m 2013: £18,511ma
Group statutory
2015: £19,884m
2014: £19,264m 2013: £20,763m
Core
2015: £15,106m
2014: £15,105m 2013: £16,377m
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Non-Core RWAs RWAs are a measure of assets adjusted for associated risks. Risk weightings are established in accordance with the rules as implemented by CRD IV and local regulators. |
Barclays Non-Core was established as a separate unit in 2014 and groups together assets which do not fit with the strategic objectives of the Group. Reducing Non-Core RWAs will rebalance the Group to deliver higher and more sustainable returns.
Non-Core RWAs have reduced from £110bn in December 2013 to £47bn, resulting in an equity allocation of £7.2bn as at December 2015, 13% of the Group total. This is down from £15.1bn as at December 2013, which was 28% of the Group total.
|
Non-Core
2015: £47bn
2014: £75bn 2013: £110bn |
Note
a | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage-related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigation and litigation including Foreign Exchange to aid comparability. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 185 |
Financial review
Consolidated summary income statement
For the year ended 31 December |
| 2015 £m |
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| 2014 £m |
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| 2013a £m |
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| 2012 £m |
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| 2011 £m |
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Continuing operations | ||||||||||||||||||||
Net interest income | 12,558 | 12,080 | 11,600 | 11,654 | 12,201 | |||||||||||||||
Non-interest income net of claims and benefits on insurance contracts | 11,970 | 13,648 | 16,296 | 17,707 | 16,312 | |||||||||||||||
Adjusted total income net of insurance claims | 24,528 | 25,728 | 27,896 | 29,361 | 28,513 | |||||||||||||||
Gain on US Lehman acquisition assets | 496 | 461 | 259 | – | – | |||||||||||||||
Own credit gain/(charge) | 430 | 34 | (220) | (4,579) | 2,708 | |||||||||||||||
Revision of ESHLA valuation methodology | – | (935) | – | – | – | |||||||||||||||
Gain/(loss) on disposal of BlackRock, Inc. investment | – | – | – | 227 | (58) | |||||||||||||||
Gains on debt buy-backs | – | – | – | – | 1,130 | |||||||||||||||
Statutory total income net of insurance claims | 25,454 | 25,288 | 27,935 | 25,009 | 32,292 | |||||||||||||||
Adjusted credit impairment charges and other provisions | (2,114) | (2,168) | (3,071) | (3,340) | (3,802) | |||||||||||||||
Impairment of BlackRock, Inc. investment | – | – | – | – | (1,800) | |||||||||||||||
Statutory credit impairment charges and other provisions | (2,114) | (2,168) | (3,071) | (3,340) | (5,602) | |||||||||||||||
Adjusted operating expenses | (16,998) | (18,069) | (19,720) | (18,562) | (19,289) | |||||||||||||||
Provisions for UK customer redress | (2,772) | (1,110) | (2,000) | (2,450) | (1,000) | |||||||||||||||
Provisions for ongoing investigations and litigation including Foreign Exchange | (1,237) | (1,250) | (173) | – | – | |||||||||||||||
Gain on valuation of a component of the defined retirement benefit liability | 429 | – | – | – | – | |||||||||||||||
Impairment of goodwill and other assets relating to businesses being disposed | (96) | – | (79) | – | (597) | |||||||||||||||
Losses on sale relating to the Spanish, Portuguese and Italian businesses | (3) | – | – | – | – | |||||||||||||||
Statutory operating expenses | (20,677) | (20,429) | (21,972) | (21,012) | (20,886) | |||||||||||||||
Adjusted other net (expenses)/income | (13) | 11 | (24) | 140 | 60 | |||||||||||||||
Losses on sale relating to the Spanish, Portuguese and Italian businesses | (577) | (446) | – | – | – | |||||||||||||||
Losses on acquisitions and disposals | – | – | – | – | (94) | |||||||||||||||
Statutory other net (expenses)/income | (590) | (435) | (24) | 140 | (34) | |||||||||||||||
Statutory profit before tax | 2,073 | 2,256 | 2,868 | 797 | 5,770 | |||||||||||||||
Statutory taxation | (1,450) | (1,411) | (1,571) | (616) | (1,902) | |||||||||||||||
Statutory profit after tax | 623 | 845 | 1,297 | 181 | 3,868 | |||||||||||||||
Statutory (loss)/profit attributable to equity holders of the parent | (394) | (174) | 540 | (624) | 2,924 | |||||||||||||||
Statutory profit attributable to non-controlling interests | 672 | 769 | 757 | 805 | 944 | |||||||||||||||
Statutory profit attributable to other equity holdersb | 345 | 250 | – | – | – | |||||||||||||||
623 | 845 | 1,297 | 181 | 3,868 | ||||||||||||||||
Selected statutory financial statistics | ||||||||||||||||||||
Basic (loss)/earnings per share | (1.9p) | (0.7p) | 3.8p | (4.8p) | 22.9p | |||||||||||||||
Diluted (loss)/earnings per share | (1.9p) | (0.7p) | 3.7p | (4.8p) | 21.9p | |||||||||||||||
Dividends per ordinary share | 6.5p | 6.5p | 6.5p | 6.5p | 6.0p | |||||||||||||||
Return on average tangible shareholders’ equityb | (0.7%) | (0.3%) | 1.2% | (1.4%) | 7.1% | |||||||||||||||
Return on average shareholders’ equityb | (0.6%) | (0.2%) | 1.0% | (1.2%) | 5.9% | |||||||||||||||
Adjusted profit before tax | 5,403 | 5,502 | 5,081 | 7,599 | 5,482 | |||||||||||||||
Adjusted taxation | (1,690) | (1,704) | (2,029) | (2,159) | (1,299) | |||||||||||||||
Adjusted profit after tax | 3,713 | 3,798 | 3,052 | 5,440 | 4,183 | |||||||||||||||
Adjusted profit attributable to equity holders of the parent | 2,696 | 2,779 | 2,295 | 4,635 | 3,239 | |||||||||||||||
Adjusted profit attributable to non-controlling interests | 672 | 769 | 757 | 805 | 944 | |||||||||||||||
Adjusted profit attributable to other equity interestsb | 345 | 250 | – | – | – | |||||||||||||||
3,713 | 3,798 | 3,052 | 5,440 | 4,183 | ||||||||||||||||
Selected adjusted financial statistics | ||||||||||||||||||||
Basic earnings per share | 16.6p | 17.3p | 16.0p | 35.5p | 25.3p | |||||||||||||||
Dividend payout ratio | 39% | 38% | 41% | 18% | 24% | |||||||||||||||
Return on average tangible shareholders’ equityb | 5.8% | 5.9% | 5.1% | 10.6% | 8.1% | |||||||||||||||
Return on average shareholders’ equityb | 4.9% | 5.1% | 4.3% | 9.0% | 6.7% |
The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying consolidated financial statements.
Notes
a | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigations and litigation including Foreign Exchange to aid comparability. |
b | The profit after tax attributable to other equity holders of £345m (2014: £250m) is offset by a tax credit recorded in reserves of £70m (2014: £54m). The net amount of £275m (2014: £196m), along with non-controlling interests (NCI) is deducted from profit after tax in order to calculate earnings per share, return on average tangible shareholders’ equity and return on average shareholders’ equity. |
186 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Financial review
2015 compared to 2014
Statutory profit before tax decreased to £2,073m (2014: £2,256m), adjusted profit before tax decreased 2% to £5,403m.
Statutory total income net of insurance claims increased 1% to £25,454m, including adjusting items for a £496m (2014: £461m) gain on the US Lehman acquisition assets and an own credit gain of £430m (2014: £34m). 2014 statutory total income net of insurance claims included a loss of £935m (2015: nil) relating to a revision to the ESHLA valuation methodology.
Adjusted total income net of insurance claims decreased 5% to £24,528m, as Non-Core income reduced to a net expense of £164m following assets and securities rundown, business sales, including the impact of the sales of the Spanish and UAE retail businesses, and fair value losses on the ESHLA portfolio of £359m (2014: £156m). Core income remained in line at £24,692m (2014: £24,678m) reflecting: a 13% increase to £4,927m in Barclaycard, primarily reflecting growth in US cards; Investment Bank income remaining broadly in line at £7,572m (2014: £7,588m); a 1% reduction in PCB due to the impact of customer redress in, and the sale of, the US Wealth business; and a 2% reduction in Africa Banking as the ZAR depreciated against GBP. On a constant currency basisa income in Africa Banking increased 7% reflecting good growth in Retail and Business Banking and corporate banking in South Africa, and Wealth, Investment Management and Insurance (WIMI).
Net interest income increased 4% to £12,558m, with higher net interest income in PCB, Barclaycard and Non-Core, partially offset by reductions in Africa Banking, the Investment Bank and Head Office. Net interest income for PCB, Barclaycard and Africa Banking increased 5% to £12,024m due to an increase in average customer assets to £287.7bn (2014: £280.0bn) with growth in PCB and Barclaycard, partially offset by reductions in Africa Banking as the ZAR depreciated against GBP. Net interest margin increased 10bps to 4.18% primarily due to growth in interest earning lending within Barclaycard.
Credit impairment charges improved 2% to £2,114m, with a loan loss rate of 47bps (2014: 46bps). This reflected higher recoveries in Europe and the sale of the Spanish business in Non-Core, and lower impairments in PCB due to the benign economic environment in the UK resulting in lower default rates and charges. This was partially offset by a number of single name exposures in the Investment Bank, and increased impairment in Barclaycard reflecting asset growth and updates to impairment model methodologies.
Statutory operating expenses increased 1% to £20,677m. This included adjusting items for additional UK customer redress provisions of £2,772m (2014: £1,110m), £1,237m (2014: £1,250m) of additional provisions for ongoing investigations and litigation including Foreign Exchange, a £429m (2014: nil) gain on valuation of a component of the defined retirement benefit liability, £96m (2014: nil) of impairment of goodwill and other assets relating to businesses being disposed, and £3m (2014: nil) of losses on sale relating to the Spanish, Portuguese and Italian businesses.
Adjusted operating expenses decreased 6% to £16,998m as a result of savings from strategic cost programmes, particularly in the Investment Bank and PCB, in addition to the continued rundown of Non-Core. Total compensation costs decreased 6% to £8,339m, with the Investment Bank reducing 5% to £3,423m, reflecting lower deferred and current year bonus charges and reduced headcount. Reductions in costs to achieve of 32% to £793m, and in litigation and conduct charges of 16% to £378m, were partially offset by costs associated with the implementation of the structural reform programme and a 3% increase in the UK bank levy to £476m.
The statutory cost:income ratio remained in line at 81% (2014: 81%). The adjusted cost:income ratio decreased to 69% (2014: 70%).
Statutory other net expenses increased to £590m (2014: £435m) and included an adjusting item for losses on sale relating to the Spanish, Portuguese and Italian businesses of £577m (2014: £446m).
The tax charge of £1,450m (2014: £1,411m) on statutory profit before tax of £2,073m (2014: £2,256m) represents an effective tax rate of 69.9% (2014: 62.5%). The effective tax rate on adjusted profit before tax of 31.3% (2014: 31.0%) is less than the effective tax rate on statutory profit before tax mainly because it excludes the impact of adjusting items such as non-deductible provisions for ongoing investigations and litigation including Foreign Exchange and provisions for UK customer redress. The adjusted measure of profit before tax is considered to provide a more consistent basis for comparing business performance between periods as it is more representative of the underlying, ongoing performance. Consistent with this, the effective tax rate on adjusted profit before tax is considered a more representative measure of the Group’s underlying, ongoing tax charge.
Note
a | Constant currency results are calculated by converting ZAR results into GBP using the average exchange rate for 2015. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 187 |
Financial review
Income statement commentary
2014 compared to 2013
Statutory profit before tax decreased to £2,256m (2013: £2,868m), adjusted profit before tax increased 8% to £5,502m.
Statutory total income net of insurance claims decreased 9% to £25,288m including adjusting items for an own credit gain of £34m (2013: loss of £220m), a £461m (2013: £259m) gain on the US Lehman acquisition assets and a valuation revision of £935m (2013: nil) relating to changes in discount rates applied in the valuation methodology of the ESHLA loan portfolio held at fair value.
Adjusted total income net of insurance claims decreased 8% to £25,728m, reflecting a 54% reduction in Non-Core following assets and securities rundown and business disposals, a 12% reduction in the Investment Bank, driven by a decrease in the Markets business, particularly Macro, and a 9% reduction in Africa Banking, due to adverse currency movements, partially offset by growth in Barclaycard and PCB.
Net interest income increased 4% to £12,080m, with higher net interest income in PCB, the Investment Bank and Barclaycard, partially offset by reductions in Africa Banking, Head Office and Non-Core. Net interest income for PCB, Barclaycard and Africa Banking increased 4% to £11,435m driven by strong savings income growth in PCB, and volume growth in Barclaycard, partially offset by a reduction in Africa Banking due to currency movements. This resulted in a net interest margin of 4.08% (2013: 4.02%).
Credit impairment charges improved 29% to £2,168m, with a loan loss rate of 46bps (2013: 64bps). This reflected the non-recurrence of impairments on single name exposures, impairment releases on the wholesale portfolio, and improved performance in Europe withinNon-Core. Within the Core business there were lower impairments in PCB due to the improving UK economic environment, particularly impacting Corporate Banking which benefited from one-off releases and lower defaults from large UK corporate clients, and reduced impairments in the Africa Banking South Africa mortgages portfolio.
As a result, statutory net operating income for the Group decreased 7% to £23,120m. Net adjusted operating income excluding movements in own credit, the gains on US Lehman acquisition assets and the revision of the ESHLA valuation methodology decreased 5% to £23,560m.
Statutory operating expenses reduced 7% to £20,429m. This included adjusting items for an additional PPI redress provision of £1,270m, resulting in a full year net charge of £1,110m (2013: £2,000m) in relation to UK customer redress, £1,250m (2013: £173m) of provisions for ongoing investigations and litigation including Foreign Exchange and goodwill impairment of nil (2013: £79m). Adjusted operating expenses decreased 8% to £18,069m, driven by savings from strategic cost programmes, including a 5% reduction in headcount and currency movements. Total compensation costs decreased 8% to £8,891m, with the Investment Bank reducing 9% to £3,620m, reflecting reduced headcount, and lower deferred and current year bonus charges. Costs to achieve were £1,165m (2013: £1,209m) and the UK bank levy was £462m (2013: £504m).
The statutory cost:income ratio increased to 81% (2013: 79%). The adjusted cost:income ratio excluding movements in own credit, the gains on US Lehman acquisition assets, provisions for UK customer redress, the provision for ongoing investigations and litigation including Foreign Exchange, the revision of the ESHLA valuation methodology and goodwill impairment decreased to 70% (2013: 71%).
Statutory other net expense increased to £435m (2013: £24m) including an adjusting item for a loss on the sale of the Spanish business of £446m, which completed on 2 January 2015. In addition, accumulated currency translation reserve losses of approximately £100m were recognised on completion in Q115.
The tax charge was £1,411m (2013: £1,571m) on statutory profit before tax of £2,256m (2013: £2,868m), representing an effective tax rate of 62.5% (2013: 54.8%). The effective tax rate on adjusted profit before tax decreased to 31.0% (2013: 39.9%). 2013 included a charge of £440m relating to the write-down of deferred tax assets in Spain.
188 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Financial review
Consolidated summary balance sheet
As at 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
|
| 2012 £m |
|
| 2011 £m |
| |||||
Assets | ||||||||||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | 86,191 | 106,894 | |||||||||||||||
Items in the course of collection from other banks | 1,011 | 1,210 | 1,282 | 1,473 | 1,812 | |||||||||||||||
Trading portfolio assets | 77,348 | 114,717 | 133,069 | 146,352 | 152,183 | |||||||||||||||
Financial assets designated at fair value | 76,830 | 38,300 | 38,968 | 46,629 | 36,949 | |||||||||||||||
Derivative financial instruments | 327,709 | 439,909 | 350,300 | 485,140 | 559,010 | |||||||||||||||
Available for sale investments | 90,267 | 86,066 | 91,756 | 75,109 | 68,491 | |||||||||||||||
Loans and advances to banks | 41,349 | 42,111 | 39,422 | 41,799 | 48,576 | |||||||||||||||
Loans and advances to customers | 399,217 | 427,767 | 434,237 | 430,601 | 437,355 | |||||||||||||||
Reverse repurchase agreements and other similar secured lending | 28,187 | 131,753 | 186,779 | 176,522 | 153,665 | |||||||||||||||
Other assets | 28,383 | 36,378 | 22,128 | 22,535 | 23,745 | |||||||||||||||
Total assets | 1,120,012 | 1,357,906 | 1,343,628 | 1,512,351 | 1,588,680 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits from banks | 47,080 | 58,390 | 55,615 | 77,345 | 90,905 | |||||||||||||||
Items in the course of collection due to other banks | 1,013 | 1,177 | 1,359 | 1,587 | 969 | |||||||||||||||
Customer accounts | 418,242 | 427,704 | 431,998 | 390,828 | 371,806 | |||||||||||||||
Trading portfolio liabilities | 33,967 | 45,124 | 53,464 | 44,794 | 45,887 | |||||||||||||||
Financial liabilities designated at fair value | 91,745 | 56,972 | 64,796 | 78,561 | 87,997 | |||||||||||||||
Derivative financial instruments | 324,252 | 439,320 | 347,118 | 480,987 | 548,944 | |||||||||||||||
Debt securities in issue | 69,150 | 86,099 | 86,693 | 119,525 | 129,736 | |||||||||||||||
Subordinated liabilities | 21,467 | 21,153 | 21,695 | 24,018 | 24,870 | |||||||||||||||
Repurchase agreements and other similar secured borrowings | 25,035 | 124,479 | 196,748 | 217,178 | 207,292 | |||||||||||||||
Other liabilities | 22,197 | 31,530 | 20,193 | 17,542 | 16,315 | |||||||||||||||
Total liabilities | 1,054,148 | 1,291,948 | 1,279,679 | 1,452,365 | 1,524,721 | |||||||||||||||
Equity | ||||||||||||||||||||
Called up share capital and share premium | 21,586 | 20,809 | 19,887 | 12,477 | 12,380 | |||||||||||||||
Other equity instruments | 5,305 | 4,322 | 2,063 | – | – | |||||||||||||||
Other reserves | 1,898 | 2,724 | 249 | 3,674 | 3,837 | |||||||||||||||
Retained earnings | 31,021 | 31,712 | 33,186 | 34,464 | 38,135 | |||||||||||||||
Total equity excluding non-controlling interests | 59,810 | 59,567 | 55,385 | 50,615 | 54,352 | |||||||||||||||
Non-controlling interests | 6,054 | 6,391 | 8,564 | 9,371 | 9,607 | |||||||||||||||
Total equity | 65,864 | 65,958 | 63,949 | 59,986 | 63,959 | |||||||||||||||
Total liabilities and equity | 1,120,012 | 1,357,906 | 1,343,628 | 1,512,351 | 1,588,680 | |||||||||||||||
Net tangible asset value per share | 275p | 285p | 283p | 349p | 381p | |||||||||||||||
Net asset value per ordinary share | 324p | 335p | 331p | 414p | 446p | |||||||||||||||
Number of ordinary shares of Barclays PLC (in millions) | 16,805 | 16,498 | 16,113 | 12,243 | 12,199 | |||||||||||||||
Year-end US Dollar exchange rate | 1.48 | 1.56 | 1.65 | 1.62 | 1.54 | |||||||||||||||
Year-end Euro exchange rate | 1.36 | 1.28 | 1.20 | 1.23 | 1.19 | |||||||||||||||
Year-end South African Rand exchange rate | 23.14 | 18.03 | 17.37 | 13.74 | 12.52 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 189 |
Financial review
2015 compared to 2014
Total assets
Total assets decreased £238bn to £1,120bn.
Cash and balances at central banks and items in the course of collection from other banks increased £10bn to £51bn, as the cash contribution to the Group liquidity pool was increased.
Trading portfolio assets decreased £37bn to £77bn primarily driven by balance sheet deleveraging resulting in lower securities positions, consistent with client demand in the Investment Bank, and exiting of positions in Non-Core.
Financial assets designated at fair value increased by £39bn to £77bn. During the period, new reverse repurchase agreements in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. This has resulted in an increase of £44bn in this account line. Across fair value and amortised cost classifications, total reverse repurchase agreements have decreased £59bn due to a reduction in matched book trading and general firm financing due to balance sheet deleveraging. Additionally, within financial assets designated at fair value, there was a partial offset by decreases in loans and advances and debt securities.
Derivative financial instrument assets decreased £112bn to £328bn, consistent with the decrease in derivative financial instrument liabilities. This included a £79bn decrease in interest rate derivatives due to net trade reductions and increases in major forward interest rates and a £19bn decrease in foreign exchange derivatives reflecting trade reductions.
Available for sale investments increased £4bn to £90bn due to an increase in government bonds held in the liquidity pool.
Total loans and advances decreased by £29bn to £441bn driven by a net £20bn decrease in settlement and cash collateral balances, a £6bn reclassification of loans to other assets, relating to the Portuguese retail business and Italian retail banking branch network which are now held for sale and a £5bn decrease in Africa reflecting the depreciation of ZAR against GBP. This was partially offset by lending growth of £5bn in Barclaycard.
Reverse repurchase agreements and other similar secured lending decreased £104bn to £28bn reflecting a reduction in matched book trading and general firm financing due to balance sheet deleveraging and as a result of the designation to fair value described in the financial assets designated at fair value comment above.
Total liabilities
Total liabilities decreased £238bn to £1,054bn.
Deposits from banks decreased £11bn to £47bn primarily driven by a £9bn decrease in cash collateral due to lower derivative mark to market.
Customer accounts decreased £10bn to £418bn as a result of reclassification of £4bn to other liabilities relating to the Portuguese retail business and Italian retail banking branch network which are now held for sale, a £7bn reduction in settlement balances, a £3bn decrease in cash collateral due to lower derivative mark to market and a £7bn decrease due to depreciation of ZAR. This is partially offset by £13bn growth within PCB, Barclaycard and Africa.
Trading portfolio liabilities decreased £11bn to £34bn primarily driven by balance sheet deleveraging resulting in lower securities positions, consistent with client demand in the Investment Bank, and exiting of positions in Non-Core.
Financial liabilities designated at fair value increased by £35bn to £92bn. In line with financial assets designated at fair value, the designation of repurchase agreements to fair value resulted in an increase of £45bn during the year. Across fair value and amortised cost classifications, total repurchase agreements have decreased £54bn due to a reduction in matched book trading and general firm financing due to balance sheet deleveraging. Additionally, within financial liabilities designated at fair value, there was a partial offset in debt securities due to reduced funding requirements.
Derivative financial instrument liabilities decreased £115bn to £324bn in line with the decrease in derivative financial assets.
Debt Securities in issue decreased by £17bn to £69bn primarily driven by a decrease in Certificate of Deposits and Bonds and MTNs due to reduced funding requirements.
Subordinated liabilities increased £0.3bn to £21.5bn due to issuances of dated subordinated notes, partially offset by the redemptions of dated and undated subordinated notes, and fair value hedge movements.
Repurchase agreements and other similar secured borrowings decreased £99bn to £25bn reflecting a reduction in matched book trading and general firm financing due to balance sheet deleveraging and as a result of the designation to fair value described in the financial assets designated at fair value comment above.
Shareholders’ equity
Total shareholders’ equity remained flat at £66bn.
Share capital and share premium increased by £0.8bn to £22bn due to the issuance of shares under employee share schemes and the Barclays PLC scrip dividend programme. Other equity instruments increased by £1.0bn to £5.3bn due to issuance of equity accounted AT1 securities to investors.
The available for sale reserve decreased £0.2bn to £0.3bn driven by £0.4bn of losses from changes in the fair value of government bonds, predominantly held in the liquidity pool, £0.1bn of losses from related hedging, £0.4bn of net gains transferred to net profit, partially offset by £0.4bn gains from changes in fair value of equity investments in Visa Europe and an £0.1bn change in insurance liabilities. A tax credit of £0.1bn was recognised in the period relating to these items.
The cash flow hedging reserve decreased £0.6bn to £1.3bn driven by a £0.4bn decrease in the fair value of interest rate swaps held for hedging purposes as interest rate forward curves increased, and £0.2bn of gains recycled to the income statement in line with when the hedged item affects profit or loss, partially offset by a tax credit of £0.1bn.
The currency translation reserve remained stable as the effect of ZAR depreciating against GBP was offset by the appreciation of USD against GBP.
Net tangible asset value per share decreased to 275p (2014: 285p). The decrease was primarily attributable to dividends paid and a decrease in the cash flow hedging reserve as explained.
Capital and indebtedness
The capital and indebtedness tables with respect to Barclays PLC and Barclays Bank PLC that are exhibited to this Annual Report on Form 20-F as Exhibits 99.1 and 99.2, respectively, are incorporated by reference into thisForm 20-F.
190 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Financial review
Analysis of results by business
All disclosures in this section are unaudited unless otherwise stated.
Segmental analysis (audited)
Analysis of adjusted results by business | ||||||||||||||||||||||||||||||||
| Personal and Corporate Banking £m | | | Barclaycard £m | | | Africa Banking £m | |
| Investment Bank £m |
| | Head Office £m | |
| Barclays Core £m |
| | Barclays Non-Core £m | | | Group adjusted results £m | | |||||||||
For the year ended 31 December 2015 | ||||||||||||||||||||||||||||||||
Total income net of insurance claims | 8,726 | 4,927 | 3,574 | 7,572 | (107) | 24,692 | (164) | 24,528 | ||||||||||||||||||||||||
Credit impairment charges and other provisions | (378) | (1,251) | (352) | (55) | – | (2,036) | (78) | (2,114) | ||||||||||||||||||||||||
Net operating income | 8,348 | 3,676 | 3,222 | 7,517 | (107) | 22,656 | (242) | 22,414 | ||||||||||||||||||||||||
Operating expenses | (4,774) | (1,927) | (2,169) | (5,362) | (246) | (14,478) | (873) | (15,351) | ||||||||||||||||||||||||
UK bank levy | (93) | (42) | (52) | (203) | (8) | (398) | (78) | (476) | ||||||||||||||||||||||||
Litigation and conduct | (109) | – | – | (107) | (14) | (230) | (148) | (378) | ||||||||||||||||||||||||
Costs to achieve | (292) | (106) | (29) | (234) | (32) | (693) | (100) | (793) | ||||||||||||||||||||||||
Other (losses)/incomea | (40) | 33 | 7 | – | 5 | 5 | (18) | (13) | ||||||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 3,040 | 1,634 | 979 | 1,611 | (402) | 6,862 | (1,459) | 5,403 | ||||||||||||||||||||||||
Total assets (£bn) | 287.2 | 47.4 | 49.9 | 375.9 | 56.4 | 816.9 | 303.1 | 1,120.0 | ||||||||||||||||||||||||
For the year ended 31 December 2014 | ||||||||||||||||||||||||||||||||
Total income net of insurance claims | 8,828 | 4,356 | 3,664 | 7,588 | 242 | 24,678 | 1,050 | 25,728 | ||||||||||||||||||||||||
Credit impairment charges and other provisions | (482) | (1,183) | (349) | 14 | – | (2,000) | (168) | (2,168) | ||||||||||||||||||||||||
Net operating income | 8,346 | 3,173 | 3,315 | 7,602 | 242 | 22,678 | 882 | 23,560 | ||||||||||||||||||||||||
Operating expenses | (4,951) | (1,727) | (2,244) | (5,504) | (57) | (14,483) | (1,510) | (15,993) | ||||||||||||||||||||||||
UK bank levy | (70) | (29) | (45) | (218) | (9) | (371) | (91) | (462) | ||||||||||||||||||||||||
Litigation and conduct | (54) | – | (2) | (129) | (66) | (251) | (198) | (449) | ||||||||||||||||||||||||
Costs to achieve | (400) | (118) | (51) | (374) | (10) | (953) | (212) | (1,165) | ||||||||||||||||||||||||
Other income/(losses)a | 14 | 40 | 11 | – | (3) | 62 | (51) | 11 | ||||||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 2,885 | 1,339 | 984 | 1,377 | 97 | 6,682 | (1,180) | 5,502 | ||||||||||||||||||||||||
Total assets (£bn) | 285.0 | 41.3 | 55.5 | 455.7 | 49.1 | 886.5 | 471.5 | 1,357.9 | ||||||||||||||||||||||||
For the year ended 31 December 2013b | ||||||||||||||||||||||||||||||||
Total income net of insurance claims | 8,723 | 4,103 | 4,039 | 8,596 | 142 | 25,603 | 2,293 | 27,896 | ||||||||||||||||||||||||
Credit impairment charges and other provisions | (621) | (1,096) | (479) | 22 | 3 | (2,171) | (900) | (3,071) | ||||||||||||||||||||||||
Net operating income | 8,102 | 3,007 | 3,560 | 8,618 | 145 | 23,432 | 1,393 | 24,825 | ||||||||||||||||||||||||
Operating expenses | (5,362) | (1,752) | (2,451) | (6,141) | (103) | (15,809) | (1,929) | (17,738) | ||||||||||||||||||||||||
UK bank levy | (66) | (22) | (42) | (236) | (29) | (395) | (109) | (504) | ||||||||||||||||||||||||
Litigation and conduct | (98) | (34) | – | (31) | (10) | (173) | (96) | (269) | ||||||||||||||||||||||||
Costs to achieve | (384) | (49) | (26) | (190) | (22) | (671) | (538) | (1,209) | ||||||||||||||||||||||||
Other income/(losses)a | 41 | 33 | 8 | – | 4 | 86 | (110) | (24) | ||||||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 2,233 | 1,183 | 1,049 | 2,020 | (15) | 6,470 | (1,389) | 5,081 | ||||||||||||||||||||||||
Total assets (£bn) | 278.5 | 34.4 | 54.9 | 438.0 | 26.6 | 832.4 | 511.2 | 1,343.6 |
Notes
a | Other (losses)/income represents the share of post-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures, and gains on acquisitions. |
b | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage-related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigations and litigation including Foreign Exchange to aid comparability. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 191 |
Financial review
Analysis of results by business
All disclosures in this section are unaudited unless otherwise stated.
Adjusted results reconciliation |
| |||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013a | ||||||||||||||||||||||||||||||||||
For the year ended 31 December |
| Group adjusted results £m |
|
| Adjusting items £m |
|
| Group statutory results £m |
|
| Group adjusted results £m |
|
| Adjusting items £m |
|
| Group statutory results £m |
|
| Group adjusted results £m |
|
| Adjusting items £m |
|
| Group statutory results £m |
| |||||||||
Total income net of insurance claims | 24,528 | 926 | 25,454 | 25,728 | (440 | ) | 25,288 | 27,896 | 39 | 27,935 | ||||||||||||||||||||||||||
Credit impairment charges and other provisions | (2,114 | ) | – | (2,114 | ) | (2,168 | ) | – | (2,168 | ) | (3,071 | ) | – | (3,071 | ) | |||||||||||||||||||||
Net operating income | 22,414 | 926 | 23,340 | 23,560 | (440 | ) | 23,120 | 24,825 | 39 | 24,864 | ||||||||||||||||||||||||||
Operating expenses | (15,351 | ) | 330 | (15,021 | ) | (15,993 | ) | – | (15,993 | ) | (17,738 | ) | (79 | ) | (17,817 | ) | ||||||||||||||||||||
UK bank levy | (476 | ) | – | (476 | ) | (462 | ) | – | (462 | ) | (504 | ) | – | (504 | ) | |||||||||||||||||||||
Litigation and conduct | (378 | ) | (4,009 | ) | (4,387 | ) | (449 | ) | (2,360 | ) | (2,809 | ) | (269 | ) | (2,173 | ) | (2,442 | ) | ||||||||||||||||||
Costs to achieve | (793 | ) | – | (793 | ) | (1,165 | ) | – | (1,165 | ) | (1,209 | ) | – | (1,209 | ) | |||||||||||||||||||||
Other (losses)/incomeb | (13 | ) | (577 | ) | (590 | ) | 11 | (446 | ) | (435 | ) | (24 | ) | – | (24 | ) | ||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 5,403 | (3,330 | ) | 2,073 | 5,502 | (3,246 | ) | 2,256 | 5,081 | (2,213 | ) | 2,868 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Adjusted profit reconciliation | ||||||||||||||||||||||||||||||||||||
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m | a
| |||||||||||||||||||||||||||
Adjusted profit before tax |
| 5,403 | 5,502 | 5,081 | ||||||||||||||||||||||||||||||||
Provisions for UK customer redress |
| (2,772 | ) | (1,110 | ) | (2,000 | ) | |||||||||||||||||||||||||||||
Provisions for ongoing investigations and litigation including Foreign Exchange |
| (1,237 | ) | (1,250 | ) | (173 | ) | |||||||||||||||||||||||||||||
Losses on sale relating to the Spanish, Portuguese and Italian businesses |
| (580 | ) | (446 | ) | – | ||||||||||||||||||||||||||||||
Gain on US Lehman acquisition assets |
| 496 | 461 | 259 | ||||||||||||||||||||||||||||||||
Own credit |
| 430 | 34 | (220 | ) | |||||||||||||||||||||||||||||||
Gain on valuation of a component of the defined retirement benefit liability |
| 429 | – | – | ||||||||||||||||||||||||||||||||
Impairment of goodwill and other assets relating to businesses being disposed |
| (96 | ) | – | (79 | ) | ||||||||||||||||||||||||||||||
Revision of ESHLA valuation methodology |
| – | (935 | ) | – | |||||||||||||||||||||||||||||||
Statutory profit before tax |
| 2,073 | 2,256 | 2,868 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Income by geographic region (audited) | ||||||||||||||||||||||||||||||||||||
Adjusted | Statutory | |||||||||||||||||||||||||||||||||||
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| |||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||||||
UKc | 11,730 | 12,357 | 11,681 | 12,160 | 11,456 | 11,461 | ||||||||||||||||||||||||||||||
Europe | 2,245 | 2,896 | 4,019 | 2,245 | 2,896 | 4,019 | ||||||||||||||||||||||||||||||
Americasd | 6,114 | 5,547 | 6,775 | 6,610 | 6,008 | 7,034 | ||||||||||||||||||||||||||||||
Africa and Middle East | 3,801 | 4,152 | 4,137 | 3,801 | 4,152 | 4,137 | ||||||||||||||||||||||||||||||
Asia | 638 | 776 | 1,284 | 638 | 776 | 1,284 | ||||||||||||||||||||||||||||||
Total | 24,528 | 25,728 | 27,896 | 25,454 | 25,288 | 27,935 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Statutory income from individual countries which represent more than 5% of total income (audited)e |
| |||||||||||||||||||||||||||||||||||
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||||||||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||||||
UK | 12,160 | 11,456 | 11,461 | |||||||||||||||||||||||||||||||||
US | 6,228 | 5,866 | 6,760 | |||||||||||||||||||||||||||||||||
South Africa | 2,727 | 2,915 | 2,884 |
Notes
a | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage-related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigations and litigation including Foreign Exchange to aid comparability. |
b | Other (losses)/income represents the share of post-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures, and gains on acquisitions. |
c | UK adjusted income excludes the impact of an own credit gain of £430m (2014: £34m gain) and ESHLA valuation revision of nil (2014: £935m). |
d | Americas adjusted income excludes the gains on US Lehman acquisition assets of £496m (2014: £461m). |
e | Total income net of insurance claims based on counterparty location. Income from any single external customer does not amount to 10% or greater of the Group’s total income net of insurance claims. |
192 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Core
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Total income net of insurance claims | 24,692 | 24,678 | 25,603 | |||||||||
Credit impairment charges and other provisions | (2,036 | ) | (2,000 | ) | (2,171 | ) | ||||||
Net operating income | 22,656 | 22,678 | 23,432 | |||||||||
Operating expenses | (14,478 | ) | (14,483 | ) | (15,809 | ) | ||||||
UK bank levy | (398 | ) | (371 | ) | (395 | ) | ||||||
Litigation and conduct | (230 | ) | (251 | ) | (173 | ) | ||||||
Costs to achieve | (693 | ) | (953 | ) | (671 | ) | ||||||
Total operating expenses | (15,799 | ) | (16,058 | ) | (17,048 | ) | ||||||
Other net income | 5 | 62 | 86 | |||||||||
Profit before tax | 6,862 | 6,682 | 6,470 | |||||||||
Tax charge | (1,749 | ) | (1,976 | ) | (1,754 | ) | ||||||
Profit after tax | 5,113 | 4,706 | 4,716 | |||||||||
Non-controlling interests | (610 | ) | (648 | ) | (638 | ) | ||||||
Other equity interests | (284 | ) | (194 | ) | – | |||||||
Attributable profit | 4,219 | 3,864 | 4,078 | |||||||||
Balance sheet information | ||||||||||||
Total assets | £816.9bn | £886.5bn | £832.4bn | |||||||||
Risk weighted assets | £311.8bn | £326.6bn | £332.6bn | |||||||||
Leverage exposure | £906.5bn | £955.9bn | n/a | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 123,800 | 123,400 | 129,700 | |||||||||
Performance measures | ||||||||||||
Return on average tangible equity | 10.9% | 11.3% | 14.4% | |||||||||
Average allocated tangible equity | £39.2bn | £34.6bn | £28.4bn | |||||||||
Return on average equity | 9.0% | 9.2% | 11.3% | |||||||||
Average allocated equity | £47.3bn | £42.3bn | £35.9bn | |||||||||
Period end allocated equity | £47.6bn | £44.9bn | £39.0bn | |||||||||
Cost:income ratio | 64% | 65% | 67% | |||||||||
Loan loss rate (bps) | 51 | 49 | 55 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 193 |
Financial review
Analysis of results by business
Personal and
Corporate Banking
£8,726m total income
£3,040m profit before tax
2015 compared to 2014
Profit before tax improved 5% to £3,040m driven by the continued reduction in operating expenses and lower impairment due to the benign economic environment in the UK. The reduction in operating expenses was delivered through strategic cost programmes including the restructure of the branch network and technology improvements to increase automation. Corporate performed strongly with income increasing 5% through growth in both lending and cash management.
PCB results were significantly impacted by customer redress in, and the sale of, the US Wealth business. Excluding the US Wealth business profit before tax improved 12% to £3,277m.
Total income reduced 1% to £8,726m. Excluding the US Wealth business income remained flat. Personal income decreased 3% to £4,054m driven by a reduction in fee income and mortgage margin pressure, partially offset by improved deposit margins and balance growth. Corporate income increased 5% to £3,754m due to balance growth in both lending and deposits and improved deposit margins, partially offset by reduced margins in the lending business. Wealth income reduced 15% to £918m primarily as a result of the impact of customer redress in, and the sale of, the US Wealth business. Excluding the US Wealth business income decreased 2%.
Net interest income increased 2% to £6,438m driven by growth in Corporate balances and the change in the overdraft proposition in June 2014. Net interest margin remained broadly in line at 2.99% (2014: 3.00%) as mortgage margin pressure and lower Corporate lending margins were partially offset by increased margins on Corporate and Personal deposits, and the benefit of the change in the overdraft proposition.
Net fee, commission and other income reduced 10% to £2,288m driven primarily by the impact of the change in the overdraft proposition and customer redress in the US.
Credit impairment charges improved 22% to £378m due to the benign economic environment in the UK resulting in lower default rates and charges across all businesses. The loan loss rate reduced 4bps to 17bps.
Total operating expenses reduced 4% to £5,268m reflecting savings realised from strategic cost programmes relating to restructuring of the branch network and technology improvements, and lower costs to achieve, partially offset by increased litigation and conduct charges.
Loans and advances to customers increased 1% to £218.4bn due to increased Corporate lending.
Total assets increased 1% to £287.2bn driven by the growth in loans and advances to customers.
Customer deposits increased 2% to £305.4bn primarily driven by the Personal and Corporate businesses.
RWAs were broadly flat at £120.4bn (2014: £120.2bn).
2014 compared to 2013
Profit before tax increased 29% to £2,885m driven by 3% growth in Personal income, lower impairment due to the improving economic environment in the UK, and the continued reduction in operating expenses delivered through strategic cost programmes. This resulted in a 2.2% increase in return on average equity to 11.9%. In Personal, income increased £119m alongside significant cost reductions, with the net closure of 72 branches as part of ongoing branch network optimisation, as well as investment in the customer experience across multiple channels. Corporate increased both loans and deposits, and Wealth undertook a substantial reorganisation to reduce the number of target markets while simplifying operations.
Total income increased 1% to £8,828m. Personal income increased 3% to £4,159m due to balance growth and improved savings margins, partially offset by lower fee income. Corporate income was broadly in line at £3,592m (2013: £3,620m), with balance growth in both lending and deposits, offset by margin compression. Wealth income was broadly in line at £1,077m (2013: £1,063m) driven by growth in the UK business, offset by client and market exits as part of the reorganisations in the US and EU businesses, and lower fee income.
Net interest income increased 7% to £6,298m driven by lending and deposit growth and margin improvement. Net interest margin improved 9bps to 3.00% primarily due to the launch of a revised overdraft proposition, which recognises the majority of overdraft income as net interest income as opposed to fee income, and higher savings margins within Personal and Wealth. These factors were partially offset by lower Corporate deposit margins.
Net fee, commission and other income reduced 11% to £2,530m due to the launch of the revised overdraft proposition and lower transactional income in Wealth.
Credit impairment charges improved 22% to £482m and the loan loss rate reduced 7bps to 21bps due to the improving economic environment in the UK, particularly impacting Corporate which benefited from one-off releases and lower defaults from large UK Corporate clients.
Total operating expenses reduced 7% to £5,475m reflecting savings realised from strategic cost programmes relating to restructuring of the branch network and technology improvements to increase automation.
Loans and advances to customers increased 2% to £217.0bn due to mortgage growth and Corporate loan growth.
Total assets increased 2% to £285.0bn driven by the growth in loans and advances to customers.
Customer deposits increased to £299.2bn (2013: £295.9bn).
RWAs increased 2% to £120.2bn primarily driven by growth in mortgage and Corporate lending.
194 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
| 2015 £m |
|
| 2014 £m |
| 2013 £m | ||||
Income statement information | ||||||||||
Net interest income | 6,438 | 6,298 | 5,893 | |||||||
Net fee, commission and other income | 2,288 | 2,530 | 2,830 | |||||||
Total income | 8,726 | 8,828 | 8,723 | |||||||
Credit impairment charges and other provisions | (378) | (482) | (621) | |||||||
Net operating income | 8,348 | 8,346 | 8,102 | |||||||
Operating expenses | (4,774) | (4,951) | (5,362) | |||||||
UK bank levy | (93) | (70) | (66) | |||||||
Litigation and conduct | (109) | (54) | (98) | |||||||
Costs to achieve | (292) | (400) | (384) | |||||||
Total operating expenses | (5,268) | (5,475) | (5,910) | |||||||
Other net (expenses)/income | (40) | 14 | 41 | |||||||
Profit before tax | 3,040 | 2,885 | 2,233 | |||||||
Attributable profit | 2,179 | 2,058 | 1,681 | |||||||
Balance sheet information | ||||||||||
Loans and advances to customers at amortised cost | £218.4bn | £217.0bn | £212.2bn | |||||||
Total assets | £287.2bn | £285.0bn | £278.5bn | |||||||
Customer deposits | £305.4bn | £299.2bn | £295.9bn | |||||||
Risk weighted assets | £120.4bn | £120.2bn | £118.3bn | |||||||
Key facts | ||||||||||
Average LTV of mortgage lendinga | 49% | 52% | 56% | |||||||
Average LTV of new mortgage lendinga | 64% | 65% | 64% | |||||||
Client assetsb | £112.2bn | £148.6bn | £155.3bn | |||||||
Number of branches | 1,362 | 1,488 | 1,560 | |||||||
Number of employees (full time equivalent) | 45,700 | 45,600 | 50,100 | |||||||
Performance measures | ||||||||||
Return on average tangible equity | 16.2% | 15.8% | 12.7% | |||||||
Average allocated tangible equity | £13.6bn | £13.1bn | £13.2bn | |||||||
Return on average equity | 12.1% | 11.9% | 9.7% | |||||||
Average allocated equity | £18.2bn | £17.5bn | £17.3bn | |||||||
Cost:income ratio | 60% | 62% | 68% | |||||||
Loan loss rate (bps) | 17 | 21 | 28 | |||||||
Net interest margin | 2.99% | 3.00% | 2.91% | |||||||
Analysis of total income | £m | £m | £m | |||||||
Personal | 4,054 | 4,159 | 4,040 | |||||||
Corporate | 3,754 | 3,592 | 3,620 | |||||||
Wealth | 918 | 1,077 | 1,063 | |||||||
Total income | 8,726 | 8,828 | 8,723 | |||||||
Analysis of loans and advances to customers at amortised cost | ||||||||||
Personal | £137.0bn | £136.8bn | £133.8bn | |||||||
Corporate | £67.9bn | £65.1bn | £62.5bn | |||||||
Wealth | £13.5bn | £15.1bn | £15.9bn | |||||||
Total loans and advances to customers at amortised cost | £218.4bn | £217.0bn | £212.2bn | |||||||
Analysis of customer deposits | ||||||||||
Personal | £151.3bn | £145.8bn | £140.5bn | |||||||
Corporate | £124.4bn | £122.2bn | £118.5bn | |||||||
Wealth | £29.7bn | £31.2bn | £36.9bn | |||||||
Total customer deposits | £305.4bn | £299.2bn | £295.9bn |
Notes
a | Average LTV of mortgage lending and new mortgage lending calculated on the balance weighted basis. |
b | Includes assets managed or administered by Barclays on behalf of clients including Assets Under Management (AUM), custody assets, assets under administration, and Wealth client deposits and client lending. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 195 |
Financial review
Analysis of results by business
Barclaycard
£4,927m total income
£1,634m profit before tax
2015 compared to 2014
Profit before tax increased 22% to £1,634m. Strong growth was delivered through the diversified consumer and merchant business model with asset growth across all geographies. The cost to income ratio improved to 42% (2014: 43%) whilst investment in business growth continued. The business focus on risk management was reflected in stable 30 day delinquency rates and improved loan loss rates.
Total income increased 13% to £4,927m driven primarily by business growth in US cards and the appreciation of the average USD rate against GBP.
Net interest income increased 16% to £3,520m driven by business growth. Net interest margin also improved to 9.13% (2014: 8.75%) reflecting growth in interest earning lending.
Net fee, commission and other income increased 7% to £1,407m due to growth in payment volumes, partially offset by the impact of rate capping from European Interchange Fee Regulation.
Credit impairment charges increased 6% to £1,251m primarily reflecting asset growth and updates to impairment model methodologies, partially offset by improved performance in UK Cards. Delinquency rates remained broadly stable and the loan loss rate reduced 19bps to 289bps.
Total operating expenses increased 11% to £2,075m due to continued investment in business growth, the appreciation of the average USD rate against GBP and the impact of one-off items, including a write-off of intangible assets of £55m relating to the withdrawal of the Bespoke product.
Loans and advances to customers increased 9% to £39.8bn reflecting growth across all geographies.
Total assets increased 15% to £47.4bn primarily due to the increase in loans and advances to customers.
Customer deposits increased 40% to £10.2bn driven by the deposits funding strategy in the US.
RWAs increased 4% to £41.3bn primarily driven by the growth in the US cards business.
2014 compared to 2013
Profit before tax increased 13% to £1,339m. Strong growth in 2014 was delivered through a diversified consumer and merchant business model, with customer numbers increasing to 29m (2013: 26m) and asset growth across all geographies generating a 6% increase in income. Growth has been managed on a well-controlled cost base, with the business focusing on scale through insourcing of services, consolidation of sites and digitalisation, resulting in an improvement in the cost to income ratio to 43% (2013: 45%). The business focus on risk management is reflected in stable 30 day delinquency rates and falling loan loss rates. The diversified and scaled business model has allowed the business to deliver a strong return on average equity of 16.0% (2013: 15.5%).
Total income increased 6% to £4,356m reflecting growth in the UK consumer and merchant, Germany and US businesses, partially offset by depreciation of average USD against GBP.
Net interest income increased 8% to £3,044m driven by volume growth. Net interest margin decreased to 8.75% (2013: 8.99%) due to a change in product mix and the impact of promotional offers, particularly in the US, partially offset by lower funding costs.
Net fee, commission and other income increased 3% to £1,312m due to growth in payment volumes.
Credit impairment charges increased 8% to £1,183m due to asset growth and enhanced coverage for forbearance. Delinquency rates remained broadly stable and the loan loss rate reduced 24bps to 308bps.
Total operating expenses increased 1% to £1,874m driven by higher costs to achieve of £118m (2013: £49m), partially offset by depreciation of average USD against GBP, VAT refunds, and savings from strategic cost programmes, including insourcing of services, consolidation of sites and digitalisation.
Loans and advances to customers increased 16% to £36.6bn reflecting growth across all geographies, including the impact of promotional offers and the acquisition of portfolios in the US.
Total assets increased 20% to £41.3bn due to the increase in loans and advances to customers.
Customer deposits increased 43% to £7.3bn driven by the deposits funding strategy in the US.
RWAs increased 12% to £39.9bn primarily driven by the growth in loans and advances to customers.
196 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
| 2015 £m |
|
| 2014 £m |
| 2013 £m | ||||||||
Income statement information | ||||||||||||||
Net interest income | 3,520 | 3,044 | 2,829 | |||||||||||
Net fee, commission and other income | 1,407 | 1,312 | 1,274 | |||||||||||
Total income | 4,927 | 4,356 | 4,103 | |||||||||||
Credit impairment charges and other provisions | (1,251) | (1,183) | (1,096) | |||||||||||
Net operating income | 3,676 | 3,173 | 3,007 | |||||||||||
Operating expenses | (1,927) | (1,727) | (1,752) | |||||||||||
UK bank levy | (42) | (29) | (22) | |||||||||||
Litigation and conduct | – | – | (34) | |||||||||||
Costs to achieve | (106) | (118) | (49) | |||||||||||
Total operating expenses | (2,075) | (1,874) | (1,857) | |||||||||||
Other net income | 33 | 40 | 33 | |||||||||||
Profit before tax | 1,634 | 1,339 | 1,183 | |||||||||||
Attributable profit | 1,106 | 938 | 822 | |||||||||||
Balance sheet information | ||||||||||||||
Loans and advances to customers at amortised cost | £39.8bn | £36.6bn | £31.5bn | |||||||||||
Total assets | £47.4bn | £41.3bn | £34.4bn | |||||||||||
Customer deposits | £10.2bn | £7.3bn | £5.1bn | |||||||||||
Risk weighted assets | £41.3bn | £39.9bn | £35.7bn | |||||||||||
Key facts | ||||||||||||||
30 days arrears rates – UK cards | 2.3% | 2.5% | 2.4% | |||||||||||
30 days arrears rates – US cards | 2.2% | 2.1% | 2.1% | |||||||||||
Total number of Barclaycard consumer customers | 28.2m | 29.1m | 26.3m | |||||||||||
Total number of Barclaycard business clients | 341,000 | 340,000 | 350,000 | |||||||||||
Value of payments processed | £293bn | £257bn | £236bn | |||||||||||
Number of employees (full time equivalent) | 13,100 | 12,200 | 11,000 | |||||||||||
Performance measures | ||||||||||||||
Return on average tangible equity | 22.3% | 19.9% | 19.9% | |||||||||||
Average allocated tangible equity | £5.0bn | £4.7bn | £4.1bn | |||||||||||
Return on average equity | 17.7% | 16.0% | 15.5% | |||||||||||
Average allocated equity | £6.3bn | £5.9bn | £5.3bn | |||||||||||
Cost:income ratio | 42% | 43% | 45% | |||||||||||
Loan loss rate (bps) | 289 | 308 | 332 | |||||||||||
Net interest margin | 9.13% | 8.75% | 8.99% |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 197 |
Financial review
Analysis of results by business
Africa Banking
£3,574m total income net
of insurance claims
£979m profit before tax
2015 compared to 2014
Profit before tax decreased 1% to £979m and total income net of insurance claims decreased 2% to £3,574m. The ZAR depreciated against GBP by 10% based on average rates and by 28% based on the closing exchange rate in 2015. The deterioration was a significant contributor to the movement in the reported results of Africa Banking and therefore the discussion of business performance below is based on results on a constant currency basis.
Results on a constant currency basis
Profit before tax increased 11% to £979m reflecting an increase of 18% in operations outside South Africa and an increase of 9% in South Africa despite the challenging macroeconomic environment. Good growth was delivered in the focus areas of Retail and Business Banking (RBB) and corporate banking in South Africa, and Wealth, Investment Management and Insurance (WIMI), whilst performance in the corporate business outside South Africa was impacted by higher impairment.
Total income net of insurance claims increased 7% to £3,574m.
Net interest income increased 8% to £2,066m driven by higher average customer advances in Corporate and Investment Banking (CIB) and strong growth in customer deposits in RBB. Net interest margin increased 11bps to 6.06% primarily due to improved asset margins in retail in South Africa.
Net fee, commission and other income increased 5% to £1,668m reflecting increased transactional income in RBB, partially offset by lower investment banking income in South Africa.
Credit impairment charges increased 11% to £352m driven by an increase in single name exposures and additional coverage on performing loans. The loan loss rate increased 16bps to 109bps.
Total operating expenses increased 5% to £2,250m reflecting inflationary impacts, partially offset by savings from strategic cost programmes including the restructure of the branch network, technology improvements and property rationalisation.
Loans and advances to customers increased 8% to £29.9bn driven by strong CIB growth.
Total assets increased 14% to £49.9bn primarily due to the increase in loans and advances to customers.
Customer deposits increased 11% to £30.6bn reflecting strong growth in the RBB business.
RWAs increased 8% to £33.9bn primarily due to an increase in corporate lending.
2014 compared to 2013
On a reported basis, total income net of insurance claims decreased 9% to £3,664m and profit before tax decreased 6% to £984m. Based on average rates, the ZAR depreciated against GBP by 18% in 2014. The deterioration was a significant contributor to the movement in the reported results of Africa Banking. The discussion of business performance below is based on results on a constant currency basis unless otherwise stated.
Results on a constant currency basis
Profit before tax increased 13% to £984m, reflecting good growth in Corporate and Investment Banking (CIB) and Retail and Business Banking (RBB). CIB experienced strong income growth, driven by the corporate banking business outside South Africa and improved investment banking trading performance across Africa. Continued progress was made on the RBB South Africa turnaround strategy, with increased net fee and commission income growth in the second half of the year, and Wealth, Investment Management and Insurance (WIMI) delivered strong growth outside South Africa due to expansion initiatives.
Total income net of insurance claims increased 7% to £3,664m.
Net interest income increased 9% to £2,093m, primarily driven by higher average loans and advances to customers in CIB and growth in customer deposits in RBB in South Africa. Net interest margin on a reported basis increased 14bps to 5.95% following the rise in the South African benchmark interest rate and the favourable impact of higher deposit margins, partially offset by lower rates outside South Africa.
Net fee, commission and other income increased 4% to £1,741m mainly reflecting increased RBB transactions in South Africa.
Credit impairment charges decreased 14% to £349m and on a reported basis the loan loss rate improved 35bps to 93bps, driven by reduced impairments in the South Africa mortgages portfolio and business banking, partially offset by increased impairments in the card portfolio.
Total operating expenses increased 8% to £2,342m largely reflecting inflationary increases, resulting in higher staff costs and increased investment spend on key initiatives, including higher costs to achieve of £51m (2013: £23m), partially offset by savings from strategic cost programmes.
Loans and advances to customers increased 5% to £35.2bn primarily driven by strong corporate banking growth across Africa in CIB and limited growth in RBB, mainly due to a modest reduction in the South Africa mortgages portfolio.
Total assets increased 5% to £55.5bn due to the increase in loans and advances to customers.
Customer deposits increased 5% to £35.0bn reflecting strong growth in the South African RBB business.
RWAs increased 1% to £38.5bn on a reported basis, primarily driven by growth in loans and advances to customers, partially offset by the depreciation of ZAR against GBP.
198 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Constant currencya | ||||||||||||||||||||
| 2015 £m |
|
| 2014 £m |
| 2013 £m | 2015 £m | 2014 £m | ||||||||||||
Income statement information | ||||||||||||||||||||
Net interest income | 2,066 | 2,093 | 2,245 | 2,066 | 1,908 | |||||||||||||||
Net fee, commission and other income | 1,668 | 1,741 | 1,979 | 1,668 | 1,583 | |||||||||||||||
Total income | 3,734 | 3,834 | 4,224 | 3,734 | 3,491 | |||||||||||||||
Net claims and benefits incurred under insurance contracts | (160) | (170) | (185) | (160) | (155) | |||||||||||||||
Total income net of insurance claims | 3,574 | 3,664 | 4,039 | 3,574 | 3,336 | |||||||||||||||
Credit impairment charges and other provisions | (352) | (349) | (479) | (352) | (317) | |||||||||||||||
Net operating income | 3,222 | 3,315 | 3,560 | 3,222 | 3,019 | |||||||||||||||
Operating expenses | (2,169) | (2,244) | (2,451) | (2,169) | (2,051) | |||||||||||||||
UK bank levy | (52) | (45) | (42) | (52) | (45) | |||||||||||||||
Litigation and conduct | – | (2) | – | – | (2) | |||||||||||||||
Costs to achieve | (29) | (51) | (26) | (29) | (46) | |||||||||||||||
Total operating expenses | (2,250) | (2,342) | (2,519) | (2,250) | (2,144) | |||||||||||||||
Other net income | 7 | 11 | 8 | 7 | 10 | |||||||||||||||
Profit before tax | 979 | 984 | 1,049 | 979 | 885 | |||||||||||||||
Attributable profit | 332 | 360 | 356 | 332 | 320 | |||||||||||||||
Balance sheet information | ||||||||||||||||||||
Loans and advances to customers at amortised cost | £29.9bn | £35.2bn | £34.9bn | £29.9bn | £27.6bn | |||||||||||||||
Total assets | £49.9bn | £55.5bn | £54.9bn | £49.9bn | £43.8bn | |||||||||||||||
Customer deposits | £30.6bn | £35.0bn | £34.6bn | £30.6bn | £27.6bn | |||||||||||||||
Risk weighted assets | £33.9bn | £38.5bn | £38.0bn | £33.9bn | £31.3bn | |||||||||||||||
Key facts | ||||||||||||||||||||
Average LTV of mortgage portfoliob | 58.4% | 59.9% | 62.3% | |||||||||||||||||
Average LTV of new mortgage lendingb | 74.7% | 74.8% | 74.9% | |||||||||||||||||
Number of employees (full time equivalent) | 44,400 | 45,000 | 45,900 | |||||||||||||||||
Performance measures | ||||||||||||||||||||
Return on average tangible equity | 11.7% | 12.9% | 11.3% | |||||||||||||||||
Average allocated tangible equity | £2.8bn | £2.8bn | £3.2bn | |||||||||||||||||
Return on average equity | 8.7% | 9.3% | 8.1% | |||||||||||||||||
Average allocated equity | £3.8bn | £3.9bn | £4.4bn | |||||||||||||||||
Cost:income ratio | 63% | 64% | 62% | |||||||||||||||||
Loan loss rate (bps) | 109 | 93 | 128 | |||||||||||||||||
Net interest margin | 6.06% | 5.95% | 5.81% |
Notes
a | Constant currency results are calculated by converting ZAR results into GBP using the average 2015 exchange rate for the income statement and the closing 2015 exchange rate for the balance sheet to eliminate the impact of movement in exchange rates between the two periods. |
b | Average LTV of mortgage portfolio and new mortgage lending calculated on the balance weighted basis. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 199 |
Financial review
Analysis of results by business
Investment Bank
£7,572m total income £1,611m profit before tax
|
2015 compared to 2014
Profit before tax increased 17% to £1,611m. Income remained flat despite reductions in RWAs. Focusing on its home markets of the UK and US, the business continued to build on existing strengths in the face of challenging market conditions. Costs decreased as a result of improved cost efficiency and a reduction in costs to achieve.
Total income was broadly flat at £7,572m (2014: £7,588m), including the appreciation of the average USD rate against GBP.
Banking income was flat at £2,529m (2014: £2,528m). Investment Banking fee income reduced 1% to £2,093m driven by lower equity underwriting fees, partially offset by higher financial advisory and debt underwriting fees. Lending income increased to £436m (2014: £417m) due to lower losses on fair value hedges.
Markets income was broadly flat at £5,030m (2014: £5,040m). Credit income decreased 5% to £995m driven by lower income in securitised products as a result of the accelerated strategic repositioning in this asset class and lower income from distressed credit. This was partially offset by higher income as a result of client driven credit flow trading. Equities income decreased 2% to £2,001m driven by lower client activity in EMEA in equity derivatives, partially offset by higher performance in cash equities. Macro income increased 4% to £2,034m due to higher income in rates and currency products reflecting increased market volatility and client activity.
Credit impairment charges of £55m (2014: release of £14m) arose from a number of single name exposures.
Total operating expenses decreased 5% to £5,906m reflecting a 5% reduction in compensation costs to £3,423m and lower costs to achieve. Further cost savings were achieved from strategic cost programmes, including business restructuring, operational streamlining and real estate rationalisation, partially offset by the appreciation of the average USD rate against GBP.
Derivative financial instrument assets and liabilities decreased 25% to £114.3bn and 24% to £122.2bn respectively, due to net trade reduction and increases in major interest rate forward curves.
Trading portfolio assets decreased 31% to £65.1bn primarily driven by balance sheet deleveraging, resulting in lower securities positions.
Total assets decreased 18% to £375.9bn due to a decrease in derivative financial instrument assets, trading portfolio assets, and settlement and cash collateral balances within loans and advances to banks and customers.
RWAs decreased 12% to £108.3bn mainly due to a reduction in securities and derivatives, and improved RWA efficiency.
2014 compared to 2013
Profit before tax decreased 32% to £1,377m. The Investment Bank continues to make progress on its origination-led strategy, building on leading positions in its home markets of the UK and US, while driving cost savings and RWA efficiencies. The business is focused on a simpler product set in Markets, which will enable it to build on existing strengths and adapt to regulatory developments. The business continued to execute this strategy despite difficult market-making conditions and continued low levels of activity. This has particularly impacted credit and interest rate products, resulting in an income decline across the Markets businesses. This decline was partially offset by improved banking performance and significant cost reductions as a result of savings from strategic cost programmes.
Total income decreased 12% to £7,588m, including the impact of depreciation of average USD against GBP. Banking income increased 2% to £2,528m. Investment Banking fee income decreased 2% to £2,111m driven by lower debt underwriting fees, partially offset by higher financial advisory and equity underwriting fees. Lending income increased to £417m (2013: £325m) due to lower fair value losses on hedges and higher net interest and fee income.
Markets income decreased 18% to £5,040m. Credit decreased 17% to £1,044m driven by reduced volatility and client activity, with lower income in distressed credit, US high yield and US high grade products. Equities decreased 11% to £2,046m due to declines in cash equities and equity derivatives, reflecting lower client volumes, partially offset by higher income in equity financing. Macro decreased 24% to £1,950m reflecting subdued client activity in rates and lower volatility in currency markets in the first half of the year.
Net credit impairment release of £14m (2013: £22m) arose from a number of single name exposures.
Total operating expenses decreased 6% to £6,225m reflecting a 9% reduction in compensation costs to £3,620m, savings from strategic cost programmes, including business restructuring, continued rationalisation of the technology platform and real estate infrastructure, and depreciation of average USD against GBP. This was partially offset by increased costs to achieve of £374m (2013: £190m) and litigation and conduct charges.
Loans and advances to customers and banks increased 2% to £106.3bn driven by an increase in cash collateral and lending, partially offset by a reduction in settlement balances due to reduced activity.
Derivative financial instrument assets and liabilities increased 40% to £152.6bn and 38% to £160.6bn respectively, driven by decreases in predominantly GBP, USD and EUR forward interest rates, and strengthening of USD against major currencies.
Reverse repurchase agreements and other similar secured lending decreased 18% to £64.3bn due to decreased match book trading and funding requirements.
Total assets increased 4% to £455.7bn due to an increase in derivative financial instrument assets, partially offset by a decrease in reverse repurchase agreements and other similar secured lending, and financial assets at fair value.
RWAs decreased 2% to £122.4bn primarily driven by risk reductions in the trading book, partially offset by the implementation of a revised credit risk model for assessing counterparty probability of default.
200 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Net interest income | 588 | 647 | 393 | |||||||||
Net trading income | 3,859 | 3,735 | 4,969 | |||||||||
Net fee, commission and other income | 3,125 | 3,206 | 3,234 | |||||||||
Total income | 7,572 | 7,588 | 8,596 | |||||||||
Credit impairment (charges)/releases and other provisions | (55 | ) | 14 | 22 | ||||||||
Net operating income | 7,517 | 7,602 | 8,618 | |||||||||
Operating expenses | (5,362 | ) | (5,504 | ) | (6,141 | ) | ||||||
UK bank levy | (203 | ) | (218 | ) | (236 | ) | ||||||
Litigation and conduct | (107 | ) | (129) | (31 | ) | |||||||
Costs to achieve | (234 | ) | (374 | ) | (190 | ) | ||||||
Total operating expenses | (5,906 | ) | (6,225 | ) | (6,598 | ) | ||||||
Profit before tax | 1,611 | 1,377 | 2,020 | |||||||||
Attributable profit | 804 | 397 | 1,308 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised costa | £92.2bn | £106.3bn | £104.5bn | |||||||||
Trading portfolio assets | £65.1bn | £94.8bn | £96.6bn | |||||||||
Derivative financial instrument assets | £114.3bn | £152.6bn | £108.7bn | |||||||||
Derivative financial instrument liabilities | £122.2bn | £160.6bn | £116.6bn | |||||||||
Reverse repurchase agreements and other similar secured lendingb | £25.5bn | £64.3bn | £78.2bn | |||||||||
Financial assets designated at fair valueb | £48.1bn | £8.9bn | £16.5bn | |||||||||
Total assets | £375.9bn | £455.7bn | £438.0bn | |||||||||
Risk weighted assets | £108.3bn | £122.4bn | £124.4bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 19,800 | 20,500 | 22,600 | |||||||||
Performance measures | ||||||||||||
Return on average tangible equity | 6.0% | 2.8% | 8.5% | |||||||||
Average allocated tangible equity | £13.9bn | £14.6bn | £15.3bn | |||||||||
Return on average equity | 5.6% | 2.7% | 8.2% | |||||||||
Average allocated equity | £14.8bn | £15.4bn | £15.9bn | |||||||||
Cost:income ratio | 78% | 82% | 77% | |||||||||
Analysis of total income | ||||||||||||
Investment banking fees | 2,093 | 2,111 | 2,160 | |||||||||
Lending | 436 | 417 | 325 | |||||||||
Banking | 2,529 | 2,528 | 2,485 | |||||||||
Credit | 995 | 1,044 | 1,257 | |||||||||
Equities | 2,001 | 2,046 | 2,297 | |||||||||
Macro | 2,034 | 1,950 | 2,580 | |||||||||
Markets | 5,030 | 5,040 | 6,134 | |||||||||
Banking & Markets | 7,559 | 7,568 | 8,619 | |||||||||
Other | 13 | 20 | (23 | ) | ||||||||
Total income | 7,572 | 7,588 | 8,596 |
Notes
a | As at 31 December 2015 loans and advances included £74.8bn (2014: £86.4bn) of loans and advances to customers (including settlement balances of £18.6bn (2014: £25.8bn) and cash collateral of £24.8bn (2014: £32.2bn)) and loans and advances to banks of £17.4bn (2014: £19.9bn) (including settlement balances of £1.6bn (2014: £2.7bn) and cash collateral of £5.7bn (2014: £6.9bn)). |
b | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. Included within financial assets designated at fair value are reverse repurchase agreements designated at fair value of £42.5bn (2014: £3.4bn). |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 201 |
Financial review
Analysis of results by business
Head Office
2015 compared to 2014
The loss before tax of £402m (2014: profit of £97m) was primarily due to the net expense from Treasury operations and costs relating to the implementation of the structural reform programme.
Net operating income decreased to an expense of £107m (2014: income of £242m) primarily reflecting the net expense from Treasury operations and the non-recurrence of gains in 2014, including net gains from foreign exchange recycling arising from the restructure of Group subsidiaries.
Total operating expenses increased £158m to £300m primarily due to costs relating to the implementation of the structural reform programme and an increase in costs to achieve, partially offset by reduced litigation and conduct charges.
Total assets increased £7.3bn to £56.4bn due to an increase in the element of the liquidity buffer held centrally.
2014 compared to 2013
Profit before tax of £97m improved from a loss of £15m in 2013.
Net operating income increased to £242m (2013: £145m) predominantly due to net gains of £88m from foreign exchange recycling arising from the restructure of Group subsidiaries.
Total operating expenses decreased £22m to £142m mainly due to a reduction in UK bank levy to £9m (2013: £29m), the non-recurrence of costs associated with the Salz Review and the establishment of the strategic cost programme in the prior year, partially offset by increased litigation and conduct charges.
Total assets increased £22.5bn to £49.1bn reflecting an increase in the Group liquidity pool assets.
RWAs decreased £10.6bn to £5.6bn, including receipt of certain US Lehman acquisition assets and a £6.9bn revision to 2013 RWAs following full implementation of CRD IV reporting, as disclosed in the 30 June 2014 Results Announcement.
Negative average allocated equity reduced to £0.4bn (2013: £7.0bn) as the Group moved towards the allocation rate of 10.5% fully loaded CRD IV CET1 ratio during the year, resulting in a reduction in excess equity allocated to businesses.
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Total income | (107 | ) | 242 | 142 | ||||||||
Credit impairment releases and other provisions | – | – | 3 | |||||||||
Net operating (expense)/income | (107 | ) | 242 | 145 | ||||||||
Operating expenses | (246 | ) | (57 | ) | (103 | ) | ||||||
UK bank levy | (8 | ) | (9 | ) | (29 | ) | ||||||
Litigation and conduct | (14 | ) | (66 | ) | (10 | ) | ||||||
Cost to achieve | (32 | ) | (10 | ) | (22 | ) | ||||||
Total operating expenses | (300 | ) | (142 | ) | (164 | ) | ||||||
Other net income/(expense) | 5 | (3 | ) | 4 | ||||||||
(Loss)/profit before tax | (402 | ) | 97 | (15 | ) | |||||||
Attributable (loss)/profit | (202 | ) | 112 | (89 | ) | |||||||
Balance sheet information | ||||||||||||
Total assets | £56.4bn | £49.1bn | £26.6bn | |||||||||
Risk weighted assets | £7.7bn | £5.6bn | £16.2bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 800 | 100 | 100 |
202 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Non-Core
(£164m) total income net of insurance claims £1,459m loss before tax
|
2015 compared to 2014
Loss before tax increased 24% to £1,459m driven by continued progress in the exit of Businesses, Securities and loans, and Derivative assets. RWAs reduced £29bn to £47bn including a £10bn reduction in Derivatives, £9bn reduction in Securities and loans, and Business reductions from the completion of the sales of the Spanish and UK Secured Lending businesses. The announced sales of the Portuguese and Italian retail businesses, which are due to be completed in H116, are expected to result in a further £2.5bn reduction in RWAs.
Total income net of insurance claims reduced to an expense of £164m (2014: income of £1,050m). Businesses income reduced 44% to £613m due to the impact of the sale of the Spanish business and the sale and rundown of legacy portfolio assets. Securities and loans income reduced to an expense of £481m (2014: income of £117m) primarily driven by fair value losses and funding costs on the ESHLA portfolio, the active rundown of securities, exit of historical investment bank businesses and the non-recurring gain on the sale of the UAE retail banking portfolio in 2014. Fair value losses on the ESHLA portfolio were £359m (2014: £156m), of which £156m was in Q415, as gilt swap spreads widened. Derivatives income reduced 76% to an expense of £296m reflecting the active rundown of the portfolios and funding costs.
Credit impairment charges improved 54% to £78m due to higher recoveries in Europe and the sale of the Spanish business.
Total operating expenses improved 40% to £1,199m reflecting savings from the sales of the Spanish, UAE retail, commodities, and several principal investment businesses, as well as a reduction in costs to achieve, and conduct and litigation charges.
Loans and advances to banks and customers reduced 28% to £45.9bn due to the reclassification of £5.5bn of loans relating to the announced sales of the Portuguese and Italian businesses to assets held for sale, and the rundown and exit of historical investment bank assets.
Derivative financial instrument assets and liabilities decreased 26% to £210.3bn and 28% to £198.7bn respectively, largely as a result of trade reduction.
Total assets decreased 36% to £303.1bn due to reduced reverse repurchase agreements and other similar secured lending, and lower derivative financial instrument assets.
Leverage exposure reduced £156.2bn to £121.3bn primarily in reverse repurchase agreements, potential future exposure on derivatives and trading portfolio assets.
RWAs decreased £28.7bn to £46.6bn and period end equity decreased £3.8bn to £7.2bn primarily driven by the sale of the Spanish business, the active rundown of legacy structured and credit products, and derivative trade unwinds.
2014 compared to 2013
Loss before tax reduced 15% to £1,180m as Non-Core made good progress in exiting and running down certain businesses and securities during 2014. This drove a £34.6bn reduction in RWAs, making substantial progress towards the Non-Core target reductions as outlined in the Group Strategy Update on 8 May 2014.
Total income net of insurance claims reduced 54% to £1,050m. Businesses income reduced 27% to £1,101m due to the sale and rundown of legacy portfolio assets and the rationalisation of product offerings within the European retail business. Securities and loans income reduced 82% to £117m primarily driven by the active rundown of securities, fair value losses on wholesale loan portfolios and the non-recurrence of prior year favourable market movements on certain securitised products, partially offset by a £119m gain on the sale of the UAE retail banking portfolio. Derivatives income reduced £321m to an expense of £168m reflecting the funding costs of the traded legacy derivatives portfolio and the non-recurrence of fair value gains in the prior year.
Credit impairment charges improved 81% to £168m due to the non-recurrence of impairments on single name exposures, impairment releases on the wholesale portfolio as a result of confirmation on Spanish government subsidies in the renewable energy sector and improved performance in Europe, primarily due to improved recoveries and delinquencies in the mortgages portfolio.
Total operating expenses improved 25% to £2,011m reflecting savings from strategic cost programmes, including lower headcount and the results of the previously announced European retail restructuring. In addition, costs to achieve reduced 61% to £212m.
Loans and advances to banks and customers reduced 22% to £63.9bn due to a £12.9bn reclassification of loans relating to the Spanish business, which was held for sale, and a reduction in Europe retail driven by a run-off of assets.
Trading portfolio assets reduced 48% to £15.9bn due to the sale and rundown of legacy portfolio assets.
Derivative financial instrument assets and liabilities increased 19% to £285.4bn and 21% to £277.1bn respectively, driven by decreases in major forward interest rates.
Total assets decreased 8% to £471.5bn with reduced reverse repurchase agreements and other similar secured lending, and trading portfolio assets, due to the rundown of legacy portfolio assets, offset by an increase in derivative financial instrument assets. BCBS 270 leverage exposure reduced to £277bn.
RWAs decreased £34.6bn to £75.3bn and average allocated equity decreased £3.7bn to £13.4bn, reflecting the disposal of businesses, rundown and exit of securities and loans, and derivative risk reductions.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 203 |
Financial review
Analysis of results by business
Barclays Non-Core – continued
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Net interest income | 249 | 214 | 307 | |||||||||
Net trading income | (805 | ) | 120 | 1,327 | ||||||||
Net fee, commission and other income | 765 | 1,026 | 983 | |||||||||
Total income | 209 | 1,360 | 2,617 | |||||||||
Net claims and benefits incurred under insurance contracts | (373 | ) | (310 | ) | (324 | ) | ||||||
Total income net of insurance claims | (164 | ) | 1,050 | 2,293 | ||||||||
Credit impairment charges and other provisions | (78 | ) | (168 | ) | (900 | ) | ||||||
Net operating (expense)/income | (242 | ) | 882 | 1,393 | ||||||||
Operating expenses | (873 | ) | (1,510 | ) | (1,929 | ) | ||||||
UK bank levy | (78 | ) | (91 | ) | (109 | ) | ||||||
Litigation and conduct | (148 | ) | (198 | ) | (96 | ) | ||||||
Costs to achieve | (100 | ) | (212 | ) | (538 | ) | ||||||
Total operating expenses | (1,199 | ) | (2,011 | ) | (2,672 | ) | ||||||
Other net expenses | (18 | ) | (51 | ) | (110 | ) | ||||||
Loss before tax | (1,459 | ) | (1,180 | ) | (1,389 | ) | ||||||
Attributable loss | (1,523 | ) | (1,085 | ) | (1,783 | ) | ||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised costb | £45.9bn | £63.9bn | £81.9bn | |||||||||
Derivative financial instrument assets | £210.3bn | £285.4bn | £239.3bn | |||||||||
Derivative financial instrument liabilities | £198.7bn | £277.1bn | £228.3bn | |||||||||
Reverse repurchase agreements and other similar secured lendingc | £2.4bn | £49.3bn | £104.7bn | |||||||||
Financial assets designated at fair valuec | £20.1bn | £22.2bn | £19.5bn | |||||||||
Total assets | £303.1bn | £471.5bn | £511.2bn | |||||||||
Customer deposits | £14.9bn | £21.6bn | £29.3bn | |||||||||
Risk weighted assets | £46.6bn | £75.3bn | £109.9bn | |||||||||
Leverage exposure | £121.3bn | £277.5bn | n/a | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 5,600 | 8,900 | 9,900 | |||||||||
Performance measures | ||||||||||||
Return on average tangible equityd | (5.1% | ) | (5.4% | ) | (9.3% | ) | ||||||
Average allocated tangible equity | £8.9bn | £13.2bn | £16.8bn | |||||||||
Return on average equityd | (4.1% | ) | (4.1% | ) | (7.0% | ) | ||||||
Average allocated equity | £9.0bn | £13.4bn | £17.1bn | |||||||||
Period end allocated equity | £7.2bn | £11.0bn | £15.1bn | |||||||||
Analysis of total income net of insurance claims | £m | £m | £m | |||||||||
Businesses | 613 | 1,101 | 1,498 | |||||||||
Securities and loans | (481 | ) | 117 | 642 | ||||||||
Derivatives | (296 | ) | (168 | ) | 153 | |||||||
Total income net of insurance claims | (164 | ) | 1,050 | 2,293 |
Notes
a | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage-related business settlement with the Federal Housing Finance Agency, to provisions for onging investigations and litigations including Foreign Exchange to aid comparability. |
b | As at 31 December 2015 loans and advances included £35.2bn (2014: £51.6bn) of loans and advances to customers (including settlement balances of £0.2bn (2014: £1.6bn) and cash collateral of £19.0bn (2014: £22.1bn)) and loans and advances to banks of £10.6bn (2014: £12.3bn) (including settlement balances of nil (2014: £0.3bn) and cash collateral of £10.1bn (2014: £11.3bn)). |
c | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. Included within financial assets designated at fair value are reverse repurchase agreements designated at fair value of £1.4bn (2014: £1.0bn). |
d | Return on average equity and average tangible equity for Barclays Non-Core represents its impact on the Group. This does not represent the return on average tangible equity of the Non-Core business. |
204 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Returns and equity
by business
Returns on average equity and average tangible equity are calculated as profit for the year attributable to ordinary equity holders of the parent (adjusted for the tax credit recorded in reserves in respect of coupons on other equity instruments) divided by average allocated equity or average allocated tangible equity for the period as appropriate, excluding non-controlling and other equity interests for businesses, apart from Africa Banking (see below). Allocated equity has been calculated as 10.5% of CRD IV fully loaded risk weighted assets for each business, adjusted for CRD IV fully loaded capital deductions, including goodwill
and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. The excess of allocated Group equity, caused by the fully loaded CRD IV CET1 ratio being below 10.5% on average in the period, is allocated as negative equity to Head Office. Allocated tangible equity is calculated using the same method, but excludes goodwill and intangible assets.
For Africa Banking, the equity used for return on average equity is Barclays’ share of the statutory equity of the BAGL entity (together with that of the Barclays Egypt and Zimbabwe businesses which remain outside the BAGL corporate entity), as well as Barclays’ goodwill on acquisition of these businesses. The tangible equity for return on tangible equity uses the same basis, but excludes both the Barclays’ goodwill on acquisition and the goodwill and intangibles held within the BAGL statutory equity.
Return on average tangible equity | ||||||||||||
| 2015 % |
|
| 2014 % |
|
| 2013 % | c
| ||||
Personal and Corporate Banking | 16.2 | 15.8 | 12.7 | |||||||||
Barclaycard | 22.3 | 19.9 | 19.9 | |||||||||
Africa Banking | 11.7 | 12.9 | 11.3 | |||||||||
Investment Bank | 6.0 | 2.8 | 8.5 | |||||||||
Barclays Core operating businesses | 12.7 | 10.8 | 11.6 | |||||||||
Head Office impacta | (1.8 | ) | 0.5 | 2.8 | ||||||||
Barclays Core | 10.9 | 11.3 | 14.4 | |||||||||
Barclays Non-Core impacta | (5.1 | ) | (5.4 | ) | (9.3 | ) | ||||||
Barclays Group adjusted totald | 5.8 | 5.9 | 5.1 | |||||||||
Barclays Group statutory total | (0.7 | ) | (0.3 | ) | 1.2 | |||||||
Return on average equity | ||||||||||||
| 2015 % |
|
| 2014 % |
|
| 2013 % | c
| ||||
Personal and Corporate Banking | 12.1 | 11.9 | 9.7 | |||||||||
Barclaycard | 17.7 | 16.0 | 15.5 | |||||||||
Africa Banking | 8.7 | 9.3 | 8.1 | |||||||||
Investment Bank | 5.6 | 2.7 | 8.2 | |||||||||
Barclays Core operating businesses | 10.4 | 8.9 | 9.7 | |||||||||
Head Office impacta | (1.4 | ) | 0.3 | 1.6 | ||||||||
Barclays Core | 9.0 | 9.2 | 11.3 | |||||||||
Barclays Non-Core impacta | (4.1 | ) | (4.1 | ) | (7.0 | ) | ||||||
Barclays Group adjusted totald | 4.9 | 5.1 | 4.3 | |||||||||
Barclays Group statutory total | (0.6 | ) | (0.2 | ) | 1.0 | |||||||
Profit/(loss) attributable to ordinary equity holders of the parentb | ||||||||||||
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m | c
| ||||
Personal and Corporate Banking | 2,203 | 2,075 | 1,681 | |||||||||
Barclaycard | 1,114 | 943 | 822 | |||||||||
Africa Banking | 332 | 360 | 356 | |||||||||
Investment Bank | 829 | 415 | 1,308 | |||||||||
Head Office | (202 | ) | 112 | (89 | ) | |||||||
Barclays Core | 4,276 | 3,905 | 4,078 | |||||||||
Barclays Non-Core | (1,510 | ) | (1,072 | ) | (1,783 | ) | ||||||
Barclays Group adjusted totald | 2,766 | 2,833 | 2,295 | |||||||||
Barclays Group statutory total | (394 | ) | (174 | ) | 540 |
Notes
a | Return on average equity and average tangible equity for Head Office and Barclays Non-Core represents their impact on Barclays Core and the Group respectively. This does not represent the return on average equity and average tangible equity of Head Office or the Non-Core business. |
b | Profit for the period attributable to ordinary equity holders of the parent includes the tax credit recorded in reserves in respect of interest payments on other equity instruments. |
c | 2013 adjusted total operating expenses and profit before tax have been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage-related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigations and litigation including Foreign Exchange to aid comparability. |
d | Adjusted Barclays Group profit excludes the impact of own credit of £430m gain (2014: £34m gain), impairment of goodwill and other assets relating to businesses being disposed of £96m (2014: nil), provisions for UK customer redress of £2,772m (2014: £1,110m), gain on US Lehman acquisition assets of £496m (2014:£461m), provisions for ongoing investigations and litigation including Foreign Exchange of £1,237m (2014: £1,250m), loss on sale relating to the Spanish, Portuguese and Italian businesses of £580m (2014: £446m), Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology of nil (2014: £935m), and gain on valuation of a component of the defined retirement benefit liability £429m gain (2014: nil). |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 205 |
Financial review
Analysis of results by business
Returns and equity by business – continued
Average allocated tangible equity | ||||||||||
2015 £bn |
| 2014 £bn |
|
| 2013 £bn |
| ||||
Personal and Corporate Banking | 13.6 | 13.1 | 13.2 | |||||||
Barclaycard | 5.0 | 4.7 | 4.1 | |||||||
Africa Banking | 2.8 | 2.8 | 3.2 | |||||||
Investment Bank | 13.9 | 14.6 | 15.3 | |||||||
Head Officea | 3.9 | (0.6 | ) | (7.4 | ) | |||||
Barclays Core | 39.2 | 34.6 | 28.4 | |||||||
Barclays Non-Core | 8.9 | 13.2 | 16.8 | |||||||
Barclays Group adjusted total | 48.1 | 47.8 | 45.2 | |||||||
Barclays Group statutory total | 47.7 | 47.0 | 44.3 | |||||||
Average allocated equity | ||||||||||
2015 £bn |
| 2014 £bn |
|
| 2013 £bn |
| ||||
Personal and Corporate Banking | 18.2 | 17.5 | 17.3 | |||||||
Barclaycard | 6.3 | 5.9 | 5.3 | |||||||
Africa Banking | 3.8 | 3.9 | 4.4 | |||||||
Investment Bank | 14.8 | 15.4 | 15.9 | |||||||
Head Officea | 4.2 | (0.4 | ) | (7.0 | ) | |||||
Barclays Core | 47.3 | 42.3 | 35.9 | |||||||
Barclays Non-Core | 9.0 | 13.4 | 17.1 | |||||||
Barclays Group adjusted total | 56.3 | 55.7 | 53.0 | |||||||
Barclays Group statutory total | 55.9 | 54.9 | 52.2 | |||||||
Period end allocated equity | ||||||||||
2015 £bn |
| 2014 £bn |
|
| 2013 £bn |
| ||||
Personal and Corporate Banking | 18.3 | 17.9 | 17.3 | |||||||
Barclaycard | 6.3 | 6.2 | 5.4 | |||||||
Africa Banking | 3.4 | 4.0 | 3.8 | |||||||
Investment Bank | 13.0 | 14.7 | 14.6 | |||||||
Head Officea | 6.6 | 2.1 | (2.1 | ) | ||||||
Barclays Core | 47.6 | 44.9 | 39.0 | |||||||
Barclays Non-Core | 7.2 | 11.0 | 15.1 | |||||||
Barclays Group adjusted total | 54.8 | 55.9 | 54.1 | |||||||
Barclays Group statutory total | 54.5 | 55.2 | 53.3 | |||||||
Note
a | Based on risk weighted assets and capital deductions in Head Office plus the residual balance of average ordinary shareholders’ equity and tangible ordinary shareholders’ equity. |
206 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Margins analysis
Total PCB, Barclaycard and Africa Banking net interest income increased 5% to £12.0bn due to an increase in average customer assets to £287.7bn (2014: £280.0bn) with growth in PCB and Barclaycard, partially offset by reductions in Africa Banking as the ZAR depreciated against GBP. Net interest margin increased 10bps to 4.18% primarily due to growth in interest earning lending within Barclaycard.
Group net interest income increased to £12.6bn (2014: £12.1bn) including structural hedge contributions of £1.5bn (2014: £1.6bn). Equity structural hedge income decreased driven by the maintenance of the hedge in a continuing low rate environment.
Net interest margin by business reflects movements in the Group’s internal funding rates which are based on the cost to the Group of alternative funding in wholesale markets. The internal funding rate prices intra-group funding and liquidity to give appropriate credit to businesses with net surplus liquidity and to charge those businesses in need of alternative funding at a rate that is driven by prevailing market rates and includes a term premium.
Year ended 31 December 2015 | Year ended 31 December 2014 | |||||||||||||||||||||||
| Net interest income £m |
| | Average customer assets £m | |
| Net interest margin % |
|
| Net interest income £m |
|
| Average customer assets £m |
|
| Net interest margin % |
| |||||||
Personal and Corporate Banking | 6,438 | 214,989 | 2.99 | 6,298 | 210,026 | 3.00 | ||||||||||||||||||
Barclaycard | 3,520 | 38,560 | 9.13 | 3,044 | 34,776 | 8.75 | ||||||||||||||||||
Africa Banking | 2,066 | 34,116 | 6.06 | 2,093 | 35,153 | 5.95 | ||||||||||||||||||
Total Personal and Corporate Banking, Barclaycard and Africa Banking | 12,024 | 287,665 | 4.18 | 11,435 | 279,955 | 4.08 | ||||||||||||||||||
Investment Bank | 588 | 647 | ||||||||||||||||||||||
Head Office | (303 | ) | (216 | ) | ||||||||||||||||||||
Barclays Core | 12,309 | 11,866 | ||||||||||||||||||||||
Barclays Non-Core | 249 | 214 | ||||||||||||||||||||||
Group net interest income | 12,558 | 12,080 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 207 |
Financial statements
Contents
Detailed analysis of our statutory accounts, independently audited and providing in-depth disclosure on the financial performance of the Group.
208 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to disclosures
The Group aims to continually enhance its disclosures and their usefulness to the readers of the financial statements in the light of developing market practice and areas of focus. Consequently Barclays’ disclosures go beyond the minimum standards required by accounting standards and other regulatory requirements.
Barclays continues to support the recommendations and guidance made by the Enhanced Disclosure Taskforce (EDTF). The EDTF was formed by the Financial Stability Board with a remit to broaden and deepen the risk disclosures of global banks in a number of areas, including liquidity and funding, credit risk and market risk. Barclays has fully adopted the recommendations across the Annual Report and Pillar 3 Report.
In line with the Financial Reporting Council’s guidance on ‘Clear and Concise’ reporting, for 2015, Barclays has focused reporting on material items and sought to reorganise information to aid users understanding.
It is Barclays’ view that best in class disclosures will continue to evolve in light of ongoing market and stakeholder engagement with the banking sector. Barclays is committed to engaging with a published Code for Financial Reporting Disclosure (the Code). The Code sets out five disclosure principles together with supporting guidance which states that UK banks will:
§ | provide high quality, meaningful and decision-useful disclosures |
§ | review and enhance their financial instrument disclosures for key areas of interest |
§ | assess the applicability and relevance of good practice recommendations to their disclosures acknowledging the importance of such guidance |
§ | seek to enhance the comparability of financial statement disclosures across the UK banking sector and |
§ | clearly differentiate in their annual reports between information that is audited and information that is unaudited. |
British Bankers’ Association (BBA) Code for Financial Reporting Disclosure
Barclays has adopted the BBA Code for Financial Reporting Disclosure and has prepared the 2015 Annual Report and Accounts in compliance with the Code.
Statutory accounts
The consolidated accounts of Barclays PLC and its subsidiaries are set out on pages 211 to 215 along with the accounts of Barclays PLC itself on pages 216 and 217. The accounting policies on pages 218 to 220 and the Notes commencing on page 221 apply equally to both sets of accounts unless otherwise stated.
The financial statements have been prepared on a going concern basis, in accordance with The Companies Act 2006 as applicable to companies using IFRS.
Capital Requirements Country by Country Reporting
HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country by Country Reporting Regulations 2013. The legislation requires Barclays PLC to publish additional information in respect of the year ended 31 December 2015. This information is available on the Barclays’ website: home.barclays/ citizenship/reports-and-publications/country-snapshot.html
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 209 |
Independent Registered Public Accounting Firm’s report
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders of Barclays PLC
In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flow statements present fairly, in all material respects, the financial position of Barclays PLC and its subsidiaries at 31 December 2015 and 31 December 2014, and the results of their operations and their cash flows for each of the three years in the period ended 31 December 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 December 2015, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report on internal control over financial reporting included in the Directors’ Report appearing on page 40 of the Annual Report to Shareholders. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (US). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
London, UK
29 February 2016
210 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Consolidated financial statements
Consolidated income statement
For the year ended 31 December | Notes |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||
Continuing operations | ||||||||||||||||
Interest income | 3 | 17,201 | 17,363 | 18,315 | ||||||||||||
Interest expense | 3 | (4,643 | ) | (5,283 | ) | (6,715 | ) | |||||||||
Net interest income | 12,558 | 12,080 | 11,600 | |||||||||||||
Fee and commission income | 4 | 9,655 | 9,836 | 10,479 | ||||||||||||
Fee and commission expense | 4 | (1,763 | ) | (1,662 | ) | (1,748 | ) | |||||||||
Net fee and commission income | 7,892 | 8,174 | 8,731 | |||||||||||||
Net trading income | 5 | 3,623 | 3,331 | 6,553 | ||||||||||||
Net investment income | 6 | 1,138 | 1,328 | 680 | ||||||||||||
Net premiums from insurance contracts | 709 | 669 | 732 | |||||||||||||
Other income | 67 | 186 | 148 | |||||||||||||
Total income | 25,987 | 25,768 | 28,444 | |||||||||||||
Net claims and benefits incurred on insurance contracts | (533 | ) | (480 | ) | (509 | ) | ||||||||||
Total income net of insurance claims | 25,454 | 25,288 | 27,935 | |||||||||||||
Credit impairment charges and other provisions | 7 | (2,114 | ) | (2,168 | ) | (3,071 | ) | |||||||||
Net operating income | 23,340 | 23,120 | 24,864 | |||||||||||||
Staff costs | 8 | (9,960 | ) | (11,005 | ) | (12,155 | ) | |||||||||
Infrastructure costs | 8 | (3,180 | ) | (3,443 | ) | (3,531 | ) | |||||||||
Administration and general expenses | 8 | (3,528 | ) | (3,621 | ) | (4,113 | ) | |||||||||
Provision for UK customer redress | 27 | (2,772 | ) | (1,110 | ) | (2,000 | ) | |||||||||
Provision for ongoing investigations and litigation including Foreign Exchange | 27 | (1,237 | ) | (1,250 | ) | (173 | ) | |||||||||
Operating expenses | 8 | (20,677 | ) | (20,429 | ) | (21,972 | ) | |||||||||
Share of post-tax results of associates and joint ventures | 47 | 36 | (56 | ) | ||||||||||||
(Loss)/profit on disposal of subsidiaries, associates and joint ventures | 9 | (637 | ) | (471 | ) | 6 | ||||||||||
Gain on acquisitions | – | – | 26 | |||||||||||||
Profit before tax | 2,073 | 2,256 | 2,868 | |||||||||||||
Taxation | 10 | (1,450 | ) | (1,411 | ) | (1,571 | ) | |||||||||
Profit after tax | 623 | 845 | 1,297 | |||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the parent | (394 | ) | (174 | ) | 540 | |||||||||||
Other equity holdersa | 345 | 250 | – | |||||||||||||
Total equity holders | (49 | ) | 76 | 540 | ||||||||||||
Non-controlling interests | 33 | 672 | 769 | 757 | ||||||||||||
Profit after tax | 623 | 845 | 1,297 | |||||||||||||
p | p | p | ||||||||||||||
Earnings per share | ||||||||||||||||
Basic (loss)/earnings per share | 11 | (1.9 | ) | (0.7 | ) | 3.8 | ||||||||||
Diluted (loss)/earnings per share | 11 | (1.9 | ) | (0.7 | ) | 3.7 |
Note
a | The profit after tax attributable to other equity holders of £345m (2014: £250m) is offset by a tax credit recorded in reserves of £70m (2014: £54m). The net amount of £275m (2014: £196m), along with NCI, is deducted from profit after tax in order to calculate earnings per share. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 211 |
Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 31 December | | 2015 £m | | | 2014 £m | | | 2013 £m | | |||
Profit after tax | 623 | 845 | 1,297 | |||||||||
Other comprehensive (loss)/income from continuing operations: | ||||||||||||
Currency translation reserve | ||||||||||||
Currency translation differences | (476 | ) | 486 | (1,767 | ) | |||||||
Available for sale reserve | ||||||||||||
Net gains/(losses) from changes in fair value | 33 | 5,333 | (2,734 | ) | ||||||||
Net gains transferred to net profit on disposal | (373 | ) | (619 | ) | (145 | ) | ||||||
Net losses/(gains) transferred to net profit due to impairment | 17 | (31 | ) | (7 | ) | |||||||
Net (gains)/losses transferred to net profit due to fair value hedging | (148 | ) | (4,074 | ) | 2,376 | |||||||
Changes in insurance liabilities | 86 | (94 | ) | 28 | ||||||||
Tax | 134 | (102 | ) | 100 | ||||||||
Cash flow hedging reserve | ||||||||||||
Net (losses)/gains from changes in fair value | (407 | ) | 2,687 | (1,914 | ) | |||||||
Net gains transferred to net profit | (268 | ) | (767 | ) | (547 | ) | ||||||
Tax | 81 | (380 | ) | 571 | ||||||||
Other | 21 | (42 | ) | (37 | ) | |||||||
Total comprehensive (loss)/income that may be recycled to profit or loss | (1,300 | ) | 2,397 | (4,076 | ) | |||||||
Other comprehensive income/(loss) not recycled to profit or loss: | ||||||||||||
Retirement benefit remeasurements | 1,174 | 268 | (512 | ) | ||||||||
Tax | (260 | ) | (63 | ) | (3 | ) | ||||||
Other comprehensive (loss)/income for the period
|
| (386
| )
|
| 2,602
|
|
| (4,591
| )
| |||
Total comprehensive income/(loss) for the year | 237 | 3,447 | (3,294 | ) | ||||||||
Attributable to: | ||||||||||||
Equity holders of the parent | 45 | 2,756 | (3,406 | ) | ||||||||
Non-controlling interests | 192 | 691 | 112 | |||||||||
237 | 3,447 | (3,294 | ) |
212 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Consolidated financial statements
Consolidated balance sheet
As at 31 December | Notes |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||
Assets | ||||||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | |||||||||||||
Items in the course of collection from other banks | 1,011 | 1,210 | 1,282 | |||||||||||||
Trading portfolio assets | 13 | 77,348 | 114,717 | 133,069 | ||||||||||||
Financial assets designated at fair value | 14 | 76,830 | 38,300 | 38,968 | ||||||||||||
Derivative financial instruments | 15 | 327,709 | 439,909 | 350,300 | ||||||||||||
Available for sale investments | 16 | 90,267 | 86,066 | 91,756 | ||||||||||||
Loans and advances to banks | 20 | 41,349 | 42,111 | 39,422 | ||||||||||||
Loans and advances to customers | 20 | 399,217 | 427,767 | 434,237 | ||||||||||||
Reverse repurchase agreements and other similar secured lending | 22 | 28,187 | 131,753 | 186,779 | ||||||||||||
Prepayments, accrued income and other assets | 3,010 | 3,607 | 3,920 | |||||||||||||
Investments in associates and joint ventures | 38 | 573 | 711 | 653 | ||||||||||||
Property, plant and equipment | 23 | 3,468 | 3,786 | 4,216 | ||||||||||||
Goodwill and intangible assets | 24 | 8,222 | 8,180 | 7,685 | ||||||||||||
Current tax assets | 10 | 415 | 334 | 219 | ||||||||||||
Deferred tax assets | 10 | 4,495 | 4,130 | 4,807 | ||||||||||||
Retirement benefit assets | 35 | 836 | 56 | 133 | ||||||||||||
Non current assets classified as held for sale | 44 | 7,364 | 15,574 | 495 | ||||||||||||
Total assets | 1,120,012 | 1,357,906 | 1,343,628 | |||||||||||||
Liabilities | ||||||||||||||||
Deposits from banks | 47,080 | 58,390 | 55,615 | |||||||||||||
Items in the course of collection due to other banks | 1,013 | 1,177 | 1,359 | |||||||||||||
Customer accounts | 418,242 | 427,704 | 431,998 | |||||||||||||
Repurchase agreements and other similar secured borrowing | 22 | 25,035 | 124,479 | 196,748 | ||||||||||||
Trading portfolio liabilities | 13 | 33,967 | 45,124 | 53,464 | ||||||||||||
Financial liabilities designated at fair value | 17 | 91,745 | 56,972 | 64,796 | ||||||||||||
Derivative financial instruments | 15 | 324,252 | 439,320 | 347,118 | ||||||||||||
Debt securities in issue | 69,150 | 86,099 | 86,693 | |||||||||||||
Subordinated liabilities | 30 | 21,467 | 21,153 | 21,695 | ||||||||||||
Accruals, deferred income and other liabilities | 26 | 10,610 | 11,423 | 12,934 | ||||||||||||
Provisions | 27 | 4,142 | 4,135 | 3,886 | ||||||||||||
Current tax liabilities | 10 | 903 | 1,021 | 1,042 | ||||||||||||
Deferred tax liabilities | 10 | 122 | 262 | 373 | ||||||||||||
Retirement benefit liabilities | 35 | 423 | 1,574 | 1,958 | ||||||||||||
Liabilities included in disposal groups classified as held for sale | 44 | 5,997 | 13,115 | – | ||||||||||||
Total liabilities | 1,054,148 | 1,291,948 | 1,279,679 | |||||||||||||
Total equity | ||||||||||||||||
Called up share capital and share premium | 31 | 21,586 | 20,809 | 19,887 | ||||||||||||
Other equity instruments | 31 | 5,305 | 4,322 | 2,063 | ||||||||||||
Other reserves | 32 | 1,898 | 2,724 | 249 | ||||||||||||
Retained earnings | 31,021 | 31,712 | 33,186 | |||||||||||||
Total equity excluding non-controlling interests | 59,810 | 59,567 | 55,385 | |||||||||||||
Non-controlling interests | 33 | 6,054 | 6,391 | 8,564 | ||||||||||||
Total equity | 65,864 | 65,958 | 63,949 | |||||||||||||
Total liabilities and equity | 1,120,012 | 1,357,906 | 1,343,628 |
The Board of Directors approved the financial statements on pages 211 to 305 on 29 February 2016.
John McFarlane
Group Chairman
Jes Staley
Group Chief Executive
Tushar Morzaria
Group Finance Director
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 213 |
Consolidated financial statements
Consolidated statement of changes in equity
| Called up share capital and share premium £m |
|
| Other equity instruments £m |
|
| Available for sale reserve £m |
|
| Cash flow hedging reserve £m |
|
| Currency translation reserve £m |
|
| Other reserves and treasury shares £m |
|
| Retained earnings £m |
|
| Total equity excluding non- controlling interests £m |
|
| Non- controlling interests £m |
|
| Total equity £m |
| |||||||||||
Balance as at 1 January 2015 | 20,809 | 4,322 | 562 | 1,817 | (582 | ) | 927 | 31,712 | 59,567 | 6,391 | 65,958 | |||||||||||||||||||||||||||||
Profit after tax | – | 345 | – | – | – | – | (394 | ) | (49 | ) | 672 | 623 | ||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | (41 | ) | – | – | (41 | ) | (435 | ) | (476 | ) | ||||||||||||||||||||||||||
Available for sale investments | – | – | (245 | ) | – | – | – | – | (245 | ) | (6 | ) | (251 | ) | ||||||||||||||||||||||||||
Cash flow hedges | – | – | – | (556 | ) | – | – | – | (556 | ) | (38 | ) | (594 | ) | ||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | 916 | 916 | (2 | ) | 914 | |||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | 20 | 20 | 1 | 21 | ||||||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | – | 345 | (245 | ) | (556 | ) | (41 | ) | – | 542 | 45 | 192 | 237 | |||||||||||||||||||||||||||
Issue of new ordinary shares | 137 | – | – | – | – | – | – | 137 | – | 137 | ||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 640 | – | – | – | – | – | 571 | 1,211 | – | 1,211 | ||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 995 | – | – | – | – | – | 995 | – | 995 | ||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (345 | ) | – | – | – | – | 70 | (275 | ) | – | (275 | ) | |||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | (602 | ) | – | (602 | ) | – | (602 | ) | |||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | 618 | (755 | ) | (137 | ) | – | (137 | ) | |||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | (1,081 | ) | (1,081 | ) | (552 | ) | (1,633 | ) | ||||||||||||||||||||||||||
Other reserve movements | – | (12 | ) | – | – | – | – | (38 | ) | (50 | ) | 23 | (27 | ) | ||||||||||||||||||||||||||
Balance as at 31 December 2015 | 21,586 | 5,305 | 317 | 1,261 | (623 | ) | 943 | 31,021 | 59,810 | 6,054 | 65,864 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Balance as at 1 January 2014 | 19,887 | 2,063 | 148 | 273 | (1,142 | ) | 970 | 33,186 | 55,385 | 8,564 | 63,949 | |||||||||||||||||||||||||||||
Profit after tax | – | 250 | – | – | – | – | (174 | ) | 76 | 769 | 845 | |||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | 560 | – | – | 560 | (74 | ) | 486 | |||||||||||||||||||||||||||||
Available for sale investments | – | – | 414 | – | – | – | – | 414 | (1 | ) | 413 | |||||||||||||||||||||||||||||
Cash flow hedges | – | – | – | 1,544 | – | – | – | 1,544 | (4 | ) | 1,540 | |||||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | 205 | 205 | – | 205 | ||||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | (43 | ) | (43 | ) | 1 | (42 | ) | |||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | – | 250 | 414 | 1,544 | 560 | – | (12 | ) | 2,756 | 691 | 3,447 | |||||||||||||||||||||||||||||
Issue of new ordinary shares | 150 | – | – | – | – | – | – | 150 | – | 150 | ||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 772 | – | – | – | – | – | 693 | 1,465 | – | 1,465 | ||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 2,263 | – | – | – | – | (155 | ) | 2,108 | (1,527 | ) | 581 | ||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (250 | ) | – | – | – | – | 54 | (196 | ) | – | (196 | ) | |||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | (104 | ) | (104 | ) | (687 | ) | (791 | ) | ||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | (909 | ) | – | (909 | ) | – | (909 | ) | |||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | 866 | (866 | ) | – | – | – | |||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | (1,057 | ) | (1,057 | ) | (631 | ) | (1,688 | ) | ||||||||||||||||||||||||||
Other reserve movements | – | (4 | ) | – | – | – | – | (27 | ) | (31 | ) | (19 | ) | (50 | ) | |||||||||||||||||||||||||
Balance as at 31 December 2014 | 20,809 | 4,322 | 562 | 1,817 | (582 | ) | 927 | 31,712 | 59,567 | 6,391 | 65,958 | |||||||||||||||||||||||||||||
Balance as at 1 January 2013 | 12,477 | – | 527 | 2,099 | 59 | 989 | 34,464 | 50,615 | 9,371 | 59,986 | ||||||||||||||||||||||||||||||
Profit after tax | – | – | – | – | – | – | 540 | 540 | 757 | 1,297 | ||||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | (1,201 | ) | – | – | (1,201 | ) | (566 | ) | (1,767 | ) | ||||||||||||||||||||||||||
Available for sale investments | – | – | (379 | ) | – | – | – | – | (379 | ) | (3 | ) | (382 | ) | ||||||||||||||||||||||||||
Cash flow hedges | – | – | – | (1,826 | ) | – | – | – | (1,826 | ) | (64 | ) | (1,890 | ) | ||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | (503 | ) | (503 | ) | (12 | ) | (515 | ) | ||||||||||||||||||||||||||
Other | – | – | – | – | – | – | (37 | ) | (37 | ) | – | (37 | ) | |||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | – | – | (379 | ) | (1,826 | ) | (1,201 | ) | – | – | (3,406 | ) | 112 | (3,294 | ) | |||||||||||||||||||||||||
Issue of new ordinary shares | 6,620 | – | – | – | – | – | – | 6,620 | – | 6,620 | ||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 790 | – | – | – | – | – | 689 | 1,479 | – | 1,479 | ||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 2,063 | – | – | – | – | – | 2,063 | – | 2,063 | ||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | (1,066 | ) | – | (1,066 | ) | – | (1,066 | ) | |||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | 1,047 | (1,047 | ) | – | – | – | |||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | (859 | ) | (859 | ) | (813 | ) | (1,672 | ) | ||||||||||||||||||||||||||
Other reserve movements | – | – | – | – | – | – | (61 | ) | (61 | ) | (106 | ) | (167 | ) | ||||||||||||||||||||||||||
Balance as at 31 December 2013 | 19,887 | 2,063 | 148 | 273 | (1,142 | ) | 970 | 33,186 | 55,385 | 8,564 | 63,949 |
214 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Consolidated financial statements
Consolidated cash flow statement
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| |||
Continuing operations | ||||||||||||
Reconciliation of profit before tax to net cash flows from operating activities: | ||||||||||||
Profit before tax | 2,073 | 2,256 | 2,868 | |||||||||
Adjustment for non-cash items: | ||||||||||||
Allowance for impairment | 2,105 | 2,168 | 3,071 | |||||||||
Depreciation, amortisation and impairment of property, plant, equipment and intangibles | 1,324 | 1,279 | 1,274 | |||||||||
Other provisions, including pensions | 4,333 | 3,600 | 3,674 | |||||||||
Net loss on disposal of investments and property, plant and equipment | (374 | ) | (619 | ) | (145 | ) | ||||||
Other non-cash movements | (635 | ) | (808 | ) | (1,293 | ) | ||||||
Changes in operating assets and liabilities | ||||||||||||
Net decrease/(increase) in loans and advances to banks and customers | 27,565 | 3,684 | (3,915 | ) | ||||||||
Net decrease/(increase) in reverse repurchase agreements and other similar secured lending | 103,566 | 55,021 | (10,264 | ) | ||||||||
Net (decrease) in deposits and debt securities in issue | (37,721 | ) | (2,113 | ) | (13,392 | ) | ||||||
Net (decrease) in repurchase agreements and other similar secured borrowing | (99,444 | ) | (72,269 | ) | (20,430 | ) | ||||||
Net (increase)/decrease in derivative financial instruments | (2,868 | ) | 2,593 | 971 | ||||||||
Net decrease in trading assets | 37,342 | 18,368 | 13,443 | |||||||||
Net (decrease)/increase in trading liabilities | (11,157 | ) | (8,340 | ) | 8,670 | |||||||
Net (increase) in financial investments | (3,757 | ) | (7,156 | ) | (6,114 | ) | ||||||
Net (increase)/decrease in other assets | (2,324 | ) | (14,694 | ) | 128 | |||||||
Net (decrease)/increase in other liabilities | (2,230 | ) | 8,141 | (1,930 | ) | |||||||
Corporate income tax paid | (1,670 | ) | (1,552 | ) | (1,558 | ) | ||||||
Net cash from operating activities | 16,128 | (10,441 | ) | (24,942 | ) | |||||||
Purchase of available for sale investments | (120,251 | ) | (108,645 | ) | (92,015 | ) | ||||||
Proceeds from sale or redemption of available for sale investments | 113,048 | 120,843 | 69,473 | |||||||||
Purchase of property, plant and equipment | (852 | ) | (657 | ) | (736 | ) | ||||||
Other cash flows associated with investing activities | (379 | ) | (886 | ) | 633 | |||||||
Net cash from investing activities | (8,434 | ) | 10,655 | (22,645 | ) | |||||||
Dividends paid | (1,496 | ) | (1,688 | ) | (1,672 | ) | ||||||
Proceeds of borrowings and issuance of subordinated debt | 1,138 | 826 | 700 | |||||||||
Repayments of borrowings and redemption of subordinated debt | (682 | ) | (1,100 | ) | (1,425 | ) | ||||||
Net issue of shares and other equity instruments | 1,278 | 559 | 9,473 | |||||||||
Net purchase of treasury shares | (679 | ) | (909 | ) | (1,066 | ) | ||||||
Net redemption of shares issued to non-controlling interests | – | (746 | ) | (100 | ) | |||||||
Net cash from financing activities | (441 | ) | (3,058 | ) | 5,910 | |||||||
Effect of exchange rates on cash and cash equivalents | 824 | (431 | ) | 198 | ||||||||
Net increase/(decrease) in cash and cash equivalents | 8,077 | (3,275 | ) | (41,479 | ) | |||||||
Cash and cash equivalents at beginning of year | 78,479 | 81,754 | 123,233 | |||||||||
Cash and cash equivalents at end of year | 86,556 | 78,479 | 81,754 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | |||||||||
Loans and advances to banks with original maturity less than three months | 35,876 | 36,282 | 35,259 | |||||||||
Available for sale treasury and other eligible bills with original maturity less than three months | 816 | 2,322 | 644 | |||||||||
Trading portfolio assets with original maturity less than three months | 153 | 180 | 164 | |||||||||
86,556 | 78,479 | 81,754 |
Interest received was £20,376m (2014: £21,372m, 2013: £23,387m) and interest paid was £7,534m (2014: £8,566m, 2013: £10,709m).
The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £4,369m (2014: £4,448m, 2013: £4,722m).
For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 215 |
Financial statements of Barclays PLC
Parent company accounts
Income statement | ||||||||||||||||
For the year ended 31 December | Notes | | 2015 £m | | | 2014 £m | | | 2013 £m | | ||||||
Dividends received from subsidiary | 876 | 821 | 734 | |||||||||||||
Net interest expense | (7 | ) | (6 | ) | (6 | ) | ||||||||||
Other income/(expense) | 45 | 227 | 275 | (137 | ) | |||||||||||
Management charge from subsidiary | (6 | ) | (6 | ) | (6 | ) | ||||||||||
Profit before tax | 1,090 | 1,084 | 585 | |||||||||||||
Tax | (43 | ) | (57 | ) | 35 | |||||||||||
Profit after tax | 1,047 | 1,027 | 620 | |||||||||||||
Attributable to | ||||||||||||||||
Ordinary equity holders | 702 | 777 | 620 | |||||||||||||
Other equity holders | 345 | 250 | – |
Profit after tax and total comprehensive income for the year was £1,047m (2014: £1,027m). There were no other components of total comprehensive income other than the profit after tax.
The Company had no staff during the year (2014: nil, 2013: nil).
Balance sheet | ||||||||||||
As at 31 December | Notes |
| 2015 £m |
|
| 2014 £m |
| |||||
Assets | ||||||||||||
Investment in subsidiary | 45 | 35,303 | 33,743 | |||||||||
Loans and advances to subsidiary | 45 | 7,990 | 2,866 | |||||||||
Derivative financial instrument | 45 | 210 | 313 | |||||||||
Other assets | 133 | 174 | ||||||||||
Total assets | 43,636 | 37,096 | ||||||||||
Liabilities | ||||||||||||
Deposits from banks | 494 | 528 | ||||||||||
Subordinated liabilities | 45 | 1,766 | 810 | |||||||||
Debt securities in issue | 45 | 6,224 | 2,056 | |||||||||
Other liabilities | – | 10 | ||||||||||
Total liabilities | 8,484 | 3,404 | ||||||||||
Shareholders’ equity | ||||||||||||
Called up share capital | 31 | 4,201 | 4,125 | |||||||||
Share premium account | 31 | 17,385 | 16,684 | |||||||||
Other equity instruments | 31 | 5,321 | 4,326 | |||||||||
Capital redemption reserve | 394 | 394 | ||||||||||
Retained earnings | 7,851 | 8,163 | ||||||||||
Total shareholders’ equity | 35,152 | 33,692 | ||||||||||
Total liabilities and shareholders’ equity | 43,636 | 37,096 |
The financial statements on pages 216 and 217 and the accompanying note on page 298 were approved by the Board of Directors on 29 February 2016 and signed on its behalf by:
John McFarlane
Group Chairman
Jes Staley
Group Chief Executive
Tushar Morzaria
Group Finance Director
216 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Statement of changes in equity | ||||||||||||||||||||||||
Notes |
| Called up share capital and share premium £m |
|
| Other equity instruments £m |
|
| Capital reserves and other equity |
| | Retained earnings | | | Total equity £m | | |||||||||
Balance as at 1 January 2015 | 20,809 | 4,326 | 394 | 8,163 | 33,692 | |||||||||||||||||||
Profit after tax and total comprehensive income | – | 345 | – | 702 | 1,047 | |||||||||||||||||||
Issue of new ordinary shares | 137 | – | – | – | 137 | |||||||||||||||||||
Issue of shares under employee share schemes | 640 | – | – | – | 640 | |||||||||||||||||||
Issue of other equity instruments | – | 995 | – | – | 995 | |||||||||||||||||||
Dividends | 12 | – | – | – | (1,081 | ) | (1,081 | ) | ||||||||||||||||
Other equity instruments coupons paid | – | (345 | ) | – | 70 | (275 | ) | |||||||||||||||||
Other | – | – | – | (3 | ) | (3 | ) | |||||||||||||||||
Balance as at 31 December 2015 | 21,586 | 5,321 | 394 | 7,851 | 35,152 | |||||||||||||||||||
Balance as at 1 January 2014 | 19,887 | 2,063 | 394 | 8,398 | 30,742 | |||||||||||||||||||
Profit after tax and total comprehensive income | – | 250 | – | 777 | 1,027 | |||||||||||||||||||
Issue of new ordinary shares | 150 | – | – | – | 150 | |||||||||||||||||||
Issue of shares under employee share schemes | 772 | – | – | – | 772 | |||||||||||||||||||
Issue of other equity instruments | – | 2,263 | – | – | 2,263 | |||||||||||||||||||
Dividends | 12 | – | – | – | (1,057 | ) | (1,057 | ) | ||||||||||||||||
Other equity instruments coupons paid | – | (250 | ) | – | 54 | (196 | ) | |||||||||||||||||
Other | – | – | – | (9 | ) | (9 | ) | |||||||||||||||||
Balance as at 31 December 2014 | 20,809 | 4,326 | 394 | 8,163 | 33,692 | |||||||||||||||||||
Balance as at 1 January 2013 | 12,477 | – | 394 | 8,654 | 21,525 | |||||||||||||||||||
Profit after tax and total comprehensive income | – | – | – | 620 | 620 | |||||||||||||||||||
Issue of new ordinary shares | 6,620 | – | – | – | 6,620 | |||||||||||||||||||
Issue of shares under employee share schemes | 790 | – | – | – | 790 | |||||||||||||||||||
Issue of other equity instruments | – | 2,063 | – | – | 2,063 | |||||||||||||||||||
Dividends | 12 | – | – | – | (859 | ) | (859 | ) | ||||||||||||||||
Other | – | – | (17 | ) | (17 | ) | ||||||||||||||||||
Balance as at 31 December 2013 | 19,887 | 2,063 | 394 | 8,398 | 30,742 | |||||||||||||||||||
Cash flow statement | ||||||||||||||||||||||||
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| |||||||||||||||
Reconciliation of profit before tax to net cash flows from operating activities: | ||||||||||||||||||||||||
Profit before tax | 1,090 | 1,084 | 585 | |||||||||||||||||||||
Changes in operating assets and liabilities | 100 | 734 | (546 | ) | ||||||||||||||||||||
Other non-cash movements | 52 | (43 | ) | (20 | ) | |||||||||||||||||||
Corporate income tax (paid)/received | (27 | ) | 38 | (3 | ) | |||||||||||||||||||
Net cash from operating activities | 1,215 | 1,813 | 16 | |||||||||||||||||||||
Capital contribution to subsidiary | (1,560 | ) | (3,684 | ) | (8,630 | ) | ||||||||||||||||||
Net cash used in investing activities | (1,560 | ) | (3,684 | ) | (8,630 | ) | ||||||||||||||||||
Issue of shares and other equity instruments | 1,771 | 3,185 | 9,473 | |||||||||||||||||||||
Net (increase) in loans and advances to bank subsidiaries of the Parent | (4,973 | ) | (2,866 | ) | – | |||||||||||||||||||
Net increase in deposits and debt securities in issue | 4,052 | 2,056 | – | |||||||||||||||||||||
Proceeds of borrowings and issuance of subordinated debt | 921 | 803 | (859 | ) | ||||||||||||||||||||
Dividends paid | (1,081 | ) | (1,057 | ) | – | |||||||||||||||||||
Coupons paid | (345 | ) | (250 | ) | – | |||||||||||||||||||
Net cash from financing activities | 345 | 1,871 | 8,614 | |||||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents | – | – | – | |||||||||||||||||||||
Cash and cash equivalents at beginning of year | – | – | – | |||||||||||||||||||||
Cash and cash equivalents at end of year | – | – | – | |||||||||||||||||||||
Net cash from operating activities includes: | ||||||||||||||||||||||||
Dividends received | 876 | 821 | 734 | |||||||||||||||||||||
Interest paid | (7 | ) | (6 | ) | (6 | ) |
The Parent Company’s principal activity is to hold the investment in its wholly-owned subsidiary, Barclays Bank PLC. Dividends received are treated as operating income.
The Company was not exposed at 31 December 2015 or 2014 to significant risks arising from the financial instruments it holds, which comprised loans and advances and other assets which had no market risk or material credit risk.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 217 |
Notes to the financial statements
For the year ended 31 December 2015
This section describes Barclays’ significant accounting policies and critical accounting estimates that relate to the financial statements and notes as a whole. If an accounting policy or a critical accounting estimate relates to a specific note, the applicable accounting policy and/or critical accounting estimate is contained within the relevant note.
1 Significant accounting policies
1. Reporting entity These financial statements are prepared for Barclays PLC and its subsidiaries (the Barclays PLC Group or the Group) under Section 399 of the Companies Act 2006. The Group is a major global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. In addition, individual financial statements have been presented for the holding company.
2. Compliance with International Financial Reporting Standards The consolidated financial statements of the Group, and the individual financial statements of Barclays PLC, have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) issued by the Interpretations Committee, as published by the International Accounting Standards Board (IASB). They are also in accordance with IFRS and IFRIC interpretations endorsed by the EU. The principal accounting policies applied in the preparation of the consolidated and individual financial statements are set out below, and in the relevant notes to the financial statements. These policies have been consistently applied.
3. Basis of preparation The consolidated and individual financial statements have been prepared under the historical cost convention modified to include the fair valuation of investment property, and particular financial instruments, to the extent required or permitted under IFRS as set out in the relevant accounting policies. They are stated in millions of pounds Sterling (£m), the functional currency of Barclays PLC.
4. Accounting policies Barclays prepares financial statements in accordance with IFRS. The Group’s significant accounting policies relating to specific financial statement items, together with a description of the accounting estimates and judgements that were critical to preparing them, are set out under the relevant notes. Accounting policies that affect the financial statements as a whole are set out below.
(i) Consolidation Barclays applies IFRS 10Consolidated Financial Statements.
The consolidated financial statements combine the financial statements of Barclays PLC and all its subsidiaries. Subsidiaries are entities over which Barclays PLC has control. The Group has control over another entity when the Group has all of the following:
1) power over the relevant activities of the investee, for example through voting or other rights
2) exposure to, or rights to, variable returns from its involvement with the investee, and
3) the ability to affect those returns through its power over the investee.
The assessment of control is based on the consideration of all facts and circumstances. The Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
Intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Group for the purposes of the consolidation.
Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained and they do not result in loss of control.
As the consolidated financial statements include partnerships where the Group member is a partner, advantage has been taken of the exemption under Regulation 7 of the Partnership (Accounts) Regulations 2008 with regard to preparing and filing of individual partnership financial statements.
Details of the principal subsidiaries are given in Note 36, and a complete list of all subsidiaries is presented in Note 46.
(ii) Foreign currency translation The Group applies IAS 21The Effects of Changes in Foreign Exchange Rates. Transactions and balances in foreign currencies are translated into Sterling at the rate ruling on the date of the transaction. Foreign currency balances are translated into Sterling at the period end exchange rates. Exchange rate gains and losses on such balances are taken to the income statement.
The Group’s foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may have different functional currencies. The functional currency of an operation is the currency of the main economy to which it is exposed.
Prior to consolidation (or equity accounting) the assets and liabilities of non-Sterling operations are translated at the closing rate and items of income, expense and other comprehensive income are translated into Sterling at the rate on the date of the transactions. Exchange rate differences arising on the translation of foreign operations are included in currency translation reserves within equity. These are transferred to the income statement when the Group loses control, joint control or significant influence over the foreign operation or on partial disposal of the operation.
(iii) Financial assets and liabilities The Group applies IAS 39Financial Instruments: Recognition and Measurement to the recognition, classification and measurement, and derecognition of financial assets and financial liabilities, the impairment of financial assets, and hedge accounting.
Recognition The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract, which is the trade date or the settlement date.
|
218 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
1 Significant accounting policiescontinued
Classification and measurement Financial assets and liabilities are initially recognised at fair value and may be held at fair value or amortised cost depending on the Group’s intention towards the assets and the nature of the assets and liabilities, mainly determined by their contractual terms.
The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for determining the fair values of the assets and liabilities are set out in Note 18.
Derecognition The Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash flows from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset or significant risks and rewards, along with the unconditional ability to sell or pledge the asset.
Financial liabilities are derecognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing financial liability for a new liability with the same lender on substantially different terms – generally a difference of 10% in the present value of the cash flows or a substantive qualitative amendment – is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Critical accounting estimates and judgements Transactions in which the Group transfers assets and liabilities, portions of them, or financial risks associated with them can be complex and it may not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform a quantitative analysis. Such an analysis compares 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 may require 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.
(iv) Issued debt and equity instruments The Group applies IAS 32,Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.
Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having a present obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not the case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other returns to equity holders are recognised when paid or declared by the members at the AGM and treated as a deduction from equity.
Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt is estimated first and the balance of the proceeds is included within equity.
New and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year. There were no new or amended standards or interpretations that resulted in a change in accounting policy.
Future accounting developments There have been, and are expected to be, a number of significant changes to the Group’s financial reporting after 2015 as a result of amended or new accounting standards that have been or will be issued by the IASB. The most significant of these are as follows:
IFRS 9 – Financial instruments IFRS 9 Financial Instruments which will replace IAS 39Financial Instruments: Recognition and Measurement is effective for periods beginning on or after 1 January 2018 and is currently expected to be endorsed by the EU in 2016. IFRS 9, in particular the impairment requirements, will lead to significant changes in the accounting for financial instruments.
Impairment IFRS 9 introduces a revised impairment model which will require entities to recognise expected credit losses based on unbiased forward-looking information, replacing the existing incurred loss model which only recognises impairment if there is objective evidence that a loss is already incurred.
The IFRS 9 impairment model will be applicable to all financial assets at amortised cost, lease receivables, debt financial assets at fair value through OCI, loan commitments and financial guarantee contracts. This contrasts to the IAS 39 impairment model which is not applicable to loan commitments and financial guarantee contracts (these were covered by IAS 37). In addition, the IAS 39 Available for Sale assets model is not fully aligned to the model for amortised cost assets.
IFRS 9 requires the recognition of lifetime expected credit losses for financial instruments for which the credit risk has increased significantly since initial recognition. If the credit risk has not increased significantly since initial recognition 12 month expected credit losses are recognised, being the expected credit losses from default events that are possible within 12 months after the reporting date.
Expected credit losses are the unbiased probability of default weighted average credit losses determined by evaluating a range of possible outcomes and forecast future economic conditions. Credit losses are the expected cash shortfalls from what is contractually due over the expected life of the financial instrument, discounted at the effective interest rate.
Under IFRS 9, impairment will be recognised earlier than is the case under IAS 39 because it requires expected losses to be recognised before the loss event arises. Measurement will involve increased complexity and judgement including estimation of probabilities of defaults, loss given default, a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at default and assessing increases in credit risk. It is expected to have a material financial impact, but it will not be practical to disclose reliable financial impact estimates until the implementation programme is further advanced.
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 219 |
Notes to the financial statements
For the year ended 31 December 2015
1 Significant accounting policiescontinued
Based on the current requirements of CRD IV, the expected increase in the accounting impairment provision would reduce CET1 capital but the impact would be partially mitigated by the ‘excess of expected losses over impairment’ included in the CET1 calculation as discussed on page 150).
Classification and measurement IFRS 9 will require financial assets to be classified on the basis of two criteria:
1) the business model within which financial assets are managed, and
2) their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’).
Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest.
Financial assets will be measured at fair value through other comprehensive income if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest.
Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election for non-traded equity investments to be measured at fair value through other comprehensive income.
The accounting for financial liabilities is largely unchanged, except for financial liabilities designated at fair value through profit and loss. Gains and losses on such financial liabilities arising from changes in Barclays’ own credit risk will be presented in other comprehensive income rather than in profit and loss.
Hedge accounting IFRS 9 contains revised requirements on hedge accounting, which are more closely aligned with an entity’s risk management strategies and risk management objectives. The new rules would replace the current quantitative effectiveness test with a simpler version, and requires that an economic relationship exist between the hedged item and the hedging instrument. Under the new rules, voluntary hedge de-designations would not be allowed.
Adoption of the IFRS 9 hedge accounting requirements is optional, and certain aspects of IAS 39, being the portfolio fair value hedge for interest rate risk, would continue to be available for entities (while applying IFRS 9 to the remainder of the entity’s hedge accounting relationships) until the IASB completes its accounting for dynamic risk management project. Barclays is considering the most appropriate approach to adopt in this area.
IFRS 15 – Revenue from Contracts with Customers In 2014, the IASB issued IFRS 15Revenue from Contracts with Customerswhich will replace IAS 18Revenue and IAS 11Construction Contracts. It applies to all contracts with customers except leases, financial instruments and insurance contracts. The standard will establish a more systematic approach for revenue measurement and recognition. During July 2015, the IASB confirmed the deferral of the effective date by one year to 1 January 2018. The standard has not yet been endorsed by the EU. Adoption of the standard is not expected to have a significant impact.
IFRS 16 – Leases In January 2016, the IASB issued IFRS 16Leases, which will replace IAS 17Leases. Under the new requirements, lessees would be required to recognise assets and liabilities arising from both operating and finance leases on the balance sheet. The expected effective date is 1 January 2019. The standard has not yet been endorsed by the EU.
Insurance contracts The IASB also plans to issue a new standard on insurance contracts.
The Group is in the process of considering the financial impacts of the new standards.
Critical accounting estimates and judgements The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying the accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements are highlighted under the relevant note. Critical accounting estimates and judgements are disclosed in:
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Page
| Page
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Credit impairment charges and other provisions
| 223
| Fair value of financial instruments
| 234
| |||
Income taxes
| 226
| Provisions
| 259
| |||
Available for sale assets | 234 | Retirement benefit obligations | 281 | |||
Other disclosures To improve transparency and ease of reference, by concentrating related information in one place, and to reduce duplication, certain disclosures required under IFRS have been included within the Risk management section as follows:
§ Segmental reporting on pages 191 to 221
§ Credit risk management, on pages 99 and 100, including exposures to selected countries
§ Market risk, on pages 101 and 102
§ Funding risk – capital, on pages 103 and 104 and
§ Funding risk – liquidity, on page 105.
These are covered by the Audit opinion included on page 210.
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220 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
Performance/return
The notes included in this section focus on the results and performance of the Group. Information on the income generated, expenditure incurred, segmental performance, tax, earnings per share and dividends are included here.
Presentation of segmental reporting The Group’s segmental reporting is in accordance with IFRS 8Operating Segments. Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Committee, which is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the chief operating decision maker. All transactions between business segments are conducted on an arm’s-length basis, with intra-segment revenue and costs being eliminated in Head Office. Income and expenses directly associated with each segment are included in determining business segment performance.
|
An analysis of the Group’s performance by business segment and income by geographic segment is included on pages 191 and 192. Further details on each of the segments are provided on pages 193 to 221.
Accounting for interest income and expense The Group applies IAS 39Financial Instruments: Recognition and Measurement. Interest income on loans and advances at amortised cost, available for sale debt investments, and interest expense on financial liabilities held at amortised cost, are calculated using the effective interest method which allocates interest, and direct and incremental fees and costs, over the expected lives of the assets and liabilities.
The effective interest method requires the Group to estimate future cash flows, in some cases based on its experience of customers’ behaviour, considering all contractual terms of the financial instrument, as well as the expected lives of the assets and liabilities. Due to the large number of product types (both assets and liabilities), in the normal course of business there are no individual estimates that are material to the results or financial position.
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Cash and balances with central banks | 158 | 193 | 219 | |||||||||
Available for sale investments | 1,387 | 1,615 | 1,804 | |||||||||
Loans and advances to banks | 541 | 446 | 468 | |||||||||
Loans and advances to customers | 14,732 | 14,677 | 15,613 | |||||||||
Other | 383 | 432 | 211 | |||||||||
Interest income | 17,201 | 17,363 | 18,315 | |||||||||
Deposits from banks | (177 | ) | (199 | ) | (201 | ) | ||||||
Customer accounts | (930 | ) | (1,473 | ) | (2,656 | ) | ||||||
Debt securities in issue | (1,722 | ) | (1,922 | ) | (2,176 | ) | ||||||
Subordinated liabilities | (1,644 | ) | (1,622 | ) | (1,572 | ) | ||||||
Other | (170 | ) | (67 | ) | (110 | ) | ||||||
Interest expense | (4,643 | ) | (5,283 | ) | (6,715 | ) | ||||||
Net interest income | 12,558 | 12,080 | 11,600 |
Interest income includes £149m (2014: £153m) accrued on impaired loans.
Other interest income principally includes interest income relating to reverse repurchase agreements and hedging activity. Similarly, other interest expense principally includes interest expense relating to repurchase agreements and hedging activity.
Included in net interest income is hedge ineffectiveness as detailed on page 233.
2015
Net interest income increased by 4% to £12,558m, driven by margin improvement in Barclaycard and Africa Banking, and volume growth in both PCB and Barclaycard. This was partially offset by a decrease in Head Office due to a reduction in interest income on AFS investments. Interest income decreased by 1% to £17,201m, driven by a decline in income on AFS investments which fell 14% to £1,387m. Interest expense decreased 12% to £4,643m, driven by reduced interest expense on customer accounts falling by 37% to £930m.
2014
Net interest income increased by 4% to £12,080m, driven by improvements in PCB savings margins and volume growth in Barclaycard, partially offset by a reduction in Africa Banking due to currency movements and the sale and rundown of assets in Non-Core. Interest income decreased by 5% to £17,363m, driven by a reduction in income from loans and advances to customers which fell 6% to £14,677m. Interest expense reduced 21% to £5,283m, driven by a reduction in interest on customer accounts of £1,183m to £1,473m.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 221 |
Notes to the financial statements
Performance/return
4 Net fee and commission income
Accounting for net fee and commission income The Group applies IAS 18Revenue. Fees and commissions charged for services provided or received by the Group are recognised as the services are provided, for example on completion of the underlying transaction.
|
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Fee and commission income | ||||||||||||
Banking, investment management and credit related fees and commissions | 9,497 | 9,681 | 10,311 | |||||||||
Foreign exchange commission | 158 | 155 | 168 | |||||||||
Fee and commission income | 9,655 | 9,836 | 10,479 | |||||||||
Fee and commission expense | (1,763 | ) | (1,662 | ) | (1,748 | ) | ||||||
Net fee and commission income | 7,892 | 8,174 | 8,731 |
2015
Net fee and commission income decreased £282m to £7,892m. This was primarily driven by lower income due to the sale of the US Wealth and Spanish retail businesses and launch of the revised PCB overdraft proposition in mid 2014, which recognises the majority of the overdraft income as net interest income as opposed to fee income. Investment Bank income decreased, driven by lower equity underwriting fees partially offset by higher financial advisory and debt underwriting fees. Growth in Africa Banking was offset by adverse currency movements. These movements were partly offset by increases in Barclaycard, driven by growth in payment volumes.
2014
Net fee and commission income decreased £557m to £8,174m. This was driven by lower fees as a result of decreased debt underwriting fees and declines in cash commissions, reflecting lower volumes in the Investment Bank. Further decreases were caused by the launch of the revised PCB overdraft proposition, which recognises the majority of the overdraft income as net interest income as opposed to fee income, and adverse currency movements in Africa Banking. These movements were partly offset by increases in Barclaycard, driven by growth in payment volumes.
Accounting for net trading income In accordance with IAS 39Financial Instruments: Recognition and Measurement, trading positions are held at fair value, and the resulting gains and losses are included in the income statement, together with interest and dividends arising from long and short positions and funding costs relating to trading activities.
Income arises from both the sale and purchase of trading positions, margins which are achieved through market making and customer business and from changes in fair value caused by movements in interest and exchange rates, equity prices and other market variables.
Own credit gains/losses arise from the fair valuation of financial liabilities designated at fair value through profit and loss. See Note 17 Financial liabilities designated at fair value.
|
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Trading income | 3,193 | 3,297 | 6,773 | |||||||||
Own credit gains/(losses) | 430 | 34 | (220 | ) | ||||||||
Net trading income | 3,623 | 3,331 | 6,553 |
Included within net trading income were gains of £992m (2014: £1,051m loss, 2013: £914m gain) on financial assets designated at fair value and losses of £187m (2014: £65m loss, 2013: £684m loss) on financial liabilities designated at fair value.
2015
Net trading income increased 9% to £3,623m, primarily reflecting a £396m favourable variance in own credit due to widening of credit spreads on Barclays’ issued debt. Trading income decreased by £104m, mainly driven by the continued disposal and running down of certain businesses and fair value movements on the ESHLA portfolio within Non-Core, and depreciation of ZAR against GBP. This was partially offset by increases in various Investment Bank businesses driven by higher volatility and trading activity during the year.
2014
Net trading income decreased 49% to £3,331m, primarily reflecting a £2,541m decrease in trading income, as lower volatility and subdued trading activity combined with tighter spreads reduced income across a number of businesses. Disposals and running down of certain Non-Core businesses and the £935m fair value reduction on the ESHLA portfolio (see Note 18 for further details) also contributed to the lower income. This was partially offset by a £254m favourable variance in own credit gains/losses.
222 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Accounting for net investment income Dividends are recognised when the right to receive the dividend has been established. Other accounting policies relating to net investment income are set out in Note 16 Available for sale financial assets and Note 14 Financial assets designated at fair value.
|
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Net gain from disposal of available for sale investments | 374 | 620 | 145 | |||||||||
Dividend income | 8 | 9 | 14 | |||||||||
Net gain from financial instruments designated at fair value | 238 | 233 | 203 | |||||||||
Other investment income | 518 | 466 | 318 | |||||||||
Net investment income | 1,138 | 1,328 | 680 |
2015
Net investment income decreased by £190m to £1,138m. This was largely driven by lower gains and fewer disposals of available for sale investments due to unfavourable market conditions. During the year, a gain of £496m (2014: £461m) was recognised in other investment income due to the final and full legal settlement in respect of US Lehman acquisition assets.
2014
Net investment income increased by £648m to £1,328m. This was largely driven by an increase in disposals of available for sale investments due to favourable market conditions and increases in other investment income as a result of greater certainty regarding the recoverability of certain assets not yet received from the 2008 US Lehman acquisition (2014: £461m gain; 2013: £259m gain).
7 Credit impairment charges and other provisions
Accounting for the impairment of financial assets
Loans and other assets held at amortised cost In accordance with IAS 39, the Group assesses at each balance sheet date whether there is objective evidence that loan assets or available for sale financial investments (debt or equity) will not be recovered in full and, wherever necessary, recognises an impairment loss in the income statement.
An impairment loss is recognised if there is objective evidence of impairment as a result of events that have occurred and these have adversely impacted the estimated future cash flows from the assets. These events include:
§ becoming aware of significant financial difficulty of the issuer or obligor
§ a breach of contract, such as a default or delinquency in interest or principal payments
§ the Group, for economic or legal reasons relating to the borrower’s financial difficulty, grants a concession that it would not otherwise consider
§ it becomes probable that the borrower will enter bankruptcy or other financial reorganisation
§ the disappearance of an active market for that financial asset because of financial difficulties
§ observable data at a portfolio level indicating that there is a measurable decrease in the estimated future cash flows, although the decrease cannot yet be ascribed to individual financial assets in the portfolio – such as adverse changes in the payment status of borrowers in the portfolio or national or local economic conditions that correlate with defaults on the assets in the portfolio.
Impairment assessments are conducted individually for significant assets, which comprise all wholesale customer loans and larger retail business loans and collectively for smaller loans and for portfolio level risks, such as country or sectoral risks. For the purposes of the assessment, loans with similar credit risk characteristics are grouped together – generally on the basis of their product type, industry, geographical location, collateral type, past due status and other factors relevant to the evaluation of expected future cash flows.
The impairment assessment includes estimating the expected future cash flows from the asset or the group of assets, which are then discounted using the original effective interest rate calculated for the asset. If this is lower than the carrying value of the asset or the portfolio, an impairment allowance is raised.
If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.
Following impairment, interest income continues to be recognised at the original effective interest rate on the restated carrying amount, representing the unwind of the discount of the expected cash flows, including the principal due on non-accrual loans.
Uncollectable loans are written off against the related allowance for loan impairment on completion of the Group’s internal processes and all recoverable amounts have been collected. Subsequent recoveries of amounts previously written off are credited to the income statement.
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 223 |
Notes to the financial statements
Performance/return
7 Credit impairment charges and other provisionscontinued
Available for sale financial assets
Impairment of available for sale debt instruments Debt instruments are assessed for impairment in the same way as loans. If impairment is deemed to have occurred, the cumulative decline in the fair value of the instrument that has previously been recognised in the AFS reserve is removed from reserves and recognised in the income statement. This may be reversed if there is evidence that the circumstances of the issuer have improved.
Impairment of available for sale equity instruments Where there has been a prolonged or significant decline in the fair value of an equity instrument below its acquisition cost, it is deemed to be impaired. The cumulative net loss that has been previously recognised directly in the AFS reserve is removed from reserves and recognised in the income statement.
Increases in the fair value of equity instruments after impairment are recognised directly in other comprehensive income. Further declines in the fair value of equity instruments after impairment are recognised in the income statement.
Critical accounting estimates and judgements The calculation of impairment involves the use of judgement, based on the Group’s experience of managing credit risk.
Within the retail and small businesses portfolios, which comprise large numbers of small homogenous 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 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 retail portfolios is £1,808m (2014: £1,844m, 2013: £2,161m) and amounts to 86% (2014: 84%, 2013: 71%) of the total impairment charge on loans and advances.
For individually significant assets, 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 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 wholesale portfolios is £289m (2014: £360m, 2013: £901m) and amounts to 14% (2014: 16%, 2013: 29%) of the total impairment charge on loans and advances. Further information on impairment allowances and related credit information is set out within the Risk review.
|
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
New and increased impairment allowances | 3,056 | 3,230 | 3,929 | |||||||||
Releases | (547 | ) | (809 | ) | (683 | ) | ||||||
Recoveries | (400 | ) | (221 | ) | (201 | ) | ||||||
Impairment charges on loans and advances | 2,109 | 2,200 | 3,045 | |||||||||
Provision (releases)/charges for undrawn contractually committed facilities and guarantees provided | (12 | ) | 4 | 17 | ||||||||
Loan impairment | 2,097 | 2,204 | 3,062 | |||||||||
Available for sale investment | 17 | (31 | ) | 1 | ||||||||
Reverse repurchase agreements | – | (5 | ) | 8 | ||||||||
Credit impairment charges and other provisions | 2,114 | 2,168 | 3,071 |
2015
Loan impairment fell 5% to £2,097m, reflecting lower impairment in PCB and Non-Core, partially offset by higher charges in the Investment Bank and Barclaycard.
2014
Loan impairment fell 28% to £2,204m, reflecting lower impairment in Non-Core, PCB, and Africa Banking partially offset by higher charges in Barclaycard.
224 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Accounting for staff costs The Group applies IAS 19Employee benefits in its accounting for most of the components of staff costs.
Short-term employee benefits – salaries, accrued performance costs and social security are recognised over the period in which the employees provide the services to which the payments relate.
Performance costs – recognised to the extent that the Group has a present obligation to its employees that can be measured reliably and are recognised over the period of service that employees are required to work to qualify for the services.
Deferred cash bonus awards and deferred share bonus awards are made to employees to incentivise performance over the vesting period. To receive payment under an award, employees must provide service over the vesting period, typically three years from the grant date. The period over which the expense for deferred cash and share bonus awards is recognised is based upon the common understanding between the employee and the Group and the terms and conditions of the award. The Group considers that it is appropriate to recognise the awards over the period from the date of grant to the date that the awards vest as this is the period over which the employees understand that they must provide service in order to receive awards. The table on page 91 details the relevant award dates, payment dates and the period in which the income statement charge arises for bonuses. No expense has been recognised in 2015 for the deferred bonuses that will be granted in March 2016, as they are dependent upon future performance rather than performance during 2015.
The accounting policies for share based payments, and pensions and other post retirement benefits are included in Note 34 and Note 35 respectively.
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Infrastructure costs | ||||||||||||
Property and equipment | 1,353 | 1,570 | 1,610 | |||||||||
Depreciation of property, plant and equipment | 554 | 585 | 647 | |||||||||
Operating lease rentals | 500 | 594 | 645 | |||||||||
Amortisation of intangible assets | 617 | 522 | 480 | |||||||||
Impairment of property, equipment and intangible assets | 153 | 172 | 149 | |||||||||
Gain on property disposals | 3 | – | – | |||||||||
Total infrastructure costs | 3,180 | 3,443 | 3,531 | |||||||||
Administration and general costs | ||||||||||||
Consultancy, legal and professional fees | 1,191 | 1,104 | 1,253 | |||||||||
Subscriptions, publications, stationery and communications | 760 | 842 | 869 | |||||||||
Marketing, advertising and sponsorship | 536 | 558 | 583 | |||||||||
Travel and accommodation | 218 | 213 | 307 | |||||||||
UK bank levy | 476 | 462 | 504 | |||||||||
Goodwill impairment | 102 | – | 79 | |||||||||
Other administration and general expenses | 245 | 442 | 518 | |||||||||
Total administration and general costs | 3,528 | 3,621 | 4,113 | |||||||||
Recurring staff cost | 10,389 | 11,005 | 12,155 | |||||||||
Gains on retirement benefits | (429 | ) | – | – | ||||||||
Staff costs | 9,960 | 11,005 | 12,155 | |||||||||
Provision for UK customer redress | 2,772 | 1,110 | 2,000 | |||||||||
Provision for ongoing investigations and litigation including Foreign Exchange | 1,237 | 1,250 | 173 | |||||||||
Operating expenses | 20,677 | 20,429 | 21,972 |
For information on staff costs, refer to pages 57 to 58 of the Remuneration Report.
2015
Operating expenses have increased by 1% to £20,677m (2014: £20,429m) attributable to an increase in provisions for UK customer redress including PPI and an increase in impairment of goodwill partially offset by a decrease in staff costs (includes a gain on Retirement benefits, refer to Note 35 of £429m) and infrastructure costs reflecting savings from strategic cost programmes.
2014
Operating expenses have reduced by 7% to £20,429m, primarily driven by savings from strategic cost programmes, including a 5% reduction in headcount and currency movements, lower provisions for UK customer redress including PPI, reduced IT and infrastructure spend and non-occurrence of various provisions raised last year. This was partially offset by the charge of £1,250m (2013: £173m) for ongoing investigations and litigation relating to Foreign Exchange.
The impact of strategic cost programmes have driven savings across infrastructure and administration costs. Staff costs have decreased by 9% to £11,005m, reflecting a 5% net reduction in headcount and reductions in incentive awards granted.
9 Profit/(loss) on disposal of subsidiaries, associates and joint ventures
During the year, the loss on disposal of subsidiaries, associates and joint ventures was £637m (2014: loss of £471m, 2013: gain of £6m), principally relating to the sale of Spanish, Portuguese and Italian businesses. Please refer to Note 44 Non-current assets held for sale and associated liabilities.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 225 |
Notes to the financial statements
Performance/return
Accounting for income taxes Barclays applies IAS 12Income Taxes in accounting for taxes on income. Income tax payable on taxable profits (Current Tax) is recognised as an expense in the period in which the profits arise. Withholding taxes are also treated as income taxes. Income tax recoverable on tax allowable losses is recognised as a current tax asset only to the extent that it is regarded as recoverable by offset against taxable profits arising in the current or prior period. Current tax is measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising from the differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates and legislation enacted or substantively enacted by the balance sheet date which are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are only offset when there is both a legal right to set-off and an intention to settle on a net basis.
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Current tax charge | ||||||||||||
Current year | 1,901 | 1,421 | 1,997 | |||||||||
Adjustment for prior years | (183 | ) | (19 | ) | 156 | |||||||
1,718 | 1,402 | 2,153 | ||||||||||
Deferred tax charge/(credit) | ||||||||||||
Current year | (346 | ) | 75 | (68 | ) | |||||||
Adjustment for prior years | 78 | (66 | ) | (514 | ) | |||||||
(268 | ) | 9 | (582 | ) | ||||||||
Tax charge | 1,450 | 1,411 | 1,571 |
Tax relating to each component of other comprehensive income can be found in the consolidated statement of comprehensive income which additionally includes within Other a tax credit of £21m (2014: £42m charge) principally relating to share based payments.
The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to the Group’s profit before tax.
| 2015 £m |
|
| 2015 % |
|
| 2014 £m |
|
| 2014 % |
|
| 2013 £m |
|
| 2013 % |
| |||||||
Profit before tax from continuing operations | 2,073 | 2,256 | 2,868 | |||||||||||||||||||||
Tax charge based on the standard UK corporation tax rate of 20.25% (2014: 21.50%, 2013: 23.25%) | 420 | 20.25 | 485 | 21.50 | 667 | 23.25 | ||||||||||||||||||
Non-creditable taxes including withholding taxes | 309 | 14.9 | 329 | 14.6 | 559 | 19.5 | ||||||||||||||||||
Non-deductible provisions for UK customer redress | 283 | 13.6 | – | – | – | – | ||||||||||||||||||
Non-UK profits at statutory tax rates different from the UK statutory tax rate | 274 | 13.2 | 253 | 11.2 | 328 | 11.4 | ||||||||||||||||||
Non-deductible provisions for ongoing investigations and litigation including Foreign Exchange | 261 | 12.6 | 387 | 17.2 | – | – | ||||||||||||||||||
Non-deductible expenses including UK bank levy | 207 | 10.0 | 285 | 12.6 | 296 | 10.3 | ||||||||||||||||||
Impact of change in tax rates | 158 | 7.6 | 9 | 0.4 | (159 | ) | (5.5 | ) | ||||||||||||||||
Tax adjustments in respect of share based payments | 30 | 1.4 | 21 | 0.9 | (13 | ) | (0.5 | ) | ||||||||||||||||
Non-deductible impairments and losses on disposal | 26 | 1.3 | 234 | 10.4 | – | – | ||||||||||||||||||
Non-taxable gains and income | (241 | ) | (11.6 | ) | (282 | ) | (12.5 | ) | (234 | ) | (8.2 | ) | ||||||||||||
Adjustments in respect of prior years | (105 | ) | (5.1 | ) | (85 | ) | (3.8 | ) | (358 | ) | (12.5 | ) | ||||||||||||
Changes in recognition and measurement of deferred tax assets | (77 | ) | (3.7 | ) | (183 | ) | (8.1 | ) | 409 | 14.3 | ||||||||||||||
Other items | (52 | ) | (2.5 | ) | 40 | 1.8 | 137 | 4.8 | ||||||||||||||||
Non-UK losses at statutory tax rates different from the UK statutory tax rate | (43 | ) | (2.1 | ) | (82 | ) | (3.6 | ) | (61 | ) | (2.1 | ) | ||||||||||||
Tax charge | 1,450 | 69.9 | 1,411 | 62.5 | 1,571 | 54.8 |
The effective tax rate of 69.9% (2014: 62.5%) increased from the previous year. This is mainly due to provisions for UK customer redress, that were non-deductible in 2015 as a result of changes introduced by the UK summer Budget, and the impact of changes to tax rates. The changes to tax rates in the period that had an adverse impact on the 2015 tax charge were the reduction of the local New York tax rate and the increase of the UK tax rate, specifically through the introduction of the new corporation tax surcharge that applies to banks. These tax rate changes resulted in the carrying value of US deferred tax assets being reduced and are further explained later in Note 10.
The effective tax rate of 69.9% on statutory profit before tax is significantly higher than the effective tax rate on adjusted profit before tax. For further details on the adjusted effective tax rate, please refer to page 187 of the financial review.
226 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
10 Tax continued
Current tax assets and liabilities
Movements on current tax assets and liabilities were as follows:
| 2015 £m |
|
| 2014 £m |
| |||
Assets | 334 | 219 | ||||||
Liabilities | (1,021 | ) | (1,042 | ) | ||||
As at 1 January | (687 | ) | (823 | ) | ||||
Income statement | (1,718 | ) | (1,402 | ) | ||||
Other comprehensive income | 6 | (26 | ) | |||||
Corporate income tax paid | 1,670 | 1,552 | ||||||
Other movements | 241 | 12 | ||||||
(488 | ) | (687 | ) | |||||
Assets | 415 | 334 | ||||||
Liabilities | (903 | ) | (1,021 | ) | ||||
As at 31 December | (488 | ) | (687 | ) | ||||
Deferred tax assets and liabilities | ||||||||
The deferred tax amounts on the balance sheet were as follows:
| ||||||||
| 2015 £m |
| | 2014 £m | | |||
Barclays Group US Inc (BGUS) – US tax group | 1,903 | 1,588 | ||||||
Barclays Bank PLC (US Branch) – US tax group | 1,569 | 1,591 | ||||||
Barclays PLC – UK tax group | 411 | 461 | ||||||
Other | 612 | 490 | ||||||
Deferred tax asset | 4,495 | 4,130 | ||||||
Deferred tax liability | (122 | ) | (262 | ) | ||||
Net deferred tax | 4,373 | 3,868 |
US deferred tax assets in BGUS and the US Branch
The deferred tax asset in BGUS of £1,903m (2014: £1,588m) includes £449m (2014: £348m) relating to tax losses and the deferred tax asset in the US Branch of £1,569m (2014: £1,591m) includes £244m (2014: £479m) relating to tax losses. Under US tax rules losses can be carried forward and offset against profits for a period of 20 years. The losses first arose in 2011 in BGUS and 2008 in the US Branch and therefore any unused amounts may begin to expire in 2031 and 2028 respectively. The remaining US deferred tax assets relate primarily to temporary differences for which there is no time limit on recovery.
The valuation of the Group’s US deferred tax assets was adjusted downwards in 2015 as a result of both the reduction in the local New York rate of tax, which affected the deferred tax asset in both BGUS and the US Branch, and the introduction of the new UK corporation tax surcharge, which affected the deferred tax asset in the US Branch. The US Branch deferred tax asset is stated net of a measurement for UK tax because Barclays Bank PLC is subject to UK tax on the profits of its non-UK branches.
The deferred tax asset for the BGUS tax loss is projected to be fully utilised in 2017 and the deferred tax asset for the US Branch loss to be fully utilised in 2018.
UK tax group deferred tax asset
The deferred tax asset in the UK tax group of £411m (2014: £461m) relates entirely to temporary differences (2014: £245m related to tax losses). Based on profit forecasts, it is probable that there will be sufficient future taxable profits available against which the temporary differences will be utilised.
Other deferred tax assets
The deferred tax asset of £612m (2014: £490m) in other entities within the Group includes £209m (2014: £243m) relating to tax losses carried forward. These deferred tax assets relate to a number of different territories and their recognition is based on profit forecasts or local country laws which indicate that it is probable that the losses and temporary differences will be utilised.
Of the deferred tax asset of £612m (2014: £490m), an amount of £106m (2014: £140m) relates to entities which have suffered a loss in either the current or prior year. This has been taken into account in reaching the above conclusion that these deferred tax assets will be fully recovered in the future.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 227 |
Notes to the financial statements
Performance/return
10 Taxcontinued
The table below shows movements on deferred tax assets and liabilities during the year. The amounts are different from those disclosed on the balance sheet and in the preceding table as they are presented before offsetting asset and liability balances where there is a legal right to set-off and an intention to settle on a net basis.
| Fixed asset timing differences £m | | | Available for sale investments £m | | | Cash flow hedges £m | | | Retirement benefit obligations £m | | | Loan impairment allowance £m | | | Other provisions £m | | | Tax losses carried forward £m | | | Share based payments and deferred | | | Other £m | |
| Total £m |
| |||||||||||
Assets | 1,542 | 18 | 5 | 321 | 176 | 233 | 1,315 | 729 | 951 | 5,290 | ||||||||||||||||||||||||||||||
Liabilities | (555 | ) | (35 | ) | (464 | ) | – | – | – | – | – | (368) | (1,422) | |||||||||||||||||||||||||||
At 1 January 2015 | 987 | (17 | ) | (459 | ) | 321 | 176 | 233 | 1,315 | 729 | 583 | 3,868 | ||||||||||||||||||||||||||||
Income statement | 779 | (13 | ) | 1 | (119 | ) | (14 | ) | 21 | (540 | ) | (126 | ) | 279 | 268 | |||||||||||||||||||||||||
Other comprehensive income | – | (14 | ) | 221 | (261 | ) | – | – | 122 | (10 | ) | (21) | 37 | |||||||||||||||||||||||||||
Other movements | 48 | 2 | 3 | 10 | (5 | ) | 7 | 5 | 30 | 100 | 200 | |||||||||||||||||||||||||||||
1,814 | (42 | ) | (234 | ) | (49 | ) | 157 | 261 | 902 | 623 | 941 | 4,373 | ||||||||||||||||||||||||||||
Assets | 2,008 | 28 | 5 | 95 | 157 | 261 | 902 | 623 | 1,511 | 5,590 | ||||||||||||||||||||||||||||||
Liabilities | (194 | ) | (70 | ) | (239 | ) | (144 | ) | – | – | – | – | (570) | (1,217) | ||||||||||||||||||||||||||
At 31 December 2015 | 1,814 | (42 | ) | (234 | ) | (49 | ) | 157 | 261 | 902 | 623 | 941 | 4,373 | |||||||||||||||||||||||||||
Assets | 1,525 | 53 | 5 | 490 | 376 | 360 | 1,235 | 762 | 1,078 | 5,884 | ||||||||||||||||||||||||||||||
Liabilities | (761 | ) | (61 | ) | (87 | ) | (9 | ) | – | – | – | – | (532) | (1,450) | ||||||||||||||||||||||||||
At 1 January 2014 | 764 | (8 | ) | (82 | ) | 481 | 376 | 360 | 1,235 | 762 | 546 | 4,434 | ||||||||||||||||||||||||||||
Income statement | 172 | 84 | (1 | ) | (54 | ) | 70 | (87 | ) | 4 | (40 | ) | (157) | (9) | ||||||||||||||||||||||||||
Other comprehensive income | – | (104 | ) | (380 | ) | (63 | ) | – | – | – | (10 | ) | (5) | (562) | ||||||||||||||||||||||||||
Other movements | 51 | 11 | 4 | (43 | ) | (270 | ) | (40 | ) | 76 | 17 | 199 | 5 | |||||||||||||||||||||||||||
987 | (17 | ) | (459 | ) | 321 | 176 | 233 | 1,315 | 729 | 583 | 3,868 | |||||||||||||||||||||||||||||
Assets | 1,542 | 18 | 5 | 321 | 176 | 233 | 1,315 | 729 | 951 | 5,290 | ||||||||||||||||||||||||||||||
Liabilities | (555 | ) | (35 | ) | (464 | ) | – | – | – | – | – | (368) | (1,422) | |||||||||||||||||||||||||||
At 31 December 2014 | 987 | (17 | ) | (459 | ) | 321 | 176 | 233 | 1,315 | 729 | 583 | 3,868 |
Other movements include deferred tax amounts relating to acquisitions, disposals and exchange gains and losses.
The amount of deferred tax liability expected to be settled after more than 12 months is £675m (2014: £1,123m). The amount of deferred tax assets expected to be recovered after more than 12 months is £4,838m (2014: £4,845m). These amounts are before offsetting asset and liability balances where there is a legal right to set-off and an intention to settle on a net basis.
Unrecognised deferred tax
Deferred tax assets have not been recognised in respect of gross deductible temporary differences of £51m (2014: £2,332m), gross tax losses of £13,456m (2014: £9,764m) which includes capital losses of £3,838m (2014: £3,522m), and unused tax credits of £452m (2014: £405m). Of these tax losses, £389m (2014: £341m) expire within five years, £13m (2014: £18m) expire within six to ten years, £124m (2014: £812m) expire within 11 to 20 years and £12,930m (2014: £8,593m) can be carried forward indefinitely. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits and gains will be available against which they can be utilised.
Deferred tax is not recognised in respect of the value of the Group’s investments in subsidiaries, branches and associates where the Group is able to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. It is not practicable to determine the amount of income tax that would be payable were such temporary differences to reverse.
Critical accounting estimates and judgements
The Group is subject to corporate income taxes in numerous jurisdictions and the calculation of the Group’s tax charge and worldwide provisions for corporate income taxes necessarily involves a degree of estimation and judgement. There are many transactions and calculations for which the ultimate tax treatment is uncertain and cannot be determined until resolution has been reached with the relevant tax authority. The Group has a number of open tax returns with various tax authorities with whom there is active dialogue. Liabilities relating to these open and judgemental matters are based on estimates of whether additional taxes will be due after taking into account external advice, where appropriate. Where the final tax outcome of these matters is different from the amounts provided, such differences will impact the tax charge in a future period. There is no individual position currently subject to challenge by a tax authority that if resolved in an adverse manner would materially impact the Group’s financial position.
Deferred tax assets have been recognised based on business profit forecasts. Further detail on the recognition of deferred tax assets is provided in the deferred tax assets and liabilities section of this tax note.
228 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||||||||||||
(Loss)/profit attributable to equity holders of parent from continuing operations |
| (394 | ) | (174 | ) | 540 | ||||||||||||||||||
Tax credit on profit after tax attributable to other equity holders |
| 70 | 54 | – | ||||||||||||||||||||
Dilutive impact of convertible options |
| – | – | 1 | ||||||||||||||||||||
(Loss)/profit attributable to equity holders of parent from continuing operations including dilutive impact of convertible options |
| (324 | ) | (120 | ) | 541 | ||||||||||||||||||
| 2015 million |
|
| 2014 million |
|
| 2013 million |
| ||||||||||||||||
Basic weighted average number of shares in issue |
| 16,687 | 16,329 | 14,308 | ||||||||||||||||||||
Number of potential ordinary shares |
| 367 | 296 | 360 | ||||||||||||||||||||
Diluted weighted average number of shares |
| 17,054 | 16,625 | 14,668 | ||||||||||||||||||||
Basic earnings per share | Diluted earnings per sharea | |||||||||||||||||||||||
| 2015 p |
|
| 2014 p |
|
| 2013 p |
|
| 2015 p |
|
| 2014 p |
|
| 2013 p |
| |||||||
(Loss)/earnings per ordinary share from continuing operations | (1.9 | ) | (0.7 | ) | 3.8 | (1.9 | ) | (0.7 | ) | 3.7 |
The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the basic weighted average number of shares excluding treasury shares held in employee benefit trusts or held for trading. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effects of all dilutive potential ordinary shares held in respect of Barclays PLC, totalling 367m (2014: 296m) shares. In addition, the profit attributable to equity holders of the parent is adjusted for the dilutive impact of the potential conversion of outstanding options held in respect of Barclays Africa Group Limited. The increase in the number of potential ordinary shares is due to the average share price of £2.52 (2014: £2.39) being greater than the average strike price of £2.11 (2014: £2.15). During the year, the total number of share options granted under employee share schemes was 553m (2014: 666m). The schemes have strike prices ranging from £1.30 to £4.35.
Of the total number of employee share options and share awards at 31 December 2015, 23m (2014: 24m) were anti-dilutive.
The 358m increase in the basic weighted average number of shares since 31 December 2014 to 16,687m is due to shares issued under employee share schemes and the Scrip Dividend Programme.
12 Dividends on ordinary shares
The Directors have approved a final dividend in respect of 2015 of 3.5p per ordinary share of 25p each which will be paid on 5 April 2016 to shareholders on the Share Register on 11 March 2016. As at 31 December 2015, there were 16,805m ordinary shares in issue. The financial statements for the year ended 31 December 2015 does not reflect this dividend, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2016. The 2015 financial statements include the 2015 interim dividends of £503m (2014: £493m) and final dividend declared in relation to 2014 of £578m (2014: £564m).
Note
a | Potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would increase loss per share. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 229 |
Notes to the financial statements
Assets and liabilities held at fair value
The notes included in this section focus on assets and liabilities the Group holds and recognises at fair value. Fair value refers to the price that would be received to sell an asset or the price that would be paid to transfer a liability in an arm’s-length transaction with a willing counterparty, which may be an observable market price or, where there is no quoted price for the instrument, may be an estimate based on available market data. Detail regarding the Group’s approach to managing market risk can be found on pages 101 to 102.
Accounting for trading portfolio assets and liabilities In accordance with IAS 39, all assets and liabilities held for trading purposes are held at fair value with gains and losses in the changes in fair value taken to the income statement in Net trading income (Note 5).
|
Note
a | During 2015, new reverse repurchase agreements and other similar secured lending in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
230 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
15 Derivative financial instruments
Accounting for derivatives 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 applies IAS 39. All derivative instruments are held at fair value through profit or loss. Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative. This includes terms included in a contract or other financial asset or liability (the host), which, had it been a stand-alone contract, would have met the definition of a derivative. These are separated from the host and accounted for in the same way as a derivative.
Hedge accounting The Group applies hedge accounting to represent, to the maximum possible extent permitted under accounting standards, the economic effects of its interest and currency risk management strategies. Derivatives are used to hedge interest rate, exchange rate, commodity, and equity exposures and exposures to certain indices such as house price indices and retail price indices related to non-trading positions. Where derivatives are held for risk management purposes, and when transactions meet the required criteria for documentation and hedge effectiveness, the Group applies fair value hedge accounting, cash flow hedge accounting, or hedging of a net investment in a foreign operation, as appropriate to the risks being hedged.
Fair value hedge accounting Changes in fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The fair value changes adjust the carrying value of the hedged asset or liability held at amortised cost.
If hedge relationships no longer meet the criteria for hedge accounting, hedge accounting is discontinued. For fair value hedges of interest rate risk, the fair value adjustment to the hedged item is amortised to the income statement over the period to maturity of the previously designated hedge relationship using the effective interest method. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income statement.
Cash flow hedge accounting For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge is recognised initially in other comprehensive income, and then recycled to the income statement in the periods when the hedged item will affect profit or loss. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the income statement immediately.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the hedged item is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was recognised in equity is immediately transferred to the income statement.
Hedges of net investments The Group’s net investments in foreign operations, including monetary items accounted for as part of the net investment, are hedged for foreign currency risks using both derivatives and foreign currency borrowings. Hedges of net investments are accounted for similarly to cash flow hedges; the effective portion of the gain or loss on the hedging instrument is being recognised directly in other comprehensive income and the ineffective portion being recognised immediately in the income statement. The cumulative gain or loss recognised in other comprehensive income is recognised in the income statement on the disposal or partial disposal of the foreign operation, or other reductions in the Group’s investment in the operation.
|
Total derivatives | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
|
Notional |
|
|
Notional |
| |||||||||||||||||||
contract | Fair value | contract | Fair value | |||||||||||||||||||||
amount | Assets | Liabilities | amount | Assets | Liabilities | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Total derivative assets/(liabilities) held for trading | 29,437,102 | 326,772 | (323,788 | ) | 32,624,342 | 438,270 | (438,623 | ) | ||||||||||||||||
Total derivative assets/(liabilities) held for risk management | 316,605 | 937 | (464 | ) | 268,448 | 1,639 | (697 | ) | ||||||||||||||||
Derivative assets/(liabilities) | 29,753,707 | 327,709 | (324,252 | ) | 32,892,790 | 439,909 | (439,320 | ) |
The fair value of gross derivative assets decreased by 26% to £328bn, driven by decrease in interest rate derivatives of £79bn due to net trade reduction and an increase in the major interest rate forward curves and a decrease in foreign exchange derivatives of £19bn, materially reflecting trade maturities. Information on further netting of derivative financial instruments is included within Note 19 Offsetting financial assets and financial liabilities.
Trading derivatives are managed within the Group’s market risk management policies, which are outlined on pages 101 and 102.
The Group’s exposure to credit risk arising from derivative contracts are outlined in the Credit Risk section on page 130.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 231 |
Notes to the financial statements
Assets and liabilities held at fair value
15 Derivative financial instrumentscontinued
The fair values and notional amounts of derivative instruments held for trading are set out in the following table:
Derivatives held for trading | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
| Notional contract £m |
| Fair value |
| Notional contract £m |
|
|
Fair value |
| |||||||||||||||
| Assets £m | | | Liabilities £m | | | Assets £m | |
| Liabilities £m |
| |||||||||||||
Foreign exchange derivatives | ||||||||||||||||||||||||
Forward foreign exchange | 1,277,863 | 17,613 | (19,433 | ) | 1,684,832 | 31,883 | (34,611 | ) | ||||||||||||||||
Currency swaps | 1,006,640 | 30,703 | (32,449 | ) | 1,109,795 | 32,209 | (33,919 | ) | ||||||||||||||||
OTC options bought and sold | 924,832 | 6,436 | (6,771 | ) | 895,226 | 10,267 | (10,665 | ) | ||||||||||||||||
OTC derivatives | 3,209,335 | 54,752 | (58,653 | ) | 3,689,853 | 74,359 | (79,195 | ) | ||||||||||||||||
Foreign exchange derivatives cleared by central counterparty | 9,308 | 33 | (44 | ) | 11,382 | 56 | (70 | ) | ||||||||||||||||
Exchange traded futures and options – bought and sold | 6,071 | 13 | (12 | ) | 57,623 | 18 | (16 | ) | ||||||||||||||||
Foreign exchange derivatives | 3,224,714 | 54,798 | (58,709 | ) | 3,758,858 | 74,433 | (79,281 | ) | ||||||||||||||||
Interest rate derivatives | ||||||||||||||||||||||||
Interest rate swaps | 4,600,472 | 159,040 | (148,475 | ) | 5,779,015 | 209,962 | (200,096 | ) | ||||||||||||||||
Forward rate agreements | 371,510 | 440 | (390 | ) | 467,812 | 794 | (722 | ) | ||||||||||||||||
OTC options bought and sold | 2,634,527 | 48,995 | (49,001 | ) | 3,083,200 | 67,039 | (67,575 | ) | ||||||||||||||||
OTC derivatives | 7,606,509 | 208,475 | (197,866 | ) | 9,330,027 | 277,795 | (268,393 | ) | ||||||||||||||||
Interest rate derivatives cleared by central counterparty | 11,407,745 | 21,871 | (22,603 | ) | 15,030,090 | 30,166 | (31,152 | ) | ||||||||||||||||
Exchange traded futures and options – bought and sold | 5,470,872 | 281 | (263 | ) | 2,210,602 | 382 | (336 | ) | ||||||||||||||||
Interest rate derivatives | 24,485,126 | 230,627 | (220,732 | ) | 26,570,719 | 308,343 | (299,881 | ) | ||||||||||||||||
Credit derivatives | ||||||||||||||||||||||||
OTC swaps | 671,389 | 14,087 | (12,693 | ) | 896,386 | 18,864 | (17,825 | ) | ||||||||||||||||
Credit derivatives cleared by central counterparty | 277,257 | 4,094 | (3,931 | ) | 287,577 | 4,643 | (4,542 | ) | ||||||||||||||||
Credit derivatives | 948,646 | 18,181 | (16,624 | ) | 1,183,963 | 23,507 | (22,367 | ) | ||||||||||||||||
Equity and stock index derivatives | ||||||||||||||||||||||||
OTC options bought and sold | 53,645 | 5,507 | (7,746 | ) | 67,151 | 6,461 | (9,517 | ) | ||||||||||||||||
Equity swaps and forwards | 98,264 | 1,794 | (3,855 | ) | 102,663 | 1,823 | (3,532 | ) | ||||||||||||||||
OTC derivatives | 151,909 | 7,301 | (11,601 | ) | 169,814 | 8,284 | (13,049 | ) | ||||||||||||||||
Exchange traded futures and options – bought and sold | 429,592 | 6,498 | (6,851 | ) | 490,960 | 6,560 | (6,542 | ) | ||||||||||||||||
Equity and stock index derivatives | 581,501 | 13,799 | (18,452 | ) | 660,774 | 14,844 | (19,591 | ) | ||||||||||||||||
Commodity derivatives | ||||||||||||||||||||||||
OTC options bought and sold | 21,959 | 1,402 | (1,408 | ) | 38,196 | 1,592 | (1,227 | ) | ||||||||||||||||
Commodity swaps and forwards | 29,161 | 3,645 | (3,397 | ) | 61,639 | 7,985 | (8,175) | |||||||||||||||||
OTC derivatives | 51,120 | 5,047 | (4,805 | ) | 99,835 | 9,577 | (9,402 | ) | ||||||||||||||||
Exchange traded futures and options – bought and sold | 145,995 | 4,320 | (4,466 | ) | 350,193 | 7,566 | (8,101 | ) | ||||||||||||||||
Commodity derivatives | 197,115 | 9,367 | (9,271 | ) | 450,028 | 17,143 | (17,503 | ) | ||||||||||||||||
Derivative assets/(liabilities) held for trading | 29,437,102 | 326,772 | (323,788 | ) | 32,624,342 | 438,270 | (438,623 | ) | ||||||||||||||||
Total OTC derivatives held for trading | 11,690,262 | 289,662 | (285,618 | ) | 14,185,915 | 388,879 | (387,864 | ) | ||||||||||||||||
Total derivatives cleared by central counterparty held for trading | 11,694,310 | 25,998 | (26,578 | ) | 15,329,049 | 34,865 | (35,764 | ) | ||||||||||||||||
Total exchange traded derivatives held for trading | 6,052,530 | 11,112 | (11,592 | ) | 3,109,378 | 14,526 | (14,995 | ) | ||||||||||||||||
Derivative assets/(liabilities) held for trading | 29,437,102 | 326,772 | (323,788 | ) | 32,624,342 | 438,270 | (438,623 | ) |
232 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
15 Derivative financial instrumentscontinued
The fair values and notional amounts of derivative instruments held for risk management are set out in the following table:
Derivatives held for risk management | ||||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||||
| Notional contract £m |
| Fair value |
| Notional contract £m |
|
|
Fair value |
| |||||||||||||||||
| Assets £m | | | Liabilities £m | | | Assets £m | | | Liabilities £m | | |||||||||||||||
Derivatives designated as cash flow hedges | ||||||||||||||||||||||||||
Currency swaps | 1,357 | 133 | – | – | – | – | ||||||||||||||||||||
Interest rate swaps | 14,198 | 162 | (115 | ) | 19,218 | 223 | (60 | ) | ||||||||||||||||||
Forward foreign exchange | 759 | 5 | – | 930 | 17 | – | ||||||||||||||||||||
Interest rate derivatives cleared by central counterparty | 147,072 | – | – | 82,550 | – | – | ||||||||||||||||||||
Derivatives designated as cash flow hedges | 163,386 | 300 | (115 | ) | 102,698 | 240 | (60 | ) | ||||||||||||||||||
Derivatives designated as fair value hedges | ||||||||||||||||||||||||||
Interest rate swaps | 13,798 | 637 | (264 | ) | 27,345 | 1,379 | (590 | ) | ||||||||||||||||||
Forward foreign exchange | 2,527 | – | (32 | ) | – | – | – | |||||||||||||||||||
Interest rate derivatives cleared by central counterparty | 134,939 | – | – | 135,553 | – | – | ||||||||||||||||||||
Derivatives designated as fair value hedges | 151,264 | 637 | (296 | ) | 162,898 | 1,379 | (590 | ) | ||||||||||||||||||
Derivatives designated as hedges of net investments | ||||||||||||||||||||||||||
Forward foreign exchange | 1,955 | – | (53 | ) | 2,852 | 20 | (47 | ) | ||||||||||||||||||
Derivatives designated as hedges of net investments | 1,955 | – | (53 | ) | 2,852 | 20 | (47 | ) | ||||||||||||||||||
Derivative assets/(liabilities) held for risk management | 316,605 | 937 | (464 | ) | 268,448 | 1,639 | (697 | ) | ||||||||||||||||||
Total OTC derivatives held for risk management | 34,594 | 937 | (464 | ) | 50,345 | 1,639 | (697 | ) | ||||||||||||||||||
Total derivatives cleared by central counterparty held for risk management | 282,011 | – | – | 218,103 | – | – | ||||||||||||||||||||
Derivative assets/(liabilities) held for risk management | 316,605 | 937 | (464 | ) | 268,448 | 1,639 | (697 | ) | ||||||||||||||||||
The Group has hedged the following forecast cash flows, which primarily vary with interest rates. These cash flows are expected to impact the income statement in the following periods, excluding any hedge adjustments that may be applied:
|
| |||||||||||||||||||||||||
Up to | One to | Two to | Three to | Four to | More than | |||||||||||||||||||||
Total | one year | two years | three years | four years | five years | five years | ||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||
2015 | ||||||||||||||||||||||||||
Forecast receivable cash flows | 4,952 | 555 | 816 | 875 | 813 | 633 | 1,260 | |||||||||||||||||||
Forecast payable cash flows | 872 | 769 | 35 | 31 | 22 | 11 | 4 | |||||||||||||||||||
2014 | ||||||||||||||||||||||||||
Forecast receivable cash flows | 4,277 | 308 | 491 | 695 | 729 | 651 | 1,403 | |||||||||||||||||||
Forecast payable cash flows | 972 | 178 | 770 | 10 | 7 | 4 | 3 | |||||||||||||||||||
Amounts recognised in net interest income | ||||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||||
£m | £m | |||||||||||||||||||||||||
Gains/(losses) on the hedged items attributable to the hedged risk | 552 | 2,610 | ||||||||||||||||||||||||
(Losses)/gains on the hedging instruments | (485 | ) | (2,797 | ) | ||||||||||||||||||||||
Fair value ineffectiveness | 67 | (187 | ) | |||||||||||||||||||||||
Cash flow hedging ineffectiveness | 16 | 41 | ||||||||||||||||||||||||
Net investment hedging ineffectiveness | (2 | ) | – |
Gains and losses transferred from the cash flow hedging reserve to the income statement included a £36m gain (2014: £52m gain) transferred to interest income; a £267m gain (2014: £778m gain) to interest expense; a £4m loss (2014: £15m loss) to net trading income; a £17m gain (2014: nil) to administration and general expenses; and a £69m loss (2014: £78m loss) to taxation.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 233 |
Notes to the financial statements
Assets and liabilities held at fair value
16 Available for sale financial assets
Accounting for available for sale financial assets
Available for sale financial assets are held at fair value with gains and losses being included in other comprehensive income. The Group uses this classification for assets that are not derivatives and are not held for trading purposes or otherwise designated at fair value through profit or loss, or at amortised cost. Dividends and interest (calculated using the effective interest method) are recognised in the income statement in Note 3 Net interest income or Note 6 Net investment income. On disposal, the cumulative gain or loss recognised in other comprehensive income is also included in net investment income.
|
2015 | 2014 | |||||||
£m | £m | |||||||
Debt securities and other eligible bills | 89,278 | 85,539 | ||||||
Equity securities | 989 | 527 | ||||||
Available for sale investments | 90,267 | 86,066 |
17 Financial liabilities designated at fair value
Accounting for liabilities designated at fair value through profit and loss
In accordance with IAS 39, financial liabilities may be designated at fair value, with gains and losses taken to the income statement within Net trading income (Note 5) and Net investment income (Note 6). The Group has the ability to make the fair value designation when holding the instruments at fair value reduces an accounting mismatch (caused by an offsetting liability or asset being held at fair value), or is managed by the Group on the basis of its fair value, or includes terms that have substantive derivative characteristics (see Note 15 Derivative financial instruments).
The details on how the fair value amounts are arrived for financial liabilities designated at fair value are described in Fair value of assets and liabilities (Note 18).
|
2015 | 2014 | |||||||||||||||
Contractual | Contractual | |||||||||||||||
amount due | amount due | |||||||||||||||
Fair value | on maturity | Fair value | on maturity | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Debt securities | 33,177 | 36,097 | 42,395 | 44,910 | ||||||||||||
Deposits | 6,029 | 6,324 | 7,206 | 7,301 | ||||||||||||
Liabilities to customers under investment contracts | 1,633 | – | 1,823 | – | ||||||||||||
Repurchase agreementsa | 50,838 | 50,873 | 5,423 | 5,433 | ||||||||||||
Other financial liabilities | 68 | 68 | 125 | 125 | ||||||||||||
Financial liabilities designated at fair value | 91,745 | 93,362 | 56,972 | 57,769 |
The cumulative own credit loss recognised is £226m (2014: £716m).
Note
a | During 2015, new repurchase agreements and other similar secured borrowing in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
234 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilities
Accounting for financial assets and liabilities – fair values The Group applies IAS 39. All financial instruments are initially recognised at fair value on the date of initial recognition and, depending on the classification of the asset or liability, may continue to be held at fair value either through profit or loss or other comprehensive income. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Wherever possible, fair value is determined by reference to a quoted market price for that instrument. For many of the Group’s financial assets and liabilities, especially derivatives, quoted prices are not available, and valuation models are used to estimate fair value. The models calculate the expected cash flows under the terms of each specific contract, and then discount these values back to a present value. These models use as their basis independently sourced market parameters including, for example, interest rate yield curves, equities and commodities prices, option volatilities and currency rates.
For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit spreads derived from observable market data, such as spreads on Barclays issued bonds or credit default swaps (CDS). Most market parameters are either directly observable or are implied from instrument prices. The model may perform numerical procedures in the pricing such as interpolation when input values do not directly correspond to the most actively traded market trade parameters.
On initial recognition, it is presumed that the transaction price is the fair value unless there is observable information available in an active market to the contrary. The best evidence of an instrument’s fair value on initial recognition is typically the transaction price. However, if fair value can be evidenced by comparison with other observable current market transactions in the same instrument, or is based on a valuation technique whose inputs include only data from observable markets, then the instrument should be recognised at the fair value derived from such observable market data.
For valuations that have made use of unobservable inputs, the difference between the model valuation and the initial transaction price (‘Day One profit’) is recognised in profit or loss either: on a straight-line basis over the term of the transaction; or over the period until all model inputs will become observable where appropriate; or released in full when previously unobservable inputs become observable.
Various factors influence the availability of observable inputs and these may vary from product to product and change over time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the marketplace, the maturity of market modelling and the nature of the transaction (bespoke or generic). To the extent that valuation is based on models or inputs that are not observable in the market, the determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall valuation. Unobservable inputs are determined based on the best information available, for example by reference to similar assets, similar maturities or other analytical techniques.
The sensitivity of valuations used in the financial statements to possible changes in significant unobservable inputs is shown on page 244.
Critical accounting estimates and judgements The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation models make use of unobservable inputs (‘Level 3’ assets and liabilities). This note provides information on these instruments, including the related unrealised gains and losses recognised in the period, a description of significant valuation techniques and unobservable inputs, and a sensitivity analysis.
|
Valuation
IFRS 13Fair Value Measurement requires an entity to classify its assets and liabilities according to a hierarchy that reflects the observability of significant market inputs. The three levels of the fair value hierarchy are defined below.
Quoted market prices – Level 1
Assets and liabilities are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.
Valuation technique using observable inputs – Level 2
Assets and liabilities classified as Level 2 have been valued using models whose inputs are observable in an active market. Valuations based on observable inputs include assets and liabilities such as swaps and forwards which are valued using market standard pricing techniques, and options that are commonly traded in markets where all the inputs to the market standard pricing models are observable.
Valuation technique using significant unobservable inputs – Level 3
Assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price. Unobservable input levels are generally determined via reference to observable inputs, historical observations or using other analytical techniques.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 235 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and balance sheet classification:
Assets and liabilities held at fair value | ||||||||||||||||
Valuation technique using | ||||||||||||||||
| Quoted market prices (Level 1) £m |
|
| Observable inputs (Level 2) £m |
|
| Significant unobservable inputs (Level 3) £m |
|
| Total £m |
| |||||
As at 31 December 2015 | ||||||||||||||||
Trading portfolio assets | 36,676 | 35,725 | 4,947 | 77,348 | ||||||||||||
Financial assets designated at fair valuea | 6,163 | 52,909 | 17,758 | 76,830 | ||||||||||||
Derivative financial assets | 6,342 | 315,949 | 5,418 | 327,709 | ||||||||||||
Available for sale investments | 42,552 | 46,693 | 1,022 | 90,267 | ||||||||||||
Otherb | 26 | 8 | 7,470 | 7,504 | ||||||||||||
Total assets | 91,759 | 451,284 | 36,615 | 579,658 | ||||||||||||
Trading portfolio liabilities | (23,978 | ) | (9,989 | ) | – | (33,967 | ) | |||||||||
Financial liabilities designated at fair valuea | (240 | ) | (90,203 | ) | (1,302 | ) | (91,745 | ) | ||||||||
Derivative financial liabilities | (5,450 | ) | (314,033 | ) | (4,769 | ) | (324,252 | ) | ||||||||
Otherb | (1,024 | ) | (802 | ) | (4,171 | ) | (5,997 | ) | ||||||||
Total liabilities | (30,692 | ) | (415,027 | ) | (10,242 | ) | (455,961 | ) | ||||||||
As at 31 December 2014 | ||||||||||||||||
Trading portfolio assets | 48,962 | 59,428 | 6,327 | 114,717 | ||||||||||||
Financial assets designated at fair value | 9,934 | 8,461 | 19,905 | 38,300 | ||||||||||||
Derivative financial assets | 9,863 | 425,301 | 4,745 | 439,909 | ||||||||||||
Available for sale investments | 44,234 | 40,519 | 1,313 | 86,066 | ||||||||||||
Otherb | 33 | 198 | 15,550 | 15,781 | ||||||||||||
Total assets | 113,026 | 533,907 | 47,840 | 694,773 | ||||||||||||
Trading portfolio liabilities | (26,840 | ) | (17,935 | ) | (349 | ) | (45,124 | ) | ||||||||
Financial liabilities designated at fair value | (15 | ) | (55,141 | ) | (1,816 | ) | (56,972 | ) | ||||||||
Derivative financial liabilities | (10,313 | ) | (424,687 | ) | (4,320 | ) | (439,320 | ) | ||||||||
Otherb | – | – | (13,115 | ) | (13,115 | ) | ||||||||||
Total liabilities | (37,168 | ) | (497,763 | ) | (19,600 | ) | (554,531 | ) |
Notes
a | During 2015, new reverse repurchase agreements and other similar secured lending and repurchase agreements and other similar secured borrowing in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
b | Other includes assets and liabilities held for sale of £7,364m (2014: £15,574m) and £5,997m (2014: £13,115m) respectively, which are measured at fair value on a non-recurring basis. Refer to Note 44 for more information on non-current assets and liabilities held for sale. Other also includes investment property of £140m (2014: £207m). |
236 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and product type:
Assets and liabilities held at fair value by product type | ||||||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||||||
Valuation technique using | Valuation technique using | |||||||||||||||||||||||
| Quoted market prices (Level 1) £m |
|
| Observable inputs (Level 2) £m |
|
| Significant unobservable inputs (Level 3) £m |
|
| Quoted market prices (Level 1) £m |
|
| Observable inputs (Level 2) £m |
|
| Significant unobservable inputs (Level 3) £m |
| |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
Interest rate derivatives | – | 228,751 | 2,675 | – | (218,864 | ) | (2,247 | ) | ||||||||||||||||
Foreign exchange derivatives | 2 | 54,839 | 95 | (4 | ) | (58,594 | ) | (196 | ) | |||||||||||||||
Credit derivativesa | – | 16,279 | 1,902 | – | (16,405 | ) | (219 | ) | ||||||||||||||||
Equity derivatives | 3,830 | 9,279 | 690 | (2,870 | ) | (14,037 | ) | (1,545 | ) | |||||||||||||||
Commodity derivatives | 2,510 | 6,801 | 56 | (2,576 | ) | (6,133 | ) | (562 | ) | |||||||||||||||
Government and government sponsored debt | 55,150 | 52,967 | 419 | (15,036 | ) | (5,474 | ) | (1 | ) | |||||||||||||||
Corporate debt | 352 | 11,598 | 2,895 | (234 | ) | (4,558 | ) | (15 | ) | |||||||||||||||
Certificates of deposit, commercial paper and other money market instruments | 82 | 503 | – | (5 | ) | (6,955 | ) | (382 | ) | |||||||||||||||
Reverse repurchase and repurchase agreementsb | – | 49,513 | – | – | (50,838 | ) | – | |||||||||||||||||
Non-asset backed loans | – | 1,931 | 16,828 | – | – | – | ||||||||||||||||||
Asset backed securities | – | 12,009 | 770 | – | (384 | ) | (37 | ) | ||||||||||||||||
Commercial real estate loans | – | – | 551 | – | – | – | ||||||||||||||||||
Issued debt | – | – | – | – | (29,695 | ) | (546 | ) | ||||||||||||||||
Equity cash products | 29,704 | 4,038 | 171 | (8,943 | ) | (221 | ) | – | ||||||||||||||||
Funds and fund linked products | – | 1,649 | 378 | – | (1,601 | ) | (148 | ) | ||||||||||||||||
Physical commodities | 87 | 156 | – | – | – | – | ||||||||||||||||||
Otherc | 42 | 971 | 9,185 | (1,024 | ) | (1,268 | ) | (4,344 | ) | |||||||||||||||
Total | 91,759 | 451,284 | 36,615 | (30,692 | ) | (415,027 | ) | (10,242 | ) | |||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
Interest rate derivatives | – | 308,706 | 1,239 | (5 | ) | (299,181 | ) | (1,344 | ) | |||||||||||||||
Foreign exchange derivatives | 4 | 74,358 | 108 | (3 | ) | (79,188 | ) | (138) | ||||||||||||||||
Credit derivativesa | – | 21,541 | 1,966 | – | (21,958 | ) | (409 | ) | ||||||||||||||||
Equity derivatives | 3,847 | 9,750 | 1,247 | (3,719 | ) | (13,780 | ) | (2,092 | ) | |||||||||||||||
Commodity derivatives | 6,012 | 10,946 | 185 | (6,586 | ) | (10,580 | ) | (337 | ) | |||||||||||||||
Government and government sponsored debt | 62,577 | 48,296 | 1,014 | (11,563 | ) | (14,002 | ) | (346 | ) | |||||||||||||||
Corporate debt | 151 | 22,036 | 3,061 | – | (3,572 | ) | (13 | ) | ||||||||||||||||
Certificates of deposit, commercial paper and other money market instruments | 78 | 921 | – | (4 | ) | (6,276 | ) | (665 | ) | |||||||||||||||
Reverse repurchase and repurchase agreements | – | 5,236 | – | – | (5,423 | ) | – | |||||||||||||||||
Non-asset backed loans | 1 | 2,462 | 17,744 | – | – | – | ||||||||||||||||||
Asset backed securities | 30 | 16,211 | 1,631 | – | (67 | ) | – | |||||||||||||||||
Commercial real estate loans | – | – | 1,180 | – | – | – | ||||||||||||||||||
Issued debt | – | – | – | (10 | ) | (40,592 | ) | (749 | ) | |||||||||||||||
Equity cash products | 40,252 | 7,823 | 171 | (15,276 | ) | (699 | ) | – | ||||||||||||||||
Funds and fund linked products | – | 2,644 | 631 | – | (2,060 | ) | (210 | ) | ||||||||||||||||
Physical commodities | 4 | 1,447 | – | – | (363 | ) | – | |||||||||||||||||
Otherc | 70 | 1,530 | 17,663 | (2 | ) | (22 | ) | (13,297 | ) | |||||||||||||||
Total | 113,026 | 533,907 | 47,840 | (37,168 | ) | (497,763 | ) | (19,600 | ) |
Assets and liabilities reclassified between Level 1 and Level 2
There were transfers of £537m assets and £801m liabilities (2014: nil) of equity and foreign exchange derivatives from Level 1 to Level 2 to reflect the market observability of these product types.
Notes
a | Credit derivatives includes derivative exposure to monoline insurers. |
b | During 2015, new reverse repurchase agreements and other similar lending and repurchase agreements and other similar secured borrowing in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
c | Other includes non-current assets and liabilities held for sale, private equity investments, asset backed loans and investment property. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 237 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
Level 3 movement analysis
The following table summarises the movements in the Level 3 balance during the year. The table shows gains and losses and includes amounts for all assets and liabilities transferred to and from Level 3 during the year. Transfers have been reflected as if they had taken place at the beginning of the year.
Analysis of movements in Level 3 assets and liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Total gains and losses | ||||||||||||||||||||||||||||||||||||||||||||
in the period | Total | |||||||||||||||||||||||||||||||||||||||||||
recognised in the | gains | |||||||||||||||||||||||||||||||||||||||||||
As at | income statement | or losses | Transfers | As at 31 | ||||||||||||||||||||||||||||||||||||||||
1 January | Trading | Other | recognised | December | ||||||||||||||||||||||||||||||||||||||||
| 2015 £m |
| | Purchases £m | | | Sales £m | | | Issues £m | | | Settlements £m | | | income £m | | | income £m | |
| in OCI £m |
| | In £m | | | Out £m | |
| 2015 £m |
| ||||||||||||
Government and government sponsored debt | 685 | 27 | (119 | ) | – | (109 | ) | (6 | ) | – | – | 2 | (160 | ) | 320 | |||||||||||||||||||||||||||||
Corporate debt | 3,026 | 62 | (64 | ) | – | (20 | ) | (47 | ) | – | – | 5 | (80 | ) | 2,882 | |||||||||||||||||||||||||||||
Asset backed securities | 1,610 | 1,365 | (1,565 | ) | – | (711 | ) | 58 | – | – | 5 | (19 | ) | 743 | ||||||||||||||||||||||||||||||
Non-asset backed loans | 273 | 520 | (251 | ) | – | (3 | ) | (42 | ) | – | – | 11 | (1 | ) | 507 | |||||||||||||||||||||||||||||
Funds and fund linked products | 589 | – | (174 | ) | – | (56 | ) | (27 | ) | – | – | 12 | (4 | ) | 340 | |||||||||||||||||||||||||||||
Other | 144 | 23 | (19 | ) | – | (9 | ) | (14 | ) | – | – | 53 | (23 | ) | 155 | |||||||||||||||||||||||||||||
Trading portfolio assets | 6,327 | 1,997 | (2,192 | ) | – | (908 | ) | (78 | ) | – | – | 88 | (287 | ) | 4,947 | |||||||||||||||||||||||||||||
Commercial real estate loans | 1,179 | 3,540 | (3,878 | ) | – | (342 | ) | 49 | 1 | – | – | – | 549 | |||||||||||||||||||||||||||||||
Non-asset backed loansc | 17,471 | 192 | (114 | ) | – | (756 | ) | (531 | ) | (6 | ) | – | – | – | 16,256 | |||||||||||||||||||||||||||||
Asset backed loans | 393 | 1,098 | (1,260 | ) | – | 2 | 8 | – | – | 15 | – | 256 | ||||||||||||||||||||||||||||||||
Private equity investments | 701 | 94 | (200 | ) | – | (3 | ) | 8 | 38 | – | 4 | (132 | ) | 510 | ||||||||||||||||||||||||||||||
Other | 161 | 66 | (31 | ) | – | (3 | ) | (11 | ) | 5 | – | 26 | (26 | ) | 187 | |||||||||||||||||||||||||||||
Financial assets designated at fair value | 19,905 | 4,990 | (5,483 | ) | – | (1,102 | ) | (477 | ) | 38 | – | 45 | (158 | ) | 17,758 | |||||||||||||||||||||||||||||
Asset backed securities | 1 | – | – | – | – | – | – | – | – | (1 | ) | – | ||||||||||||||||||||||||||||||||
Government and government sponsored debt | 327 | 14 | (36 | ) | – | – | – | – | 1 | – | (212 | ) | 94 | |||||||||||||||||||||||||||||||
Other | 985 | 65 | (91 | ) | – | (1,026 | ) | – | 549 | 419 | 27 | – | 928 | |||||||||||||||||||||||||||||||
Available for sale investments | 1,313 | 79 | (127 | ) | – | (1,026 | ) | – | 549 | 420 | 27 | (213 | ) | 1,022 | ||||||||||||||||||||||||||||||
Othera | 207 | 27 | (89 | ) | – | – | – | (5 | ) | – | – | – | 140 | |||||||||||||||||||||||||||||||
Trading portfolio liabilities | (349 | ) | – | – | – | – | – | – | – | – | 349 | – | ||||||||||||||||||||||||||||||||
Certificates of deposit, commercial paper and other money market instruments | (666 | ) | – | – | (216 | ) | 261 | – | 17 | – | – | 221 | (383 | ) | ||||||||||||||||||||||||||||||
Issued debt | (748 | ) | – | – | (16 | ) | 245 | (4 | ) | (8 | ) | – | (38 | ) | 4 | (565 | ) | |||||||||||||||||||||||||||
Other | (402 | ) | – | – | – | (19 | ) | (18 | ) | 75 | – | – | 10 | (354 | ) | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value | (1,816 | ) | – | – | (232 | ) | 487 | (22 | ) | 84 | – | (38 | ) | 235 | (1,302 | ) | ||||||||||||||||||||||||||||
Interest rate derivatives | (105 | ) | 1 | 218 | – | (247 | ) | 203 | – | – | 243 | 117 | 430 | |||||||||||||||||||||||||||||||
Credit derivatives | 1,557 | 273 | (12 | ) | – | (6 | ) | (123 | ) | – | – | (11 | ) | 7 | 1,685 | |||||||||||||||||||||||||||||
Equity derivatives | (845 | ) | 111 | (2 | ) | (290 | ) | 103 | 34 | – | – | (21 | ) | 52 | (858 | ) | ||||||||||||||||||||||||||||
Commodity derivatives | (152 | ) | – | – | – | (66 | ) | (6 | ) | – | – | (388 | ) | 106 | (506 | ) | ||||||||||||||||||||||||||||
Foreign exchange derivatives | (30 | ) | 14 | (1 | ) | (7 | ) | 9 | (14 | ) | – | – | (73 | ) | – | (102 | ) | |||||||||||||||||||||||||||
Net derivative financial instrumentsb | 425 | 399 | 203 | (297 | ) | (207 | ) | 94 | – | – | (250 | ) | 282 | 649 | ||||||||||||||||||||||||||||||
Total | 26,012 | 7,492 | (7,688 | ) | (529 | ) | (2,756 | ) | (483 | ) | 666 | 420 | (128 | ) | 208 | 23,214 |
Notes
a | Other includes investment property of £140m (2014: £207m). Non-current assets held for sale of £7,330m (2014: £15,574m) and liabilities in a disposal group classified as held for sale of £4,171m (2014: £13,115m) are not included as these are measured at fair value on a non-recurring basis. |
b | The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £5,418m (2014: £4,745m) and derivative financial liabilities are £4,769m (2014: £4,320m). |
c | A partially offsetting market gain of £172m (2014: £2,921m loss) has been recognised on the Level 2 derivative instruments that hedge the ESHLA loan portfolio interest rate risk. |
238 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
Analysis of movements in Level 3 assets and liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Total gains and losses in | Total | |||||||||||||||||||||||||||||||||||||||||||
the period recognised in | gains | |||||||||||||||||||||||||||||||||||||||||||
As at | the income statement | or losses | Transfers | As at 31 | ||||||||||||||||||||||||||||||||||||||||
1 January | Trading | Other | recognised | December | ||||||||||||||||||||||||||||||||||||||||
| 2014 £m |
| | Purchases £m | | | Sales £m | | | Issues £m | | | Settlements £m | | | income £m | | | income £m | |
| in OCI £m |
| | In £m | | | Out £m | |
| 2014 £m |
| ||||||||||||
Government and government sponsored debt | 161 | 96 | (198 | ) | – | (46 | ) | 5 | – | – | 676 | (9 | ) | 685 | ||||||||||||||||||||||||||||||
Corporate debt | 3,039 | 177 | (332 | ) | – | (370 | ) | 484 | – | – | 39 | (11 | ) | 3,026 | ||||||||||||||||||||||||||||||
Asset backed securities | 2,111 | 1,037 | (1,552 | ) | – | (141 | ) | 178 | – | – | 8 | (31 | ) | 1,610 | ||||||||||||||||||||||||||||||
Non-asset backed loans | 176 | 250 | (30 | ) | – | (49 | ) | 2 | – | – | 13 | (89 | ) | 273 | ||||||||||||||||||||||||||||||
Funds and fund linked products | 494 | – | (92 | ) | – | – | (17 | ) | – | – | 204 | – | 589 | |||||||||||||||||||||||||||||||
Other | 440 | 8 | (369 | ) | – | 54 | 22 | – | – | – | (11 | ) | 144 | |||||||||||||||||||||||||||||||
Trading portfolio assets | 6,421 | 1,568 | (2,573 | ) | – | (552 | ) | 674 | – | – | 940 | (151 | ) | 6,327 | ||||||||||||||||||||||||||||||
Commercial real estate loans | 1,198 | 2,919 | (2,678 | ) | – | (334 | ) | 76 | (2 | ) | – | – | – | 1,179 | ||||||||||||||||||||||||||||||
Non-asset backed loansc | 15,956 | 2 | (177 | ) | – | (81 | ) | 1,830 | 9 | – | – | (68 | ) | 17,471 | ||||||||||||||||||||||||||||||
Asset backed loans | 375 | 855 | (777 | ) | – | (4 | ) | 19 | – | – | 1 | (76 | ) | 393 | ||||||||||||||||||||||||||||||
Private equity investments | 1,168 | 173 | (500 | ) | – | (11 | ) | 4 | 82 | – | – | (215 | ) | 701 | ||||||||||||||||||||||||||||||
Other | 73 | 75 | (1 | ) | – | (35 | ) | 9 | 32 | – | 2 | 6 | 161 | |||||||||||||||||||||||||||||||
Financial assets designated at fair value | 18,770 | 4,024 | (4,133 | ) | – | (465 | ) | 1,938 | 121 | – | 3 | (353 | ) | 19,905 | ||||||||||||||||||||||||||||||
Asset backed securities | 1 | – | – | – | – | – | – | – | – | – | 1 | |||||||||||||||||||||||||||||||||
Government and government sponsored debt | 59 | 281 | (12 | ) | – | (1 | ) | – | – | – | – | – | 327 | |||||||||||||||||||||||||||||||
Other | 2,085 | 37 | (78 | ) | – | (1,694 | ) | 1 | 586 | 74 | 4 | (30 | ) | 985 | ||||||||||||||||||||||||||||||
Available for sale investments | 2,145 | 318 | (90 | ) | – | (1,695 | ) | 1 | 586 | 74 | 4 | (30 | ) | 1,313 | ||||||||||||||||||||||||||||||
Othera | 451 | 47 | (238 | ) | – | – | – | 5 | – | – | (58 | ) | 207 | |||||||||||||||||||||||||||||||
Trading portfolio liabilities | – | – | – | – | – | (3 | ) | – | – | (346 | ) | – | (349 | ) | ||||||||||||||||||||||||||||||
Certificates of deposit, commercial paper and other money market instruments | (409 | ) | – | – | (254 | ) | 12 | 2 | 88 | – | (108 | ) | 3 | (666 | ) | |||||||||||||||||||||||||||||
Issued debt | (1,164 | ) | – | – | (16 | ) | 293 | 88 | – | – | (48 | ) | 99 | (748 | ) | |||||||||||||||||||||||||||||
Other | (67 | ) | – | – | (341 | ) | 10 | 6 | 30 | – | (40 | ) | – | (402 | ) | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value | (1,640 | ) | – | – | (611 | ) | 315 | 96 | 118 | – | (196 | ) | 102 | (1,816 | ) | |||||||||||||||||||||||||||||
Interest rate derivatives | (15 | ) | 5 | 45 | (5 | ) | 7 | (358 | ) | – | – | 103 | 113 | (105 | ) | |||||||||||||||||||||||||||||
Credit derivatives | 1,420 | 11 | – | – | 42 | 121 | – | – | (81 | ) | 44 | 1,557 | ||||||||||||||||||||||||||||||||
Equity derivatives | (601 | ) | 86 | (12 | ) | (305 | ) | 113 | (278 | ) | – | – | (14 | ) | 166 | (845 | ) | |||||||||||||||||||||||||||
Commodity derivatives | (141 | ) | – | – | (3 | ) | (10 | ) | 4 | – | – | (11 | ) | 9 | (152 | ) | ||||||||||||||||||||||||||||
Foreign exchange derivatives | 31 | – | (12 | ) | (4 | ) | (71 | ) | (6 | ) | – | – | 29 | 3 | (30 | ) | ||||||||||||||||||||||||||||
Net derivative financial instrumentsb | 694 | 102 | 21 | (317 | ) | 81 | (517 | ) | – | – | 26 | 335 | 425 | |||||||||||||||||||||||||||||||
Total | 26,841 | 6,059 | (7,013 | ) | (928 | ) | (2,316 | ) | 2,189 | 830 | 74 | 431 | (155 | ) | 26,012 |
Notes
a | Other includes investment property of £140m (2014: £207m). Non-current assets held for sale of £7,330m (2014: £15,574m) and liabilities in a disposal group classified as held for sale of £4,171m (2014: £13,115m) are not included as these are measured at fair value on a non-recurring basis. |
b | The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £5,418m (2014: £4,745m) and derivative financial liabilities are £4,769m (2014: £4,320m). |
c | A partially offsetting market gain of £172m (2014: £2,921m loss) has been recognised on the Level 2 derivative instruments that hedge the ESHLA loan portfolio interest rate risk. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 239 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
Assets and liabilities move between Level 2 and Level 3 primarily due to i) an increase or decrease in observable market activity related to an input, or ii) a change in the significance of the unobservable input, with assets and liabilities classified as Level 3 if an unobservable input is deemed significant.
Unrealised gains and losses on Level 3 financial assets and liabilities
The following table discloses the unrealised gains and losses recognised in the year arising on Level 3 financial assets and liabilities held at year end.
Unrealised gains and losses recognised during the period on Level 3 assets and liabilities held at period end | ||||||||||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||||||||||
Income statement | compre- | Income statement | compre- | |||||||||||||||||||||||||||||
Trading | Other | hensive | Trading | Other | hensive | |||||||||||||||||||||||||||
As at 31 December | | income £m | | | income £m | | | income £m | | | Total £m | | | income £m | | | income £m | | | income £m | | | Total £m | | ||||||||
Trading portfolio assets | (125 | ) | – | – | (125 | ) | 466 | – | – | 466 | ||||||||||||||||||||||
Financial assets designated at fair value | (562 | ) | (17 | ) | – | (579 | ) | 1,849 | (9 | ) | – | 1,840 | ||||||||||||||||||||
Available for sale assets | – | (20 | ) | 488 | 468 | – | 572 | 80 | 652 | |||||||||||||||||||||||
Trading portfolio liabilities | (1 | ) | – | – | (1 | ) | (3 | ) | – | – | (3 | ) | ||||||||||||||||||||
Financial liabilities designated at fair value | (24 | ) | 76 | – | 52 | 98 | 118 | – | 216 | |||||||||||||||||||||||
Othera | – | (22 | ) | – | (22 | ) | – | 5 | – | 5 | ||||||||||||||||||||||
Net derivative financial instruments | 123 | – | – | 123 | (238 | ) | – | – | (238 | ) | ||||||||||||||||||||||
Total | (589 | ) | 17 | 488 | (84 | ) | 2,172 | 686 | 80 | 2,938 |
The trading losses of £562m (2014: trading gains of £1,849m) within Level 3 financial assets designated at fair value was primarily due to fair value losses on the ESHLA loan portfolio of £531m.
Valuation techniques and sensitivity analysis
Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible alternative valuations. The sensitivity methodologies applied take account of the nature of valuation techniques used, as well as the availability and reliability of observable proxy and historical data and the impact of using alternative models.
Sensitivities are dynamically calculated on a monthly basis. The calculation is based on range or spread data of a reliable reference source or a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated without reflecting the impact of any diversification in the portfolio.
The valuation techniques used for the material products within Levels 2 and 3, and observability and sensitivity analysis for products within Level 3, are described below.
Interest rate derivatives
Description: These are derivatives linked to interest rates or inflation indices. This category includes futures, interest rate and inflation swaps, swaptions, caps, floors, inflation options, balance guaranteed swaps and other exotic interest rate derivatives.
Valuation:Interest rate derivative cash flows are valued using interest rate yield curves whereby observable market data is used to construct the term structure of forward rates. This is then used to project and discount future cash flows based on the parameters of the trade. Instruments with optionality are valued using volatilities implied from market observable inputs. Exotic interest rate derivatives are valued using industry standard and bespoke models based on observable and unobservable market parameter inputs. Input parameters include interest rates, volatilities, correlations and others as appropriate. Inflation forward curves and interest rate yield curves may be extrapolated beyond observable tenors. Balance guaranteed swaps are valued using cash flow models that calculate fair value based on loss projections, prepayment, recovery and discount rates. These parameters are determined by reference to underlying asset performance.
Observability: In general, input parameters are deemed observable up to liquid maturities which are determined separately for each parameter and underlying. Certain correlation, convexity, long dated forwards and volatility exposures are unobservable beyond liquid maturities. Unobservable market data and model inputs are set by referencing liquid market instruments and applying extrapolation techniques or inferred via another reasonable method.
Level 3 sensitivity:Sensitivity relating to unobservable valuation inputs is based on the dispersion of consensus data services where available, otherwise stress scenarios or historic data are used.
Notes
a | Other consists of investment properties. |
240 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
Foreign exchange derivatives
Description:These are derivatives linked to the foreign exchange (FX) market. This category includes FX forward contracts, FX swaps and FX options. The vast majority are traded as OTC derivatives.
Valuation: Exotic and non-exotic derivatives are valued using industry standard and bespoke models. Input parameters include FX rates, interest rates, FX volatilities, interest rate volatilities, FX interest rate correlations and others as appropriate. Unobservable model inputs are set by referencing liquid market instruments and applying extrapolation techniques to match the appropriate risk profile.
Observability:Certain correlations, long dated forwards and volatilities are unobservable beyond liquid maturities.
Level 3 sensitivity:Sensitivity relating to unobservable valuation inputs is primarily based on the dispersion of consensus data services.
Credit derivatives
Description: These are derivatives linked to the credit spread of a referenced entity, index or basket of referenced entities or a pool of referenced assets via securitisation. This category includes single name and index CDS, asset backed CDS, synthetic CDOs, and Nth-to-default basket swaps.
Valuation:CDS are valued using a market standard model that incorporates the credit curve as its principal input. Credit spreads are observed directly from broker data, third party vendors or priced to proxies. Where credit spreads are unobservable, they are determined with reference to recent transactions or proxied from bond spreads on observable trades of the same issuer or other similar entities. Synthetic CDOs are valued using a model that calculates fair value based on credit spreads, recovery rates, correlations and interest rates, and is calibrated to the index tranche market.
Observability:CDS contracts referencing entities that are not actively traded are considered unobservable. The correlation input to synthetic CDO valuation is considered unobservable as it is proxied from the observable index tranche market. Where an asset backed credit derivative does not have an observable market price and the valuation is determined using a model, the instrument is considered unobservable.
Level 3 sensitivity: The sensitivity of valuations of the illiquid CDS portfolio is determined by applying a shift to each spread curve. The shift is based on the average range of pricing observed in the market for similar CDS. Synthetic CDO sensitivity is calculated using correlation levels derived from the range of contributors to a consensus bespoke service.
Derivative exposure to monoline insurers
Description:These products are derivatives through which credit protection has been purchased on structured debt instruments (primarily CLOs) from monoline insurers.
Valuation:Given the bespoke nature of the CDS, the primary valuation input is the price of the cash instrument it protects.
Observability: While the market value of the cash instrument underlying the CDS contract may be observable, its use in the valuation of CDS is considered unobservable due to the bespoke nature of the monoline CDS contracts.
Level 3 sensitivity:Due to the high degree of uncertainty, the sensitivity reflects the impact of writing down the credit protection element of fair value to zero.
Equity derivatives
Description:These are derivatives linked to equity indices and single names. This category includes exchange traded and OTC equity derivatives including vanilla and exotic options.
Valuation: The valuations of OTC equity derivatives are determined using industry standard models. Input parameters include stock prices, dividends, volatilities, inte rest rates, equity repo curves and, for multi-asset products, correlations. Unobservable model inputs are determined by reference to liquid market instruments and applying extrapolation techniques to match the appropriate risk profile.
Observability: In general, input parameters are deemed observable up to liquid maturities which are determined separately for each parameter and underlying.
Level 3 sensitivity:Sensitivity is estimated based on the dispersion of consensus data services either directly or through proxies.
Commodity derivatives
Description:These products are exchange traded and OTC derivatives based on underlying commodities such as metals, crude oil and refined products, agricultural, power and natural gas.
Valuation:The valuations of commodity swaps and options are determined using models incorporating discounting of cash flows and other industry standard modelling techniques. Valuation inputs include forward curves, volatilities implied from market observable inputs and correlations. Unobservable inputs are set with reference to similar observable products or by applying extrapolation techniques from the observable market.
Observability: Certain correlations, forward curves and volatilities for longer dated exposures are unobservable.
Level 3 sensitivity:Sensitivity is determined primarily by measuring historical variability over two years. Where historical data is unavailable or uncertainty is due to volumetric risk, sensitivity is measured by applying appropriate stress scenarios or using proxy bid-offer spread levels.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 241 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
Complex derivative instruments
Valuation estimates made by counterparties with respect to complex derivative instruments, for the purpose of determining the amount of collateral to be posted, often differ, sometimes significantly, from Barclays’ own estimates. In almost all cases, Barclays has been able to successfully resolve such differences or otherwise reach an accommodation with respect to collateral posting levels, including in certain cases by entering into compromise collateral arrangements. Due to the ongoing nature of collateral calls, Barclays will often be engaged in discussion with one or more counterparties in respect of such differences at any given time. Valuation estimates made by counterparties for collateral purposes are, like any other third party valuation, considered when determining Barclays’ fair value estimates.
Government and government sponsored debt
Description:These are government bonds, supra sovereign bonds and agency bonds.
Valuation:Liquid government bonds actively traded through an exchange or clearing house are marked to the closing levels observed in these markets. Less liquid bonds are valued using observable market prices which are sourced from broker quotes, inter-dealer prices or other reliable pricing services. Where there are no observable market prices, fair value is determined by reference to either issuances or CDS spreads of the same issuer as proxy inputs to obtain discounted cash flow amounts.
Observability:Where an observable market price is not available, the bond is considered Level 3.
Level 3 sensitivity:Sensitivity is calculated by using the range of observable proxy prices.
Corporate debt
Description:This primarily contains corporate bonds.
Valuation:Corporate bonds are valued using observable market prices which are sourced from broker quotes, inter-dealer prices or other reliable pricing services. Where there are no observable market prices, fair value is determined by reference to either issuances or CDS spreads of the same issuer as proxy inputs to obtain discounted cash flow amounts. In the absence of observable bond or CDS spreads for the respective issuer, similar reference assets or sector averages are applied as a proxy (the appropriateness of proxies being assessed based on issuer, coupon, maturity and industry).
Observability:Where an observable market price is not available, the security is considered Level 3.
Level 3 sensitivity:The sensitivity for the corporate bonds portfolio is determined by applying a shift to each underlying position driven by average ranges of external levels observed in the market for similar bonds.
Reverse repurchase and repurchase agreements
Description: These include securities purchased under resale agreements, securities sold under repurchase agreements, and other similar secured lending agreements.
Valuation:Reverse repurchase and repurchase agreements are valued by discounting the expected future cash flows. The inputs to the valuation include interest rates and repo rates, which are determined based on the specific parameters of the transaction.
Observability:In general, input parameters are deemed observable up to liquid maturities, as determined based on the specific parameters of the transaction. Unobservable market data and model inputs are set by referencing liquid market instruments and applying extrapolation techniques or inferred via another reasonable method.
Level 3 sensitivity:Sensitivity relating to unobservable valuation inputs is based on the dispersion of consensus data services where available, otherwise stress scenarios or historic data are used. In general, the sensitivity of unobservable inputs is insignificant to the overall balance sheet valuation given the predominantly short term nature of the agreements.
Non-asset backed loans
Description:This category is largely made up of fixed rate loans, such as the ESHLA portfolio, which are valued using models that discount expected future cash flows.
Valuation: Fixed rate loans are valued using models that calculate fair value based on observable interest rates and unobservable loan spreads. Unobservable loan spreads incorporate funding costs, the level of comparable assets such as gilts, issuer credit quality and other factors.
Observability:Within this population, the unobservable input is the loan spread.
Level 3 sensitivity:The sensitivity for fixed rate loans is calculated by applying a shift to loan spreads.
Asset backed securities
Description:These are securities that are linked to the cash flows of a pool of referenced assets via securitisation. This category includes residential mortgage backed securities, commercial mortgage backed securities, CDOs, CLOs and other asset backed securities.
Valuation:Where available, valuations are based on observable market prices which are sourced from broker quotes and inter-dealer prices. Otherwise, valuations are determined using industry standard discounted cash flow analysis that calculates the fair value based on valuation inputs such as constant default rate, conditional prepayment rate, loss given default and yield. These inputs are determined by reference to a number of sources including proxying to observed transactions, market indices or market research, and by assessing underlying collateral performance.
Proxying to observed transactions, indices or research requires an assessment and comparison of the relevant securities’ underlying attributes including collateral, tranche, vintage, underlying asset composition (historical losses, borrower characteristics and loan attributes such as loan to value ratio and geographic concentration) and credit ratings (original and current).
Observability: Where an asset backed product does not have an observable market price, and the valuation is determined using a discounted cash flow analysis, an instrument is considered unobservable.
Level 3 sensitivity: The sensitivity analysis for asset backed products is based on externally sourced pricing dispersion or by stressing the inputs of discounted cash flow analysis.
242 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
Commercial real estate loans
Description:This portfolio includes loans that are secured by a range of commercial property types including retail, hotel, office, multi-family and industrial properties.
Valuation:Performing loans are valued using discounted cash flow analysis which considers the characteristics of the loan such as property type, geographic location, credit quality and property performance reviews in order to determine an appropriate credit spread. Where there is significant uncertainty regarding loan performance, valuation is based on independent third party appraisals or bids for the underlying properties. Independent third party appraisals are determined by discounted cash flow analysis, and key valuation inputs are yield and loss given default.
Observability: Since each commercial real estate loan is unique in nature, and the secondary loan market is relatively illiquid, valuation inputs are generally considered unobservable.
Level 3 sensitivity: For performing loans, sensitivity is determined by stressing the credit spread for each loan. For loans which have significant uncertainty regarding loan performance, sensitivity is determined by either a range of bids or by stressing the inputs to independent third party appraisals.
Issued debt
Description:This category contains Barclays issued notes.
Valuation:Fair valued Barclays issued notes are valued using discounted cash flow techniques and industry standard models incorporating various observable input parameters depending on the terms of the instrument.
Observability:Barclays issued notes are generally observable. Structured notes are debt instruments containing embedded derivatives. Where either an input to the embedded derivative or the debt instrument is deemed unobservable and significant to the overall valuation of the note, the structured note is classified as Level 3.
Level 3 sensitivity: Sensitivity to the unobservable input in the embedded derivative is calculated in line with the method used for the type of derivative instrument concerned.
Other
Description:Other includes non-current assets and liabilities held for sale and private equity investments. See below for more detail. Other also includes investment properties.
Non-current assets held for sale
Description: Non-current assets held for sale materially consists of the Portuguese Retail Banking, Wealth and Investment Management businesses and part of the Portuguese Corporate banking business, Barclays Vida y Pensiones (BVP), a company offering life insurance, pension products and services in Spain, Portugal and Italy, and the Italian Retail business. These sales are part of the divestment of the Barclays Non-Core segment of the Group.
Valuation:Non-current assets held for sale are valued at the lower of carrying value and fair value less cost to sell.
Observability: The items in Level 2 and Level 3 include customer cash, nostro accounts with other banks and other time deposits.
Level 3 sensitivity:The businesses held for sale are valued at the agreed price less costs to sell and are not expected to display significant sensitivity.
Private equity investments
Description:This category includes private equity investments.
Valuation:Private equity investments are valued in accordance with the ‘International Private Equity and Venture Capital Valuation Guidelines’. This requires the use of a number of individual pricing benchmarks such as the prices of recent transactions in the same or similar entities, discounted cash flow analysis and comparison with the earnings multiples of listed comparative companies. Full valuations are generally performed at least biannually, with the positions reviewed periodically for material events that might impact upon fair value. The valuation of unquoted equity instruments is subjective by nature. However, the relevant methodologies are commonly applied by other market participants and have been consistently applied over time. Private equity investments include Barclays’ equity interest in Visa Europe, an available for sale asset, which has been valued by reference to consideration, some of which is contingent upon future events, that will be receivable upon completion of the announced sale of Visa Europe to Visa Inc. The elements of consideration that are contingent on future events have been deemed unobservable and no value has been attributed to such elements in the year-end valuation.
Observability:Unobservable inputs include earnings estimates, multiples of comparative companies, marketability discounts and discount rates.
Level 3 sensitivity:The relevant valuation models are each sensitive to a number of key assumptions, such as projected future earnings, comparator multiples, marketability discounts and discount rates. Valuation sensitivity is estimated by flexing such assumptions to reasonable alternative levels and determining the impact on the resulting valuation.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 243 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
Sensitivity analysis of valuations using unobservable inputs | ||||||||||||||||||||||||
Fair value | Favourable changes | Unfavourable changes | ||||||||||||||||||||||
| Total assets £m | | | Total liabilities £m | | | Income statement £m | | | Equity £m | | | Income statement £m | | | Equity £m | | |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
Interest rate derivatives | 2,675 | (2,247 | ) | 93 | – | (103 | ) | – | ||||||||||||||||
Foreign exchange derivatives | 95 | (196 | ) | 17 | – | (17 | ) | – | ||||||||||||||||
Credit derivativesa | 1,902 | (219 | ) | 66 | – | (96 | ) | – | ||||||||||||||||
Equity derivatives | 690 | (1,545 | ) | 167 | – | (185 | ) | – | ||||||||||||||||
Commodity derivatives | 56 | (562 | ) | 13 | – | (13 | ) | – | ||||||||||||||||
Government and government sponsored debt | 419 | (1 | ) | 4 | – | (4 | ) | – | ||||||||||||||||
Corporate debt | 2,895 | (15 | ) | 10 | 1 | (5 | ) | (1 | ) | |||||||||||||||
Certificates of deposit, commercial paper and other money market instruments | – | (382 | ) | – | – | – | – | |||||||||||||||||
Non-asset backed loans | 16,828 | – | 1,581 | – | (1,564 | ) | – | |||||||||||||||||
Asset backed securities | 770 | (37 | ) | 1 | – | (1 | ) | – | ||||||||||||||||
Commercial real estate loans | 551 | – | 24 | – | (1 | ) | – | |||||||||||||||||
Issued debt | – | (546 | ) | – | – | – | – | |||||||||||||||||
Equity cash products | 171 | – | – | 17 | – | (17 | ) | |||||||||||||||||
Funds and fund linked products | 378 | (148 | ) | 1 | – | (1 | ) | – | ||||||||||||||||
Otherb | 9,185 | (4,344 | ) | 154 | 318 | (172 | ) | (53 | ) | |||||||||||||||
Total | 36,615 | (10,242 | ) | 2,131 | 336 | (2,162 | ) | (71 | ) | |||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
Interest rate derivatives | 1,239 | (1,344 | ) | 70 | – | (71 | ) | – | ||||||||||||||||
Foreign exchange derivatives | 108 | (138 | ) | 36 | – | (36 | ) | – | ||||||||||||||||
Credit derivativesa | 1,966 | (409 | ) | 81 | – | (229 | ) | – | ||||||||||||||||
Equity derivatives | 1,247 | (2,092 | ) | 220 | – | (220 | ) | – | ||||||||||||||||
Commodity derivatives | 185 | (337 | ) | 46 | – | (46 | ) | – | ||||||||||||||||
Government and government sponsored debt | 1,014 | (346 | ) | – | – | (2 | ) | – | ||||||||||||||||
Corporate debt | 3,061 | (13 | ) | 26 | (1 | ) | (9 | ) | (4 | ) | ||||||||||||||
Certificates of deposit, commercial paper and other money market instruments | – | (665 | ) | 3 | – | 3 | – | |||||||||||||||||
Non-asset backed loans | 17,744 | – | 1,164 | – | (820 | ) | – | |||||||||||||||||
Asset backed securities | 1,631 | – | 46 | 1 | (72 | ) | (1 | ) | ||||||||||||||||
Commercial real estate loans | 1,180 | – | 20 | – | (19 | ) | – | |||||||||||||||||
Issued debt | – | (749 | ) | – | – | – | – | |||||||||||||||||
Equity cash products | 171 | – | – | 11 | – | (11 | ) | |||||||||||||||||
Funds and fund linked products | 631 | (210 | ) | 14 | – | (14 | ) | – | ||||||||||||||||
Otherb | 17,663 | (13,297 | ) | 180 | 82 | (156 | ) | (55 | ) | |||||||||||||||
Total | 47,840 | (19,600 | ) | 1,906 | 93 | (1,691 | ) | (71 | ) |
The effect of stressing unobservable inputs to a range of reasonably possible alternatives, alongside considering the impact of using alternative models, would be to increase fair values by up to £2.1bn (2014: £1.9bn) or to decrease fair values by up to £2.2bn (2014: £1.7bn) with substantially all the potential effect impacting profit and loss rather than reserves.
Notes
a | Credit derivatives includes derivative exposure to monoline insurers. |
b | Other includes non-current assets and liabilities held for sale, which are measured at fair value on a non-recurring basis, investment property, private equity investments and asset backed loans. |
244 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
Significant unobservable inputs
The following table discloses the valuation techniques and significant unobservable inputs for assets and liabilities recognised at fair value and classified as Level 3, along with the range of values used for those significant unobservable inputs:
| Total assets £m | | | Total liabilities £m | | Valuation technique(s) | Significant unobservable inputs |
| 2015 Range |
|
| 2014 Range |
| Unitsa | ||||||||||||||||||||
Min | Max | Min | Max | |||||||||||||||||||||||||||||||
Derivative financial instrumentsb | ||||||||||||||||||||||||||||||||||
Interest rate | 2,675 | (2,247 | ) | Discounted cash flows | Inflation forwards | 0.3 | 8 | (0.5 | ) | 11 | % | |||||||||||||||||||||||
derivatives | Option model | Inflation volatility | 36 | 197 | 40 | 300 | bp vol | |||||||||||||||||||||||||||
IR – IR correlation | (55 | ) | 100 | (88 | ) | 100 | % | |||||||||||||||||||||||||||
FX – IR correlation | (20 | ) | 30 | 14 | 90 | % | ||||||||||||||||||||||||||||
Interest rate volatility | 5 | 249 | 6 | 437 | bp vol | |||||||||||||||||||||||||||||
Credit derivativesc | 1,902 | (219 | ) | Discounted cash flows | Credit spread | 140 | 413 | 116 | 240 | bps | ||||||||||||||||||||||||
Correlation model | Credit correlation | 26 | 41 | 36 | 90 | % | ||||||||||||||||||||||||||||
Credit spread | 10 | 9,923 | 6 | 5,898 | bps | |||||||||||||||||||||||||||||
Comparable pricing | Price | 80 | 102 | 64 | 100 | points | ||||||||||||||||||||||||||||
Equity derivatives | 690 | (1,545 | ) | Equity volatility | – | 318 | 1 | 97 | % | |||||||||||||||||||||||||
Equity – equity correlation | (54 | ) | 100 | (55 | ) | 99 | % | |||||||||||||||||||||||||||
Equity – FX correlation | (100 | ) | 40 | (80 | ) | 55 | % | |||||||||||||||||||||||||||
Non-derivative financial instruments | ||||||||||||||||||||||||||||||||||
Corporate debt | 2,895 | (15 | ) | Discounted cash flows | Credit spread | 120 | 529 | 140 | 900 | bps | ||||||||||||||||||||||||
Comparable pricing | Price | 1 | 114 | – | 104 | points | ||||||||||||||||||||||||||||
Asset backed | 770 | (37 | ) | Discounted cash flows | Conditional prepayment rate | – | 25 | – | 5 | % | ||||||||||||||||||||||||
securities | Constant default rate | – | 2 | – | 9 | % | ||||||||||||||||||||||||||||
Loss given default | 30 | 100 | 45 | 100 | % | |||||||||||||||||||||||||||||
Yield | 5 | 58 | 3 | 11 | % | |||||||||||||||||||||||||||||
Credit spread | 157 | 1,416 | 74 | 2,688 | bps | |||||||||||||||||||||||||||||
Comparable pricing | Price | 1 | 114 | – | 100 | points | ||||||||||||||||||||||||||||
Commercial real | 551 | – | Discounted cash flows | Loss given default | 0 | 100 | – | 100 | % | |||||||||||||||||||||||||
estate loans | Yield | – | – | 4 | 8 | % | ||||||||||||||||||||||||||||
Credit spread | 230 | 801 | 124 | 675 | bps | |||||||||||||||||||||||||||||
Non-asset backed loans | 16,828 | – | Discounted cash flows | Loan spread | 3 | 994 | 39 | 1,000 | bps | |||||||||||||||||||||||||
Otherd | 1,855 | (173 | ) | Discounted cash flows | Loss given default | – | 94 | – | – | % | ||||||||||||||||||||||||
Yield | 7 | 12 | 8 | 9 | % | |||||||||||||||||||||||||||||
Comparable pricing | Price | – | 103 | – | 133 | points | ||||||||||||||||||||||||||||
Net asset valuee | Net asset value |
Notes
a | The units used to disclose ranges for significant unobservable inputs are percentages, points, basis point volatility and basis points. Basis point volatility is a measure of implied volatility in terms of annual absolute basis point change in the underlying rate. Points are a percentage of par; for example, 100 points equals 100% of par. A basis point equals 1/100th of 1%; for example, 150 basis points equals 1.5%. |
b | Certain derivative instruments are classified as Level 3 due to a significant unobservable credit spread input into the calculation of the Credit Valuation Adjustment for the instruments. The range of significant unobservable credit spreads is between 69-1,175bps. |
c | Credit derivatives includes derivative exposure to monoline insurers. |
d | Other includes private equity investments, asset backed loans and investment property. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 245 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
The following section describes the significant unobservable inputs identified in the table above, and the sensitivity of fair value measurement of the instruments categorised as Level 3 assets or liabilities to increases in significant unobservable inputs. Where sensitivities are described, the inverse relationship will also generally apply.
Where reliable interrelationships can be identified between significant unobservable inputs used in fair value measurement, a description of those interrelationships is included below.
Comparable price
Comparable instrument prices are used in valuation by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable observable bond, then adjusting that yield (or spread) to derive a value for the unobservable bond. The adjustment to yield (or spread) should account for relevant differences in the bonds such as maturity or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and bond being valued in order to establish the value of the bond.
In general, a significant increase in comparable price in isolation will result in a movement in fair value that is favourable for the holder of a cash instrument.
For a derivative instrument, a significant increase in an input derived from a comparable price in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.
Conditional prepayment rate
Conditional prepayment rate is the proportion of voluntary, unscheduled repayments of loan principal by a borrower. Prepayment rates affect the weighted average life of securities by altering the timing of future projected cash flows.
A significant increase in a conditional prepayment rate in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.
Conditional prepayment rates are typically inversely correlated to credit spread, i.e. securities with high borrower credit spread typically experience lower prepayment rates, and also tend to experience higher default rates.
Constant default rate
The constant default rate represents an annualised rate of default of the loan principal by the borrower.
A significant increase in a constant default rate in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.
Constant default rate and conditional prepayment rates are typically inversely correlated: fewer defaults on loans typically will mean higher credit quality and therefore more prepayments.
Correlation
Correlation is a measure of the relationship between the movements of two variables (i.e. how the change in one variable influences a change in the other variable). Correlation is a key input into valuation of derivative contracts with more than one underlying instrument. For example, where an option contract is written on a basket of underlying names, the volatility of the basket, and hence the fair value of the option, will depend on the correlation between the basket components. Credit correlation generally refers to the correlation between default processes for the separate names that make up the reference pool of a CDO structure.
A significant increase in correlation in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.
Credit spread
Credit spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Credit spreads reflect the additional yield that a market participant would demand for taking exposure to the credit risk of an instrument, and form part of the yield used in a discounted cash flow calculation.
In general, a significant increase in credit spread in isolation will result in a movement in fair value that is unfavourable for the holder of a cash asset.
For a derivative instrument, a significant increase in credit spread in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.
Loan spread
Loan spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Loan spreads typically reflect funding costs, credit quality, the level of comparable assets such as gilts and other factors, and form part of the yield used in a discounted cash flow calculation.
The ESHLA portfolio primarily consists of long dated fixed rate loans extended to counterparties in the UK Education, Social Housing and Local Authority sectors. The loans are categorised as Level 3 in the fair value hierarchy due to their illiquid nature and the significance of unobservable loan spreads to the valuation. Valuation uncertainty arises from the long dated nature of the portfolio, the lack of secondary market in the loans and the lack of observable loan spreads. The majority of ESHLA loans are to borrowers in heavily regulated sectors that are considered extremely low credit risk, and have a history of zero defaults since inception. While the overall credit spread range is 991bps (2014: 961bps), the vast majority of spreads are concentrated towards the bottom end of this range, with 99% of the loan notional being valued with spreads less than 200bps, consistently for both years.
In general, a significant increase in loan spreads in isolation will result in a movement in fair value that is unfavourable for the holder of a loan.
Forwards
A price or rate that is applicable to a financial transaction that will take place in the future. A forward is generally based on the spot price or rate, adjusted for the cost of carry, and defines the price or rate that will be used to deliver a currency, bond, commodity or some other underlying instrument at a point in the future. A forward may also refer to the rate fixed for a future financial obligation, such as the interest rate on a loan payment. In general, a significant increase in a forward in isolation will result in a movement in fair value that is favourable for the contracted receiver of the underlying (currency, bond, commodity, etc), but the sensitivity is dependent on the specific terms of the instrument.
246 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
Loss given default (LGD)
LGD represents the expected loss upon liquidation of the collateral as a percentage of the balance outstanding.
In general, a significant increase in the LGD in isolation will translate to lower recovery and lower projected cash flows to pay to the securitisation, resulting in a movement in fair value that is unfavourable for the holder of the securitised product.
Volatility
Volatility is a key input in the valuation of derivative products containing optionality. Volatility is a measure of the variability or uncertainty in returns for a given derivative underlying. It represents an estimate of how much a particular underlying instrument, parameter or index will change in value over time. In general, volatilities will be implied from observed option prices. For unobservable options the implied volatility may reflect additional assumptions about the nature of the underlying risk, as well as reflecting the given strike/maturity profile of a specific option contract.
In general a significant increase in volatility in isolation will result in a movement in fair value that is favourable for the holder of a simple option, but the sensitivity is dependent on the specific terms of the instrument.
There may be inter-relationships between unobservable volatilities and other unobservable inputs that can be implied from observation (e.g. when equity prices fall, implied equity volatilities generally rise) but these are specific to individual markets and may vary over time.
Yield
The rate used to discount projected cash flows in a discounted future cash flow analysis.
In general, a significant increase in yield in isolation will result in a movement in fair value that is unfavourable for the holder of a cash instrument.
Fair value adjustments
Key balance sheet valuation adjustments are quantified below:
| 2015 £m | | | 2014 £m | | |||
Bid-offer valuation adjustments | (360 | ) | (396 | ) | ||||
Other exit adjustments | (149 | ) | (169 | ) | ||||
Uncollateralised derivative funding | (72 | ) | (100 | ) | ||||
Derivative credit valuation adjustments: | ||||||||
– Monolines | (9 | ) | (24 | ) | ||||
– Other derivative credit valuation adjustments | (318 | ) | (394 | ) | ||||
Derivative debit valuation adjustments | 189 | 177 |
Bid-offer valuation adjustments
The Group uses mid market pricing where it is a market maker and has the ability to transact at, or better than, mid price (which is the case for certain equity, bond and vanilla derivative markets). For other financial assets and liabilities, bid-offer adjustments are recorded to reflect the price for the expected close out strategy. The methodology for determining the bid-offer adjustment for a derivative portfolio involves calculating the net risk exposure by offsetting long and short positions by strike and term in accordance with the risk management and hedging strategy.
Bid-offer levels are derived from market sources, such as broker data.
Other exit adjustments
Market data input for exotic derivatives may not have a directly observable bid-offer spread. In such instances, an exit adjustment is applied as a proxy for the bid-offer adjustment. An example of this is correlation risk where an adjustment is applied to reflect the possible range of values that market participants apply. The exit adjustment may be determined by calibrating to derivative prices, by scenario analysis or historical analysis. Other exit adjustments have reduced by £20m to £149m respectively as a result of movements in market bid-offer spreads.
Discounting approaches for derivative instruments
Collateralised
In line with market practice, the methodology for discounting collateralised derivatives takes into account the nature and currency of the collateral that can be posted within the relevant CSA. This CSA aware discounting approach recognises the ‘cheapest to deliver’ option that reflects the ability of the party posting collateral to change the currency of the collateral.
Uncollateralised
A fair value adjustment of £72m is applied to account for the impact of incorporating the cost of funding into the valuation of uncollateralised and partially collateralised derivative portfolios and collateralised derivatives where the terms of the agreement do not allow the rehypothecation of collateral received. This adjustment is referred to as the ‘Funding Fair Value Adjustment’ (FFVA). FFVA has decreased by £28m to £72m mainly as a result of material trade unwinds and the reduction in the average maturity date of the portfolio as trades tend to maturity.
FFVA is determined by calculating the net expected exposure at a counterparty level and applying a funding rate to these exposures that reflects the market cost of funding. Barclays’ internal Treasury rates are used as an input to the calculation. The approach takes into account the probability of default of each counterparty, as well as any mandatory break clauses.
FFVA incorporates a scaling factor which is an estimate of the extent to which the cost of funding is incorporated into observed traded levels. On calibrating the scaling factor, it is with the assumption that Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) are retained as valuation components incorporated into such levels. The effect of incorporating this scaling factor at 31 December 2015 was to reduce FFVA by £216m (2014: £300m).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 247 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
Uncollateralised derivative trading activity is used to determine this scaling factor. The trading history analysed includes new trades, terminations, trade restructures and novations. The FFVA balance and movement is driven by the Barclays’ own cost of funding spread over LIBOR, counterparty default probabilities and recovery rates, as well as the market value of the underlying derivatives. Movements in the market value of the portfolio in scope for FFVA are mainly driven by interest rates, inflation rates and foreign exchange levels.
Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains appropriate. The above approach has been in use since 2012 with no significant changes.
Derivative credit and debit valuation adjustments
Credit valuation adjustments (CVA) and debit valuation adjustments (DVA) are incorporated into derivative valuations to reflect the impact on fair value of counterparty credit risk and Barclays’ own credit quality respectively. These adjustments are calculated for uncollateralised and partially collateralised derivatives across all asset classes. CVA and DVA are calculated using estimates of exposure at default, probability of default and recovery rates, at a counterparty level. Counterparties include, but are not limited to, corporates, monolines, sovereigns and sovereign agencies, supranationals and special purpose vehicles.
Exposure at default is generally based on expected exposure, estimated through the simulation of underlying risk factors. For some complex products, where this approach is not feasible, simplifying assumptions are made, either through approximating with a more vanilla structure, or using current or scenario based mark to market as an estimate of future exposure. Where a strong CSA exists to mitigate counterparty credit risk, the exposure at default is set to zero.
Probability of default and recovery rate information is generally sourced from the CDS markets. For counterparties where this information is not available, or considered unreliable due to the nature of the exposure, alternative approaches are taken based on mapping internal counterparty ratings onto historical or market based default and recovery information. In particular, this applies to sovereign related names where the effect of using the recovery assumptions implied in CDS levels would imply a £56m (2014: £120m) increase in CVA.
Correlation between counterparty credit and underlying derivative risk factors may lead to a systematic bias in the valuation of counterparty credit risk, termed ‘wrong way’ or ‘right way’ risk. This is not incorporated into the CVA calculation, but risk of ‘wrong way’ exposure is controlled at the trade origination stage.
CVA decreased by £91m to £327m, primarily due to reduction in the average maturity date of the portfolio as trades tend to maturity. In addition, there was a reduction in monoline CVA of £15m due to trade unwinds. DVA increased by £12m to £189m, primarily as a result of Barclays’ credit spreads deteriorating.
Portfolio exemptions
The Group uses the portfolio exemption in IFRS 13Fair Value Measurement to measure the fair value of groups of financial assets and liabilities. Instruments are measured using the price that would be received to sell a net long position, i.e. an asset, for a particular risk exposure or to transfer a net short position, i.e. a liability, for a particular risk exposure in an orderly transaction between market participants at the balance sheet date under current market conditions. Accordingly, the Group measures the fair value of the group of financial assets and liabilities consistently with how market participants would price the net risk exposure at the measurement date.
Unrecognised gains as a result of the use of valuation models using unobservable inputs
The amount that has yet to be recognised in income that relates to the difference between the transaction price, i.e. the fair value at initial recognition, and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition, less amounts subsequently recognised, is £101m (2014: £96m). There are additions of £35m (2014: nil) and £31m (2014: £41m) of amortisation and releases.
The reserve held for unrecognised gains is predominantly related to derivative financial instruments.
Third party credit enhancements
Structured and brokered certificates of deposit issued by Barclays Group are insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC) in the US. The FDIC is funded by premiums that Barclays and other banks pay for deposit insurance coverage. The carrying value of these issued certificates of deposit that are designated under the IAS 39 fair value option includes this third party credit enhancement. The on-balance sheet value of these brokered certificates of deposit amounted to £3,729m (2014: £3,650m).
Valuation control framework
The valuation control framework covers fair value positions and is a key control in ensuring the material accuracy of valuations.
The valuation control function within Finance is responsible for independent price verification, oversight of prudent and fair value adjustments and escalation of valuation issues.
Governance over the valuation process is the responsibility of the Valuation Committee, and this is the governance forum to which valuation issues are escalated.
The Valuation Committee meets on a monthly basis and is responsible for overseeing valuation policy and practice within the Group. It provides reports to the Board Audit Committee, which examines the judgements taken on valuation and related disclosures.
Price verification uses independently sourced data that is deemed most representative of the market. The characteristics against which the data source is assessed are independence, reliability, consistency with other sources and evidence that the data represents an executable price. The most current data available at the balance sheet date is used. Where significant variances are noted in the independent price verification process, an adjustment is made to fair value. Additional fair value adjustments may be made to reflect such factors as bid-offer spreads, market data uncertainty, model limitations and counterparty risk. Further detail on these fair value adjustments is disclosed on page 247.
248 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
18 Fair value of assets and liabilitiescontinued
Comparison of carrying amounts and fair values for assets and liabilities not held at fair value
The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Group’s balance sheet:
As at 31 December 2015 |
| Carrying amount £m |
|
| Fair value £m |
|
| Quoted market prices (Level 1) £m |
|
| Observable inputs (Level 2) £m |
|
| Significant unobservable inputs (Level 3) £m |
| |||||
Financial assets | ||||||||||||||||||||
Loans and advances to banks | 41,349 | 41,301 | 5,933 | 34,125 | 1,243 | |||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||
– Home loans | 155,863 | 151,431 | – | – | 151,431 | |||||||||||||||
– Credit cards, unsecured and other retail lending | 67,840 | 67,805 | 1,148 | 284 | 66,373 | |||||||||||||||
– Finance lease receivables | 4,776 | 4,730 | ||||||||||||||||||
– Corporate loans | 170,738 | 169,697 | 585 | 129,847 | 39,265 | |||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 28,187 | 28,187 | – | 28,187 | – | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Deposits from banks | (47,080 | ) | (47,080 | ) | (4,428 | ) | (42,652 | ) | – | |||||||||||
Customer accounts: | ||||||||||||||||||||
– Current and demand accounts | (147,122 | ) | (147,121 | ) | (130,439 | ) | (16,537 | ) | (145 | ) | ||||||||||
– Savings accounts | (135,567 | ) | (135,600 | ) | (122,029 | ) | (13,537 | ) | (34 | ) | ||||||||||
– Other time deposits | (135,553 | ) | (135,796 | ) | (43,025 | ) | (84,868 | ) | (7,903 | ) | ||||||||||
Debt securities in issue | (69,150 | ) | (69,863 | ) | (190 | ) | (69,122 | ) | (551 | ) | ||||||||||
Repurchase agreements and other similar secured borrowinga | (25,035 | ) | (25,035 | ) | – | (25,035 | ) | – | ||||||||||||
Subordinated liabilities | (21,467 | ) | (22,907 | ) | – | (22,907 | ) | – | ||||||||||||
As at 31 December 2014 | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Loans and advances to banks | 42,111 | 42,088 | 2,693 | 38,756 | 639 | |||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||
– Home loans | 166,974 | 159,602 | – | – | 159,602 | |||||||||||||||
– Credit cards, unsecured and other retail lending | 63,583 | 63,759 | 1,214 | 488 | 62,057 | |||||||||||||||
– Finance lease receivables | 5,439 | 5,340 | ||||||||||||||||||
– Corporate loans | 191,771 | 188,805 | 233 | 143,231 | 45,341 | |||||||||||||||
Reverse repurchase agreements and other similar secured lending | 131,753 | 131,753 | 2 | 131,751 | – | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Deposits from banks | (58,390 | ) | (58,388 | ) | (4,257 | ) | (54,117 | ) | (14 | ) | ||||||||||
Customer accounts: | ||||||||||||||||||||
– Current and demand accounts | (143,057 | ) | (143,085 | ) | (126,732 | ) | (16,183 | ) | (170 | ) | ||||||||||
– Savings accounts | (131,163 | ) | (131,287 | ) | (116,172 | ) | (15,086 | ) | (29 | ) | ||||||||||
– Other time deposits | (153,484 | ) | (153,591 | ) | (43,654 | ) | (101,736 | ) | (8,201 | ) | ||||||||||
Debt securities in issue | (86,099 | ) | (87,522 | ) | (188 | ) | (87,334 | ) | – | |||||||||||
Repurchase agreements and other similar secured borrowing | (124,479 | ) | (124,479 | ) | (423 | ) | (124,056 | ) | – | |||||||||||
Subordinated liabilities | (21,153 | ) | (22,718 | ) | – | (22,701 | ) | (17 | ) |
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a wide range of valuation techniques are often available, it may not be appropriate to directly compare this fair value information to independent market sources or other financial institutions. Different valuation methodologies and assumptions can have a significant impact on fair values which are based on unobservable inputs.
Note
a | During 2015, new reverse repurchase agreements and other similar secured lending and repurchase agreements and other similar secured borrowing in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 249 |
Notes to the financial statements
Assets and liabilities held at fair value
18 Fair value of assets and liabilitiescontinued
Financial assets
The carrying value of financial assets held at amortised cost (including loans and advances to banks and customers, and other lending such as reverse repurchase agreements and cash collateral on securities borrowed) is determined in accordance with the relevant accounting policy noted on pages 253 and 254.
Loans and advances to banks
The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers is unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount rates.
There is minimal difference between the fair value and carrying amount due to the short term nature of the lending (i.e. predominantly overnight deposits) and the high credit quality of counterparties.
Loans and advances to customers
The fair value of loans and advances to customers, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality.
For retail lending (i.e. home loans and credit cards) tailored discounted cash flow models are used to estimate the fair value of different product types. For example, for home loans different models are used to estimate fair values of tracker, offset and fixed rate mortgage products. Key inputs to these models are the differentials between historic and current product margins and estimated prepayment rates.
The discount of fair value to carrying amount for home loans has reduced to 2.8% (2014: 4.4%) due to changes in product mix across the loan portfolio and movements in product margins.
The fair value of corporate loans is calculated by the use of discounted cash flow techniques where the gross loan values are discounted at a rate of difference between contractual margins and hurdle rates or spreads where Barclays charges a margin over LIBOR depending on credit quality and loss given default and years to maturity. The discount between the carrying and fair value has decreased to 0.6% (2014: 1.5%).
Reverse repurchase agreements
The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised.
Financial liabilities
The carrying value of financial liabilities held at amortised cost (including customer accounts, other deposits, repurchase agreements and cash collateral on securities lent, debt securities in issue and subordinated liabilities) is determined in accordance with the accounting policy noted on pages 254 and 272.
Deposits from banks and customer accounts
In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest rates that reprice frequently such as customer accounts and other deposits and short term debt securities.
The fair value for deposits with longer term maturities such as time deposits, are estimated using discounted cash flows applying either market rates or current rates for deposits of similar remaining maturities. Consequently the fair value discount is minimal.
Debt securities in issue
Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated, carrying amount approximates fair value. The fair value difference has decreased to 1.0% (2014: 1.7%).
Repurchase agreements
The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated.
Subordinated liabilities
Fair values for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issue concerned or issues with similar terms and conditions.
250 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
19 Offsetting financial assets and financial liabilities
In accordance with IAS 32Financial Instruments:Presentation, the Group reports financial assets and financial liabilities on a net basis on the balance sheet only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangements on:
§ | all financial assets and liabilities that are reported net on the balance sheet |
§ | all derivative financial instruments and reverse repurchase and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable master netting arrangements or similar agreements, but do not qualify for balance sheet netting. |
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of IAS 32 described above.
The ‘Net amounts’ presented below are not intended to represent the Group’s actual exposure to credit risk, as a variety of credit mitigation strategies are employed in addition to netting and collateral arrangements.
Amounts subject to enforceable netting arrangements | ||||||||||||||||||||||||||||||||
Effects of offsetting on-balance sheet | Related amounts not offseta | Amounts not | ||||||||||||||||||||||||||||||
| Gross amounts £m | |
| Amounts offset £m | b
|
| Net amounts reported on the balance sheet £m |
| | Financial instruments £m | | | Financial collateral £m | | | Net amount £m | |
| subject to enforceable netting arrangements £m |
c
|
| Balance sheet total £m | d
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Derivative financial assetse | 328,692 | (7,685 | ) | 321,007 | (259,582 | ) | (42,402 | ) | 19,023 | 6,702 | 327,709 | |||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 33,805 | (11,220 | ) | 22,585 | – | (22,299 | ) | 286 | 5,602 | 28,187 | ||||||||||||||||||||||
Reverse repurchase agreements designated at fair valuef | 135,792 | (91,668 | ) | 44,124 | – | (44,101 | ) | 23 | 5,389 | 49,513 | ||||||||||||||||||||||
Total assets | 498,289 | (110,573 | ) | 387,716 | (259,582 | ) | (108,802 | ) | 19,332 | 17,693 | 405,409 | |||||||||||||||||||||
Derivative financial liabilitiese | (325,984 | ) | 7,645 | (318,339 | ) | 259,582 | 40,124 | (18,633 | ) | (5,913 | ) | (324,252 | ) | |||||||||||||||||||
Repurchase agreements and other similar secured borrowing | (30,525 | ) | 10,687 | (19,838 | ) | – | 19,838 | – | (5,197 | ) | (25,035 | ) | ||||||||||||||||||||
Repurchase agreements designated at fair valuef | (141,126 | ) | 92,201 | (48,925 | ) | – | 48,364 | (561 | ) | (1,913 | ) | (50,838 | ) | |||||||||||||||||||
Total liabilities | (497,635 | ) | 110,533 | (387,102 | ) | 259,582 | 108,326 | (19,194 | ) | (13,023 | ) | (400,125 | ) | |||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Derivative financial assets | 617,981 | (182,274 | ) | 435,707 | (353,631 | ) | (52,278 | ) | 29,798 | 4,202 | 439,909 | |||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 204,895 | (97,254 | ) | 107,641 | – | (106,436 | ) | 1,205 | 24,112 | 131,753 | ||||||||||||||||||||||
Reverse repurchase agreements designated at fair value | 4,119 | – | 4,119 | – | (3,918 | ) | 201 | 1,117 | 5,236 | |||||||||||||||||||||||
Total assets | 826,995 | (279,528 | ) | 547,467 | (353,631 | ) | (162,632 | ) | 31,204 | 29,431 | 576,898 | |||||||||||||||||||||
Derivative financial liabilities | (617,161 | ) | 184,496 | (432,665 | ) | 353,631 | 54,311 | (24,723 | ) | (6,655 | ) | (439,320 | ) | |||||||||||||||||||
Repurchase agreements and other similar secured borrowing | (202,218 | ) | 97,254 | (104,964 | ) | – | 104,023 | (941 | ) | (19,515 | ) | (124,479 | ) | |||||||||||||||||||
Repurchase agreements designated at fair value | (4,256 | ) | – | (4,256 | ) | – | 3,942 | (314 | ) | (1,167 | ) | (5,423 | ) | |||||||||||||||||||
Total liabilities | (823,635 | ) | 281,750 | (541,885 | ) | 353,631 | 162,276 | (25,978 | ) | (27,337 | ) | (569,222 | ) |
Notes
a | Financial collateral of £42,402m (2014: £52,278m) was received in respect of derivative assets, including £34,918m (2014: £44,047m) of cash collateral and £7,484m (2014: £8,231m) of non-cash collateral. Financial collateral of £40,124m (2014: £54,311m) was placed in respect of derivative liabilities, including £35,464m (2014: £43,768m) of cash collateral and £4,660m (2014: £10,543m) of non-cash collateral. The collateral amounts are limited to net balance sheet exposure so as to not include over-collateralisation. Of the £34,918m, (2014: £44,047m) cash collateral held, £27,732m, (2014: £33,769m) was included in deposits from banks and £7,186m (2014: £10,278m), was included in customer accounts. Of the £35,464m, (2014: £43,768m) cash collateral placed, £13,238m (2014: £16,815m) was included in loans and advances to banks and £22,226m (2014: £26,953m) was included in loans and advances to customers. |
b | Amounts offset for Derivative financial assets include cash collateral netted of £572m (2014: £1,052m). Amounts offset for Derivative liabilities include cash collateral netted of £532m (2014: £3,274m). Settlements assets and liabilities have been offset amounting to £8,886m (2014: £13,258m). No other significant recognised financial assets and liabilities were offset in the balance sheet. Therefore, the only balance sheet categories necessary for inclusion in the table are those shown above. |
c | This column includes contractual rights of set off that are subject to uncertainty under the laws of the relevant jurisdiction. |
d | The balance sheet total is the sum of ‘Net amounts reported on the balance sheet’ that are subject to enforceable netting arrangements and ‘Amounts not subject to enforceable netting arrangements’. |
e | The decrease in amounts offset is due to the conversion of Barclays daily collateralised interest rate swaps with LCH Clearnet Ltd, for which the collateral was offset against the derivative exposure, into daily settled interest rate swaps in December 2015. This led to a reduction in gross balances available to be offset. The derivative notional disclosure in Note 15 includes the notional of the daily settled interest rate swaps. |
f | During 2015, new reverse repurchase agreements and repurchase agreements, other similar secured lending and borrowing in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 251 |
Notes to the financial statements
Assets and liabilities held at fair value
19 Offsetting financial assets and financial liabilitiescontinued
Derivative assets and liabilities
The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transaction covered by the agreements if an event of default or other predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur.
Repurchase and reverse repurchase agreements and other similar secured lending and borrowing
The ‘Amounts offset’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as global master repurchase agreements and global master securities lending agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transaction covered by the agreements if an event of default or other predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated in the event of counterparty default.
These offsetting and collateral arrangements and other credit risk mitigation strategies used by the Group are further explained in the Credit risk mitigation section on page 100.
252 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
Financial instruments held at amortised cost
The notes included in this section focus on assets that are held at amortised cost arising from the Group’s retail and wholesale lending including loans and advances, finance leases, repurchase and reverse repurchase agreements and similar secured lending. Detail regarding the Group’s capital and liquidity position can be found on pages 154 to 171.
20 Loans and advances to banks and customers
Accounting for financial instruments held at amortised cost Loans and advances to customers and banks, customer accounts, debt securities and most financial liabilities are held at amortised cost. That is, the initial fair value (which is normally the amount advanced or borrowed) is adjusted for repayments and the amortisation of coupon, fees and expenses to represent the effective interest rate of the asset or liability.
In accordance with IAS 39, where the Group no longer intends to trade in financial assets, it may transfer them out of the held for trading classification and measure them at amortised cost if they meet the definition of a loan. The initial value used for the purposes of establishing amortised cost is fair value on the date of the transfer.
|
As at 31 December |
| 2015 £m |
|
| 2014 £m |
| ||
Gross loans and advances to banks | 41,349 | 42,111 | ||||||
Less: allowance for impairment | – | – | ||||||
Loans and advances to banks | 41,349 | 42,111 | ||||||
Gross loans and advances to customers | 404,138 | 433,222 | ||||||
Less: allowance for impairment | (4,921 | ) | (5,455 | ) | ||||
Loans and advances to customers | 399,217 | 427,767 |
Further information on the Group’s loans and advances to banks and customers and impairment allowances is included on pages 117 to 118.
Prior to 2010, the Group reclassified certain financial assets, originally classified as held for trading, that were deemed to be not held for trading purposes to loans and advances. The carrying value and fair value of securities reclassified into loans and advances is £975m (2014: £1,862m) and £958m (2014: £1,834m) respectively.
If the reclassifications had not been made, the Group’s income statement for 2015 would have included a net gain on the reclassified trading assets of £12m (2014: gain of £57m).
Accounting for finance leases The Group applies IAS 17Leases in accounting for finance leases, both where it is the lessor or the lessee. A finance lease is a lease which confers substantially all the risks and rewards of the leased assets on the lessee. Where the Group is the lessor, the leased asset is not held on the balance sheet; instead a finance lease receivable is recognised representing the minimum lease payments receivable under the terms of the lease, discounted at the rate of interest implicit in the lease. Where the Group is the lessee, the leased asset is recognised in property, plant and equipment and a finance lease liability is recognised, representing the minimum lease payments payable under the lease, discounted at the rate of interest implicit in the lease.
Interest income or expense is recognised in interest receivable or payable, allocated to accounting periods to reflect a constant periodic rate of return.
|
Finance lease receivables
Finance lease receivables are included within loans and advances to customers. The Group engages in asset-based lending and works with a broad range of international technology, industrial equipment and commercial companies to provide customised finance programmes to assist manufacturers, dealers and distributors of assets.
2015 | 2014 | |||||||||||||||||||||||||||||||
Present | Present | |||||||||||||||||||||||||||||||
Gross | value of | Gross | value of | |||||||||||||||||||||||||||||
investment | minimum | Un- | investment | minimum | Un- | |||||||||||||||||||||||||||
in finance | Future | lease | guaranteed | in finance | Future | lease | guaranteed | |||||||||||||||||||||||||
lease | finance | payments | residual | lease | finance | payments | residual | |||||||||||||||||||||||||
receivables | income | receivable | values | receivables | income | receivable | values | |||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||
Not more than one year | 1,826 | (230 | ) | 1,596 | 117 | 2,139 | (304 | ) | 1,835 | 125 | ||||||||||||||||||||||
Over one year but not more than five years | 3,569 | (555 | ) | 3,014 | 275 | 4,159 | (682 | ) | 3,477 | 293 | ||||||||||||||||||||||
Over five years | 224 | (32 | ) | 192 | 21 | 213 | (40 | ) | 173 | 17 | ||||||||||||||||||||||
Total | 5,619 | (817 | ) | 4,802 | 413 | 6,511 | (1,026 | ) | 5,485 | 435 |
The impairment allowance for uncollectable finance lease receivables is £56m (2014: £82m).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 253 |
Notes to the financial statements
Financial instruments held at amortised cost
21 Finance leasescontinued
Finance lease liabilities
The Group leases items of property, plant and equipment on terms that meet the definition of finance leases. Finance lease liabilities are included within Note 26 Accruals, deferred income and other liabilities.
As at 31 December 2015, the total future minimum payments under finance leases were nil (2014: £14m). The carrying amount of assets held under finance leases was nil (2014: £31m).
22 Reverse repurchase and repurchase agreements including other similar lending and borrowing
Reverse repurchase agreements (and stock borrowing or similar transaction) are a form of secured lending whereby the Group provides a loan or cash collateral in exchange for the transfer of collateral, generally in the form of marketable securities subject to an agreement to transfer the securities back at a fixed price in the future. Repurchase agreements are where the Group obtains such loans or cash collateral, in exchange for the transfer of collateral.
Accounting for reverse repurchase and repurchase agreements including other similar lending and borrowing The Group purchases (a reverse repurchase agreement) or borrows securities subject to a commitment to resell or return them. The securities are not included in the balance sheet as the Group does not acquire the risks and rewards of ownership. Consideration paid (or cash collateral provided) is accounted for as a loan asset at amortised cost, unless it is designated at fair value through profit and loss.
The Group may also sell (a repurchase agreement) or lend securities subject to a commitment to repurchase or redeem them. The securities are retained on the balance sheet as the Group retains substantially all the risks and rewards of ownership. Consideration received (or cash collateral provided) is accounted for as a financial liability at amortised cost, unless it is designated at fair value through profit and loss.
|
| 2015 £m |
|
| 2014 £m |
| |||
Assets | ||||||||
Banks | 8,954 | 39,528 | ||||||
Customers | 19,233 | 92,225 | ||||||
Reverse repurchase agreements and other similar secured lendinga | 28,187 | 131,753 | ||||||
Liabilities | ||||||||
Banks | 13,951 | 49,940 | ||||||
Customers | 11,084 | 74,539 | ||||||
Repurchase agreements and other similar secured borrowinga | 25,035 | 124,479 |
Note
a | During 2015, new reverse repurchase and repurchase agreements including other similar secured lending and borrowing in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance (see Notes 14 and 17 for further detail). |
254 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
Non-current assets and other investments
The notes included in this section focus on the Group’s non-current tangible and intangible assets and property, plant and equipment, which provide long-term future economic benefits.
23 Property, plant and equipment
Accounting for property, plant and equipment | ||
The Group applies IAS 16Property, Plant and Equipment and IAS 40Investment Properties. | ||
Property, plant and equipment is stated at cost, which includes direct and incremental acquisition costs less accumulated depreciation and provisions for impairment, if required. Subsequent costs are capitalised if these result in an enhancement to the asset. | ||
Depreciation is provided on the depreciable amount of items of property, plant and equipment on a straight-line basis over their estimated useful economic lives. Depreciation rates, methods and the residual values underlying the calculation of depreciation of items of property, plant and equipment are kept under review to take account of any change in circumstances. The Group uses the following annual rates in calculating depreciation:
| ||
Annual rates in calculating depreciation | Depreciation rate | |
Freehold land | Not depreciated | |
Freehold buildings and long-leasehold property (more than 50 years to run) | 2-3.3% | |
Leasehold property over the remaining life of the lease (less than 50 years to run) | Over the remaining life of the lease | |
Costs of adaptation of freehold and leasehold property | 6-10% | |
Equipment installed in freehold and leasehold property | 6-10% | |
Computers and similar equipment | 17-33% | |
Fixtures and fittings and other equipment | 9-20% | |
Where leasehold property has a remaining useful life of less than 17 years, costs of adaptation and installed equipment are depreciated over the remaining life of the lease. | ||
Investment property | ||
The Group initially recognises investment property at cost, and subsequently at fair value at each balance sheet date, reflecting market conditions at the reporting date. Gains and losses on remeasurement are included in the income statement.
|
| Investment property £m |
|
| Property £m |
|
| Equipment £m |
| | Leased assets £m | |
| Total £m |
| ||||||
Cost | ||||||||||||||||||||
As at 1 January 2015 | 207 | 4,054 | 4,350 | 10 | 8,621 | |||||||||||||||
Additions and disposals | (71 | ) | 22 | 173 | 49 | 173 | ||||||||||||||
Change in fair value of investment properties | 10 | – | – | – | 10 | |||||||||||||||
Exchange and other movements | (6 | ) | (157 | ) | (264 | ) | 3 | (424 | ) | |||||||||||
As at 31 December 2015 | 140 | 3,919 | 4,259 | 62 | 8,380 | |||||||||||||||
Accumulated depreciation and impairment | ||||||||||||||||||||
As at 1 January 2015 | – | (1,669 | ) | (3,157 | ) | (9 | ) | (4,835 | ) | |||||||||||
Depreciation charge | – | (181 | ) | (373 | ) | – | (554 | ) | ||||||||||||
Disposals | – | 144 | 159 | – | 303 | |||||||||||||||
Exchange and other movements | – | 9 | 194 | (29 | ) | 174 | ||||||||||||||
As at 31 December 2015 | – | (1,697 | ) | (3,177 | ) | (38 | ) | (4,912 | ) | |||||||||||
Net book value | 140 | 2,222 | 1,082 | 24 | 3,468 | |||||||||||||||
Cost | ||||||||||||||||||||
As at 1 January 2014 | 451 | 3,924 | 4,552 | 10 | 8,937 | |||||||||||||||
Additions and disposals | (160 | ) | 174 | 7 | – | 21 | ||||||||||||||
Change in fair value of investment properties | (1 | ) | – | – | – | (1 | ) | |||||||||||||
Exchange and other movements | (83 | ) | (44 | ) | (209 | ) | – | (336 | ) | |||||||||||
As at 31 December 2014 | 207 | 4,054 | 4,350 | 10 | 8,621 | |||||||||||||||
Accumulated depreciation and impairment | ||||||||||||||||||||
As at 1 January 2014 | – | (1,513 | ) | (3,201 | ) | (7 | ) | (4,721 | ) | |||||||||||
Depreciation charge | – | (184 | ) | (399 | ) | (2 | ) | (585 | ) | |||||||||||
Disposals | – | 34 | 271 | – | 305 | |||||||||||||||
Exchange and other movements | – | (6 | ) | 172 | – | 166 | ||||||||||||||
As at 31 December 2014 | – | (1,669 | ) | (3,157 | ) | (9 | ) | (4,835 | ) | |||||||||||
Net book value | 207 | 2,385 | 1,193 | 1 | 3,786 |
Property rentals of £9m (2014: £5m) and £9m (2014: £14m) have been included in net investment income and other income respectively. Impairment of £38m (2014: £61m) was charged in the period.
The fair value of investment property is determined by reference to current market prices for similar properties, adjusted as necessary for condition and location, or by reference to recent transactions updated to reflect current economic conditions. Discounted cash flow techniques may be employed to calculate fair value where there have been no recent transactions, using current external market inputs such as market rents and interest rates. Valuations are carried out by management with the support of appropriately qualified independent valuers. Refer to Note 18 Fair value of assets and liabilities for further details.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 255 |
Notes to the financial statements
Non-current assets and other investments
24 Goodwill and intangible assets
Accounting for goodwill and other intangible assets Goodwill The carrying value of goodwill is determined in accordance with IFRS 3Business Combinations andIAS 36 Impairment of Assets.
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures, and represents the excess of the fair value of the purchase consideration over the fair value of the Group’s share of the assets acquired and the liabilities and contingent liabilities assumed on the date of the acquisition.
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. The test involves comparing the carrying value of goodwill with the present value of the pre-tax cash flows, discounted at a rate of interest that reflects the inherent risks of the cash generating unit (CGU) to which the goodwill relates, or the CGU’s fair value if this is higher.
Intangible assets Intangible assets other than goodwill are accounted for in accordance with IAS 38Intangible Assets and IAS 36Impairment of Assets.
Intangible assets include brands, customer lists, internally generated software, other software, licences and other contracts and core deposit intangibles. They are initially recognised when they are separable or arise from contractual or other legal rights, the cost can be measured reliably and, in the case of intangible assets not acquired in a business combination, where it is probable that future economic benefits attributable to the assets will flow from their use.
Intangible assets are stated at cost (which is, in the case of assets acquired in a business combination, the acquisition date fair value) less accumulated amortisation and provisions for impairment, if any, and are amortised over their useful lives in a manner that reflects the pattern to which they contribute to future cash flows, using the amortisation periods set out below:
| ||
Annual rates in calculating amortisation | Amortisation period | |
Goodwill | Not amortised | |
Internally generated software | 12 months to 6 years | |
Other software | 12 months to 6 years | |
Core deposits intangibles | 12 months to 25 years | |
Brands | 12 months to 25 years | |
Customer lists | 12 months to 25 years | |
Licences and other | 12 months to 25 years | |
Intangible assets are reviewed for impairment when there are indications that impairment may have occurred.
|
Internally | Core | |||||||||||||||||||||||||||||||
generated | Other | deposit | Customer | Licences | ||||||||||||||||||||||||||||
Goodwill | software | software | intangibles | Brands | lists | and other | Total | |||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||
As at 1 January 2015 | 6,329 | 3,240 | 482 | 186 | 112 | 1,721 | 447 | 12,517 | ||||||||||||||||||||||||
Additions and disposals | (515 | ) | 998 | 75 | – | – | – | 18 | 576 | |||||||||||||||||||||||
Exchange and other movements | (211 | ) | (126 | ) | (15 | ) | (40 | ) | (26 | ) | (56 | ) | 6 | (468 | ) | |||||||||||||||||
As at 31 December 2015 | 5,603 | 4,112 | 542 | 146 | 86 | 1,665 | 471 | 12,625 | ||||||||||||||||||||||||
Accumulated amortisation and impairment | ||||||||||||||||||||||||||||||||
As at 1 January 2015 | (1,442 | ) | (1,257 | ) | (194 | ) | (88 | ) | (111 | ) | (962 | ) | (283 | ) | (4,337 | ) | ||||||||||||||||
Disposals | 518 | 128 | 2 | – | – | – | 3 | 651 | ||||||||||||||||||||||||
Amortisation charge | – | (421 | ) | (17 | ) | (6 | ) | – | (143 | ) | (30 | ) | (617 | ) | ||||||||||||||||||
Impairment charge | (102 | ) | (101 | ) | (1 | ) | (1 | ) | – | (12 | ) | – | (217 | ) | ||||||||||||||||||
Exchange and other movements | 28 | 17 | (2 | ) | 20 | 25 | 36 | (7 | ) | 117 | ||||||||||||||||||||||
As at 31 December 2015 | (998 | ) | (1,634 | ) | (212 | ) | (75 | ) | (86 | ) | (1,081 | ) | (317 | ) | (4,403 | ) | ||||||||||||||||
Net book value | 4,605 | 2,478 | 330 | 71 | – | 584 | 154 | 8,222 | ||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||
As at 1 January 2014 | 6,346 | 2,411 | 556 | 194 | 116 | 1,543 | 437 | 11,603 | ||||||||||||||||||||||||
Additions and disposals | 36 | 702 | 176 | – | – | 123 | 7 | 1,044 | ||||||||||||||||||||||||
Exchange and other movements | (53 | ) | 127 | (250 | ) | (8 | ) | (4 | ) | 55 | 3 | (130 | ) | |||||||||||||||||||
As at 31 December 2014 | 6,329 | 3,240 | 482 | 186 | 112 | 1,721 | 447 | 12,517 | ||||||||||||||||||||||||
Accumulated amortisation and impairment | ||||||||||||||||||||||||||||||||
As at 1 January 2014 | (1,468 | ) | (999 | ) | (217 | ) | (85 | ) | (97 | ) | (799 | ) | (253 | ) | (3,918 | ) | ||||||||||||||||
Disposals | – | 98 | 21 | – | – | 14 | 2 | 135 | ||||||||||||||||||||||||
Amortisation charge | – | (306 | ) | (19 | ) | (7 | ) | (18 | ) | (142 | ) | (30 | ) | (522 | ) | |||||||||||||||||
Impairment charge | – | (74 | ) | (21 | ) | – | – | (5 | ) | – | (100 | ) | ||||||||||||||||||||
Exchange and other movements | 26 | 24 | 42 | 4 | 4 | (30 | ) | (2 | ) | 68 | ||||||||||||||||||||||
As at 31 December 2014 | (1,442 | ) | (1,257 | ) | (194 | ) | (88 | ) | (111 | ) | (962 | ) | (283 | ) | (4,337 | ) | ||||||||||||||||
Net book value | 4,887 | 1,983 | 288 | 98 | 1 | 759 | 164 | 8,180 |
256 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
24 Goodwill and intangible assetscontinued
Goodwill
Goodwill is allocated to business segments as follows:
| 2015 £m |
|
| 2014 £m |
| |||
Personal and Corporate Banking | 3,472 | 3,471 | ||||||
Africa Banking | 725 | 915 | ||||||
Barclaycard | 408 | 427 | ||||||
Barclays Non-Core | – | 74 | ||||||
Total net book value of goodwill | 4,605 | 4,887 |
Goodwill
Testing goodwill for impairment involves a significant amount of judgement. This includes the identification of independent CGUs and the allocation of goodwill to these units based on which units are expected to benefit from the acquisition. The allocation is reviewed following business reorganisation. Cash flow projections necessarily take into account changes in the market in which a business operates including the level of growth, competitive activity, and the impacts of regulatory change. Determining both the expected pre-tax cash flows and the risk adjusted interest rate appropriate to the operating unit 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 long-term sustainable cash flows.
Other intangible assets
Determining the estimated useful lives of intangible assets (such as those arising from contractual relationships) requires an analysis of circumstances. The assessment of whether an asset is exhibiting indicators of impairment as well as the calculation of impairment, which requires the estimation of future cash flows and fair values less costs to sell, also requires the preparation of cash flow forecasts and fair values for assets that may not be regularly bought and sold.
Impairment testing of goodwill
During 2015, the Group recognised an impairment charge of £102m (2014: nil) primarily attributable to Non-Core and the withdrawal of the Bespoke product in Barclaycard. This is as a result of the carrying amount of the goodwill relating to these businesses not being supported based on the value in use calculations.
Key assumptions
The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £881m (2014: £1,031m) was allocated to multiple CGUs which are not considered individually significant.
Personal and Corporate Banking (PCB)
Goodwill relating to Woolwich was £3,225m (2014: £3,225m) of the total PCB balance. The carrying value of the CGU is determined using an allocation of total Group shareholder funds excluding goodwill based on the CGU’s share of risk weighted assets before goodwill balances are added back. The recoverable amount of the CGU has been determined using cash flow predictions based on financial budgets approved by management and covering a three-year period, with a terminal growth rate of 2.4% (2014: 2.4%) applied thereafter. The forecast cash flows have been discounted at a pre-tax rate of 11.4% (2014: 11.0%). Based on these assumptions, the recoverable amount exceeded the carrying amount including goodwill by £24,811m (2014: £17,260m). A one percentage point change in the discount rate or terminal growth rate would increase or decrease the recoverable amount by £4,860m (2014: £2,888m) and £3,422m (2014: £2,070m) respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £4,835m (2014: £2,697m).
Africa
Goodwill relating to the Absa Retail Bank CGU was £499m (2014: £631m) of the total Africa Banking balance. The carrying value of the CGU has been determined by using net asset value. The recoverable amount of Absa Retail Bank has been determined using cash flow predictions based on financial budgets approved by management and covering a three year period, with a terminal growth rate of 6% (2014: 6%) applied thereafter. The forecast cash flows have been discounted at a pre-tax rate of 18.5% (2014: 18.7%). The recoverable amount calculated based on value in use exceeded the carrying amount including goodwill by £2,946m (2014: £1,623m). A one percentage point change in the discount rate or the terminal growth rate would increase or decrease the recoverable amount by £349m (2014: £329m) and £221m (2014: £206m) respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £469m (2014: £440m).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 257 |
Notes to the financial statements
Non-current assets and other investments
Accounting for operating leases The Group applies IAS 17Leases, for operating leases. An operating lease is a lease where substantially all of the risks and rewards of the leased assets remain with the lessor. Where the Group is the lessor, lease income is recognised on a straight-line basis over the period of the lease unless another systematic basis is more appropriate. The Group holds the leased assets on-balance sheet within property, plant and equipment.
Where the Group is the lessee, rentals payable are recognised as an expense in the income statement on a straight-line basis over the lease term unless another systematic basis is more appropriate.
|
Operating lease receivables
The Group acts as lessor, whereby items of plant and equipment are purchased and then leased to third parties under arrangements qualifying as operating leases. The future minimum lease payments expected to be received under non-cancellable operating leases was £1m (2014: £1m).
Operating lease commitments
The Group leases various offices, branches and other premises under non-cancellable operating lease arrangements. With such operating lease arrangements, the asset is kept on the lessor’s balance sheet and the Group reports the future minimum lease payments as an expense over the lease term. The leases have various terms, escalation and renewal rights. There are no contingent rents payable.
Operating lease rentals of £500m (2014: £594m) have been included in administration and general expenses.
The future minimum lease payments by the Group under non-cancellable operating leases are as follows:
2015 | 2014 | |||||||||||||||
| Property £m | | | Equipment £m | | | Property £m | | | Equipment £m | | |||||
Not more than one year | 376 | 1 | 403 | 41 | ||||||||||||
Over one year but not more than five years | 1,127 | 11 | 1,147 | 106 | ||||||||||||
Over five years | 1,874 | – | 2,036 | – | ||||||||||||
Total | 3,377 | 12 | 3,586 | 147 |
Total future minimum sublease payments to be received under non-cancellable subleases were £1m (2014: £99m).
258 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
The notes included in this section focus on the Group’s accruals, provisions and contingent liabilities. Provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. Contingent liabilities reflect potential liabilities that are not recognised on the balance sheet.
26 Accruals, deferred income and other liabilities
Accounting for insurance contracts The Group applies IFRS 4Insurance Contracts to its insurance contracts. An insurance contract is a contract that compensates a third party against a loss from non-financial risk. Some wealth management and other products, such as life assurance contracts, combine investment and insurance features; these are treated as insurance contracts when they pay benefits that are at least 5% more than they would pay if the insured event does not occur.
Insurance liabilities include current best estimates of future contractual cash flows, claims handling, and administration costs in respect of claims. Liability adequacy tests are performed at each balance sheet date to ensure the adequacy of contract liabilities. Where a deficiency is highlighted by the tests, insurance liabilities are increased with any deficiency being recognised in the income statement.
Insurance premium revenue is recognised in the income statement in the period earned, net of reinsurance premiums payable, in net premiums from insurance contracts. Increases and decreases in insurance liabilities are recognised in the income statement in net claims and benefits on insurance contracts.
|
| 2015 £m |
| 2014 £m | |||
Accruals and deferred income | 4,271 | 4,770 | ||||
Other creditors | 3,770 | 3,851 | ||||
Obligations under finance leases (see Note 21) | – | 36 | ||||
Insurance contract liabilities, including unit-linked liabilities | 2,569 | 2,766 | ||||
Accruals, deferred income and other liabilities | 10,610 | 11,423 |
Accruals and deferred income decreased by 10% to £4.3bn mainly driven by lower staff costs and administrative and general costs accrued as at 31 December 2015.
Insurance liabilities relate principally to the Group’s long-term business. Insurance contract liabilities associated with the Group’s short term non-life business are £115m (2014: £157m). The maximum amounts payable under all of the Group’s insurance products, ignoring the probability of insured events occurring and the contribution from investments backing the insurance policies, were £65bn (2014: £82bn) or £49bn (2014: £74bn) after reinsurance. Of this insured risk, £55bn (2014: £69bn) or £43bn (2014: £66bn) after reinsurances was concentrated in short-term insurance contracts in Africa.
The impact to the income statement and equity under a reasonably possible change in the assumptions used to calculate the insurance liabilities would be £5m (2014: £8m).
Accounting for provisions The Group applies IAS 37Provisions, Contingent Liabilities and Contingent Assets in accounting for non-financial liabilities.
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, which can be reliably estimated. Provision is made for the anticipated cost of restructuring, including redundancy costs when an obligation exists. This is the case when the Group has a detailed formal plan for restructuring a business and has raised valid expectations in those affected by the restructuring by announcing its main features or starting to implement the plan. A provision is made for undrawn loan commitments if it is probable that the facility will be drawn and results in the recognition of an asset at an amount less than the amount advanced.
|
Undrawn | Legal, | |||||||||||||||||||||||||||||||
contractually | Customer redress | competition | ||||||||||||||||||||||||||||||
| Onerous contracts £m |
|
| Redundancy and restructuring £m |
|
| committed facilities and guarantees £m |
| | Payment Protection Insurance £m | | | Other customer redress £m | |
| and regulatory matters £m |
|
| Sundry provisions £m |
|
| Total £m |
| |||||||||
As at 1 January 2015 | 205 | 291 | 94 | 1,059 | 586 | 1,690 | 210 | 4,135 | ||||||||||||||||||||||||
Additions | 120 | 190 | 25 | 2,200 | 821 | 1,559 | 177 | 5,092 | ||||||||||||||||||||||||
Amounts utilised | (42 | ) | (136 | ) | (2 | ) | (1,171 | ) | (440 | ) | (2,616 | ) | (49 | ) | (4,456 | ) | ||||||||||||||||
Unused amounts reversed | (149 | ) | (140 | ) | (37 | ) | – | (32 | ) | (136 | ) | (86 | ) | (580 | ) | |||||||||||||||||
Exchange and other movements | 7 | (19 | ) | (20 | ) | 18 | (39 | ) | (8 | ) | 12 | (49 | ) | |||||||||||||||||||
As at 31 December 2015 | 141 | 186 | 60 | 2,106 | 896 | 489 | 264 | 4,142 |
Provisions expected to be recovered or settled within no more than 12 months after 31 December 2015 were £2,113m (2014: £3,464m).
Onerous contracts
Onerous contract provisions comprise an estimate of the costs involved with fulfilling the terms and conditions of contracts where the liability is higher than the amount of economic benefit to be received.
Redundancy and restructuring
These provisions comprise the estimated cost of restructuring, including redundancy costs where an obligation exists. Additions made during the year relate to formal restructuring plans and have either been utilised, or reversed, where total costs are now expected to be lower than the original provision amount.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 259 |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
27 Provisionscontinued
Undrawn contractually committed facilities and guarantees
Provisions are made if it is probable that a facility will be drawn and the resulting asset is expected to have a realisable value that is less than the amount advanced.
Customer redress
Customer redress provisions comprise the estimated cost of making redress payments to customers, clients and counterparties for losses or damages associated with inappropriate judgement in the execution of our business activities. Provisions for other customer redress include £282m (2014: nil) in respect of Packaged Bank Accounts and £290m (2014: nil) in respect of historic pricing practices associated with certain Foreign Exchange transactions for certain customers between 2005 and 2012, and smaller provisions across the retail and corporate businesses which are likely to be utilised within the next 12 months.
Sundry provisions
This category includes provisions that do not fit into any of the other categories, such as fraud losses and dilapidation provisions.
Legal, competition and regulatory matters
The Group is engaged in various legal proceedings, both in the UK and a number of other overseas jurisdictions, including the US. For further information in relation to legal proceedings and discussion of the associated uncertainties, please see Note 29 Legal, competition and regulatory matters.
Critical accounting estimates and judgements
Payment Protection Insurance redress
As at 31 December 2015, Barclays had recognised cumulative provisions totalling £7.4bn (2014: £5.2bn) against the cost of Payment Protection Insurance (PPI) redress and associated processing costs with utilisation of £5.3bn (2014: £4.2bn), leaving a residual provision of £2.1bn (2014: £1.1bn).
Through to 31 December 2015, 1.6m (2014: 1.3m) customer initiated claimsa had been received and processed. The volume of claims received during 2015 decreased 9%b from 2014. This rate of decline however was slower than previously expected, due to steady levels of claims from Claims Management Companies (CMC) in particular.
During 2015 claims volumes continued to decline, but at a slower rate than had been projected at the start of the year based on historic experience. As a result, management has revised upwards its estimate of future volumes and recognised additional provisions totalling £2.2bn during the year. The provision estimate reflects an assessment of the proposals contained in a consultation published by the FCA on 26 November 2015 which, if enacted, would impact on the timing and volume of future claims flow. This includes estimating the impact of a proposed 2018 complaint deadline and guidance on the impact of a 2014 UK Supreme Court judgment (Plevin vs Paragon Personal Finance Limited). The potential impact of these proposals is difficult to estimate and the outcome of the consultation is not yet known.
The provision is calculated using a number of key assumptions which continue to involve significant management judgement and modelling:
§ | customer initiated claim volumes – claims received but not yet processed plus an estimate of future claims initiated by customers where the volume is anticipated to decline over time |
§ | proactive response rate – volume of claims in response to proactive mailing |
§ | uphold rate – the percentage of claims that are upheld as being valid upon review |
§ | average claim redress – the expected average payment to customers for upheld claims based on the type and age of the policy/policies |
§ | processing cost per claim – the cost to Barclays of assessing and processing each valid claim. |
These assumptions remain subjective, in particular due to the uncertainty associated with future claims levels, which include complaints driven by CMC activity.
The current provision represents Barclays’ revised best estimate of all future expected costs of PPI redress, however, it is possible the eventual outcome may differ from the current estimate. If this were to be material, the provision will be increased or decreased accordingly.
The following table details by key assumption, actual data through to 31 December 2015, forecast assumptions used in the provision calculation and a sensitivity analysis illustrating the impact on the provision if the future expected assumptions prove too high or too low.
Cumulative | Sensitivity analysis | Cumulative | ||||||||||||||
actual to | Future | increase/decrease | actual to | |||||||||||||
Assumption | 31.12.15 | expected | in provision | 31.12.14 | ||||||||||||
Customer initiated claims received and processeda | 1,570k | 730kc | 50k = £103m | 1,300k | ||||||||||||
Proactive mailing | 680k | 150k | 50k = £16m | 680k | ||||||||||||
Response rate to proactive mailing | 28% | 26% | 1% = £2m | 28% | ||||||||||||
Average uphold rate per claimc | 86%d | 88% | 1% = £18m | 79% | ||||||||||||
Average redress per valid claime | £1,808 | £1,810 | £100 = £87m | £1,740 | ||||||||||||
Processing cost per claimf | £300 | £295 | 50k = £15m | £294 |
Notes
a | Total claims received to date, including those received via CMCs but excluding those for which no PPI policy exists and excluding responses to proactive mailing. |
b | Gross volumes received. |
c | Average uphold rate per claim excludes those for which no PPI policy exists. |
d | Average uphold rate adjusted to include full remediation. |
e | Change in average uphold rate mainly due to increased remediation in 2015. |
f | Processing cost per claim on an upheld complaints basis, includes direct staff costs and associated overheads. |
260 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
28 Contingent liabilities and commitments
Accounting for contingent liabilities Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet but are disclosed unless the outflow of economic resources is remote.
|
The following table summarises the nominal amount of contingent liabilities and commitments which are not classified as on-balance sheet:
| 2015 £m |
|
| 2014 £m |
| |||
Guarantees and letters of credit pledged as collateral security | 16,065 | 14,547 | ||||||
Performance guarantees, acceptances and endorsements | 4,556 | 6,777 | ||||||
Contingent liabilities | 20,621 | 21,324 | ||||||
Documentary credits and other short-term trade related transactions | 845 | 1,091 | ||||||
Forward starting reverse repurchase agreementsa | 93 | 13,856 | ||||||
Standby facilities, credit lines and other commitments | 281,369 | 276,315 |
The Financial Services Compensation Scheme
The Financial Compensation Scheme (the FSCS) is the UK government-backed compensation scheme for customers of authorised institutions that are unable to pay claims. It provides compensation to depositors in the event that UK licensed deposit-taking institutions are unable to meet their claims. The FSCS raises levies on UK licensed deposit-taking institutions to meet such claims based on their share of UK deposits on 31 December of the specified years preceding the scheme year (which runs from 1 April to 31 March).
Compensation has previously been paid out by the FSCS, funded by loan facilities totalling approximately £18bn provided by HM Treasury to FSCS in support of FSCS’s obligations to the depositors of banks declared in default. The interest rate chargeable on the loan and levied to the industry is subject to a floor equal to the higher of HM Treasury’s own cost of borrowing (typically 2024 UK Gilt yield), and GBP LIBOR with 12-month maturity plus a spread. The FSCS recovered £1bn capital shortfall in respect of the legacy facility from industry in three instalments across 2013, 2014 and 2015. A separate shortfall in respect of Dunfermline Building Society was levied on the industry in both 2014 and 2015. The FSCS liability for the interest and capital levy for 2015-2016 was recognised and paid in 2015. Barclays has included an accrual of £56m in other liabilities as at 31 December 2015 (2014: £88m) in respect of the Barclays’ portion of the Interest Levy. Capital Levies for 2015/16 were recognised in 2015 and settled in the same year.
Further details on contingent liabilities relating to legal and competition and regulatory matters can be found in Note 29.
29 Legal, competition and regulatory matters
Barclays PLC (BPLC), Barclays Bank PLC (BBPLC) and the Group face legal, competition and regulatory challenges, many of which are beyond our control. The extent of the impact on BPLC, BBPLC and the Group of these matters cannot always be predicted but may materially impact our operations, financial results, condition and prospects. Matters arising from a set of similar circumstances can give rise to either a contingent liability or a provision, or both, depending on the relevant facts and circumstances. The Group has not disclosed an estimate of the potential financial effect on the Group of contingent liabilities where it is not currently practicable to do so.
Investigations into certain agreements and Civil Action
The Financial Conduct Authority (FCA) has alleged that BPLC and BBPLC breached their disclosure obligations in connection with two advisory services agreements entered into by BBPLC. The FCA has imposed a £50m fine. BPLC and BBPLC are contesting the findings. The UK Serious Fraud Office (SFO), the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) are also investigating these agreements.
Background Information
The FCA has investigated certain agreements, including two advisory services agreements entered into by BBPLC with Qatar Holding LLC (Qatar Holding) in June and October 2008 respectively, and whether these may have related to BPLC’s capital raisings in June and November 2008. The FCA issued warning notices (Warning Notices) against BPLC and BBPLC in September 2013.
The existence of the advisory services agreement entered into in June 2008 was disclosed but the entry into the advisory services agreement in October 2008 and the fees payable under both agreements, which amount to a total of £322m payable over a period of five years, were not disclosed in the announcements or public documents relating to the capital raisings in June and November 2008. While the Warning Notices consider that BPLC and BBPLC believed at the time that there should be at least some unspecified and undetermined value to be derived from the agreements, they state that the primary purpose of the agreements was not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings.
The Warning Notices conclude that BPLC and BBPLC were in breach of certain disclosure-related listing rules and BPLC was also in breach of Listing Principle 3 (the requirement to act with integrity towards holders and potential holders of the Company’s shares). In this regard, the FCA considers that BPLC and BBPLC acted recklessly. The financial penalty in the Warning Notices against the Group is £50m. BPLC and BBPLC continue to contest the findings.
Note
a | Forward starting reserve repurchase agreements were previously disclosed as loan commitments. Following the business designation of reverse repurchase and repurchase agreements at fair value through profit and loss new forward starting reverse repurchase agreements are within the scope of IAS 39 and are recognised as derivatives on the balance sheet. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 261 |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matterscontinued
Recent Developments
The FCA has agreed that the FCA enforcement process be stayed pending progress in the SFO’s investigation into the agreements referred to above, in respect of which the Group has received and has continued to respond to requests for further information.
In January 2016, PCP Capital Partners LLP and PCP International Finance Limited (PCP) served a claim on BBPLC seeking damages of £721.4m plus interest and costs for fraudulent misrepresentation and deceit, arising from alleged statements made by BBPLC to PCP in relation to the terms on which securities were to be issued to investors, including PCP, in the November 2008 capital raising. BBPLC is defending the claim.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period. PCP has made a claim against BBPLC totalling £721.4m plus interest and costs. This amount does not necessarily reflect BBPLC’s potential financial exposure if a ruling were to be made against it.
Investigations into certain business relationships
The DOJ and SEC are undertaking an investigation into whether the Group’s relationships with third parties who assist BPLC to win or retain business are compliant with the US Foreign Corrupt Practices Act. Certain regulators in other jurisdictions have also been briefed on the investigations. Separately, the Group is cooperating with the DOJ and SEC in relation to an investigation into certain of its hiring practices in Asia and is keeping certain regulators in other jurisdictions informed.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Alternative Trading Systems and High-Frequency Trading
The SEC, the New York State Attorney General (NYAG), the FCA and regulators in certain other jurisdictions have been investigating a range of issues associated with alternative trading systems (ATSs), including dark pools, and the activities of high-frequency traders. Various parties, including the NYAG, have filed complaints against BPLC and Barclays Capital Inc. (BCI) and certain of the Group’s current and former officers in connection with ATS related activities. BPLC and BCI have settled with the NYAG and the SEC, and BCI continues to provide information to other relevant regulatory authorities in response to their enquiries. BPLC and BCI continue to defend against the class actions described below.
Background Information
Civil complaints have been filed in the New York Federal Court on behalf of a putative class of plaintiffs against BPLC and BCI and others generally alleging that the defendants violated the federal securities laws by participating in a scheme in which high-frequency trading firms were given informational and other advantages so that they could manipulate the US securities market to the plaintiffs’ detriment. These complaints were consolidated (Trader Class Action) and Barclays filed a motion to dismiss this action.
In June 2014, the NYAG filed a complaint (NYAG Complaint) against BPLC and BCI in the Supreme Court of the State of New York (NY Supreme Court) alleging, amongst other things, that BPLC and BCI engaged in fraud and deceptive practices in connection with LX, the Group’s SEC-registered ATS.
BPLC and BCI have also been named in a class action by an institutional investor client under California law based on allegations similar to those in the NYAG Complaint. This California class action has been consolidated with the Trader Class Action.
Also, following the filing of the NYAG Complaint, BPLC and BCI were named in a shareholder securities class action along with certain of its former CEOs, and its current and a former CFO and an employee in Equities Electronic Trading on the basis that investors suffered damages when their investments in Barclays American Depository Receipts declined in value as a result of the allegations in the NYAG Complaint. BPLC and BCI filed a motion to dismiss the complaint, which the court granted in part and denied in part. In February 2016, the court granted plaintiffs’ motion to conduct the litigation as a class action.
Recent Developments
In August 2015, the Court granted Barclays’ motion to dismiss the Trader Class Action, and the plaintiffs have chosen not to appeal. Also in August 2015, the Court granted Barclays’ motion to dismiss the California class action, and later transferred that action to the Central District of California. The California class action plaintiffs have filed an amended complaint, which Barclays has filed a motion to dismiss.
On 1 February 2016, Barclays reached separate settlement agreements with each of the SEC and the NYAG to resolve those agencies’ claims against BPLC and BCI relating to the operation of LX for $35m each.
Claimed Amounts/Financial Impact
The remaining complaints seek unspecified monetary damages and injunctive relief. It is not currently practicable to provide an estimate of the financial impact of the matters in this section or what effect that these matters might have upon operating results, cash flows or the Group’s financial position in any particular period.
262 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
29 Legal, competition and regulatory matterscontinued
FERC
The US Federal Energy Regulatory Commission (FERC) has filed a civil action against BBPLC and certain of its former traders in the US District Court in California seeking to collect on an order assessing a $435m civil penalty and the disgorgement of $34.9m of profits, plus interest, in connection with allegations that BBPLC manipulated the electricity markets in and around California. The US Attorney’s Office in the Southern District of New York (SDNY) has informed BBPLC that it is looking into the same conduct at issue in the FERC matter, and a civil class action complaint was filed in the US District Court for the SDNY against BBPLC asserting antitrust allegations that mirror those raised in the civil suit filed by FERC.
Background Information
In October 2012, FERC issued an Order to Show Cause and Notice of Proposed Penalties (Order and Notice) against BBPLC and four of its former traders in relation to their power trading in the western US. In the Order and Notice, FERC asserted that BBPLC and its former traders violated FERC’s Anti-Manipulation Rule by manipulating the electricity markets in and around California from November 2006 to December 2008, and proposed civil penalties and profit disgorgement to be paid by BBPLC.
In October 2013, FERC filed a civil action against BBPLC and its former traders in the US District Court in California seeking to collect the $435m civil penalty and disgorgement of $34.9m of profits, plus interest.
In September 2013, the criminal division of the US Attorney’s Office in SDNY advised BBPLC that it is looking at the same conduct at issue in the FERC matter.
In June 2015, a civil class action complaint was filed in the US District Court for the SDNY against BBPLC by Merced Irrigation District, a California utility company, asserting antitrust allegations in connection with BBPLC’s purported manipulation of the electricity markets in and around California. The allegations mirror those raised in the civil suit filed by FERC against BBPLC currently pending in the US District Court in California.
Recent Developments
In October 2015, the US District Court in California ordered that it would bifurcate its assessment of liabilities and penalties from its assessment of disgorgement. FERC has filed and BBPLC is opposing a brief seeking summary affirmance of the penalty assessment. The court has indicated that it will either affirm the penalty assessment or require further evidence to determine this issue.
BBPLC has appealed the bifurcation order to the US Court of Appeals for the Ninth Circuit and has also filed a motion with the US District Court in California to stay the proceedings pending the outcome of the appeal.
In December 2015, BBPLC filed a motion to dismiss the civil class action for failure to state a claim.
Claimed Amounts/Financial Impact
FERC has made claims against BBPLC and certain of its former traders totalling $469.9m, plus interest, for civil penalties and profit disgorgement. The civil class action complaint refers to damages of $139.3m. These amounts do not necessarily reflect BBPLC’s potential financial exposure if a ruling were to be made against it in either action.
Investigations into LIBOR and other Benchmarks
Regulators and law enforcement agencies from a number of governments have been conducting investigations relating to BBPLC’s involvement in manipulating certain financial benchmarks, such as LIBOR and EURIBOR. BBPLC, BPLC and BCI have reached settlements with the relevant law enforcement agency or regulator in certain of the investigations, but others, including the investigations by the US State Attorneys General, the SFO and the prosecutors’ office in Trani, Italy remain pending.
Background Information
In June 2012, BBPLC announced that it had reached settlements with the Financial Services Authority (FSA) (as predecessor to the FCA), the US Commodity Futures Trading Commission (CFTC) and the DOJ Fraud Section (DOJ-FS) in relation to their investigations concerning certain benchmark interest rate submissions, and BBPLC agreed to pay total penalties of £290m. The settlement with the DOJ-FS was made by entry into a Non-Prosecution Agreement (LIBOR NPA) which has now expired. In addition, BBPLC was granted conditional leniency from the DOJ Antitrust Division (DOJ-AD) in connection with potential US antitrust law violations with respect to financial instruments that reference EURIBOR.
Investigations by the US State Attorneys General
Following the settlements announced in June 2012, a group of 31 US State Attorneys General (SAGs) commenced its own investigation into LIBOR, EURIBOR and the Tokyo Interbank Offered Rate. The Group has cooperated with the investigation throughout and is in advanced discussions with the SAGs about potential resolution.
Investigation by the SFO
In July 2012, the SFO announced that it had decided to investigate the LIBOR matter, in respect of which BBPLC has received and continues to respond to requests for information.
For a discussion of civil litigation arising in connection with these investigations see ‘LIBOR and other Benchmarks Civil Actions’.
Claimed Amounts/Financial Impact
Aside from the settlements discussed above, it is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 263 |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matterscontinued
LIBOR and other Benchmark Civil Actions
Following the settlements of the investigations referred to above in ‘Investigations into LIBOR and other Benchmarks’, a number of individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group in relation to LIBOR and/or other benchmarks. While several of such cases have been dismissed and certain have settled subject to approval from the court, other actions remain pending and their ultimate impact is unclear.
Background Information
A number of individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group and other banks in relation to manipulation of LIBOR and/or other benchmark rates.
USD LIBOR Cases in MDL Court
The majority of the USD LIBOR cases, which have been filed in various US jurisdictions, have been consolidated for pre-trial purposes before a single judge in the SDNY (MDL Court).
The complaints are substantially similar and allege, amongst other things, that BBPLC and the other banks individually and collectively violated provisions of the US Sherman Antitrust Act, the Commodity Exchange Act (CEA), the US Racketeer Influenced and Corrupt Organizations Act (RICO) and various state laws by manipulating USD LIBOR rates.
The lawsuits seek unspecified damages with the exception of five lawsuits, in which the plaintiffs are seeking a combined total in excess of $1.25bn in actual damages against all defendants, including BBPLC, plus punitive damages. Some of the lawsuits also seek trebling of damages under the US Sherman Antitrust Act and RICO.
The proposed class actions purport to be brought on behalf of (amongst others) plaintiffs that (i) engaged in USD LIBOR-linked over-the-counter transactions (OTC Class); (ii) purchased USD LIBOR-linked financial instruments on an exchange (Exchange-Based Class); (iii) purchased USD LIBOR-linked debt securities (Debt Securities Class); (iv) purchased adjustable rate mortgages linked to USD LIBOR (Homeowner Class); or (v) issued loans linked to USD LIBOR (Lender Class).
In August 2012 the MDL Court stayed all newly filed proposed class actions and individual actions (Stayed Actions), so that the MDL Court could address the motions pending in three lead proposed class actions (Lead Class Actions) and three lead individual actions (Lead Individual Actions).
In March 2013, August 2013 and June 2014, the MDL Court issued a series of decisions effectively dismissing the majority of claims against BBPLC and other panel bank defendants in the Lead Class Actions and Lead Individual Actions.
As a result, the:
§ | Debt Securities Class was dismissed entirely |
§ | claims of the Exchange-Based Class were limited to claims under the CEA |
§ | claims of the OTC Class were limited to claims for unjust enrichment and breach of the implied covenant of good faith and fair dealing. |
The Debt Securities Class has appealed the dismissal of their action to the US Court of Appeals for the Second Circuit (Second Circuit). Multiple other plaintiffs in the litigation before the MDL Court also joined the appeal, which has been briefed and argued. A decision is pending.
Additionally, the MDL Court has begun to address the claims in the Stayed Actions, many of which, including state law fraud and tortious interference claims, were not asserted in the Lead Class Actions. As a result, in October 2014, the direct action plaintiffs (those who have brought suits individually rather than as part of a class action) filed their amended complaints and in November 2014, the defendants filed their motions to dismiss. In August 2015, the MDL Court granted in part and denied in part the motion to dismiss the direct action plaintiffs’ claims. Although the MDL Court dismissed a number of claims on various grounds, a number of state law claims will proceed to discovery.
In November 2014, the plaintiffs in the Lender Class and Homeowner Class actions filed their amended complaints. In January 2015, the defendants filed their motions to dismiss. In November 2015, the MDL Court granted in part and denied in part the motions to dismiss these actions, dismissing all claims against BBPLC brought by the Homeowner Class and reserving judgment with respect to the claims asserted by the Lender Class. In December 2015, the MDL Court approved a schedule for litigation of class certification issues, with the associated discovery beginning in 2016 and extending through 2017.
Until there are further decisions, the ultimate impact of the MDL Court’s decisions will be unclear, although it is possible that the decisions will be interpreted by the courts to affect other litigation, including the actions described further below, some of which concern different benchmark interest rates.
In December 2014, the MDL Court granted preliminary approval for the settlement of the remaining Exchange-Based Class claims for $20m. Final approval of the settlement is awaiting plaintiff’s submission of a plan for allocation of the settlement proceeds acceptable to the MDL Court.
In November 2015, the outstanding OTC Class claims were settled for $120m. The settlement is subject to approval by the MDL Court.
264 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
29 Legal, competition and regulatory matterscontinued
EURIBOR Cases
In February 2013, a EURIBOR-related class action was filed against BPLC, BBPLC, BCI and other EURIBOR panel banks. The plaintiffs assert antitrust, CEA, RICO, and unjust enrichment claims. In particular, BBPLC is alleged to have conspired with other EURIBOR panel banks to manipulate EURIBOR. The lawsuit is brought on behalf of purchasers and sellers of NYSE LIFFE EURIBOR futures contracts, purchasers of Euro currency-related futures contracts and purchasers of other derivative contracts (such as interest rate swaps and forward rate agreements that are linked to EURIBOR) during the period 1 June 2005 through 31 March 2011. In October 2015, the class action was settled for $94m subject to court approval. The settlement has been preliminarily approved by the court but remains subject to final approval.
Securities Fraud Case in the SDNY
BPLC, BBPLC and BCI were also named as defendants along with four former officers and directors of BBPLC in a securities class action in the SDNY in connection with BBPLC’s role as a contributor panel bank to LIBOR. The complaint principally alleged that BBPLC’s Annual Reports for the years 2006 to 2011 contained misstatements and omissions and that BBPLC’s daily USD LIBOR submissions constituted false statements in violation of US securities law. In November 2015, the class action was settled for $14m. The settlement has been preliminarily approved by the court but remains subject to final approval.
Additional USD LIBOR Case in the SDNY
An additional individual action was commenced in February 2013 in the SDNY against BBPLC and other panel bank defendants. The plaintiff alleged that the panel bank defendants conspired to increase USD LIBOR, which caused the value of bonds pledged as collateral for a loan to decrease, ultimately resulting in the sale of the bonds at a low point in the market. The panel bank defendants moved to dismiss the action, and the motion was granted in April 2015. In June 2015, the plaintiff sought leave to file a further amended complaint; that motion is pending.
Sterling LIBOR Cases in SDNY
In May 2015, a putative class action was commenced in the SDNY against BBPLC and other Sterling LIBOR panel banks by a plaintiff involved in exchange-traded and over-the-counter derivatives that were linked to Sterling LIBOR. The complaint alleges, among other things, that BBPLC and other panel banks manipulated the Sterling LIBOR rate between 2005 and 2010 and, in so doing, committed CEA, antitrust, and RICO violations. Proceedings are ongoing.
In January 2016, an additional putative class action concerning Sterling LIBOR was commenced in the SDNY against BBPLC and BCI, as well as other Sterling LIBOR panel banks. This additional class action similarly alleges manipulation of the Sterling LIBOR rate between 2005 and 2010, and asserts claims for violations of the CEA, antitrust, and RICO statutes, as well as common law violations. Proceedings are ongoing.
Complaint in the US District Court for the Central District of California
In July 2012, a purported class action complaint in the US District Court for the Central District of California was amended to include allegations related to USD LIBOR and names BBPLC as a defendant. The amended complaint was filed on behalf of a purported class that includes holders of adjustable rate mortgages linked to USD LIBOR. In January 2015, the court granted BBPLC’s motion for summary judgment and dismissed all of the remaining claims against BBPLC. The plaintiff has appealed the court’s decision to the US Court of Appeals for the Ninth Circuit.
Japanese Yen LIBOR Case in SDNY
A class action was commenced in April 2012 in the SDNY against BBPLC and other Japanese Yen LIBOR panel banks by a plaintiff involved in exchange-traded derivatives. The complaint also names members of the Japanese Bankers Association’s Euroyen Tokyo Interbank Offered Rate (Euroyen TIBOR) panel, of which BBPLC is not a member. The complaint alleges, amongst other things, manipulation of the Euroyen TIBOR and Yen LIBOR rates and breaches of the CEA and US Sherman Antitrust Act between 2006 and 2010. In March 2014, the court dismissed the plaintiff’s antitrust claims in full, but sustained the plaintiff’s CEA claims. The plaintiff moved for leave to file a third amended complaint adding additional claims, including a RICO claim, which was denied in March 2015. The Plaintiff has sought an immediate appeal of that decision, and that request is pending. Discovery is continuing.
In July 2015, a second class action concerning Yen LIBOR was filed in the SDNY against BPLC, BBPLC and BCI. The complaint names members of the Yen LIBOR panel, the Euroyen TIBOR panel, and certain of their affiliates and brokers. The complaint alleges breaches of the US Sherman Antitrust Act and RICO between 2006 and 2010 based on factual allegations that are substantially similar to those in the April 2012 class action.
Non-US Benchmarks Cases
In addition to US actions, legal proceedings have been brought or threatened against the Group in connection with alleged manipulation of LIBOR and EURIBOR in a number of jurisdictions. The number of such proceedings in non-US jurisdictions, the benchmarks to which they relate, and the jurisdictions in which they may be brought have increased over time.
Claimed Amounts/Financial Impact
Aside from the settlements discussed above, it is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect they might have on the Group’s operating results, cash flows or financial position in any particular period.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 265 |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matterscontinued
Foreign Exchange Investigations
Various regulatory and enforcement authorities have been investigating a range of issues associated with Foreign Exchange sales and trading, including electronic trading. Certain of these investigations involve multiple market participants in various countries. The Group has reached settlements with the CFTC, the DOJ, the New York State Department of Financial Services (NYDFS), the Board of Governors of the Federal Reserve System (Federal Reserve) and the FCA (together, the Resolving Authorities) with respect to certain of these investigations as further described below. Investigations by the European Commission (Commission), the Administrative Council for Economic Defence in Brazil and the South African Competition Commission, amongst others, remain pending.
Background Information
In May 2015, the Group announced that it had reached settlements with the Resolving Authorities in relation to investigations into certain sales and trading practices in the Foreign Exchange market, that it had agreed to pay total penalties of approximately $2.38bn, including a $60m penalty imposed by the DOJ as a consequence of certain practices continuing after entry into the LIBOR NPA, and that BPLC had agreed to plead guilty to a violation of US anti-trust law.
Under the plea agreement with the DOJ, BPLC agreed to pay a criminal fine of $650m and a term of probation of three years from the date of the final judgment in respect of the plea agreement during which BPLC must, amongst other things, (i) commit no crime whatsoever in violation of the federal laws of the United States, (ii) implement and continue to implement a compliance program designed to prevent and detect the conduct that gave rise to the plea agreement and (iii) strengthen its compliance and internal controls as required by relevant regulatory or enforcement agencies.
Pursuant to the settlement with the CFTC, BBPLC consented to, among other things, pay a civil monetary penalty of $400m.
Pursuant to its settlement with the Federal Reserve, BBPLC and BBPLC’s New York branch consented to an order imposing a civil monetary penalty of $342m and ordering BBPLC and BBPLC’s New York branch to submit in writing to the Federal Reserve Bank of New York for its approval certain programs to enhance internal controls and compliance. Under the Federal Reserve order, BBPLC and its institution-affiliated parties must not in the future directly or indirectly retain certain individuals who participated in the misconduct underlying the order.
Pursuant to the settlement with the NYDFS, BBPLC and BBPLC’s New York branch consented to an order imposing a civil monetary penalty of $485m and requiring BBPLC and BBPLC’s New York branch to take all steps necessary to terminate four identified employees. BBPLC and BBPLC’s New York branch must also continue to engage the independent monitor previously selected by the NYDFS to conduct a comprehensive review of certain compliance programs, policies, and procedures.
The FCA issued a Final Notice and imposed a financial penalty of £284m on BBPLC.
The full text of the DOJ plea agreement, the CFTC, NYDFS and Federal Reserve orders, and the FCA Final Notice referred to above are publicly available on the Resolving Authorities’ respective websites.
The settlements reached in May 2015 did not encompass ongoing investigations of electronic trading in the Foreign Exchange market. The Group is cooperating with certain authorities which continue to investigate sales and trading practices of various sales and trading personnel, including Foreign Exchange personnel, among multiple market participants, including BBPLC, in various countries.
The FCA is also investigating historic pricing practices by BBPLC associated with certain Foreign Exchange transactions for certain customers between 2005 and 2012. BBPLC is cooperating with the FCA regarding the proposed terms and timing for appropriate customer redress.
For a discussion of civil litigation arising in connection with these investigations see ‘Civil Actions in Respect of Foreign Exchange Trading’ below.
Recent Developments
In November 2015, BBPLC announced that it had reached a settlement with the NYDFS in respect of its investigation into BBPLC and BBPLC’s New York branch electronic trading of Foreign Exchange and Foreign Exchange trading systems in the period between 2009 to 2014. Pursuant to the settlement the NYDFS imposed a civil monetary penalty of $150m, primarily for certain internal systems and controls failures. The Group continues to cooperate with other ongoing investigations.
Claimed Amounts/Financial Impact
The fines in connection with the May 2015 settlements with the Resolving Authorities were covered by the Group’s provisions of £2.05bn.
A provision of £290m in redress costs for certain customers was recognised in Q3 2015 in relation to the FCA investigation into historic pricing practices by BBPLC associated with certain Foreign Exchange transactions referred to above. It is not currently practicable to provide an estimate of any further financial impact of the actions described on the Group or what effect they might have on the Group’s operating results, cash flows or financial position in any particular period.
266 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
29 Legal, competition and regulatory matterscontinued
Civil Actions in respect of Foreign Exchange
Since November 2013, a number of civil actions have been filed in the SDNY on behalf of proposed classes of plaintiffs alleging manipulation of Foreign Exchange markets under the US Sherman Antitrust Act and New York state law and naming several international banks as defendants, including BBPLC. In February 2014, the SDNY combined all then-pending actions alleging a class of US persons in a single consolidated action. Settlements have been agreed with certain proposed classes of plaintiffs in the consolidated class action subject to court approval. The remaining proceedings are ongoing.
Since February 2015, several additional civil actions have been filed in the SDNY on behalf of proposed classes of plaintiffs alleging injuries related to Barclays’ alleged manipulation of Foreign Exchange rates and naming several international banks as defendants, including BPLC, BBPLC and BCI. One of the newly filed actions asserts claims under the US Employee Retirement Income Security Act (ERISA) statute and includes allegations that are duplicative of allegations in the other cases, as well as additional allegations about Foreign Exchange sales practices and ERISA plans. Another action was filed in the Northern District of California on behalf of a putative class of individuals that exchanged currencies on a retail basis at bank branches.
Recent Developments
In September 2015, BBPLC and BCI settled with certain proposed classes of plaintiffs in the consolidated action for $384m subject to court approval.
In addition, in November 2015 and December 2015, two additional civil actions were filed in the SDNY on behalf of proposed classes of plantiffs alleging injuries based on Barclays’ purported improper rejection of customer trades through Barclays’ Last Look system. In February 2016, BBPLC and BCI agreed a settlement with plaintiffs in one of the actions on a class-wide basis subject to court approval. The amount of the proposed settlement is $50m. In February 2016, the plaintiffs in the second action voluntarily dismissed their claims.
Claimed Amounts/Financial Impact
Aside from the settlements discussed above, the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period is currently uncertain.
ISDAFIX Investigation
Regulators and law enforcement agencies, including the CFTC, have conducted separate investigations into historical practices with respect to ISDAFIX, amongst other benchmarks.
In May 2015, the CFTC entered into a settlement order with BPLC, BBPLC and BCI pursuant to which BPLC, BBPLC and BCI agreed to pay a civil monetary penalty of $115m in connection with the CFTC’s industry-wide investigation into the setting of the US Dollar ISDAFIX benchmark. In addition, the CFTC order requires BPLC, BBPLC and BCI to cease and desist from violating provisions of the CEA, fully cooperate with the CFTC in related investigations and litigation and undertake certain remediation efforts to the extent not already undertaken.
Investigations by other regulators and law enforcement agencies remain pending. For a discussion of civil litigation arising in connection with these investigations see ‘Civil Actions in Respect of ISDAFIX’ below.
Claimed Amounts/Financial Impact
The fine in connection with the May 2015 settlement with the CFTC was covered by the Group’s provisions of £2.05bn.
It is not currently practicable to provide an estimate of any further financial impact of the actions described on the Group or what effect they might have on the Group’s operating results, cash flows or financial position in any particular period.
Civil Actions in respect of ISDAFIX
Since September 2014, a number of ISDAFIX related civil actions have been filed in the SDNY on behalf of a proposed class of plaintiffs, alleging that BBPLC, a number of other banks and one broker, violated the US Sherman Antitrust Act and several state laws by engaging in a conspiracy to manipulate the USD ISDAFIX. A consolidated amended complaint was filed in February 2015.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Precious Metals Investigation
BBPLC has been providing information to the DOJ and other authorities in connection with investigations into precious metals and precious metals-based financial instruments.
For a discussion of civil litigation arising in connection with these investigations see ‘Civil Actions in Respect of the Gold Fix’ below.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Civil Actions in respect of the Gold Fix
Since March 2014, a number of civil complaints have been filed in US Federal Courts, each on behalf of a proposed class of plaintiffs, alleging that BBPLC and other members of The London Gold Market Fixing Ltd. manipulated the prices of gold and gold derivative contracts in violation of the CEA, the US Sherman Antitrust Act, and state antitrust and consumer protection laws. All of the complaints have been transferred to the SDNY and consolidated for pre-trial purposes. In April 2015, defendants filed a motion to dismiss the claims. Proceedings are ongoing.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 267 |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matterscontinued
US Residential and Commercial Mortgage-related Activity and Litigation
The Group’s activities within the US residential mortgage sector during the period from 2005 through 2008 included:
§ | sponsoring and underwriting of approximately $39bn of private-label securitisations |
§ | economic underwriting exposure of approximately $34bn for other private-label securitisations |
§ | sales of approximately $0.2bn of loans to government sponsored enterprises (GSEs) |
§ | sales of approximately $3bn of loans to others |
§ | sales of approximately $19.4bn of loans (net of approximately $500m of loans sold during this period and subsequently repurchased) that were originated and sold to third parties by mortgage originator affiliates of an entity that the Group acquired in 2007 (Acquired Subsidiary). |
Throughout this time period affiliates of the Group engaged in secondary market trading of US residential mortgaged-backed securities (RMBS) and US commercial mortgage-backed securities (CMBS), and such trading activity continues today.
In connection with its loan sales and certain private-label securitisations, on 31 December 2015, the Group had unresolved repurchase requests relating to loans with a principal balance of approximately $2.3bn at the time they were sold, and civil actions have been commenced by various parties alleging that the Group must repurchase a substantial number of such loans.
In addition, the Group is party to a number of lawsuits filed by purchasers of RMBS asserting statutory and/or common law claims. The current outstanding face amount of RMBS related to these pending claims against the Group as of 31 December 2015 was approximately $0.4bn.
Regulatory and governmental authorities, including amongst others, the DOJ, SEC, Special Inspector General for the US Troubled Asset Relief Program, the US Attorney’s Office for the District of Connecticut and the US Attorney’s Office for the Eastern District of New York have initiated wide-ranging investigations into market practices involving mortgage-backed securities, and the Group is cooperating with several of those investigations.
RMBS Repurchase Requests
Background
The Group was the sole provider of various loan-level representations and warranties (R&Ws) with respect to:
§ | approximately $5bn of Group sponsored securitisations |
§ | approximately $0.2bn of sales of loans to GSEs |
§ | approximately $3bn of loans sold to others. |
In addition, the Acquired Subsidiary provided R&Ws on all of the $19.4bn of loans it sold to third parties.
R&Ws on the remaining Group sponsored securitisations were primarily provided by third-party originators directly to the securitisation trusts with a Group subsidiary, such as the depositor for the securitisation, providing more limited R&Ws. There are no stated expiration provisions applicable to most R&Ws made by the Group, the Acquired Subsidiary or these third parties.
Under certain circumstances, the Group and/or the Acquired Subsidiary may be required to repurchase the related loans or make other payments related to such loans if the R&Ws are breached.
The unresolved repurchase requests received on or before 31 December 2015 associated with all R&Ws made by the Group or the Acquired Subsidiary on loans sold to GSEs and others and private-label activities had an original unpaid principal balance of approximately $2.3bn at the time of such sale.
A substantial number (approximately $2.2bn) of the unresolved repurchase requests discussed above relate to civil actions that have been commenced by the trustees for certain RMBS securitisations in which the trustees allege that the Group and/or the Acquired Subsidiary must repurchase loans that violated the operative R&Ws. Such trustees and other parties making repurchase requests have also alleged that the operative R&Ws may have been violated with respect to a greater (but unspecified) amount of loans than the amount of loans previously stated in specific repurchase requests made by such trustees. All of the litigation involving repurchase requests remain at early stages.
In addition, the Acquired Subsidiary is subject to a civil action seeking, among other things, indemnification for losses allegedly suffered by a loan purchaser as a result of alleged breaches of R&Ws provided by the Acquired Subsidiary in connection with loan sales to the purchaser during the period 1997 to 2007. This litigation is ongoing.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
268 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
29 Legal, competition and regulatory matterscontinued
RMBS Securities Claims
Background
As a result of some of the RMBS activities described above, the Group is party to a number of lawsuits filed by purchasers of RMBS sponsored and/or underwritten by the Group between 2005 and 2008. As a general matter, these lawsuits allege, among other things, that the RMBS offering materials allegedly relied on by such purchasers contained materially false and misleading statements and/or omissions and generally demand rescission and recovery of the consideration paid for the RMBS and recovery of monetary losses arising out of their ownership.
Recent Developments
The Group has settled a number of these claims, including in October 2015 a settlement with the National Credit Union Administration to resolve two outstanding civil lawsuits for $325m.
Claimed Amounts/Financial Impact
If the Group were to lose the pending actions the Group believes it could incur a loss of up to the outstanding amount of the RMBS at the time of judgment, plus any cumulative losses on the RMBS at such time and any interest, fees and costs, less the market value of the RMBS at such time and less any provisions taken to date.
The original face amount of RMBS related to the pending civil actions against the Group total approximately $1.3bn, of which approximately $0.4bn was outstanding as at 31 December 2015. Cumulative realised losses reported on these RMBS as at 31 December 2015 were approximately $0.1bn.
Although the purchasers in the remaining securities actions have generally not identified a specific amount of alleged damages, the Group has estimated the total market value of these RMBS as at 31 December 2015 to be approximately $0.3bn. The Group may be entitled to indemnification for a portion of such losses.
Mortgage-related Investigations
In addition to the RMBS Repurchase Requests and RMBS Securities Claims, numerous regulatory and governmental authorities, amongst them the DOJ, SEC, Special Inspector General for the US Troubled Asset Relief Program, the US Attorney’s Office for the District of Connecticut and the US Attorney’s Office for the Eastern District of New York have been investigating various aspects of the mortgage-related business, including issuance and underwriting practices in primary offerings of RMBS and trading practices in the secondary market for both RMBS and CMBS. The Group continues to respond to requests relating to the RMBS Working Group of the Financial Fraud Enforcement Task Force (RMBS Working Group), which was formed to investigate pre-financial crisis mortgage-related misconduct. In connection with several of the investigations by members of the RMBS Working Group, a number of financial institutions have entered into settlements involving substantial monetary payments.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period, but the cost of resolving these investigations could individually or in aggregate prove to be substantial.
American Depositary Shares
BPLC, BBPLC and various former members of BPLC’s Board of Directors have been named as defendants in a securities class action consolidated in the SDNY alleging misstatements and omissions in offering documents for certain American Depositary Shares issued by BBPLC in April 2008 with an original face amount of approximately $2.5 billion (the April 2008 Offering).
Background Information
The plaintiffs have asserted claims under the Securities Act of 1933, alleging that the offering documents for the April 2008 Offering contained misstatements and omissions concerning (amongst other things) BBPLC’s portfolio of mortgage-related (including US subprime-related) securities, BBPLC’s exposure to mortgage and credit market risk, and BBPLC’s financial condition. The plaintiffs have not specifically alleged the amount of their damages.
In June 2014, the SDNY denied the defendants’ motion to dismiss the claims. The case is in discovery.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the action described on the Group or what effect that it might have upon the Group’s operating results, cash flows or financial position in any particular period.
BDC Finance L.L.C.
BDC Finance L.L.C. (BDC) filed a complaint against BBPLC in the NY Supreme Court alleging breach of contract in connection with a portfolio of total return swaps governed by an ISDA Master Agreement (collectively, the Agreement). Parties related to BDC have also sued BBPLC and BCI in Connecticut State Court in connection with BBPLC’s conduct relating to the Agreement.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 269 |
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matterscontinued
Background Information
In October 2008, BDC filed a complaint in the NY Supreme Court alleging that BBPLC breached the Agreement when it failed to transfer approximately $40m of alleged excess collateral in response to BDC’s October 2008 demand (Demand).
BDC asserts that under the Agreement BBPLC was not entitled to dispute the Demand before transferring the alleged excess collateral and that even if the Agreement entitled BBPLC to dispute the Demand before making the transfer, BBPLC failed to dispute the Demand. BDC demands damages totalling $298m plus attorneys’ fees, expenses, and prejudgement interest. Proceedings are currently pending before the NY Supreme Court.
In September 2011, BDC’s investment advisor, BDCM Fund Adviser L.L.C. and its parent company, Black Diamond Capital Holdings L.L.C. also sued BBPLC and BCI in Connecticut State Court for unspecified damages allegedly resulting from BBPLC’s conduct relating to the Agreement, asserting claims for violation of the Connecticut Unfair Trade Practices Act and tortious interference with business and prospective business relations. The parties have agreed to a stay of that case.
Claimed Amounts/Financial Impact
BDC has made claims against the Group totalling $298m plus attorneys’ fees, expenses, and pre-judgement interest. This amount does not necessarily reflect the Group’s potential financial exposure if a ruling were to be made against it.
Civil Actions in respect of the US Anti-Terrorism Act
In April 2015, an amended civil complaint was filed in the US Federal Court in the Eastern District of New York by a group of approximately 250 plaintiffs, alleging that BBPLC and a number of other banks engaged in a conspiracy and violated the US Anti-Terrorism Act (ATA) by facilitating US dollar denominated transactions for the Government of Iran and various Iranian banks, which in turn funded Hezbollah attacks that injured the plaintiffs’ family members. Plaintiffs seek to recover for pain, suffering and mental anguish pursuant to the provisions of the ATA, which allows for the tripling of any proven damages. BBPLC has filed a motion to dismiss the action which is fully briefed.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the matters in this section or what effect that these matters might have upon operating results, cash flows or the Group’s financial position in any particular period.
Interest Rate Swap US Civil Action
In November 2015, an antitrust class action was filed against BPLC, BBPLC, BCI and other financial institutions in the SDNY by a US retirement and pension fund. The complaint alleges that the defendants that act as market makers for certain types of derivatives and Tradeweb conspired to prevent the development of exchanges for interest rate swaps (IRS) and demands unspecified money damages, treble damages and legal fees. The plaintiff claims to represent a class of buy-side investors that transacted in fixed-for-floating IRS with defendants in the US from 1 January 2008 to the present, including other retirement funds, university endowments, municipalities, corporations and insurance companies.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the action described on the Group or what effect it has upon the Group’s operating results, cash flows or financial position in any particular period.
Treasury Auction Securities Civil Actions
Numerous putative class action complaints have been filed in US Federal Courts against BCI and other financial institutions that have served as primary dealers in US Treasury securities. The complaints have been or are in the process of being consolidated in the Federal Court in New York. The complaints generally allege that defendants conspired to manipulate the US Treasury securities market in violation of US federal antitrust laws, the CEA and state common law. Some complaints also allege that defendants engaged in illegal “spoofing” of the US Treasury market. The Group is considering the allegations in the complaints and is keeping all relevant agencies informed.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Investigation into Americas Wealth & Investment Management Advisory Business
The SEC is investigating the non-performance of certain due diligence on third-party managers by the Manager Research division of Barclays’ Wealth & Investment Management, Americas investment advisory business and the Group is responding to requests for information.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the investigation on the Group or what effect that it might have upon the Group’s operating results, cash flows or financial position in any particular period.
Retail Structured Products Investigation
The Group is cooperating with an enforcement investigation commenced by the FCA in connection with structured deposit products provided to UK customers from June 2008 to the present.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of these matters or what effect that they may have upon operating results, cash flows or the Group’s financial position in any particular period.
270 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
29 Legal, competition and regulatory matterscontinued
Investigation into suspected money laundering related to foreign exchange transactions in South African operation
Absa Bank Limited, a subsidiary of Barclays Africa Group Limited, has identified potentially fraudulent activity by certain of its customers using import advance payments to effect foreign exchange transfers from South Africa to beneficiary accounts located in Asia, UK, Europe and the US. As a result, the Group is conducting a review of relevant activity, processes, systems and controls. The Group is keeping relevant agencies and regulators informed as to the ongoing status of this matter.
It is too early to assess reliably the outcome.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Portuguese Competition Authority Investigation
The Portuguese Competition Authority is investigating whether competition law was infringed by the exchange of information about retail credit products amongst 15 banks in Portugal, including the Group, over a period of 11 years with particular reference to mortgages, consumer lending and lending to small and medium enterprises. The Group is cooperating with the investigation.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of these matters or what effect that they may have upon operating results, cash flows or the Group’s financial position in any particular period.
Credit Default Swap (CDS) Antitrust Investigations and Civil Actions
The Commission and the DOJ-AD commenced investigations into the CDS market, in 2011 and 2009, respectively. In December 2015 the Commission announced its decision to close its investigations in respect of BBPLC and 12 other banks. The Commission continues to pursue its case in respect of Markit Ltd. and ISDA, which could indirectly expose BBPLC to financial loss. The case relates to concerns about actions to delay and prevent the emergence of exchange traded credit derivative products.
The DOJ-AD’s investigation is a civil investigation and relates to similar issues.
In September 2015, BBPLC settled a proposed, consolidated class action that had been filed in the US alleging similar issues for $178m subject to court approval.
Claimed Amounts/Financial Impact
Aside from the settlement discussed above, it is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.
Lehman Brothers
Since September 2009, BCI and BBPLC have been engaged in litigation with various entities that have sought to challenge certain aspects of the transaction pursuant to which BCI, BBPLC and other companies in the Group acquired most of the assets of Lehman Brothers Inc. in September 2008, as well as the court order (Order) approving the sale (Sale). All of the claims challenging the Sale were ultimately resolved in favour of BCI. In May 2015, BCI and BBPLC reached a settlement with the SIPA Trustee for Lehman Brothers Inc. (Trustee) to resolve the remaining outstanding litigation between them relating to the Sale. Pursuant to the settlement, BBPLC has received all of the assets that BBPLC asserted it was entitled to receive with the exception of $80m of assets that the Trustee is entitled to retain and approximately $0.3bn of margin for exchange-traded derivatives still owed to BBPLC but expected to be received from third parties. The settlement was approved by the United States Bankruptcy Court for the SDNY on 29 June 2015, thereby bringing the litigation relating to the Sale to an end.
General
The Group is engaged in various other legal, competition and regulatory matters both in the UK and a number of overseas jurisdictions. It is subject to legal proceedings by and against the Group which arise in the ordinary course of business from time to time, including (but not limited to) disputes in relation to contracts, securities, debt collection, consumer credit, fraud, trusts, client assets, competition, data protection, money laundering, financial crime, employment, environmental and other statutory and common law issues.
The Group is also subject to enquiries and examinations, requests for information, audits, investigations and legal and other proceedings by regulators, governmental and other public bodies in connection with (but not limited to) consumer protection measures, compliance with legislation and regulation, wholesale trading activity and other areas of banking and business activities in which the Group is or has been engaged. The Group is keeping all relevant agencies briefed as appropriate in relation to these matters and others described in this note on an ongoing basis.
At the present time, the Group does not expect the ultimate resolution of any of these other matters to have a material adverse effect on its financial position. However, in light of the uncertainties involved in such matters and the matters specifically described in this note, there can be no assurance that the outcome of a particular matter or matters will not be material to the Group’s operating results or cash flows for a particular period, depending on, among other things, the amount of the loss resulting from the matter(s) and the amount of income otherwise reported for the reporting period.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 271 |
Notes to the financial statements
Capital instruments, equity and reserves
The notes included in this section focus on the Group’s loan capital and shareholders’ equity including issued share capital, retained earnings, other equity balances and interests of minority shareholders in our subsidiary entities (non-controlling interests). For more information on capital management and how the Group maintains sufficient capital to meet our regulatory requirements see pages 103 to 104.
|
Accounting for subordinated debt Subordinated debt is measured at amortised cost using the effective interest method under IAS 39.
|
Subordinated liabilities include accrued interest and comprise undated and dated loan capital as follows:
| 2015 £m |
|
| 2014 £m |
| |||||||
Undated subordinated liabilities | 5,248 | 5,640 | ||||||||||
Dated subordinated liabilities | 16,219 | 15,513 | ||||||||||
Total subordinated liabilities | 21,467 | 21,153 | ||||||||||
None of the Group’s loan capital is secured.
| ||||||||||||
Undated subordinated liabilities | ||||||||||||
Subordinated liabilities per balance sheet | ||||||||||||
Initial call date | | 2015 £m | | | 2014 £m | | ||||||
Barclays Bank PLC issued | ||||||||||||
Tier One Notes (TONs) | ||||||||||||
6% Callable Perpetual Core Tier One Notes | 2032 | 16 | 16 | |||||||||
6.86% Callable Perpetual Core Tier One Notes (USD 569m) | 2032 | 626 | 604 | |||||||||
Reserve Capital Instruments (RCIs) | ||||||||||||
5.926% Step-up Callable Perpetual Reserve Capital Instruments (USD 159m) | 2016 | 113 | 112 | |||||||||
7.434% Step-up Callable Perpetual Reserve Capital Instruments (USD 117m) | 2017 | 85 | 85 | |||||||||
6.3688% Step-up Callable Perpetual Reserve Capital Instruments | 2019 | 38 | 39 | |||||||||
14% Step-up Callable Perpetual Reserve Capital Instruments | 2019 | 3,062 | 3,065 | |||||||||
5.3304% Step-up Callable Perpetual Reserve Capital Instruments | 2036 | 51 | 52 | |||||||||
Undated Notes | ||||||||||||
6.875% Undated Subordinated Notes | 2015 | – | 140 | |||||||||
6.375% Undated Subordinated Notes | 2017 | 143 | 146 | |||||||||
7.7% Undated Subordinated Notes (USD 99m) | 2018 | 69 | 69 | |||||||||
8.25% Undated Subordinated Notes | 2018 | 149 | 152 | |||||||||
7.125% Undated Subordinated Notes | 2020 | 195 | 202 | |||||||||
6.125% Undated Subordinated Notes | 2027 | 245 | 249 | |||||||||
Junior Undated Floating Rate Notes (USD 109m) | Any interest payment date | 74 | 70 | |||||||||
Undated Floating Rate Primary Capital Notes Series 3 | Any interest payment date | 145 | 145 | |||||||||
Bonds | ||||||||||||
9.25% Perpetual Subordinated Bonds (ex-Woolwich PLC) | 2021 | 91 | 94 | |||||||||
9% Permanent Interest Bearing Capital Bonds | At any time | 45 | 46 | |||||||||
Loans | ||||||||||||
5.03% Reverse Dual Currency Undated Subordinated Loan (JPY 8,000m) | 2028 | 42 | 39 | |||||||||
5% Reverse Dual Currency Undated Subordinated Loan (JPY 12,000m) | 2028 | 59 | 54 | |||||||||
Barclays SLCSM Funding B.V. guaranteed by the Bank | ||||||||||||
6.14% Fixed Rate Guaranteed Perpetual Subordinated Notes | 2015 | – | 261 | |||||||||
Total undated subordinated liabilities | 5,248 | 5,640 |
272 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
30 Subordinated liabilitiescontinued
Undated loan capital
Undated loan capital is issued by the Bank and its subsidiaries for the development and expansion of the business and to strengthen the capital bases. The principal terms of the undated loan capital are described below.
Subordination
All undated loan capital ranks behind the claims against the bank of depositors and other unsecured unsubordinated creditors and holders of dated loan capital in the following order: Junior Undated Floating Rate Notes; other issues of Undated Notes, Bonds and Loans ranking pari passu with each other; followed by TONs and RCIs ranking pari passu with each other.
Interest
All undated loan capital bears a fixed rate of interest until the initial call date, with the exception of the 9% Bonds which are fixed for the life of the issue, and the Junior and Series 3 Undated Notes which are floating rate.
After the initial call date, in the event that they are not redeemed, the 6.375%, 7.125%, 6.125% Undated Notes and the 9.25% Bonds will bear interest at rates fixed periodically in advance for five-year periods based on market rates. All other undated loan capital except the two floating rate Undated Notes will bear interest, and the two floating rate Undated Notes currently bear interest, at rates fixed periodically in advance based on London interbank rates.
Payment of interest
The Bank is not obliged to make a payment of interest on its Undated Notes, Bonds and Loans excluding the 7.7% Undated Notes, 8.25% Undated Notes and 9.25% Bonds if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC or, in certain cases, any class of preference shares of the Bank. The Bank is not obliged to make a payment of interest on its 9.25% Perpetual Subordinated Bonds if, in the immediately preceding 12 months’ interest period, a dividend has not been paid on any class of its share capital. Interest not so paid becomes payable in each case if such a dividend is subsequently paid or in certain other circumstances. During the year, the Bank declared and paid dividends on its ordinary shares and on all classes of preference shares.
No payment of principal or any interest may be made unless the Bank satisfies a specified solvency test.
The Bank may elect to defer any payment of interest on the 7.7% Undated Notes and 8.25% Undated Notes. Until such time as any deferred interest has been paid in full, neither the Bank nor Barclays PLC may declare or pay a dividend, subject to certain exceptions, on any of its ordinary shares, preference shares, or other share capital or satisfy any payments of interest or coupons on certain other junior obligations.
The Bank may elect to defer any payment of interest on the RCIs. Any such deferred payment of interest must be paid on the earlier of: (i) the date of redemption of the RCIs, (ii) the coupon payment date falling on or nearest to the tenth anniversary of the date of deferral of such payment, and (iii) in respect of the 14% RCIs only, substitution. While such deferral is continuing, neither the Bank nor Barclays PLC may declare or pay a dividend, subject to certain exceptions, on any of its ordinary shares or preference shares.
The Bank may elect to defer any payment of interest on the TONs if it determines that it is, or such payment would result in it being, in non-compliance with capital adequacy requirements and policies of the PRA. Any such deferred payment of interest will only be payable on a redemption of the TONs. Until such time as the Bank next makes a payment of interest on the TONs, neither the Bank nor Barclays PLC may (i) declare or pay a dividend, subject to certain exceptions, on any of their respective ordinary shares or Preference Shares, or make payments of interest in respect of the Bank’s Reserve Capital Instruments and (ii) certain restrictions on the redemption, purchase or reduction of their respective share capital and certain other securities also apply.
Repayment
All undated loan capital is repayable at the option of the Bank, generally in whole, at the initial call date and on any subsequent coupon or interest payment date or in the case of the 6.375%, 7.125%, 6.125% Undated Notes and the 9.25% Bonds on any fifth anniversary after the initial call date. In addition, each issue of undated loan capital is repayable, at the option of the Bank in whole in the event of certain changes in the tax treatment of the notes, either at any time, or on an interest payment date. There are no events of default except non-payment of principal or mandatory interest. Any repayments require the prior approval of the PRA.
Other
All issues of undated subordinated liabilities are non-convertible.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 273 |
Notes to the financial statements
Capital instruments, equity and reserves
30 Subordinated liabilitiescontinued
Dated subordinated liabilities | ||||||||||||||||
Subordinated liabilities | ||||||||||||||||
per balance sheet | ||||||||||||||||
Initial | Maturity | 2015 | 2014 | |||||||||||||
call date | date | £m | £m | |||||||||||||
Barclays PLC issued | ||||||||||||||||
2.625% Fixed Rate Subordinated Callable Notes (EUR 1,250m) | 2020 | 2025 | 918 | – | ||||||||||||
4.375% Fixed Rate Subordinated Notes (USD 1,250m) | 2024 | 883 | 810 | |||||||||||||
Barclays Bank PLC issued | ||||||||||||||||
4.38% Fixed Rate Subordinated Notes (USD 75m) | 2015 | – | 49 | |||||||||||||
4.75% Fixed Rate Subordinated Notes (USD 150m) | 2015 | – | 98 | |||||||||||||
6.05% Fixed Rate Subordinated Notes (USD 1,556m) | 2017 | 1,124 | 1,102 | |||||||||||||
Floating Rate Subordinated Notes (EUR 40m) | 2018 | 29 | 31 | |||||||||||||
6% Fixed Rate Subordinated Notes (EUR 1,750m) | 2018 | 1,377 | 1,462 | |||||||||||||
CMS-Linked Subordinated Notes (EUR 100m) | 2018 | 77 | 82 | |||||||||||||
CMS-Linked Subordinated Notes (EUR 135m) | 2018 | 103 | 109 | |||||||||||||
Fixed/Floating Rate Subordinated Callable Notes | 2018 | 2023 | 555 | 565 | ||||||||||||
7.75% Contingent Capital Notes (USD 1,000m) | 2018 | 2023 | 679 | 640 | ||||||||||||
Floating Rate Subordinated Notes (EUR 50m) | 2019 | 36 | 38 | |||||||||||||
5.14% Lower Tier 2 Notes (USD 1,094m) | 2020 | 808 | 767 | |||||||||||||
6% Fixed Rate Subordinated Notes (EUR 1,500m) | 2021 | 1,252 | 1,338 | |||||||||||||
9.5% Subordinated Bonds (ex-Woolwich PLC) | 2021 | 293 | 306 | |||||||||||||
Subordinated Floating Rate Notes (EUR 100m) | 2021 | 73 | 77 | |||||||||||||
10% Fixed Rate Subordinated Notes | 2021 | 2,317 | 2,363 | |||||||||||||
10.179% Fixed Rate Subordinated Notes (USD 1,521m) | 2021 | 1,083 | 1,062 | |||||||||||||
Subordinated Floating Rate Notes (EUR 50m) | 2022 | 37 | 39 | |||||||||||||
6.625% Fixed Rate Subordinated Notes (EUR 1,000m) | 2022 | 891 | 947 | |||||||||||||
7.625% Contingent Capital Notes (USD 3,000m) | 2022 | 1,984 | 1,856 | |||||||||||||
Subordinated Floating Rate Notes (EUR 50m) | 2023 | 37 | 39 | |||||||||||||
5.75% Fixed Rate Subordinated Notes | 2026 | 802 | 828 | |||||||||||||
5.4% Reverse Dual Currency Subordinated Loan (JPY 15,000m) | 2027 | 80 | 74 | |||||||||||||
6.33% Subordinated Notes | 2032 | 60 | 62 | |||||||||||||
Subordinated Floating Rate Notes (EUR 100m) | 2040 | 74 | 78 | |||||||||||||
Absa Bank Limited issued | ||||||||||||||||
8.1% Subordinated Callable Notes (ZAR 2,000m) | 2015 | 2020 | – | 114 | ||||||||||||
10.28% Subordinated Callable Notes (ZAR 600m) | 2017 | 2022 | 26 | 34 | ||||||||||||
Subordinated Callable Notes (ZAR 400m) | 2017 | 2022 | 18 | 22 | ||||||||||||
Subordinated Callable Notes (ZAR 1,805m) | 2017 | 2022 | 79 | 101 | ||||||||||||
Subordinated Callable Notes (ZAR 2,007m) | 2018 | 2023 | 88 | 112 | ||||||||||||
8.295% Subordinated Callable Notes (ZAR 1,188m) | 2018 | 2023 | 42 | 64 | ||||||||||||
5.50% CPI-linked Subordinated Callable Notes (ZAR 1,500m) | 2023 | 2028 | 86 | 109 | ||||||||||||
Barclays Africa Group Limited Issued | ||||||||||||||||
Subordinated Callable Notes (ZAR 370m) | 2019 | 2024 | 16 | 21 | ||||||||||||
10.835% Subordinated Callable Notes (ZAR 130m) | 2019 | 2024 | 6 | 7 | ||||||||||||
Subordinated Callable Notes (ZAR 1,693m) | 2020 | 2025 | 74 | – | ||||||||||||
10.05% Subordinated Callable Notes (ZAR 807m) | 2020 | 2025 | 36 | – | ||||||||||||
11.4% Subordinated Callable Notes (ZAR 288m) | 2020 | 2025 | 13 | – | ||||||||||||
11.365% Subordinated Callable Notes (ZAR 508m) | 2020 | 2025 | 23 | – | ||||||||||||
Subordinated Callable Notes (ZAR 437m) | 2020 | 2025 | 19 | – | ||||||||||||
11.81% Subordinated Callable Notes (ZAR 737m) | 2022 | 2027 | 33 | – | ||||||||||||
Subordinated Callable Notes (ZAR 30m) | 2022 | 2027 | 1 | – | ||||||||||||
Other capital issued by Barclays Africa and Japan | 2016–2019 | 87 | 107 | |||||||||||||
Total dated subordinated liabilities | 16,219 | 15,513 |
274 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
30 Subordinated liabilitiescontinued
Dated loan capital
Dated loan capital is issued by the Company, the Bank and respective subsidiaries for the development and expansion of their business and to strengthen their respective capital bases. The principal terms of the dated loan capital are described below:
Subordination
Dated loan capital issued by the Company ranks behind the claims against the Company of unsecured unsubordinated creditors but before the claims of the holders of its equity.
All dated loan capital issued by the Bank ranks behind the claims against the Bank of depositors and other unsecured unsubordinated creditors but before the claims of the undated loan capital and the holders of its equity. The dated loan capital issued by other subsidiaries is similarly subordinated.
Interest
Interest on the Floating Rate Notes is fixed periodically in advance, based on the related interbank or local central bank rates.
Interest on the 7.75% Contingent Capital Notes and the 2.625% Fixed Rate Subordinated Callable Notes are fixed until the call date. After the respective call dates, in the event that they are not redeemed, the interest rates will be reset and fixed until maturity based on a market rate.
Repayment
Those Notes with a call date are repayable at the option of the issuer, on conditions governing the respective debt obligations, some in whole or in part, and some only in whole. The remaining dated loan capital outstanding at 31 December 2015 is redeemable only on maturity, subject in particular cases to provisions allowing an early redemption in the event of certain changes in tax law, or to certain changes in legislation or regulations.
Any repayments prior to maturity require, in the case of the Company and the Bank, the prior approval of the PRA, or in the case of the overseas issues, the approval of the local regulator for that jurisdiction and of the PRA in certain circumstances.
There are no committed facilities in existence at the balance sheet date which permit the refinancing of debt beyond the date of maturity.
Other
The 7.625% Contingent Capital Notes will be automatically transferred from investors to Barclays PLC (or another entity within the Group) for nil consideration in the event the Barclays PLC consolidated CRD IV CET1 ratio (FSA October 2012 transitional statement) falls below 7.0%.
The 7.75% Contingent Capital Notes will be automatically written-down and investors will lose their entire investment in the notes in the event the Barclays PLC consolidated CRD IV CET1 ratio (FSA October 2012 transitional statement) falls below 7.0%.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 275 |
Notes to the financial statements
Capital instruments, equity and reserves
31 Ordinary shares, share premium, and other equity
Called up share capital, allotted and fully paid | ||||||||||||||||||||
| Number of shares m |
|
| Ordinary shares £m |
|
| Share premium £m |
|
| Total share capital and share premium £m |
|
| Other equity instruments £m |
| ||||||
As at 1 January 2015 | 16,498 | 4,125 | 16,684 | 20,809 | 4,322 | |||||||||||||||
Issued to staff under share incentive plans | 253 | 63 | 577 | 640 | – | |||||||||||||||
Issuances relating to Scrip Dividend Programme | 54 | 13 | 124 | 137 | – | |||||||||||||||
AT1 securities issuance | – | – | – | – | 995 | |||||||||||||||
Other movements | – | – | – | – | (12 | ) | ||||||||||||||
As at 31 December 2015 | 16,805 | 4,201 | 17,385 | 21,586 | 5,305 | |||||||||||||||
As at 1 January 2014 | 16,113 | 4,028 | 15,859 | 19,887 | 2,063 | |||||||||||||||
Issued to staff under share incentive plans | 320 | 81 | 691 | 772 | – | |||||||||||||||
Issuances relating to Scrip Dividend Programme | 65 | 16 | 134 | 150 | – | |||||||||||||||
AT1 securities issuance | – | – | – | – | 2,263 | |||||||||||||||
Other movements | – | – | – | – | (4 | ) | ||||||||||||||
As at 31 December 2014 | 16,498 | 4,125 | 16,684 | 20,809 | 4,322 |
Called up share capital
Called up share capital comprises 16,805m (2014: 16,498m) ordinary shares of 25p each. The increase was due to the issuance of 253m (2014:320m) shares under employee share schemes and a further 54m (2014: 65m) issued as part of the Barclays PLC Scrip Dividend Programme.
Share repurchase
At the 2015 AGM on 23 April 2015, Barclays PLC was authorised to repurchase 1,650m of its ordinary shares of 25p. The authorisation is effective until the AGM in 2016 or the close of business on 30 June 2016, whichever is the earlier. No share repurchases were made during either 2015 or 2014.
Other equity instruments
Other equity instruments of £5,305m (2014: £4,322m) include AT1 securities issued by Barclays PLC. In 2015, there was one issuance of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities, with a principal amount of £1.0bn. In 2014, there were three issuances of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities, with principal amounts of $1.2bn,€1.1bn and £0.7bn.
The AT1 securities are perpetual securities with no fixed maturity and are structured to qualify as AT1 instruments under CRD IV.
The principal terms of the AT1 securities are described below:
§ | AT1 securities rank behind the claims against Barclays PLC of (i) unsubordinated creditors; (ii) claims which are expressed to be subordinated to the claims of unsubordinated creditors of Barclays PLC but not further or otherwise; or (iii) claims which are, or are expressed to be, junior to the claims of other creditors of Barclays PLC, whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari passu with, or junior to, the claims of holders of the AT1 securities |
§ | AT1 securities bear a fixed rate of interest until the initial call date. After the initial call date, in the event that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five-year periods based on market rates |
§ | interest on the AT1 securities will be due and payable only at the sole discretion of Barclays PLC, and Barclays PLC has sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any interest payment date and |
§ | AT1 securities are undated and are repayable, at the option of Barclays PLC, in whole at the initial call date, or on any fifth anniversary after the initial call date. In addition, the AT1 securities are repayable, at the option of Barclays PLC, in whole in the event of certain changes in the tax or regulatory treatment of the securities. Any repayments require the prior consent of the PRA. |
All AT1 securities will be converted into ordinary shares of Barclays PLC, at a pre-determined price, should the fully loaded CET1 ratio of Barclays PLC fall below 7.0%.
276 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Currency translation reserve
The currency translation reserve represents the cumulative gains and losses on the retranslation of the Group’s net investment in foreign operations, net of the effects of hedging.
As at 31 December 2015, there was a debit balance of £623m (2014: £582m debit) in the currency translation reserve. The increase in the debit balance of £41m (2014: £560m decrease to a debit balance) principally reflected the depreciation of ZAR and EUR against GBP, offset by the appreciation of USD against GBP. The currency translation reserve movement associated with non-controlling interests was a £435m debit (2014: £74m debit) reflecting the depreciation of ZAR against GBP.
During the year, a £65m net loss (2014: £91m net gain) from recycling of the currency translation reserve was recognised in the income statement.
Available for sale reserve
The available for sale reserve represents the unrealised change in the fair value of available for sale investments since initial recognition.
As at 31 December 2015 there was a credit balance of £317m (2014: £562m credit) in the available for sale reserve. The decrease of £245m (2014: £414m increase) principally reflected a £350m loss from changes in fair value on government bonds, predominantly held in the liquidity pool, £148m of losses from related hedging, £378m of net gains transferred to the income statement, partially offset by a £396m gain from changes in fair value of equity investments in Visa Europe and an £86m change in insurance liabilities. A tax credit of £132m was recognised in the period relating to these items. The tax credit on AFS movements represented an effective rate of tax of 35.0% (2014: 19.9%). This is significantly higher than the UK corporation tax rate of 20.25% (2014: 21.5%) due to AFS movements including the Visa Europe gain that will be offset by existing UK capital losses for which a deferred tax asset has not been recognised.
Cash flow hedging reserve
The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss.
As at 31 December 2015, there was a credit balance of £1,261m (2014: £1,817m credit) in the cash flow hedging reserve. The decrease of £556m (2014: £1,544m increase) principally reflected a £378m decrease in the fair value of interest rate swaps held for hedging purposes as interest rate forward curves increased and £247m gains recycled to the income statement in line with when the hedged item affects profit or loss, partially offset by a tax credit of £66m. The tax credit on cash flow hedging reserve movements represented an effective rate of tax of 10.6% (2014: 19.8%). This is significantly lower than the UK corporation tax rate of 20.25% (2014: 21.5%) due to the tax rate changes introduced by the UK Summer Budget increasing associated deferred tax liabilities.
Other reserves and treasury shares
As at 31 December 2015, there was a credit balance of £1,011m (2014: £1,011m credit) in other reserves relating to the excess repurchase price paid over nominal of redeemed ordinary and preference shares issues by the Group.
The treasury shares relate to Barclays PLC shares held in relation to the Group’s various share schemes. These schemes are described in Note 34 Share based payments.
Treasury shares are deducted from shareholders’ equity within other reserves. A transfer is made to retained earnings in line with the vesting of treasury shares held for the purposes of share based payments.
As at 31 December 2015, there was a debit balance of £68m (2014: £84m debit) in other reserves relating to treasury shares. The increase principally reflected £602m (2014: £909m) of net purchases of treasury shares held for the purposes of employee share schemes, partially offset by £618m (2014: £866m) transferred to retained earnings reflecting the vesting of deferred share based payments.
| Profit attributable to non-controlling interest | | | Equity attributable to non-controlling interest | | | Dividends paid to non-controlling interest | | ||||||||||||||||
| 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | |||||||
Barclays Bank PLC issued: | ||||||||||||||||||||||||
– Preference shares | 343 | 441 | 3,654 | 3,654 | 343 | 441 | ||||||||||||||||||
– Upper Tier 2 instruments | 2 | 2 | 486 | 486 | – | – | ||||||||||||||||||
Barclays Africa Group Limited | 325 | 320 | 1,902 | 2,247 | 209 | 189 | ||||||||||||||||||
Other non-controlling interests | 2 | 6 | 12 | 4 | – | 1 | ||||||||||||||||||
Total | 672 | 769 | 6,054 | 6,391 | 552 | 631 |
Subsidiaries of the Group that give rise to significant non-controlling interests are Barclays Bank PLC and Barclays Africa Group Limited.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 277 |
Notes to the financial statements
Capital instruments, equity and reserves
33 Non-controlling interestscontinued
Barclays Bank PLC
Barclays PLC holds 100% of the voting rights of Barclays Bank PLC. As at 31 December 2015, Barclays Bank PLC has in issue preference shares and Upper Tier 2 instruments, representing 11% (2014: 11%) of its equity. Preference share dividends and redemption are typically at the discretion of Barclays Bank PLC. The payment of Upper Tier 2 instrument coupons and principal are typically at the discretion of Barclays Bank PLC, except for coupon payments that become compulsory where Barclays PLC has declared or paid a dividend on ordinary shares in the preceding six month period. Preference share and Upper Tier 2 instrument holders typically only have rights to redeem in the event of insolvency.
Instrument | ||||||||
| 2015 £m |
|
| 2014 £m |
| |||
Preference Shares: | ||||||||
6.00% non cumulative callable preference shares | 203 | 203 | ||||||
6.278% non cumulative callable preference shares | 318 | 318 | ||||||
4.75% non cumulative callable preference shares | 211 | 211 | ||||||
6.625% non cumulative callable preference shares | 406 | 406 | ||||||
7.1% non cumulative callable preference shares | 657 | 657 | ||||||
7.75% non cumulative callable preference shares | 550 | 550 | ||||||
8.125% non cumulative callable preference shares | 1,309 | 1,309 | ||||||
Total Barclays Bank PLC Preference Shares | 3,654 | 3,654 | ||||||
Barclays Africa Group Limited | 201 | 258 | ||||||
Total | 3,855 | 3,912 | ||||||
Upper Tier 2 Instruments: | ||||||||
Undated Floating Rate Primary Capital Notes Series 1 | 222 | 222 | ||||||
Undated Floating Rate Primary Capital Notes Series 2 | 264 | 264 | ||||||
Total Upper Tier 2 Instruments | 486 | 486 | ||||||
Summarised financial information for Barclays Africa Group Limited
Summarised financial information for Barclays Africa Group Limited, before intercompany eliminations, is set out below:
| ||||||||
| Barclays Africa Group Limited 2015 £m |
|
| Barclays Africa Group Limited 2014 £m |
| |||
Income statement information | ||||||||
Total income net of insurance claims | 3,418 | 3,530 | ||||||
Profit after tax | 781 | 765 | ||||||
Total other comprehensive income for the year, after tax | 26 | (7 | ) | |||||
Total comprehensive income for the year | 807 | 758 | ||||||
Statement of cash flows information | ||||||||
Net cash inflows | 923 | 43 | ||||||
Balance sheet information | ||||||||
Total assets | 49,471 | 55,378 | ||||||
Total liabilities | 45,200 | 50,150 | ||||||
Shareholder equity | 4,271 | 5,228 |
Full financial statements for Barclays Africa Group Limited can be obtained at barclaysafrica.com/barclaysafrica/Investor-Relations.
Protective rights of non-controlling interests
Barclays Africa Group Limited
Barclays owns 62.5% (62.3% including treasury shares) of the share capital of Barclays Africa Group Limited. Barclays PLC’s rights to access the assets of Barclays Africa and its group companies are restricted by virtue of the South African Companies Act which requires 75% shareholder approval to dispose of all or the greater part of Barclays Africa Group Limited’s assets or to complete the voluntary winding up of the entity.
Barclays Bank PLC
Barclays Bank PLC also has in issue preference shares which are non-controlling interests to the Group. Under the terms of these instruments, Barclays PLC may not pay dividends on ordinary shares until a dividend is next paid on these instruments or the instruments are redeemed or purchased by Barclays Bank PLC. There are no restrictions on Barclays Bank PLC’s ability to remit capital to the Parent as a result of these issued instruments.
278 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
Employee benefits
The notes included in this section focus on the costs and commitments associated with employing our staff.
Accounting for share based payments
The Group applies IFRS 2Share Based Payments in accounting for employee remuneration in the form of shares.
Employee incentives include awards in the form of shares and share options, as well as offering employees the opportunity to purchase shares on favourable terms. The cost of the employee services received in respect of the shares or share options granted is recognised in the income statement over the period that employees provide services, generally the period in which the award is granted or notified and the vesting date of the shares or options. The overall cost of the award is calculated using the number of shares and options expected to vest and the fair value of the shares or options at the date of grant.
The number of shares and options expected to vest takes into account the likelihood that performance and service conditions included in the terms of the awards will be met. Failure to meet the non-vesting condition is treated as a cancellation, resulting in an acceleration of recognition of the cost of the employee services.
The fair value of shares is the market price ruling on the grant date, in some cases adjusted to reflect restrictions on transferability. The fair value of options granted is determined using option pricing models to estimate the numbers of shares likely to vest. These take into account the exercise price of the option, the current share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Market conditions that must be met in order for the award to vest are also reflected in the fair value of the award, as are any other non-vesting conditions – such as continuing to make payments into a share based savings scheme.
|
The charge for the year arising from share based payment schemes was as follows:
Charge for the year | ||||||||||||
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Share Value Plan | 442 | 575 | 576 | |||||||||
Others | 100 | 84 | 126 | |||||||||
Total equity settled | 542 | 659 | 702 | |||||||||
Cash settled | 24 | 43 | 25 | |||||||||
Total share based payments | 566 | 702 | 727 |
The terms of the main current plans are as follows:
Share Value Plan (SVP)
The SVP was introduced in March 2010 and approved by shareholders (for Executive Director participation and use of new issue shares) at the AGM in April 2011. SVP awards are granted to participants in the form of a conditional right to receive Barclays PLC shares or provisional allocations of Barclays PLC shares which vest or are considered for release over a period of three years in equal annual tranches. Participants do not pay to receive an award or to receive a release of shares. The grantor may also make a dividend equivalent payment to participants on release of a SVP award. SVP awards are also made to eligible employees for recruitment purposes. All awards are subject to potential forfeiture in certain leaver scenarios.
Other schemes
In addition to the SVP, the Group operates a number of other schemes including schemes operated by, and settled in, the shares of subsidiary undertakings, none of which are individually material in relation to the charge for the year or the dilutive effect of outstanding share options. Included within other schemes are Sharesave (both UK and overseas), the Barclays’ Long Term Incentive Plan and the Executive Share Award Scheme.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 279 |
Notes to the financial statements
Employee benefits
34 Share based paymentscontinued
Share option and award plans
The weighted average fair value per award granted and weighted average share price at the date of exercise/release of shares during the year was:
| Weighted average fair value per award granted in year | |
| Weighted average share price at exercise/release during year |
| |||||||||||||||||||
| 2015 £ |
|
| 2014 £ |
|
| 2015 £ |
|
| 2014 £ |
| |||||||||||||
SVPa | 2.54 | 2.33 | 2.53 | 2.31 | ||||||||||||||||||||
Othersa | 0.49-2.54 | 0.52-2.39 | 2.37-2.67 | 2.23-2.56 | ||||||||||||||||||||
SVP are nil cost awards on which the performance conditions are substantially completed at the date of grant. Consequently the fair value of these awards is based on the market value at that date.
Movements in options and awards
The movement in the number of options and awards for the major schemes and the weighted average exercise price of options was:
|
| |||||||||||||||||||||||
SVPa,b | Othersa,c | |||||||||||||||||||||||
Number (000s) | Number (000s) |
| Weighted average ex. price (£) |
| ||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Outstanding at beginning of year/acquisition date | 480,042 | 524,260 | 185,599 | 231,989 | 1.61 | 1.55 | ||||||||||||||||||
Granted in the year | 186,397 | 275,152 | 55,982 | 64,326 | 2.27 | 1.78 | ||||||||||||||||||
Exercised/released in the year | (252,031 | ) | (287,319 | ) | (50,538 | ) | (71,594 | ) | 1.41 | 1.44 | ||||||||||||||
Less: forfeited in the year | (27,938 | ) | (32,051 | ) | (20,811 | ) | (32,784 | ) | 1.76 | 1.66 | ||||||||||||||
Less: expired in the year | – | – | (3,257 | ) | (6,338 | ) | 2.39 | 2.24 | ||||||||||||||||
Outstanding at end of year | 386,470 | 480,042 | 166,975 | 185,599 | 1.75 | 1.61 | ||||||||||||||||||
Of which exercisable: | 30 | 44 | 26,058 | 20,025 | 1.48 | 1.88 | ||||||||||||||||||
Certain of the Group’s share option plans enable certain Directors and employees to subscribe for new ordinary shares of Barclays PLC. For accounting for treasury shares see Note 32 Reserves.
The weighted average contractual remaining life and number of options and awards outstanding (including those exercisable) at the balance sheet date are as follows:
|
| |||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
| Weighted average remaining contractual life in years | | | Number of options/ awards outstanding (000s) | | | Weighted average remaining contractual life in years | | | Number of options/ awards outstanding (000s) | | |||||||||||||
SVPa,b | 1 | 386,470 | 1 | 480,042 | ||||||||||||||||||||
Othersa | 0-2 | 166,975 | 0-3 | 185,599 |
There were no significant modifications to the share based payments arrangements in 2015 and 2014.
As at 31 December 2015, the total liability arising from cash-settled share based payments transactions was £13m (2014: £45m).
Holdings of Barclays PLC shares
Various employee benefit trusts established by the Group hold shares in Barclays PLC to meet obligations under the Barclays share based payment schemes. The total number of Barclays shares held in these employee benefit trusts at 31 December 2015 was 5.1 million (2014: 5.2 million). Dividend rights have been waived on all these shares. The total market value of the shares held in trust based on the year end share price of £2.19 (2014: £2.43) was £11.2m (2014: £12.6m).
Notes
a | Options/awards granted over Barclays PLC shares. |
b | Nil cost award and therefore the weighted average exercise price was nil. |
c | The number of awards within Others at the end of the year principally relates to Sharesave (number of awards exercisable at end of year was 12,479,264). The weighted average exercise price relates to Sharesave. |
280 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
35 Pensions and post retirement benefits
Accounting for pensions and post retirement benefits
The Group operates a number of pension schemes (including defined contribution and defined benefit) and post-employment benefit schemes.
Defined contribution schemes – the Group recognises contributions due in respect of the accounting period in the income statement. Any contributions unpaid at the balance sheet date are included as a liability.
Defined benefit schemes – the Group recognises its obligations to members of the scheme at the period end, less the fair value of the scheme assets after applying the asset ceiling test. The clarifications contained in the proposed amendments to IFRIC 14 as to when an entity has an unconditional right to benefit from a scheme surplus are not expected to have a material impact on the Group.
Each scheme’s obligations are calculated using the projected unit credit method on the assumptions set out in the note below. Scheme assets are stated at fair value as at the period end.
Changes in pension scheme liabilities or assets (remeasurements) that do not arise from regular pension cost, net interest on net defined benefit liabilities or assets, past service costs, settlements or contributions to the scheme, are recognised in other comprehensive income.
Remeasurements comprise experience adjustments (differences between previous actuarial assumptions and what has actually occurred), the effects of changes in actuarial assumptions, return on scheme assets (excluding amounts included in the interest on the assets) and any changes in the effect of the asset ceiling restriction (excluding amounts included in the interest on the restriction).
Post-employment benefits – the cost of providing health care benefits to retired employees is accrued as a liability in the financial statements over the period that the employees provide services to the Group, using a methodology similar to that for defined benefit pension schemes.
Pension schemes
UK Retirement Fund (UKRF)
The UKRF is the Group’s main scheme, representing 92% of the Group’s total retirement benefit obligations. The UKRF was closed to new entrants on 1 October 2012, and comprises 10 sections, the two most significant of which are:
§ | Afterwork, which comprises a contributory cash balance defined benefit element, and a voluntary defined contribution element. The cash balance element is accrued each year and revalued until Normal Retirement Age in line with the increase in Retail Price Index (RPI) (up to a maximum of 5% p.a.). An investment related increase of up to 2% a year may also be added at Barclays’ discretion. Between 1 October 2003 and 1 October 2012 the majority of new employees outside of the Investment Bank were eligible to join this section. The costs of ill-health retirements and death in service benefits for Afterwork members are borne by the UKRF. The main risks that Barclays runs in relation to Afterwork are limited to needing to make additional contributions if pre-retirement investment returns are not sufficient to provide for the benefits. |
§ | the 1964 Pension Scheme. Most employees recruited before July 1997 built up benefits in this non-contributory defined benefit scheme in respect of service up to 31 March 2010. Pensions were calculated by reference to service and pensionable salary. From 1 April 2010, members became eligible to accrue future service benefits in either Afterwork or the Pension Investment Plan (PIP), a historic defined contribution section which is now closed to future contributions. The risks that Barclays runs in relation to the 1964 section are typical of final salary pension schemes, principally that investment returns fall short of expectations, that inflation exceeds expectations, and that retirees live longer than expected. |
Barclays Pension Savings Plan (BPSP)
§ | From 1 October 2012, a new UK pension scheme, the BPSP, was established to satisfy Auto Enrolment legislation. The BPSP is a defined contribution scheme (Group Personal Pension) providing benefits for all new Barclays UK hires from 1 October 2012, Investment Bank UK employees who were in PIP as at 1 October 2012, and also all UK employees who were not members of a pension scheme at that date. As a defined contribution scheme, BPSP is not subject to the same investment return, inflation or longevity risks for Barclays that defined benefit schemes are. Members’ benefits reflect contributions paid and the level of investment returns achieved. |
Apart from the UKRF and the BPSP, Barclays operates a number of smaller pension and long-term employee benefits and post-retirement health care plans globally, the largest of which are the US and South African defined benefit schemes. Many of the schemes are funded, with assets backing the obligations held in separate legal vehicles such as trusts. Others are operated on an unfunded basis. The benefits provided, the approach to funding, and the legal basis of the schemes, reflect their local environments.
Governance
The UKRF operates under trust law and is managed and administered on behalf of the members in accordance with the terms of the Trust Deed and Rules and all relevant legislation. The Corporate Trustee is Barclays Pension Funds Trustees Limited, a private limited company and a wholly owned subsidiary of Barclays Bank PLC. The Trustee is the legal owner of the assets of the UKRF which are held separately from the assets of the Group.
The Trustee Board comprises six Management Directors selected by Barclays, of whom three are independent Directors with no relationship with Barclays or the UKRF, plus three Member Nominated Directors selected from eligible active staff and pensioner members who apply for the role.
The BPSP is a Group Personal Pension arrangement which operates as a collection of personal pension plans. Each personal pension plan is a direct contract between the employee and the BPSP provider (Legal & General Assurance Society Limited), and is regulated by the FCA.
Similar principles of pension governance apply to the Group’s other pension schemes, although different legislation covers overseas schemes where, in most cases, the Group has the power to determine the funding rate.
Amounts recognised
The following tables include amounts recognised in the income statement and an analysis of benefit obligations and scheme assets for all Group defined benefit schemes. The net position is reconciled to the assets and liabilities recognised on the balance sheet. The tables include funded and unfunded post-retirement benefits.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 281 |
Notes to the financial statements
Employee benefits
35 Pensions and post retirement benefitscontinued
Income statement charge | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
£m | £m | £m | ||||||||||
Current service cost | 303 | 324 | 371 | |||||||||
Net finance cost | 42 | 78 | 55 | |||||||||
Past service cost | (434 | ) | (5 | ) | 4 | |||||||
Settlements | 1 | (15 | ) | (3 | ) | |||||||
Total | (88 | ) | 382 | 427 |
Past Service costs includes a £429m (2014: nil; 2013: nil) gain on valuation of a component of the defined retirement benefit liability.
Balance sheet reconciliation | 2015 | 2014 | ||||||||||||||
Of which | Of which | |||||||||||||||
relates to | relates to | |||||||||||||||
Total | UKRF | Total | UKRF | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Benefit obligation at beginning of the year | (30,392 | ) | (27,931 | ) | (27,568 | ) | (25,093 | ) | ||||||||
Current service cost | (303 | ) | (234 | ) | (324 | ) | (258 | ) | ||||||||
Interest costs on scheme liabilities | (1,147 | ) | (1,010 | ) | (1,261 | ) | (1,101 | ) | ||||||||
Past service cost | 434 | 429 | 5 | 2 | ||||||||||||
Settlements | – | – | 83 | – | ||||||||||||
Remeasurement gain/(loss) – financial | 1,161 | 1,121 | (2,493 | ) | (2,382 | ) | ||||||||||
Remeasurement loss – demographic | (159 | ) | (160 | ) | (370 | ) | (340 | ) | ||||||||
Remeasurement gain – experience | 609 | 611 | 407 | 418 | ||||||||||||
Employee contributions | (36 | ) | (2 | ) | (35 | ) | (2 | ) | ||||||||
Benefits paid | 1,172 | 1,021 | 999 | 825 | ||||||||||||
Exchange and other movements | 382 | 128 | 165 | – | ||||||||||||
Benefit obligation at end of the year | (28,279 | ) | (26,027 | ) | (30,392 | ) | (27,931 | ) | ||||||||
Fair value of scheme assets at beginning of the year | 28,874 | 26,827 | 25,743 | 23,661 | ||||||||||||
Interest income on scheme assets | 1,105 | 979 | 1,183 | 1,042 | ||||||||||||
Employer contribution | 689 | 586 | 347 | 241 | ||||||||||||
Settlements | – | – | (68 | ) | – | |||||||||||
Remeasurement – return on scheme assets greater than discount rate | (476 | ) | (446 | ) | 2,736 | 2,705 | ||||||||||
Employee contributions | 36 | 2 | 35 | 2 | ||||||||||||
Benefits paid | (1,172 | ) | (1,021 | ) | (999 | ) | (825 | ) | ||||||||
Exchange and other movements | (304 | ) | (98 | ) | (103 | ) | 1 | |||||||||
Fair value of scheme assets at the end of the year | 28,752 | 26,829 | 28,874 | 26,827 | ||||||||||||
Net surplus/(deficit) | 473 | 802 | (1,518 | ) | (1,104 | ) | ||||||||||
Irrecoverable surplus (effect of asset ceiling) | (60 | ) | – | – | – | |||||||||||
Net recognised assets/(liabilities) | 413 | 802 | (1,518 | ) | (1,104 | ) | ||||||||||
Retirement benefit assets | 836 | 802 | 56 | – | ||||||||||||
Retirement benefit liabilities | (423 | ) | – | (1,574 | ) | (1,104 | ) | |||||||||
Net retirement benefit liabilities | 413 | 802 | (1,518 | ) | (1,104 | ) |
Included within the benefit obligation was £2,050m (2014: £2,272m) relating to overseas pensions and £202m (2014: £189m) relating to other post-employment benefits. Of the total benefit obligation of £28,279m (2014: £30,392m), £245m (2014: £286m) was wholly unfunded.
As at 31 December 2015, the UKRF scheme assets were in surplus versus IAS 19R obligations by £802m (2014: deficit of £1,104m). The movement for the UKRF is mainly due to a £1.9bn decrease in the defined benefit obligation. The decrease in defined benefit obligation can be linked to an increase in discount rate, membership experience, and a change to the calculation of statutory underpin for certain benefits.
Critical accounting estimates and judgements
Actuarial valuation of the schemes’ obligation is dependent upon a series of assumptions, below is a summary of the main financial and demographic assumptions adopted for UKRF.
UKRF financial assumptions | ||||||||
2015 | 2014 | |||||||
% p.a | % p.a | |||||||
Discount rate | 3.82 | 3.67 | ||||||
Inflation rate | 3.05 | 3.05 | ||||||
Rate of increase in salaries | 2.55 | 2.55 | ||||||
Rate of increase for pensions in payment | 2.87 | 2.98 | ||||||
Rate of increase for pensions in deferment | 2.87 | 2.98 | ||||||
Afterwork revaluation rate | 3.27 | 3.35 |
The UKRF discount rate assumption for 2015 was based on a variant of the standard Willis Towers Watson RATE Link model. This variant includes all bonds rated AA by at least one of the four major ratings agencies, and assumes that yields after year 30 are flat. For 2014, the discount rate assumption was based on the single equivalent discount rate implied by the standard Willis Towers Watson RATE Link model.
282 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
35 Pensions and post retirement benefitscontinued
The UKRF’s post-retirement mortality assumptions are based on a best estimate assumption derived from an analysis in 2014 of Barclays’ own post-retirement mortality experience, and taking account of the recent evidence from published mortality surveys. An allowance has been made for future mortality improvements based on the 2013 core projection model published by the Continuous Mortality Investigation Bureau subject to a long-term trend of 1.25% p.a. in future improvements. The table below shows how the assumed life expectancy at 60, for members of the UKRF, has varied over the past three years:
Assumed life expectancy | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
£m | £m | £m | ||||||||||
Life expectancy at 60 for current pensioners (years) | ||||||||||||
– Males | 28.4 | 28.3 | 27.9 | |||||||||
– Females | 30.0 | 29.9 | 29.0 | |||||||||
Life expectancy at 60 for future pensioners currently aged 40 (years) | ||||||||||||
– Males | 30.2 | 30.1 | 29.3 | |||||||||
– Females | 32.0 | 31.9 | 30.6 |
Sensitivity analysis on actuarial assumptions
The sensitivity analysis has been calculated by valuing the UKRF liabilities using the amended assumptions shown in the table below and keeping the remaining assumptions the same as disclosed in the table above, except in the case of the inflation sensitivity where other assumptions that depend on assumed inflation have also been amended correspondingly. The difference between the recalculated liability figure and that stated in the balance sheet reconciliation table above is the figure shown. The selection of these movements to illustrate the sensitivity of the defined benefit obligation to key assumptions should not be interpreted as Barclays expressing any specific view of the probability of such movements happening.
Change in key assumptions | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Impact on UKRF defined | Impact on UKRF defined | |||||||||||||||
benefit obligation | benefit obligation | |||||||||||||||
(Decrease)/ | (Decrease)/ | (Decrease)/ | (Decrease)/ | |||||||||||||
Increase | Increase | Increase | Increase | |||||||||||||
% | £bn | % | £bn | |||||||||||||
0.5% increase in discount rate | (8.2 | ) | (2.1 | ) | (9.0 | ) | (2.5 | ) | ||||||||
0.5% increase in assumed price inflation | 5.4 | 1.4 | 7.3 | 2.0 | ||||||||||||
One year increase to life expectancy at 60 | 3.5 | 0.9 | 3.5 | 1.0 |
The weighted average duration of the benefit payments reflected in the defined benefit obligation for the UKRF is 18 years.
Assets
A long term investment strategy has been set for the UKRF, with its asset allocation comprising a mixture of equities, bonds, property and other appropriate assets. This recognises that different asset classes are likely to produce different long term returns and some asset classes may be more volatile than others. The long term investment strategy ensures, among other aims, that investments are adequately diversified. Asset managers are permitted some flexibility to vary the asset allocation from the long term investment strategy within control ranges agreed with the Trustee from time to time.
The UKRF also employs derivative instruments, where appropriate, to achieve a desired exposure or return, or to match assets more closely to liabilities. The value of assets shown reflects the assets held by the scheme, with any derivative holdings reflected on a fair value basis.
The value of the assets of the schemes and their percentage in relation to total scheme assets were as follows:
Analysis of scheme assets | ||||||||||||||||
Total | | Of which relates to UKRF | | |||||||||||||
% of total | % of total | |||||||||||||||
fair value of | fair value of | |||||||||||||||
scheme | scheme | |||||||||||||||
Value | assets | Value | assets | |||||||||||||
£m | % | £m | % | |||||||||||||
As at 31 December 2015 | ||||||||||||||||
Equities – quoted | 7,764 | 27.0 | 6,947 | 25.9 | ||||||||||||
Equities – non quoted | 1,757 | 6.1 | 1,750 | 6.5 | ||||||||||||
Bonds – fixed governmenta | 1,105 | 3.8 | 577 | 2.2 | ||||||||||||
Bonds – index-linked governmenta | 9,677 | 33.7 | 9,670 | 36.0 | ||||||||||||
Bonds – corporate and othera | 5,856 | 20.4 | 5,680 | 21.2 | ||||||||||||
Property – commercialb | 1,602 | 5.6 | 1,581 | 5.9 | ||||||||||||
Derivativesb | 183 | 0.6 | 183 | 0.7 | ||||||||||||
Cash | 67 | 0.2 | 47 | 0.2 | ||||||||||||
Otherb | 741 | 2.6 | 394 | 1.4 | ||||||||||||
Fair value of scheme assets | 28,752 | 100.0 | 26,829 | 100.0 |
Notes
a | Assets held are predominantly quoted. |
b | Assets held are predominantly non-quoted. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 283 |
Notes to the financial statements
Employee benefits
35 Pensions and post retirement benefitscontinued
Analysis of scheme assets | ||||||||||||||||
Total | Of which relates to UKRF | |||||||||||||||
% of total | % of total | |||||||||||||||
fair value of | fair value of | |||||||||||||||
scheme | scheme | |||||||||||||||
Value | assets | Value | assets | |||||||||||||
£m | % | £m | % | |||||||||||||
As at 31 December 2014 | ||||||||||||||||
Equities – quoted | 6,813 | 23.6 | 5,808 | 21.6 | ||||||||||||
Equities – non-quoted | 1,549 | 5.4 | 1,537 | 5.7 | ||||||||||||
Bonds – fixed governmenta | 934 | 3.2 | 609 | 2.3 | ||||||||||||
Bonds – index-linked governmenta | 7,114 | 24.6 | 7,114 | 26.5 | ||||||||||||
Bonds – corporate and othera | 5,599 | 19.4 | 5,317 | 19.8 | ||||||||||||
Property – commercialb | 2,023 | 7.0 | 1,945 | 7.3 | ||||||||||||
Derivativesb | 1,472 | 5.1 | 1,472 | 5.5 | ||||||||||||
Cash | 2,897 | 10.0 | 2,644 | 9.9 | ||||||||||||
Pooled fundsc | 284 | 1.0 | 284 | 1.1 | ||||||||||||
Otherb | 189 | 0.7 | 97 | 0.3 | ||||||||||||
Fair value of scheme assets | 28,874 | 100.0 | 26,827 | 100.0 |
Included within the fair value of scheme assets were: £5m (2014: £3m) relating to shares in Barclays PLC, £23m (2014: £39m) relating to bonds issued by the Barclays Group, £6m (2014: £6m) relating to property occupied by Group companies, and £7m (2014: £14m) relating to other investments. The UKRF also invests in investment vehicles which may hold shares or debt issued by the Barclays Group.
The UKRF scheme assets also include £36m (2014: £36m) relating to UK private equity investments and £1,714m (2014: £1,502m) relating to overseas private equity investments. These are disclosed above within Equities – non-quoted.
Approximately a third of the UKRF assets are invested in liability-driven investment strategies; primarily UK gilts as well as interest rate and inflation swaps. These are used to better match the assets to its liabilities. The swaps are used to reduce the scheme’s inflation and duration risks against its liabilities.
Funding
The latest triennial funding valuation of the UKRF was carried out with an effective date of 30 September 2013. This was completed in 2014 and showed a deficit of £3.6bn and a funding level of 87.4%. The next funding valuation of the UKRF is due to be completed in 2017 with an effective date of 30 September 2016. In non-valuation years, the Scheme Actuary prepares an annual update of the funding position. The latest annual update was carried out as at 30 September 2015 and showed a deficit of £6.0bn and a funding level of 82.7%. The increase in funding deficit over the year to 30 September can be mainly attributed to the fall in real gilt yields over the year.
The Bank and Trustee agreed a scheme specific funding target, statement of funding principles, a schedule of contributions and a recovery plan to eliminate the deficit in the Fund. The main differences between the funding and IAS 19 assumptions are a more prudent longevity assumption for funding and a different approach to setting the discount rate.
The recovery plan to eliminate the deficit will result in the Bank paying deficit contributions to the Fund until 2021. Deficit contributions of £300m were paid in 2015, and also are payable in 2016. Further deficit contributions of £740m per annum are payable during 2017 to 2021. Up to £500m of the 2021 deficit contribution is payable in 2017 depending on the deficit level at that time. These deficit contributions are in addition to the regular contributions to meet the Group’s share of the cost of benefits accruing over each year.
In non-valuation years, the Scheme Actuary prepares an annual update of the funding position. The latest annual update was carried out as at 30 September 2015 and showed a deficit of £6.0bn and a funding level of 82.7%. The increase in funding deficit over the year to 30 September 2015 can be mainly attributed to the fall in real gilt yields over the year.
Defined benefit contributions paid with respect to the UKRF were as follows:
Contributions paid | ||||
£m | ||||
2015 | 586 | |||
2014 | 241 | |||
2013 | 238 |
The Group’s expected contribution to the UKRF in respect of defined benefits in 2016 is £632m (2015: £586m). In addition, the expected contributions to UK defined contribution schemes in 2016 is £49m (2015: £52m) to the UKRF and £140m (2015: £126m) to the BPSP. For the material non-UK defined benefit schemes, the expected contributions in 2016 are £78m (2015: £107m).
Notes
a | Assets held are predominantly quoted. |
b | Assets held are predominantly non-quoted. |
c | Pooled funds relate to a variety of investments which are predominantly non-quoted. |
284 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
Scope of consolidation
This section presents information on the Group’s investments in subsidiaries, joint ventures and associates and its interests in structured entities. Detail is also given on securitisation transactions the Group has entered into and arrangements that are held off-balance sheet.
Barclays applies IFRS 10Consolidated Financial Statements. The consolidated financial statements combine the financial statements of Barclays PLC and all its subsidiaries. Subsidiaries are entities over which the Group has control. Under IFRS 10, this is when the Group is exposed or has rights to variable returns from its involvement in the entity and has the ability to affect those returns through its power over the entity.
The Group reassesses whether it controls an entity if facts and circumstances indicate that there have been changes to its power, its rights to variable returns or its ability to use its power to affect the amount of its returns.
Intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Group for the purposes of the consolidation. Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has been obtained and they do not result in loss of control.
The significant judgements used in applying this policy are set out below.
|
Accounting for investment in subsidiaries
In the individual financial statements of Barclays PLC, investments in subsidiaries are stated at cost less impairment.
Principal subsidiaries for the Group are set out below. This includes those subsidiaries that are most significant in the context of the Group’s business, results or financial position.
Non- | Non- | |||||||||||||||
controlling | controlling | |||||||||||||||
interests – | interests – | |||||||||||||||
Percentage | proportion of | proportion of | ||||||||||||||
of voting | ownership | voting | ||||||||||||||
Principal place of business or | rights held | interests | interests | |||||||||||||
Company name | incorporation | Nature of business | % | % | % | |||||||||||
Barclays Bank PLC | England | Banking, holding company | 100 | 11 | – | |||||||||||
Barclays Capital Securities Limited | England | Securities dealing | 100 | – | – | |||||||||||
Barclays Private Clients International Limited | Isle of Man | Banking | 100 | * | – | – | ||||||||||
Barclays Securities Japan Limited | Japan | Securities dealing | 100 | – | – | |||||||||||
Barclays Africa Group Limited | South Africa | Banking | 62 | 38 | 38 | |||||||||||
Barclays Capital Inc | United States | Securities dealing | 100 | – | – | |||||||||||
Barclays Bank Delaware | United States | Credit card issuer | 100 | – | – |
The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries. Investments in subsidiaries held directly by Barclays Bank PLC are marked *. See Note 46 Related undertakings for further information on the Group’s undertakings.
Ownership interests are in some cases different to voting interests due to the existence of non-voting equity interests, such as preference shares. See Note 33 Non-controlling interests for more information.
Barclays Bank SAU was considered a principal subsidiary in 2014. Barclays Bank SAU and its subsidiaries, comprising all its associated assets and liabilities, was sold to a third party, Caixabank, SA on 2 January 2015.
Significant judgements and assumptions used to determine the scope of the consolidation
Determining whether the Group has control of an entity is generally straightforward based on ownership of the majority of the voting capital. However, in certain instances, this determination will involve significant judgement, particularly in the case of structured entities where voting rights are often not the determining factor in decisions over the relevant activities. This judgement may involve assessing the purpose and design of the entity. It will also often be necessary to consider whether the Group, or another involved party with power over the relevant activities, is acting as a principal in its own right or as an agent on behalf of others.
There is also often considerable judgement involved in the ongoing assessment of control over structured entities. In this regard, where market conditions have deteriorated such that the other investors’ exposures to the structure’s variable returns have been substantively eliminated, the Group may conclude that the managers of the structured entity are acting as its agent and therefore will consolidate the structured entity.
An interest in equity voting rights exceeding 50% would typically indicate that the Group has control of an entity. However, certain entities, as set out below, are excluded from consolidation because the Group does not have exposure to their variable returns.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 285 |
Notes to the financial statements
Scope of consolidation
36 Principal subsidiariescontinued
Country of registration or incorporation | Company name | Percentage of voting rights held (%) | Equity shareholder’s funds (£m) | Retained profit for the year (£m) | ||||
UK | Fitzroy Finance Limited | 100 | – | – | ||||
Cayman Islands | Palomino Limited | 100 | 2 | – |
These entities are managed by external counterparties and consequently are not controlled by the Group. Where appropriate, interests relating to these entities are included in Note 37 Structured entities.
Significant restrictions
As is typical for a Group of its size and international scope, there are restrictions on the ability of Barclays PLC to obtain distributions of capital, access the assets or repay the liabilities of members of its Group due to the statutory, regulatory and contractual requirements of its subsidiaries and due to the protective rights of non-controlling interests. These are considered below.
Regulatory requirements
Barclays’ principal subsidiary companies have assets and liabilities before intercompany eliminations of £1,468bn (2014: £1,757bn) and £1,398bn (2014: £1,683bn) respectively. The assets and liabilities are subject to prudential regulation and regulatory capital requirements in the countries in which they are regulated. These require entities to maintain minimum capital levels which cannot be returned to the parent company, Barclays PLC on a going concern basis.
In order to meet capital requirements, subsidiaries may hold certain equity-accounted and debt-accounted issued financial instruments and non-equity instruments such as Tier 1 and Tier 2 capital instruments and other forms of subordinated liabilities. See Note 33 Non-controlling interests and Note 30 Subordinated liabilities for particulars of these instruments. These instruments may be subject to cancellation clauses or preference share restrictions that would limit the ability of the entity to repatriate the capital on a timely basis.
Liquidity requirements
Regulated subsidiaries of the Group are required to maintain liquidity pools to meet PRA and local regulatory requirements. The main subsidiaries affected are Barclays Bank PLC, Barclays Africa Group Limited and Barclays Capital Inc which must maintain daily compliance with the regulatory minimum. See page 105 for further details of liquidity requirements, including those of our significant subsidiaries.
Statutory requirements
The Group’s subsidiaries are subject to statutory requirements not to make distributions of capital and unrealised profits and generally to maintain solvency. These requirements restrict the ability of subsidiaries to make remittances of dividends to Barclays PLC, the ultimate parent, except in the event of a legal capital reduction or liquidation. In most cases, the regulatory restrictions referred to above exceed the statutory restrictions.
Contractual requirements
Asset encumbrance
The Group uses its financial assets to raise finance in the form of securitisations and through the liquidity schemes of central banks. Once encumbered, the assets are not available for transfer around the Group. The assets typically affected are disclosed in Note 40 Assets pledged.
Assets held by consolidated structured entities
£80m (2014: £379m) of assets included in the Group’s balance sheet relate to consolidated investment funds and are held to pay return and principal to the holders of units in the funds. The assets held in these funds cannot be transferred to other members of the Group. The decrease is materially driven by the sale of the Spanish business in January 2015, which included certain European wealth funds, and the disposal of a French wealth fund during the year.
Other restrictions
The Group is required to maintain balances with central banks and other regulatory authorities, and these amounted to £4,369m (2014: £4,448m).
Barclays Africa Group Limited assets are subject to exchange control regulation determined by the South African Reserve Bank (SARB). Special dividends and loans in lieu of dividends cannot be transferred without SARB approval.
37 Structured entities
A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities.
Depending on the Group’s power over the activities of the entity and its exposure to and ability to influence its own returns, it may consolidate the entity. In other cases, it may sponsor or have exposure to such an entity but not consolidate it.
Consolidated structured entities
The Group has contractual arrangements which may require it to provide financial support to the following types of consolidated structured entities:
Securitisation vehicles
The Group uses securitisation as a source of financing and a means of risk transfer. Refer to Note 39 Securitisations for further detail.
The Group provides liquidity facilities to certain securitisation vehicles. At 31 December 2015, there were outstanding loan commitments to these entities totalling £135m (2014: £201m).
286 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
37 Structured entitiescontinued
Commercial paper (CP) and medium-term note conduits
The Group provided £8.5bn (2014: £9.1bn) in undrawn contractual backstop liquidity facilities to CP conduits.
Fund management entities
Barclays has contractually guaranteed the performance of certain cash investments in a number of managed investment funds which have resulted in their consolidation. As at 31 December 2015, the notional value of the guarantee was £257m (2014: £585m). The decrease is primarily due to the closure of a number of European wealth funds during the year.
Employee benefit and other trusts
The Group provides capital contributions to employee share trusts to enable them to meet their obligations to employees under share-based payment plans. During 2015, the Group provided undrawn liquidity facilities of £784m (2014: £332m) to certain trusts.
Unconsolidated Structured Entities in which the Group has an interest
An interest in a structured entity is any form of contractual or non-contractual involvement which creates variability in returns arising from the performance of the entity for the Group. Such interests include holdings of debt or equity securities, derivatives that transfer financial risks from the entity to the Group, lending, loan commitments, financial guarantees and investment management agreements.
Interest rate swaps, foreign exchange derivatives that are not complex and which expose the Group to insignificant credit risk by being senior in the payment waterfall of a securitisation and derivatives that are determined to introduce risk or variability to a structured entity are not considered to be an interest in an entity and have been excluded from the disclosures below.
The nature and extent of the Group’s interests in structured entities is summarised below:
Summary of interests in unconsolidated structured entities | ||||||||||||||||||||
| Secured financing £m |
|
| Short-term traded interests £m |
|
| Traded derivatives £m |
|
| Other interests £m |
|
| Total £m |
| ||||||
As at December 2015 | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Trading portfolio assets | – | 8,949 | – | 1,648 | 10,597 | |||||||||||||||
Financial assets designated at fair value | 12,382 | – | – | 353 | 12,735 | |||||||||||||||
Derivative financial instruments | – | – | 4,427 | 1,926 | 6,353 | |||||||||||||||
Available for sale investments | – | – | – | 1,060 | 1,060 | |||||||||||||||
Loans and advances to banks | – | – | – | 4,067 | 4,067 | |||||||||||||||
Loans and advances to customers | – | – | – | 27,700 | 27,700 | |||||||||||||||
Reverse repurchase agreements and other similar secured lending | 7,117 | – | – | – | 7,117 | |||||||||||||||
Other assets | – | – | – | 31 | 31 | |||||||||||||||
Total assets | 19,499 | 8,949 | 4,427 | 36,785 | 69,660 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Derivative financial instruments | – | – | 2,761 | 1,926 | 4,687 | |||||||||||||||
As at December 2014 | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Trading portfolio assets | – | 14,538 | – | 3,668 | 18,206 | |||||||||||||||
Financial assets designated at fair value | – | – | – | 963 | 963 | |||||||||||||||
Derivative financial instruments | – | – | 5,207 | 1,594 | 6,801 | |||||||||||||||
Available for sale investments | – | – | – | 1,216 | 1,216 | |||||||||||||||
Loans and advances to banks | – | – | – | 4,277 | 4,277 | |||||||||||||||
Loans and advances to customers | – | – | – | 30,067 | 30,067 | |||||||||||||||
Reverse repurchase agreements and other similar secured lending | 37,139 | – | – | – | 37,139 | |||||||||||||||
Other assets | – | – | – | 38 | 38 | |||||||||||||||
Total assets | 37,139 | 14,538 | 5,207 | 41,823 | 98,707 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Derivative financial instruments | – | – | 5,222 | 1,514 | 6,736 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 287 |
Notes to the financial statements
Scope of consolidation
37 Structured entitiescontinued
Secured financing arrangements, short term traded interests and traded derivatives are typically managed under market risk management described on pages 101 and 102 which includes an indication of the change of risk measures compared to last year. For this reason, the total assets of these entities are not considered meaningful for the purposes of understanding the related risks and so have not been presented. Other interests include a Non-Core portfolio which is being managed down, conduits and corporate lending where the interest is driven by normal customer demand.
Secured financing
The Group routinely enters into reverse repurchase contracts, stock borrowing and similar arrangements on normal commercial terms where the counterparty to the arrangement is a structured entity. Due to the nature of these arrangements, especially the transfer of collateral and ongoing margining, the Group has minimal exposure to the performance of the structured entity counterparty. A description of these transactions is included in Note 22 Reverse repurchase and repurchase agreements including other similar secured lending and borrowing.
Short-term traded interests
The Group buys and sells interests in structured entities as part of its trading activities, for example, retail mortgage backed securities, CDOs and similar interests. Such interests are typically held individually or as part of a larger portfolio for no more than 90 days. In such cases, the Group typically has no other involvement with the structured entity other than the securities it holds as part of trading activities and its maximum exposure to loss is restricted to the carrying value of the asset.
As at 31 December 2015, £8,576m (2014: £12,058m) of the Group’s £8,949m (2014: £14,538m) short-term traded interests were comprised of debt securities issued by asset securitisation vehicles.
Traded derivatives
The Group enters into a variety of derivative contracts with structured entities which reference market risk variables such as interest rates, foreign exchange rates and credit indices among other things. The main derivative types which are considered interests in structured entities include index based and entity specific credit default swaps, balance guaranteed swaps, total return swaps, commodities swaps, and equity swaps. A description of the types of derivatives and the risk management practices are detailed in Note 15 Derivative financial instruments. The risk of loss may be mitigated through ongoing margining requirements as well as a right to cash flows from the structured entity which are senior in the payment waterfall. Such margining requirements are consistent with market practice for many derivative arrangements and in line with the Group’s normal credit policies.
Derivative transactions require the counterparty to provide cash or other collateral under margining agreements to mitigate counterparty credit risk. Included in the traded derivatives total are £409m (2014: £445m) of derivative assets which are ‘cleared derivative’ type arrangements. These are transactions where the Group enters into a contract with an exchange on behalf of a structured entity client and holds an opposite position with it. The Group is exposed to settlement risk only on these derivatives which is mitigated through daily margining. Total notionals amounted to £117,642m (2014: £176,584m).
Except for CDS where the maximum exposure to loss is the swap notional amount, it is not possible to estimate the maximum exposure to loss in respect of derivative positions as the fair value of derivatives is subject to changes in market rates of interest, exchange rates and credit indices which by their nature are uncertain. In addition, the Group’s losses would be subject to mitigating action under its traded market risk and credit risk policies that require the counterparty to provide collateral in cash or other assets on a daily basis in most cases.
Other interests in unconsolidated structured entities
The Group’s interests in structured entities not held for the purposes of short-term trading activities are set out below, summarised by the purpose of the entities and limited to significant categories, based on maximum exposure to loss.
288 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
37 Structured entitiescontinued
Nature of interest | ||||||||||||||||||||||||||||
| Structured credit portfolio £m |
|
| Multi-seller conduit programmes £m |
|
| Lending £m |
|
| Mortgage- backed securities £m |
|
| Investment funds and trusts £m |
|
| Others £m |
|
| Total £m |
| ||||||||
As at December 2015 | ||||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||
– Debt securities | 1,545 | – | – | – | – | 40 | 1,585 | |||||||||||||||||||||
– Equity securities | – | – | – | – | – | 63 | 63 | |||||||||||||||||||||
Financial assets designated at fair value | – | – | – | – | – | – | – | |||||||||||||||||||||
– Loans and advances to customers | – | – | 247 | – | – | 6 | 253 | |||||||||||||||||||||
– Debt securities | – | – | 41 | – | – | 57 | 98 | |||||||||||||||||||||
– Equity securities | – | – | – | – | – | 2 | 2 | |||||||||||||||||||||
Derivative financial instruments | – | – | – | – | – | 1,926 | 1,926 | |||||||||||||||||||||
Available for sale investments | – | – | – | – | – | – | – | |||||||||||||||||||||
– Debt securities | 537 | – | – | 515 | – | 8 | 1,060 | |||||||||||||||||||||
Loans and advances to customers | 1,599 | 5,029 | 20,571 | – | – | 501 | 27,700 | |||||||||||||||||||||
Loans and advances to banks | – | – | 4,051 | – | – | 16 | 4,067 | |||||||||||||||||||||
Other assets | – | 4 | 7 | – | 20 | – | 31 | |||||||||||||||||||||
Total on-balance sheet exposures | 3,681 | 5,033 | 24,917 | 515 | 20 | 2,619 | 36,785 | |||||||||||||||||||||
Total off-balance sheet notional amounts | 708 | 3,042 | 10,225 | – | – | 1,409 | 15,384 | |||||||||||||||||||||
Maximum exposure to loss | 4,389 | 8,075 | 35,142 | 515 | 20 | 4,028 | 52,169 | |||||||||||||||||||||
Total assets of the entity | 36,290 | 81,355 | 376,296 | 115,351 | 21,766 | 5,084 | 636,142 | |||||||||||||||||||||
As at December 2014 | ||||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||
– Debt securities | 3,590 | – | – | – | – | 51 | 3,641 | |||||||||||||||||||||
– Equity securities | – | – | – | – | – | 27 | 27 | |||||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||||||
– Loans and advances to customers | – | – | 881 | – | – | 11 | 892 | |||||||||||||||||||||
– Debt securities | – | – | – | – | – | 35 | 35 | |||||||||||||||||||||
– Equity securities | – | – | – | – | – | 36 | 36 | |||||||||||||||||||||
Derivative financial instruments | – | – | 80 | – | – | 1,514 | 1,594 | |||||||||||||||||||||
Available for sale investments | ||||||||||||||||||||||||||||
– Debt securities | 1 | 575 | – | 626 | – | 14 | 1,216 | |||||||||||||||||||||
Loans and advances to customers | 3,390 | 8,236 | 17,780 | – | – | 661 | 30,067 | |||||||||||||||||||||
Loans and advances to banks | – | – | 4,277 | – | – | – | 4,277 | |||||||||||||||||||||
Other assets | – | 5 | 9 | – | 21 | 3 | 38 | |||||||||||||||||||||
Total on-balance sheet exposures | 6,981 | 8,816 | 23,027 | 626 | 21 | 2,352 | 41,823 | |||||||||||||||||||||
Total off-balance sheet notional amounts | 1,078 | 8,075 | 6,359 | – | – | 2,104 | 17,616 | |||||||||||||||||||||
Maximum exposure to loss | 8,059 | 16,891 | 29,386 | 626 | 21 | 4,456 | 59,439 | |||||||||||||||||||||
Total assets of the entity | 50,279 | 97,298 | 390,522 | 147,422 | 25,556 | 5,816 | 716,893 |
Maximum exposure to loss
Unless specified otherwise below, the Group’s maximum exposure to loss is the total of its on-balance sheet positions and its off-balance sheet arrangements, being loan commitments and financial guarantees. Exposure to loss is mitigated through collateral, financial guarantees, the availability of netting and credit protection held.
Structured Credit Portfolio
This comprises interests in debt securities issued by securitisation vehicles, mainly CLOs, CDOs, Residential and Commercial Mortgage-Backed Securitisation structures (RMBSs and CMBSs), and drawn and undrawn loan facilities to these entities. In some cases, the securities are ‘wrapped’ with credit protection from a monoline insurer, which transfers the credit risk to the monoline. The entities are wholly debt financed through the issuance of tranches of debt securities or through direct funding, such as the loan facilities provided by the Group. As the underlying assets of the entities amortise and pay down, the debt securities issued by the entities are repaid in order of seniority. Where the entities experience significant credit deterioration, debt securities may be written off or cancelled in reverse order of seniority.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 289 |
Notes to the financial statements
Scope of consolidation
37 Structured entitiescontinued
As at 31 December 2015 the Group’s funded exposures comprised £1,545m (2014: £3,591m) debt securities at fair value and £1,599m (2014: £3,390m) amortised cost loans and advances. Of the £3,681m (2014: £6,981m), £2,783m (2014: £4,822m) is investment grade, with the remainder either non-investment grade or not rated. The Group also had £708m (2014: £1,078m) of unfunded exposures in the form of undrawn liquidity commitments. Of the £4,389m (2014: £8,059m) of funded and unfunded exposures, £4,387m (2014: £7,897m) is senior in the capital structure of the entity.
Though the Group’s funded exposures are primarily investment grade and senior in the capital structure, there are cases where the interests that are subordinate to the Group’s senior and mezzanine interests have minimal or no value, due to decreases in the fair value of the underlying collateral held by the entity.
The Group’s income from these entities comprises trading income (largely gains and losses on changes in the fair value and interest earned on bonds) on items classified as held for trading and interest income on interests classified as loans and receivables.
During 2015, the Group recorded a fair value loss of £4m (2014: £91m loss) on debt securities. Impairment losses recorded on loans and advances were immaterial in both the current and prior year.
The fair value of the Group’s interests in certain CLOs and CDOs is influenced by the protection directly provided to the structured entities by monoline insurers in addition to the value of the collateral held by the entities. The protection provided to the entities by the monoline insurers is in the form of a CDS. However, the ability of the monolines to make payments is uncertain, which is reflected in the valuation of the Group’s interests in the monoline wrapped CLOs and CDOs.
Multi-seller conduit programmes
The conduits engage in providing financing to various clients and hold whole or partial interests in pools of receivables or similar obligations. These instruments are protected from loss through over-collateralisation, seller guarantees, or other credit enhancements provided to the conduits. The Group’s off balance sheet exposure included in the table above represents liquidity facilities that are provided to the conduits for the benefit of the holders of the commercial paper issued by the conduits and will only be drawn where the conduits are unable to access the commercial paper market. If these facilities are drawn, the Group is protected from loss through over-collateralisation, seller guarantees, or other credit enhancements provided to the conduits. The Group earns income from fees received on the liquidity facility and the letter of credit provided to the conduits. There were no impairment losses on this lending in either of the current year or the prior year.
Lending
The portfolio includes lending provided by the Group to unconsolidated structured entities in the normal course of its lending business to earn income in the form of interest and lending fees and includes loans to structured entities that are generally collateralised by property, equipment or other assets. All loans are subject to the Group’s credit sanctioning process. Collateral arrangements are specific to the circumstances of each loan with additional guarantees and collateral sought from the sponsor of the structured entity for certain arrangements. During the period the Group incurred an impairment of £35m (2014: £31m) against such facilities. The main types of lending are £3bn (2014: £4bn) of funding loans to bankruptcy remote structured entities to either invest or develop properties, £4bn (2014: £5bn) of loans to structured entities which have been created by an individual to hold one or more assets, £2bn (2014: £2bn) to entities whose operations are limited to financing or funding the acquisition of specific assets such as schools, hospitals, roads and renewable energy projects under the Private Finance Initiative (PFI), and £1bn (2014: £1bn) of funding loans to bankruptcy remote structured entities to enable them to purchase capital equipment for parent companies and are supported by government export guarantees.
Mortgage-backed securities
This represents a portfolio of floating rate notes, mainly mortgage-backed security positions, used as an accounting hedge of interest rate risk under the Group’s structural hedging programme. All notes are investment grade. The portfolio has decreased owing to a reduced requirement for hedge accounting capacity in sterling.
Investment funds and trusts
In the course of its fund management activities, the Group establishes pooled investment funds that comprise investments of various kinds, tailored to meet certain investors’ requirements. The Group’s interest in funds is generally restricted to a fund management fee, the value of which is typically based on the performance of the fund.
The Group acts as trustee to a number of trusts established by or on behalf of its clients. The purpose of the trusts, which meet the definition of structured entities, is to hold assets on behalf of beneficiaries. The Group’s interest in trusts is generally restricted to unpaid fees which, depending on the trust, may be fixed or based on the value of the trust assets. Barclays has no other risk exposure to the trusts.
Other
This includes £1,926m (2014: £1,514m) of derivative transactions with structured entities where the market risk is materially hedged with corresponding derivative contracts.
Assets transferred to sponsored unconsolidated structured entities
Assets transferred to sponsored unconsolidated structured entities were immaterial.
290 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
38 Investments in associates and joint ventures
Accounting for associates and joint ventures Barclays applies IAS 28Investments in Associates and IFRS 11Joint Arrangements. Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies. Generally the Group holds more than 20%, but less than 50%, of their voting shares. Joint ventures are arrangements where the Group has joint control and rights to the net assets of the entity.
The Group’s investments in associates and joint ventures are initially recorded at cost and increased (or decreased) each year by the Group’s share of the post acquisition profit/(loss). The Group ceases to recognise its share of the losses of equity accounted associates when its share of the net assets and amounts due from the entity have been written off in full, unless it has a contractual or constructive obligation to make good its share of the losses. In some cases, investments in these entities may be held at fair value through profit or loss, for example, those held by private equity businesses.
|
There are no individually significant investments in joint ventures or associates held by Barclays.
2015 | 2014 | |||||||||||||||||||||||
Associates | Joint ventures | Total | Associates | Joint ventures | Total | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Equity accounted | 217 | 356 | 573 | 303 | 408 | 711 | ||||||||||||||||||
Held at fair value through profit or loss | 77 | 475 | 552 | 307 | 366 | 673 | ||||||||||||||||||
Total | 294 | 831 | 1,125 | 610 | 774 | 1,384 | ||||||||||||||||||
Summarised financial information for the Group’s equity accounted associates and joint ventures is set out below. The amounts shown are the net income of the investees, not just the Group’s share for the year ended 31 December 2015, with the exception of certain undertakings for which the amounts are based on accounts made up to dates not earlier than three months before the balance sheet date.
|
| |||||||||||||||||||||||
Associates | Joint ventures | |||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||||||
Profit/(loss) from continuing operations | 6 | (9 | ) | 86 | 146 | |||||||||||||||||||
Other comprehensive income | – | 13 | (24 | ) | (5 | ) | ||||||||||||||||||
Total comprehensive income | 6 | 4 | 62 | 141 |
Unrecognised shares of the losses of individually immaterial associates and joint ventures were nil (2014: nil).
The Group’s associates and joint ventures are subject to statutory requirements such that they cannot make remittances of dividends or make loan repayments to Barclays PLC without agreement from the external parties.
The Group’s share of commitments and contingencies of its associates and joint ventures comprised unutilised credit facilities provided to customers of £1,450m (2014: £1,566m). In addition, the Group has made commitments to finance or otherwise provide resources to its joint ventures and associates of £177m (2014: £183m).
Accounting for securitisations The Group uses securitisations as a source of finance and a means of risk transfer. Such transactions generally result in the transfer of contractual cash flows from portfolios of financial assets to holders of issued debt securities.
Securitisations may, depending on the individual arrangement, result in continued recognition of the securitised assets and the recognition of the debt securities issued in the transaction; lead to partial continued recognition of the assets to the extent of the Group’s continuing involvement in those assets or to derecognition of the assets and the separate recognition, as assets or liabilities, of any rights and obligations created or retained in the transfer. Full derecognition only occurs when the Group transfers both 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.
|
In the course of its normal banking activities, the Group makes transfers of financial assets, either legally (where legal rights to the cash flows from the asset are passed to the counterparty) or beneficial (where the Group retains the rights to the cash flows but assumes a responsibility to transfer them to the counterparty). Depending on the nature of the transaction, this may result in derecognition of the assets in their entirety, partial derecognition or no derecognition of the assets subject to the transfer.
Full derecognition only occurs when the Group transfers both 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 substantially all the risks and rewards of ownership, including credit risk, prepayment risk and interest rate risk. When an asset is transferred, in some circumstances, the Group may retain an interest in it (continuing involvement) requiring the Group to repurchase it in certain circumstances for other than its fair value on that date.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 291 |
Notes to the financial statements
Scope of consolidation
39 Securitisationscontinued
A summary of the main transactions, and the assets and liabilities and the financial risks arising from these transactions, is set out below:
Transfers of financial assets that do not result in derecognition
Securitisations
The Group was party to securitisation transactions involving its residential mortgage loans, business loans and credit card balances.
In these transactions, the assets, interests in the assets, or beneficial interests in the cash flows arising from the assets, are transferred to a special purpose entity, which then issues interest bearing debt securities to third party investors.
Securitisations may, depending on the individual arrangement, result in continued recognition of the securitised assets and the recognition of the debt securities issued in the transaction. Partial continued recognition of the assets to the extent of the Group’s continuing involvement in those assets can also occur or derecognition of the assets and the separate recognition, as assets or liabilities, of any rights and obligations created or retained in the transfer.
The following table shows the carrying amount of securitised assets that have not resulted in full derecognition, together with the associated liabilities, for each category of asset on the balance sheet:
2015 | 2014 | |||||||||||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||||||||||
| Carrying amount £m | | | Fair value £m | | | Carrying amount £m | | | Fair value £m | | | Carrying amount £m | | | Fair value £m | | | Carrying amount £m | | | Fair value £m | | |||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||||||
Residential mortgage loans | 376 | 362 | (168 | ) | (170 | ) | 2,830 | 2,619 | (2,352 | ) | (2,360 | ) | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 5,433 | 5,472 | (4,604 | ) | (4,606 | ) | 7,060 | 7,162 | (5,160 | ) | (5,178 | ) | ||||||||||||||||||||
Corporate loans | 8 | 8 | (8 | ) | (8 | ) | 157 | 154 | (135 | ) | (146 | ) | ||||||||||||||||||||
Total | 5,817 | 5,842 | (4,780 | ) | (4,784 | ) | 10,047 | 9,935 | (7,647 | ) | (7,684 | ) | ||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||||||
Retained interests in residential mortgage loans | – | – | – | – | 66 | n/a | – | n/a | ||||||||||||||||||||||||
Retained interests in corporate loans | 42 | 42 | n/a | n/a | – | – | – | – |
Balances included within loans and advances to customers represent securitisations where substantially all the risks and rewards of the asset have been retained by the Group.
The relationship between the transferred assets and the associated liabilities is that holders of notes may only look to cash flows from the securitised assets for payments of principal and interest due to them under the terms of their notes, although the contractual terms of their notes may be different to the maturity and interest of the transferred assets.
Retained interests in transfers of financial assets that resulted in partial derecognition are securities which represent a continuing exposure to the prepayment and credit risk in the underlying securitised assets. The carrying amount of the loans before transfer was £78m (2014: £120m). The retained interest is initially recorded as an allocation of the original carrying amount based on the relative fair values of the portion derecognised and the portion retained.
For transfers of assets in relation to repurchase agreements, see Note 22 Reverse repurchase agreements including other similar and secured lending and borrowing and Note 40 Assets pledged.
Continuing involvement in financial assets that have been derecognised
In some cases, the Group may have transferred a financial asset in its entirety but may have continuing involvement in it. This arises in asset securitisations where loans and asset backed securities were derecognised as a result of the Group’s involvement with CLOs, CDOs, RMBS and CMBS. Continuing involvement largely arises from providing financing into these structures in the form of retained notes, which do not bear first losses.
The table below shows the potential financial implications of such continuing involvement:
| Continuing involvement as at 31 December 2015 |
| | Gain/(loss) from continuing involvement | | |||||||||||||||
Type of transfer | | Carrying amount £m | | | Fair value £m | | | Maximum exposure to loss £m | |
| For the year ended 31 December 2015 £m |
|
| Cumulative to 31 December 2015 £m |
| |||||
CLO and other assets | 686 | 684 | 686 | 7 | (36 | ) | ||||||||||||||
US sub-prime and Alt-A | 38 | 37 | 38 | – | (426 | ) | ||||||||||||||
Commercial mortgage backed securities | – | – | – | – | – | |||||||||||||||
Total | 724 | 721 | 724 | 7 | (462 | ) |
292 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
+39 Securitisationscontinued
| Continuing involvement as at 31 December 2014 |
| | Gain/(loss) from continuing involvement | | |||||||||||||||
Type of transfer | | Carrying amount £m | | | Fair value £m | |
| Maximum exposure to loss £m |
|
| For the year ended 31 December 2014 £m |
|
| Cumulative to 31 December 2014 £m |
| |||||
CLO and other assets | 1,370 | 1,354 | 1,370 | 14 | (720 | ) | ||||||||||||||
US sub-prime and Alt-A | 208 | 195 | 208 | – | (1,365 | ) | ||||||||||||||
Commercial mortgage backed securities | 200 | 200 | 200 | 15 | (8 | ) | ||||||||||||||
Total | 1,778 | 1,749 | 1,778 | 29 | (2,093 | ) | ||||||||||||||
Assets which represent the Group’s continuing involvement in derecognised assets are recorded in the following line items:
|
| |||||||||||||||||||
Type of transfer | | Loans and advances £m | |
| Trading portfolio assets £m |
|
| Total £m |
| |||||||||||
As at 31 December 2015 | ||||||||||||||||||||
CLO and other assets | 327 | 359 | 686 | |||||||||||||||||
US sub-prime and Alt-A | 38 | – | 38 | |||||||||||||||||
Commercial mortgage backed securities | – | – | – | |||||||||||||||||
Total | 365 | 359 | 724 | |||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||
CLO and other assets | 829 | 541 | 1,370 | |||||||||||||||||
US sub-prime and Alt-A | 200 | 8 | 208 | |||||||||||||||||
Commercial mortgage backed securities | – | 200 | 200 | |||||||||||||||||
Total | 1,029 | 749 | 1,778 |
Assets are pledged as collateral to secure liabilities under repurchase agreements, securitisations and stock lending agreements or as collateral posted against derivative margin requirements. Assets pledged as collateral include all assets categorised as encumbered in the disclosure on pages 162 to 164, other than those held in commercial paper conduits. In these transactions, Barclays will be required to step in to provide financing itself under a liquidity facility if the vehicle cannot access the commercial paper market. The following table summarises the nature and carrying amount of the assets pledged as security against these liabilities:
| 2015 £m |
|
| 2014 £m | a
| |||
Trading portfolio assets | 49,308 | 50,782 | ||||||
Financial assets designated at fair value | 2,534 | 2,324 | ||||||
Loans and advances to customers | 51,038 | 62,459 | ||||||
Cash collateral | 62,599 | 72,562 | ||||||
Available for sale financial investments | 11,666 | 8,732 | ||||||
Non current assets held for sale | 1,930 | 4,693 | ||||||
Assets pledged | 179,075 | 201,552 |
Barclays has an additional £13bn (2014: £9bn) of loans and advances within its asset backed funding programmes that can readily be used to raise additional secured funding and are available to support future issuance.
Collateral held as security for assets
Under certain transactions, including reverse repurchase agreements and stock borrowing transactions, the Group is allowed to resell or re-pledge the collateral held. The fair value at the balance sheet date of collateral accepted and re-pledged to others was as follows:
| 2015 £m |
|
| 2014 £m |
| |||
Fair value of securities accepted as collateral | 308,162 | 396,480 | ||||||
Of which fair value of securities re-pledged/transferred to others | 266,015 | 313,354 |
The full disclosure as per IFRS 7 has been included in collateral and other credit enhancements (see pages 113 to 114).
Note
a 2014 has been revised to align balance sheet categories to the asset encumbrance table on page 163.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 293 |
Notes to the financial statements
Other disclosure matters
The notes included in this section focus on related party transactions, auditors’ remuneration and Directors’ remuneration. Related parties include any subsidiaries, associates, joint ventures, entities under common directorships and Key Management Personnel.
41 Related party transactions and Directors’ remuneration
Related party transactions
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions, or one other party controls both. The definition includes subsidiaries, associates, joint ventures and the Group’s pension schemes.
Subsidiaries
Transactions between Barclays PLC and its subsidiaries also meet the definition of related party transactions. Where these are eliminated on consolidation, they are not disclosed in the Group Financial Statements. Transactions between Barclays PLC and its subsidiary, Barclays Bank PLC are fully disclosed in Barclays PLC’s balance sheet and income statement. A list of the Group’s principal subsidiaries is shown in Note 36.
Associates, joint ventures and other entities
The Group provides banking services to its associates, joint ventures, the Group pension funds (principally the UK Retirement Fund) and to entities under common directorships, providing loans, overdrafts, interest and non-interest bearing deposits and current accounts to these entities as well as other services. Group companies also provide investment management and custodian services to the Group pension schemes. The Group also provides banking services for unit trusts and investment funds managed by Group companies, which are not individually material. All of these transactions are conducted on the same terms as third party transactions. Summarised financial information for the Group’s investments in associates and joint ventures is set out in Note 38.
Amounts included in the Group’s financial statements, in aggregate, by category of related party entity are as follows:
Pension | ||||||||||||||
Entities | funds, unit | |||||||||||||
under | trusts and | |||||||||||||
Joint | common | investment | ||||||||||||
Associates | ventures | directorships | funds | |||||||||||
£m | £m | £m | £m | |||||||||||
For the year ended and as at 31 December 2015 | ||||||||||||||
Income | (19) | 40 | (4) | 4 | ||||||||||
Impairment | (4) | (2) | – | – | ||||||||||
Total assets | 36 | 1,578 | 116 | – | ||||||||||
Total liabilities | 158 | 133 | 6 | 184 | ||||||||||
For the year ended and as at 31 December 2014 | ||||||||||||||
Income | (5) | 9 | 51 | 4 | ||||||||||
Impairment | – | (1) | – | – | ||||||||||
Total assets | 130 | 1,558 | 219 | – | ||||||||||
Total liabilities | 264 | 188 | 36 | 149 | ||||||||||
For the year ended and as at 31 December 2013 | ||||||||||||||
Income | (10) | 24 | 1 | 3 | ||||||||||
Impairment | (3) | (4) | – | – | ||||||||||
Total assets | 116 | 1,521 | 33 | 5 | ||||||||||
Total liabilities | 278 | 185 | 73 | 207 |
Guarantees, pledges or commitments given in respect of these transactions in the year were £881m (2014: £911m) predominantly relating to joint ventures. No guarantees, pledges or commitments were received in the year. Derivatives transacted on behalf of the pension funds unit trusts and investment funds were £13m (2014: £587m).
Key Management Personnel
The Group’s Key Management Personnel, and persons connected with them, are also considered to be related parties for disclosure purposes. Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of Barclays PLC (directly or indirectly) and comprise the Directors of Barclays PLC and the Officers of the Group, certain direct reports of the Group Chief Executive and the heads of major business units and functions.
There were no material related party transactions with entities under common directorship where a Director or other member of Key Management Personnel (or any connected person) is also a Director or other member of Key Management Personnel (or any connected person) of Barclays.
294 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
41 Related party transactions and Directors’ remunerationcontinued
The Group provides banking services to Directors and other Key Management Personnel and persons connected to them. Transactions during the year and the balances outstanding were as follows:
Loans outstanding | ||||||
2015 | 2014 | |||||
£m | £m | |||||
As at 1 January | 11.4 | 13.4 | ||||
Loans issued during the year | 1.1 | 1.3 | ||||
Loan repayments during the year | (2.7) | (3.3) | ||||
As at 31 December | 9.8 | 11.4 |
No allowances for impairment were recognised in respect of loans to Directors or other members of Key Management Personnel (or any connected person).
Deposits outstanding | ||||||
2015 | 2014 | |||||
£m | £m | |||||
As at 1 January | 103.0 | 100.2 | ||||
Deposits received during the year | 44.8 | 25.7 | ||||
Deposits repaid during the year | (31.3) | (22.9) | ||||
As at 31 December | 116.5 | 103.0 |
Total commitments outstanding
Total commitments outstanding refers to the total of any undrawn amounts on credit cards and/or overdraft facilities provided to Key Management Personnel. Total commitments outstanding as at 31 December 2015 were £0.5m (2014: £1.3m).
All loans to Directors and other Key Management Personnel (and persons connected to them), (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons and (c) did not involve more than a normal risk of collectability or present other unfavourable features.
Remuneration of Directors and other Key Management Personnel
Total remuneration awarded to Directors and other Key Management Personnel below represents the awards made to individuals that have been approved by the Board Remuneration Committee as part of the latest remuneration decisions, and is consistent with the approach adopted for disclosures set out on pages 50 to 83. Costs recognised in the income statement reflect the accounting charge for the year and are included within operating expenses. The difference between the values awarded and the recognised income statement charge principally relates to the recognition of deferred costs for prior year awards. Figures are provided for the period that individuals met the definition of Directors and other Key Management Personnel.
2015 | 2014 | |||||
£m | £m | |||||
Salaries and other short-term benefits | 31.3 | 28.3 | ||||
Pension costs | 0.3 | 0.3 | ||||
Other long-term benefits | 4.7 | 8.1 | ||||
Share-based payments | 11.0 | 15.0 | ||||
Employer social security charges on emoluments | 5.2 | 5.8 | ||||
Costs recognised for accounting purposes | 52.5 | 57.5 | ||||
Employer social security charges on emoluments | (5.2) | (5.8) | ||||
Other long-term benefits – difference between awards granted and costs recognised | 2.5 | (4.3) | ||||
Share-based payments – difference between awards granted and costs recognised | (2.3) | (8.4) | ||||
Total remuneration awarded | 47.5 | 39.0 |
Disclosure required by the Companies Act 2006
The following information regarding Directors is presented in accordance with the Companies Act 2006:
2015 | 2014 | |||||
£m | £m | |||||
Aggregate emolumentsa | 7.0 | 7.8 | ||||
Amounts paid under LTIPsb | 2.2 | – | ||||
9.2 | 7.8 |
There were no pension contributions paid to defined contribution schemes on behalf of Directors (2014: nil). There were no notional pension contributions to defined contribution schemes.
As at 31 December 2015, there were no Directors accruing benefits under a defined benefit scheme (2014: nil).
Notes
a | The aggregate emoluments include amounts paid for the 2015 year. In addition, deferred share awards for 2015 will be made to Antony Jenkins and Tushar Morzaria which will only vest subject to meeting certain conditions. The total of the deferred share awards is £0.7m (£1.2m for 2014). |
b | The figure shown for 2015 in ‘Amounts paid under long-term incentive schemes’ is the amount that was released in 2015 in respect of the 2012-2014 Barclays Long Term Incentive Plan (‘LTIP’) cycle. The LTIP amount in the single total figure table for executive Directors’ 2015 remuneration in the Directors’ Remuneration report relates to the award that is scheduled to be released in 2016 in respect of the 2013-2015 LTIP cycle. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 295 |
Notes to the financial statements
Other disclosure matters
41 Related party transactions and Directors’ remunerationcontinued
Directors’ and Officers’ shareholdings and options
The beneficial ownership of ordinary share capital of Barclays PLC by all Directors and Officers of Barclays PLC (involving 26 persons) at 31 December 2015 amounted to 10,586,812 (2014: 9,078,157) ordinary shares of 25p each (0.06% of the ordinary share capital outstanding).
At 31 December 2015, executive Directors and officers of Barclays PLC (involving 32 persons) held options to purchase a total of 17,206 (2014: 30,398) Barclays PLC ordinary shares of 25p each at prices ranging from 133.01p to 178p under Sharesave.
Advances and credit to Directors and guarantees on behalf of Directors
In accordance with Section 413 of the Companies Act 2006, the total amount of advances and credits made available in 2015 to persons who served as Directors during the year was £0.3m (2014: £0.4m). The total value of guarantees entered into on behalf of Directors during 2015 was nil (2014: nil).
Auditors’ remuneration is included within consultancy, legal and professional fees in administration and general expenses and comprises:
|
Audit |
|
|
Taxation |
|
|
Other |
| ||||||||||
Audit | related | services | services | Total | ||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||
2015 | ||||||||||||||||||
Audit of the Group’s annual accounts | 13 | – | – | – | 13 | |||||||||||||
Other services: | ||||||||||||||||||
Fees payable for the Company’s associatesa | 21 | – | – | – | 21 | |||||||||||||
Other services suppliedb | – | 3 | – | – | 3 | |||||||||||||
Other services relating to taxation | ||||||||||||||||||
– compliance services | – | – | 1 | – | 1 | |||||||||||||
– advisory servicesc | – | – | – | – | – | |||||||||||||
Other | – | 4 | – | 1 | 5 | |||||||||||||
Total auditors’ remuneration | 34 | 7 | 1 | 1 | 43 | |||||||||||||
2014 | ||||||||||||||||||
Audit of the Group’s annual accounts | 11 | – | – | – | 11 | |||||||||||||
Other services: | ||||||||||||||||||
Fees payable for the Company’s associatesa | 24 | – | – | – | 24 | |||||||||||||
Other services suppliedb | – | 4 | – | – | 4 | |||||||||||||
Other services relating to taxation | ||||||||||||||||||
– compliance services | – | – | 1 | – | 1 | |||||||||||||
– advisory servicesc | – | – | – | – | – | |||||||||||||
Other | – | 3 | – | 1 | 4 | |||||||||||||
Total auditors’ remuneration | 35 | 7 | 1 | 1 | 44 | |||||||||||||
2013 | ||||||||||||||||||
Audit of the Group’s annual accounts | 10 | – | – | – | 10 | |||||||||||||
Other services: | ||||||||||||||||||
Fees payable for the Company’s associatesa | 25 | – | – | – | 25 | |||||||||||||
Other services suppliedb | – | 3 | – | – | 3 | |||||||||||||
Other services relating to taxation | ||||||||||||||||||
– compliance services | – | – | 2 | – | 2 | |||||||||||||
– advisory servicesc | – | – | – | – | – | |||||||||||||
Other | – | 3 | – | 2 | 5 | |||||||||||||
Total auditors’ remuneration | 35 | 6 | 2 | 2 | 45 |
The figures shown in the above table relate to fees paid to PricewaterhouseCoopers LLP and its associates for continuing operations of business. Fees paid to other auditors not associated with PricewaterhouseCoopers LLP in respect of the audit of the Company’s subsidiaries were £4m (2014: £4m, 2013: £5m).
Notes
a | Comprises the fees for the statutory audit of the subsidiaries and associated pension schemes both inside and outside Great Britain and fees for the work performed by associates of PricewaterhouseCoopers LLP in respect of the consolidated financial statements of the Company. Fees relating to the audit of the associated pension schemes were nil (2014: £0.2m). |
b | Comprises services in relation to statutory and regulatory filings. These include audit services for the review of the interim financial information under the Listing Rules of the UK listing authority. |
c | Includes consultation on tax matters, tax advice relating to transactions and other tax planning and advice. |
296 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
43 Financial risks, liquidity and capital management
To improve transparency and ease of reference, by concentrating related information in one place, and to reduce duplication, disclosures required under IFRS relating to financial risks and capital resources have been included within the Risk management and governance section as follows:
§ | Credit risk, on pages 111 to 137 |
§ | Market risk, on pages 138 to 147 |
§ | Capital risk, on pages 148 to 153 |
§ | Liquidity risk, on pages 154 to 171. |
44 Non-current assets held for sale and associated liabilities
Accounting for non-current assets held for sale and associated liabilities
The Group applies IFRS 5Non-current Assets Held for Sale and Discontinued Operations.
Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction rather than continuing use. In order to be classified as held for sale, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary and the sale must be highly probable. Non-current assets (or disposal groups) held for sale are measured at the lower of carrying amount and fair value less cost to sell.
|
Assets classified as held for sale | ||||||||||||||||||||||||
| Portugal 2015 £m |
|
| BVP 2015 £m |
|
| Italy 2015 £m |
| | Other 2015 £m | |
| Total 2015 £m |
|
| Total 2014 £m |
| |||||||
Available for sale financial investments | 7 | 1,220 | – | 3 | 1,230 | 162 | ||||||||||||||||||
Loans and advances to customers | 3,407 | – | 2,091 | 15 | 5,513 | 14,943 | ||||||||||||||||||
Property, plant and equipment | 42 | – | – | 86 | 128 | 92 | ||||||||||||||||||
Deferred tax assets | – | 22 | – | – | 22 | 291 | ||||||||||||||||||
Other assets | 28 | 756 | 27 | 104 | 915 | 557 | ||||||||||||||||||
Total | 3,484 | 1,998 | 2,118 | 208 | 7,808 | 16,045 | ||||||||||||||||||
Balance of impairment unallocated under IFRS 5 | (180 | ) | (22 | ) | (242 | ) | – | (444 | ) | (471 | ) | |||||||||||||
Total agreed to consolidated balance sheet | 3,304 | 1,976 | 1,876 | 208 | 7,364 | 15,574 | ||||||||||||||||||
Liabilities classified as held for sale | ||||||||||||||||||||||||
| Portugal 2015 £m |
|
| BVP 2015 £m |
|
| Italy 2015 £m |
| | Other 2015 £m | |
| Total 2015 £m |
|
| Total 2014 £m |
| |||||||
Deposits from banks | – | – | – | – | – | (4,313 | ) | |||||||||||||||||
Customer accounts | (1,826 | ) | – | (2,174 | ) | – | (4,000 | ) | (6,827 | ) | ||||||||||||||
Repurchase agreements and other similar secured borrowing | – | – | – | – | – | (77 | ) | |||||||||||||||||
Other liabilities | (37 | ) | (1,858 | ) | (66 | ) | (36 | ) | (1,997 | ) | (1,898 | ) | ||||||||||||
Total | (1,863 | ) | (1,858 | ) | (2,240 | ) | (36 | ) | (5,997 | ) | (13,115 | ) |
Sale of the Portuguese business
The disposal group includes all assets and liabilities of the Portuguese Retail Banking, Wealth and Investment Management businesses and part of the Portuguese Corporate banking business. This sale is part of the divestment of the Non-Core segment of the Group.
The Portuguese disposal was announced on 2 September 2015 and the sale is due to complete in Q116. A loss of £180m has been recognised in the income statement within (loss)/profit on disposal of subsidiaries, associates and joint ventures.
Sale of Barclays Vida Y Pensiones
The disposal group includes all assets and liabilities of Barclays Vida Y Pensiones (BVP), a company offering life insurance, pension products and services in Spain, Portugal and Italy. BVP was classified as held for sale in the first half of 2015 and is expected to be sold in the first half of 2016. A loss of £22m has been recognised in the income statement within (loss)/profit on disposal of subsidiaries, associates and joint ventures.
Sale of the Italian business
The disposal group includes the assets and liabilities of the Italian Retail Banking business including mortgages. This sale is part of the divestment of the Non-Core segment of the Group.
The Italian disposal was announced on 3 December 2015 and the sale is expected to complete in the first half of 2016. A loss of £258m has been recognised in the income statement within (loss)/profit on disposal of subsidiaries, associates and joint ventures.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 297 |
Notes to the financial statements
Other disclosure matters
44 Non-current assets held for sale and associated liabilitiescontinued
Other held for sale assets
Other assets includes the Barclays Risk Analysis Index Solutions business. A pre-tax gain of approximately £480m is expected to be recognised on completion during 2016.
During the year, a number of held for sale assets have been disposed of. The sale of the Spanish business (Barclays Bank SAU) took place in January 2015. Losses of £446m in 2014 and £117m in 2015 have been recognised in the income statement within (loss)/profit on disposal of subsidiaries, associates and joint ventures. Of the 2015 loss, £97m relates to recycling of the related currency translation reserve with the remainder due to revision of the estimated closing net asset value of the disposal group on completion. The sale of the Pakistan business took place in June 2015, and UKSL in September 2015 with gains of £14m and £7m respectively recognised in other income.
45 Barclays PLC (the Parent Company)
Other income/(expense)
Other income of £227m (2014: £275m) includes £345m (2014: £250m) of income received from gross coupon payments on Barclays Bank PLC issued AT1 securities partially offset by a £114m fair value loss (2014: £27m gain) on derivative financial instruments.
Non-current assets and liabilities
Investment in subsidiary
The investment in subsidiary of £35,303m (2014: £33,743m) represents investments made into Barclays Bank PLC, including £5,350m (2014: £4,350m) of AT1 securities. The increase of £1,560m during the year was due to a £1,000m increased holding in Barclays Bank PLC issued securities and a further cash contribution of £560m.
Loans and advances to subsidiary, subordinated liabilities and debt securities in issue
During the period, Barclays PLC issued€1.25bn equivalent of Fixed Rate Subordinated Notes included within the subordinated liabilities balance of £1,766m (2014: £810m), $5.5bn of Fixed Rate Senior Notes, Yen 60bn of Fixed and Floating Rate Notes and€100m of private MTN included within the debt securities in issue balance of £6,224m (2014: £2,056m). The proceeds raised through these transactions were used to invest in Barclays Bank PLC Notes in each case with a ranking corresponding to the notes issued by Barclays PLC and included within the loans and advances to subsidiary balance of £7,990m (2014: £2,866m).
Derivative financial instrument
The derivative financial instrument of £210m (2014: £313m) held by the Parent Company represents Barclays PLC’s right to receive a Capital Note with a face value of $3bn for no additional consideration, in the event the Barclays PLC consolidated CRD IV CET1 ratio (FSA October 2012 transitional statement) falls below 7% at which point the notes are automatically assigned by the holders to Barclays PLC.
Shareholders’ equity
Called up share capital and share premium of Barclays PLC was £21,586m (2014: £20,809m). Other equity instruments of £5,321m (2014: £4,326m) comprises of AT1 securities. For further details please refer to Note 31.
298 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Notes to the financial statements
The Group’s corporate structure consists of a number of related undertakings, comprising subsidiaries, joint ventures, associates and significant other interests. A full list of these undertakings, the country of incorporation and the ownership of each share class is set out below. The information is provided as at 31 December 2015.
The entities are grouped by the countries in which they are incorporated. The profits earned by the activities of these entities are in some cases taxed in countries other than the country of incorporation. Barclays’ 2015 Country Snapshot provides details of where the Group carries on its business, where its profits are subject to tax and the taxes it pays in each country it operates in.
Wholly owned subsidiaries
Unless otherwise stated the undertakings below are wholly owned and consolidated by Barclays and the share capital disclosed comprises ordinary or common shares which are held by Group subsidiaries. Where multiple share classes are held the proportion of the nominal value of each class of shares held is 100% unless otherwise stated.
Wholly owned subsidiaries | Note | |
United Kingdom
| ||
54 Lombard Street Investments | F, I | |
Aequor Investments Limited | ||
Alynore Investments Limited Partnership | B | |
Ardencroft Investments Limited | F, I | |
Astraea Investment Funds | J, K | |
Axis Partners | B | |
B D & B Investments Limited | ||
B.P.B. (Holdings) Limited | ||
Barafor Limited | ||
Barclay Leasing Limited | ||
Barclaycard Funding PLC | ||
Barclays (Security Realisation) Limited | ||
Barclays Africa Group Holdings Limited | J, K | |
Barclays Aldersgate Investments Limited | ||
Barclays Asset Management Limited | ||
Barclays Bank PLC | A, F, I | |
Barclays Bank Trust Company Limited | I, P | |
Barclays Bayard Investments Trust | D | |
Barclays BCL FI Trust | D | |
Barclays Bedivere Trust | D | |
Barclays BR Holdings Trust | D | |
Barclays BR Investments Trust | D | |
Barclays Cantal Investments Trust | D | |
Barclays Capital Asia Holdings Limited | ||
Barclays Capital Finance Limited | ||
Barclays Capital Japan Securities Holdings Limited | ||
Barclays Capital Luxembourg S.à r.l. Trust | D | |
Barclays Capital Margin Financing Limited | ||
Barclays Capital Nominees (No.2) Limited | ||
Barclays Capital Nominees (No.3) Limited | ||
Barclays Capital Nominees Limited | ||
Barclays Capital Principal Investments Limited | ||
Barclays Capital Securities Client Nominee Limited | ||
Barclays Capital Securities Limited | F, I | |
Barclays Capital Services Limited | ||
Barclays Capital Strategic Advisers Limited | ||
Barclays Capital Trading Luxembourg Trust | D | |
Barclays CCP Funding LLP | B | |
Barclays Claudas Investments Partnership | B | |
Barclays Converted Investments (No.2) Limited | ||
Barclays Converted Investments Limited | ||
Barclays Darnay Euro Investments Limited (In Liquidation) | ||
Barclays Direct Investing Nominees Limited | ||
Barclays Directors Limited | ||
Barclays Equity Index Investments Bare Trust | D | |
Barclays Executive Schemes Trustees Limited | ||
Barclays Export and Finance Company Limited (In Liquidation) | ||
Barclays Fiduciary Services (UK) Limited | ||
Barclays Financial Planning | ||
Barclays Financial Planning Nominee Company Limited | ||
Barclays Funds Investments Limited | ||
Barclays Global Investors Finance Limited (In Liquidation) | ||
Barclays Global Investors UK Holdings Limited (in Liquidation) | J, K | |
Barclays Global Shareplans Nominee Limited | ||
Barclays Group Holdings Limited | ||
Barclays Group Operations Limited | ||
Barclays Industrial Development Limited | ||
Barclays Industrial Investments Limited | ||
Barclays Insurance Services Company Limited |
Wholly owned subsidiaries | Note | |
Barclays Investment Management Limited | ||
Barclays Lamorak Trust | D | |
Barclays Leasing (No.9) Limited | ||
Barclays Long Island Limited | ||
Barclays Luxembourg EUR Holdings Trust | D | |
Barclays Luxembourg Finance Index Trust | D | |
Barclays Luxembourg GBP Holdings Trust | D | |
Barclays Luxembourg USD Holdings Trust | D | |
Barclays Marlist Limited | ||
Barclays Mercantile Business Finance Limited | ||
Barclays Mercantile Highland Finance Limited (In Liquidation) | ||
Barclays Mercantile Limited | ||
Barclays Metals Limited | ||
Barclays Nominees (Branches) Limited | ||
Barclays Nominees (George Yard) Limited | ||
Barclays Nominees (K.W.S.) Limited | ||
Barclays Nominees (Monument) Limited | ||
Barclays Nominees (Provincial) Limited | ||
Barclays Nominees (United Nations For UNJSPF) Limited | ||
Barclays Operational Services Limited | ||
Barclays Pelleas Investments Limited Partnership | B | |
Barclays Pelleas Trust | D | |
Barclays Pension Funds Trustees Limited | ||
Barclays Physical Trading Limited | ||
Barclays Private Bank | ||
Barclays Private Banking Services Limited | ||
Barclays Private Trust | ||
Barclays Risk Analytics and Index Solutions Limited | ||
Barclays SAMS Limited | ||
Barclays Services (Japan) Limited | ||
Barclays Sharedealing | ||
Barclays Shea Limited | ||
Barclays Singapore Global Shareplans Nominee Limited | ||
Barclays SLCSM (No.1) Limited | ||
Barclays Stockbrokers (Holdings) Limited | ||
Barclays Stockbrokers Limited | ||
Barclays UK and Europe PLC | ||
Barclays Unquoted Investments Limited | ||
Barclays Unquoted Property Investments Limited | ||
Barclays USD Funding LLP | B | |
Barclays Wealth Nominees Limited | ||
Barclayshare Nominees Limited | ||
Barcosec Limited | ||
Barley Investments Limited | I, J, K | |
Barometers Limited | ||
Barsec Nominees Limited | ||
BB Client Nominees Limited | ||
BBUK Private Credit Partners Limited (In Liquidation) | ||
BCLI GP Trust | D | |
Blossom Finance General Partnership | B | |
BMBF (Bluewater Investments) Limited | ||
BMBF (No.12) Limited | ||
BMBF (No.18) Limited (Dissolved 20/01/2016) | ||
BMBF (No.21) Limited | ||
BMBF (No.24) Limited | ||
BMBF (No.3) Limited | ||
BMBF (No.6) Limited | ||
BMBF (No.9) Limited | ||
BMBF USD NO 1 Limited | ||
BMI (No.6) Limited (Dissolved 16/01/2016) |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 299 |
Notes to the financial statements
46 Related undertakingscontinued
Wholly owned subsidiaries | Note | |
BMI (No.9) Limited | ||
BNRI ENG 2013 Limited Partnership | B | |
BNRI ENG 2014 Limited Partnership | B | |
BNRI ENG GP LLP | B | |
BNRI England 2010 Limited Partnership | B | |
BNRI England 2011 Limited Partnership | B | |
BNRI England 2012 Limited Partnership | B | |
BNRI PIA Scot GP Limited | ||
BNRI Scots GP, LLP | B | |
Boudeuse Limited | ||
Capel Cure Sharp Limited | ||
Carnegie Holdings Limited | I, J, K | |
Chapelcrest Investments Limited | ||
Clearlybusiness.com Limited (In Liquidation) | ||
Clydesdale Financial Services Limited | ||
Cobalt Investments Limited | ||
Condor No.1 Limited Partnership | B | |
Condor No.2 Limited Partnership | B | |
CP Flower Guaranteeco (UK) Limited | E | |
CP Propco 1 Limited | ||
CP Propco 2 Limited | ||
CP Topco Limited | J, K | |
CPIA England 2008 Limited Partnership | B | |
CPIA England 2009 Limited Partnership | B | |
CPIA England No.2 Limited Partnership | B | |
Denham Investments Limited | ||
DMW Realty Limited | ||
Durlacher Nominees Limited | ||
Eagle Financial and Leasing Services (UK) Limited | ||
Ebbgate Investments Limited (In Liquidation) | ||
Eldfell Investments Limited (In Liquidation) | ||
EM Investments No.1 Limited (In Liquidation) | ||
Equity Value Investments Limited Liability Partnership | B | |
Equity Value Investments No.1 Limited | ||
Equity Value Investments No.2 Limited | F, I | |
Exshelfco (DZBC) | ||
Fair and Square Limited (In Liquidation) | ||
Finpart Nominees Limited | ||
FIRSTPLUS Financial Group PLC | ||
Fitzroy Finance Limited | Z | |
Foltus Investments Limited | ||
Gerrard (OMH) Limited | ||
Gerrard Financial Planning Limited | ||
Gerrard Investment Management Limited | ||
Gerrard Management Services Limited | ||
Gerrard Nominees Limited | ||
Global Dynasty Natural Resource Private Equity Limited Partnership | B | |
Globe Nominees Limited | ||
GM Computers Limited | ||
Greig Middleton Holdings Limited | ||
Greig Middleton Nominees Limited | ||
Hawkins Funding Limited | ||
Heraldglen Limited | G, H, I | |
Hoardburst Limited (In Liquidation) | ||
Investors In Infrastructure Limited | ||
J.V. Estates Limited | ||
Keepier Investments | ||
Kirsche Investments Limited | ||
Laser Investment Company 1 Limited (In Liquidation) | ||
Laser Investment Company 2 Limited (In Liquidation) | ||
Leonis Investments LLP | B | |
Lindley Developments Limited | U | |
Lombard Street Nominees Limited | ||
Long Island Assets Limited | ||
Luscinia Investments Funds | ||
Maloney Investments Limited | ||
MCC Leasing (No. 6) Limited (In Liquidation) | ||
MCC Leasing (No.24) Limited (Dissolved 04/02/2016) | ||
Menlo Investments Limited | ||
Mercantile Credit Company Limited | ||
Mercantile Industrial Leasing Limited (In Liquidation) | ||
Mercantile Leasing Company (No.132) Limited | ||
Mercers Debt Collections Limited | ||
MK Opportunities LP | B |
Wholly owned subsidiaries | Note | |
Muleta Investments Limited (In Liquidation) | ||
Murray House Investment Management Limited | ||
Naxos Investments Limited | ||
North Colonnade Investments Limited | ||
Northwharf Investments Limited | I, X | |
Northwharf Nominees Limited | ||
Odysseus (Martins) Investments Limited (In Liquidation) | ||
Pecan Aggregator LP | B | |
Pendle Shipping Limited | ||
PIA England No.2 Limited Partnership | B | |
Preferred Liquidity Limited Partnership | B | |
R.C. Greig Nominees Limited | ||
Real Estate Participation Management Limited | ||
Real Estate Participation Services Limited | ||
Reflex Nominees Limited | ||
Relative Value Investments UK Limited Liability Partnership | B | |
Relative Value Trading Limited | ||
Roder Investments No. 1 Limited | I, Y | |
Roder Investments No. 2 Limited | I, Y | |
Ruthenium Investments Limited | ||
RVT CLO Investments LLP | B | |
Scotlife Home Loans (No.3) Limited | ||
Sharelink Nominees Limited | ||
Solution Personal Finance Limited | J, K, L | |
Stellans Investments Limited (In Liquidation) | ||
Surety Trust Limited | ||
Swan Lane Investments Limited | F, I | |
The Logic Group Enterprises Limited | ||
The Logic Group Holdings Limited | J | |
US Real Estate Holdings No.3 Limited | ||
W.D. Pension Fund Limited | ||
Wedd Jefferson (Nominees) Limited | ||
Westferry Investments Limited | ||
Woolwich Assured Homes Limited | ||
Woolwich Homes (1987) Limited | E | |
Woolwich Homes Limited | ||
Woolwich Limited | ||
Woolwich Plan Managers Limited | ||
Woolwich Qualifying Employee Share Ownership Trustee Limited | ||
Woolwich Surveying Services Limited | ||
Wysteria Euro Investments Limited (In Liquidation) | ||
Zeban Nominees Limited | ||
Argentina
| ||
Compañia regional del Sur S.A. | ||
Compañía Sudamerica S.A. | ||
Belgium
| ||
Belgian Turbine Lease Corporation NV | ||
Brazil
| ||
Banco Barclays S.A. | ||
Barclays Corretora de Titulos e Valores Mobiliarios S.A. | ||
Canada
| ||
Barclays Canadian Commodities Limited | ||
Barclays Capital Canada Inc | ||
Barclays Corporation Limited | ||
CPIA Canada Holdings | B | |
Cayman Islands
| ||
Alymere Investments Limited | G, H, I | |
Alymere Investments Two Limited (In Liquidation) | ||
Analytical Trade UK Limited | ||
Aquitaine Investments Limited (In Liquidation) | ||
Aubisque UK Investments Limited (In Liquidation) | ||
Barclays Capital (Cayman) Limited | ||
Barclays Trust Company (Cayman) Limited (Sold 14/01/2016) | ||
Barclays Wealth Corporate Nominees Limited (Sold 14/01/2016) | ||
Beille Investments Limited (In Liquidation) | ||
Bigorre UK Investments Limited (In Liquidation) | ||
Blaytell Limited | ||
Braven Investments No.1 Limited | ||
Brule 1 Investments Limited (In Liquidation) | ||
Calthorpe Investments Limited | ||
Capton Investments Limited | ||
Claudas Investments Limited | G, H, I | |
Claudas Investments Two Limited | ||
Colombiere UK Investments Limited (In Liquidation) |
300 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
46 Related undertakingscontinued
Wholly owned subsidiaries | Note | |
Coskwo Limited | ||
CPIA Investments No.1 Limited | V | |
CPIA Investments No.2 Limited | F, I | |
Cureton Investments No. 1 Limited (In Liquidation) | ||
Cuth Investments Limited | F, I, T | |
Eagle Holdings Ltd (Sold 14/01/2016) | ||
Eagle Management Services Limited (Sold 14/01/2016) | ||
Feste Investments Limited (In Liquidation) | ||
Furbridge Investments Limited | ||
Gallen Investments Limited | H, I | |
Gironde Investments Limited (In Liquidation) | ||
Godler Limited | ||
Golden Eagle Holdings Ltd (Sold 14/01/2016) | ||
Hamar Investments Limited | ||
Harflane Limited | ||
Hauteville UK Investments Limited (In Liquidation) | ||
Hentock Limited | ||
Hollygrice Limited | ||
Hurley Investments No.1 Limited | I, W | |
Hurley Investments No.2 Limited (In Liquidation) | ||
HYMF (Cayman) Limited | ||
Iris Investments 1 Limited | G, H, I | |
JV Assets Limited | ||
Mintaka Investments No. 4 Limited | ||
Moselle No 3 UK Investments Limited (In Liquidation) | ||
OGP Leasing Limited | ||
Palomino Limited | Z | |
Pelleas Investments Limited | ||
Pelleas Investments Two Limited | ||
Pilkbull Limited | ||
Pippin Island Investments Limited | ||
Raglan Investments Limited | ||
Razzoli Investments Limited | F, I | |
RVH Limited | F, I | |
Spargi Investments Limited (In Liquidation) | ||
Spatial Investments Limited (In Liquidation) | ||
Spoonhill Investments Limited (In Liquidation) | ||
Strickyard Limited | ||
Tourmalet UK Investments Limited (In Liquidation) | ||
Ventotene Investments Limited (In Liquidation) | ||
Wessex Investments Limited | ||
Winhall Limited | ||
Zane Investments Limited | ||
Zanonne Investments Limited (In Liquidation) | ||
Zinc Holdings Limited (In Liquidation) | ||
Zumboorok Investments Limited | F, I, T | |
China
| ||
Barclays Technology Centre (Shanghai) Company Limited | ||
Egypt
| ||
Barclays Bank Egypt SAE | ||
France
| ||
Barclays Courtage SAS | ||
Barclays Diversification | ||
Barclays France SA | ||
Barclays Patrimoine S.C.S. | ||
Barclays Vie SA | ||
Barclays Wealth Managers France SA | ||
BBAIL SAS | ||
Germany
| ||
Barclaycard Bank AG | ||
Barclays Capital Effekten GmbH | ||
Baubecon Holding 1 GmbH (In Liquidation) | ||
Opal 110. GmbH (In Liquidation) | ||
Sulm Investments GmbH | ||
Gibraltar
| ||
Barclays Gibraltar Nominees Company Limited | ||
Frankland Properties Limited | ||
Norfolk LP | B | |
Ringmer Properties Limited | ||
Saveway Properties Limited | ||
Stowmarket Investments Limited | ||
Townmead Properties Limited | ||
Trefield Holdings Limited |
Wholly owned subsidiaries | Note | |
Guernsey
| ||
Barclays Insurance Guernsey PCC Limited | Q | |
Barclays Nominees (Guernsey) Limited | ||
Barclays Wealth Advisory Holdings (Guernsey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Corporate Officers (Guernsey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Corporate Services (Guernsey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Directors (Guernsey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Fund Managers (Guernsey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Nominees (Guernsey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Trustees (Guernsey) Limited (Sold 14/01/2016) | ||
Bormio Limited (Sold 14/01/2016) | ||
Lindmar Trust Company Limited (Sold 14/01/2016) | ||
Regency Secretaries Limited (Sold 14/01/2016) | ||
Hong Kong
| ||
Barclays Asia Limited | ||
Barclays Bank (Hong Kong Nominees) Limited (In Liquidation) | ||
Barclays Capital Asia Limited | ||
Barclays Capital Asia Nominees Limited (In Liquidation) | ||
Barclays Wealth Nominees (Hong Kong) Limited (Sold 14/01/2016) | ||
India
| ||
Barclays Holdings India Private Limited (In Liquidation) | ||
Barclays Investments & Loans (India) Limited | F, I | |
Barclays Securities (India) Private Limited | ||
Barclays Shared Services Private Limited | ||
Barclays Technology Centre India Private Limited | ||
Barclays Wealth Trustees (India) Private Limited | ||
Indonesia
| ||
PT Bank Barclays Indonesia (In Liquidation) | ||
PT Bhadra Buana Persada (In Liquidation) | ||
Ireland | ||
Barclaycard International Payments Limited | ||
Barclays Assurance (Dublin) Limited | ||
Barclays Bank Ireland Public Limited Company | ||
Barclays Equities Trading (Ireland) Limited (In Liquidation) | ||
Barclays Insurance (Dublin) Limited | ||
Barclays Ireland Nominees Limited | ||
Isle of Man
| ||
Barclays Holdings (Isle of Man) Limited | ||
Barclays Nominees (Manx) Limited | ||
Barclays Portfolio (IoM GP) No.2 Limited | ||
Barclays Private Clients International Limited | J, K | |
Barclays Trust Company (Isle of Man) Limited (Sold 14/01/2016) | ||
Barclays Wealth Corporate Officers (Isle of Man) Limited (Sold 14/01/2016) | ||
Barclays Wealth Corporate Services (IOM) Limited (Sold 14/01/2016) | ||
Barclays Wealth Directors (Isle of Man) Limited (Sold 14/01/2016) | ||
Barclays Wealth Nominees (IOM) Limited (Sold 14/01/2016) | ||
Barclays Wealth Trustees (Isle of Man) Limited (Sold 14/01/2016) | ||
Barclaytrust (Nominees) Isle of Man Limited (Sold 14/01/2016) | ||
Barclaytrust International Nominees (Isle of Man) Limited (Sold 14/01/2016) | ||
Island Nominees Limited (Sold 14/01/2016) | ||
Stowell Limited (Sold 14/01/2016) | ||
Walbrook (IOM) 2006 Nominees (No. 1) Limited (Sold 14/01/2016) | ||
Walbrook (IOM) Nominees (No. 23) Limited (Sold 14/01/2016) | ||
Walbrook (IOM) Nominees (No. 3) Limited (Sold 14/01/2016) | ||
Walbrook (IOM) Nominees (No. 4) Limited (Sold 14/01/2016) | ||
Walbrook (IOM) Nominees (No. 5) Limited (Sold 14/01/2016) | ||
Walbrook (IOM) Nominees (No. 6) Limited (Sold 14/01/2016) | ||
Italy
| ||
Barclays Private Equity S.p.A. (In Liquidation) | ||
Barclays Services Italia S.p.A. (In Liquidation) | ||
Japan
| ||
Barclays Funds and Advisory Japan Limited | ||
Barclays Securities Japan Limited | ||
Barclays Wealth Services Limited | ||
Jersey
| ||
Barbridge Limited | ||
Barclays Nominees (Jersey) Limited | ||
Barclays Services Jersey Limited | ||
Barclays Trust Company (Jersey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Corporate Officers (Jersey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Directors (Jersey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Fund Managers (Jersey) Limited (Sold 14/01/2016) | ||
Barclays Wealth Management Jersey Limited | ||
Barclays Wealth Signatories Limited (Sold 14/01/2016) |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 301 |
Notes to the financial statements
46 Related undertakingscontinued
Wholly owned subsidiaries | Note | |
Barclays Wealth Trustees (Jersey) Limited (Sold 14/01/2016) | ||
Barclaytrust Channel Islands Limited | ||
Barclaytrust International (Jersey) Limited (Sold 14/01/2016) | ||
Barclaytrust Jersey Limited (Sold 14/01/2016) | ||
BIFML PTC Limited | ||
CP Newco 1 Limited | ||
CP Newco2 Limited | J, K | |
CP Newco3 Limited | ||
Karami Holdings Limited (Sold 14/01/2016) | ||
MK Opportunities GP Ltd | ||
Sandringham Nominees Limited (Sold 14/01/2016) | ||
Tiara Trustees (Jersey) Limited (Sold 14/01/2016) | ||
Walbrook Executors Limited (Sold 14/01/2016) | ||
Walbrook Properties Limited (Sold 14/01/2016) | ||
Korea, Republic of
| ||
Barclays Korea GP Limited | ||
Luxembourg
| ||
Adler Toy Holding Sarl | ||
Barclays Aegis Investments S.à r.l. | ||
Barclays Alzin Investments S.à r.l. | ||
Barclays Bayard Investments S.à r.l. | J, K | |
Barclays BCL Fixed Income S.à r.l. | ||
Barclays BCLI no.1 S.à r.l. | ||
Barclays BCLI no.2 S.à r.l. | ||
Barclays Bedivere Investments S.à r.l. | ||
Barclays Bordang Investments S.à r.l. | ||
Barclays BR Holdings S.à r.l. | ||
Barclays BR Investments S.à r.l. | ||
Barclays Cantal Investments S.à r.l. | ||
Barclays Capital Luxembourg S.à r.l. | I, N | |
Barclays Capital Trading Luxembourg S.à r.l. | ||
Barclays Equity Index Investments S.à r.l. | ||
Barclays Lamorak Investments S.à r.l. | ||
Barclays Leto Investments S.à r.l. | ||
Barclays Luxembourg EUR Holdings S.à r.l | ||
Barclays Luxembourg Finance S.à r.l. | I, K | |
Barclays Luxembourg GBP Holdings S.à r.l. | ||
Barclays Luxembourg Holdings S.à r.l. | ||
Barclays Luxembourg Holdings SSC | B | |
Barclays Luxembourg USD Holdings S.à r.l. | ||
Barclays Pelleas Investments S.à r.l. | G, I | |
Barclays US Investments S.à r.l. | J, K | |
Malaysia
| ||
Barclays Capital Markets Malaysia Sdn Bhd. | F, I | |
Mauritius
| ||
Barclays (H&B) Mauritius Limited | ||
Barclays Capital Mauritius Limited | ||
Barclays Capital Securities Mauritius Limited | ||
Barclays Mauritius Overseas Holdings Limited | ||
Mexico
| ||
Barclays Bank Mexico, S.A. | K, M | |
Barclays Capital Casa de Bolsa, S.A. de C.V. | K, M | |
Grupo Financiero Barclays Mexico, S.A. de C.V. | K, M | |
Servicios Barclays, S.A. de C.V. | ||
Monaco
| ||
Barclays Wealth Asset Management (Monaco) S.A.M. | ||
Netherlands
| ||
Barclays SLCSM Funding B.V. | ||
Chewdef BidCo BV. (In Liquidation) | ||
Nigeria
| ||
Barclays Group Representative Office (NIG) Limited | ||
Philippines
| ||
Meridian (SPV-AMC) Corporation | ||
Portugal
| ||
Barclays Wealth Managers Portugal – SGFIM, S.A. | ||
Russian Federation
| ||
Limited Liability Company Barclays Capital | ||
Saudi Arabia
| ||
Barclays Saudi Arabia (In Liquidation) | ||
Singapore
| ||
Barclays Bank (Singapore Nominees) Pte Ltd. | ||
Barclays Bank (South East Asia) Nominees Private Limited | ||
Barclays Capital Futures (Singapore) Private Limited |
Wholly owned subsidiaries | Note | |
Barclays Capital Holdings (Singapore) Private Limited | ||
Barclays Merchant Bank (Singapore) Ltd. | ||
Barclays Wealth Trustees (Singapore) Limited (Sold 14/01/2016) | ||
Spain
| ||
Barclays Mediador, Operador de Banca Seguros Vinculado, S.A. | ||
Barclays Tenedora De Immuebles SL. | ||
Barclays Vida Y Pensiones, Compañía De Seguros, S.A. | ||
Iberalbion A.I.E. | ||
The Logic Group Enterprises S.L | ||
Switzerland
| ||
Barclays Bank (Suisse) S.A. | ||
Barclaytrust (Suisse) SA (Sold 14/01/2016) | ||
BPB Holdings SA | ||
Taiwan
| ||
Barclays Capital Securities Taiwan Limited | ||
Thailand
| ||
Barclays Capital Securities (Thailand) Ltd. | ||
Uganda
| ||
Barclays Bank of Uganda Limited | ||
Ukraine
| ||
Barclays Capital Services (Ukraine) LLC (In Liquidation) | C | |
United States
| ||
475 Fifth 09 LLC | C | |
Analog Analytics Inc | ||
Analytical FX Trading Strategy Cell I | F, I | |
Analytical FX Trading Strategy Cell II | ||
Analytical FX Trading Strategy Series LLC | C | |
Analytical Trade Holdings LLC | ||
Analytical Trade Investments LLC | H | |
Archstone Equity Holdings Inc | ||
Barclays Bank Delaware | F, I | |
Barclays BWA, Inc. | ||
Barclays Capital Commodities Corporation | ||
Barclays Capital Derivatives Funding LLC | C | |
Barclays Capital Energy Inc. | ||
Barclays Capital Equities Trading GP | B | |
Barclays Capital Holdings Inc. | G, I | |
Barclays Capital Inc. | ||
Barclays Capital Real Estate Finance Inc. | ||
Barclays Capital Real Estate Holdings Inc. | ||
Barclays Capital Real Estate Inc. | ||
Barclays Capital Services Inc. | ||
Barclays Commercial Mortgage Securities LLC | C | |
Barclays Delaware Holdings LLC | F, I | |
Barclays Dryrock Funding LLC | C | |
Barclays Electronic Commerce Holdings Inc. | ||
Barclays Financial LLC | C | |
Barclays Group US Inc. | ||
Barclays Insurance U.S. Inc. | ||
Barclays Investment Holdings Inc. | ||
Barclays Oversight Management Inc. | ||
Barclays Receivables LLC | C | |
Barclays Services Corporation | ||
Barclays Services LLC | C | |
Barclays US CCP Funding LLC | C | |
Barclays US Funding LLC | C | |
Barclays US GPF Inc. | ||
Barclays US LP | B | |
Barclays US Management, LLC | C | |
BCAP LLC | C | |
BNRI Acquisition No.4 LLC | C | |
BNRI Acquisition No.5, LP | B | |
BTXS Inc. | ||
Centergate at Gratigny LLC | C | |
CPIA Acquisition No.1 LLC | C | |
CPIA Acquisition No.2 LLC | C | |
CPIA Acquisition No.3 LLC | C | |
CPIA Equity No. 1 Inc. | ||
CPIA Finance No.1, LLC | C | |
CPIA FX Investments Inc. | ||
CPIA Holdings No.1, LLC | C | |
Crescent Real Estate Member LLC | C | |
Curve Investments GP | B |
302 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
46 Related undertakingscontinued
Wholly owned subsidiaries | Note | |
Equifirst Corporation (In Liquidation) | ||
Gracechurch Services Corporation | ||
HYMF, Inc. | ||
La Torretta Beverages LLC | C | |
La Torretta Hospitality LLC | C | |
La Torretta Operations LLC | C | |
Lagalla Investments LLC | C | |
Long Island Holding A LLC | C | |
Long Island Holding B LLC | C | |
LTDL Holdings LLC | C | |
Marbury Holdings LLC | ||
Persica Holdings LLC | C | |
Persica Lease LLC | C | |
Persica LL LLC | C | |
Persica Property LLC | C | |
Preferred Liquidity, LLC | ||
Procella Investments LLC | C | |
Procella Investments No.1 LLC | C | |
Procella Investments No.2 LLC | C | |
Procella Investments No.3 LLC | C | |
Procella Swaps LLC | C | |
Protium Finance I LLC | C | |
Protium Master Grantor Trust | D | |
Protium Master Mortgage LP | B | |
Protium REO I LP | B | |
RB Special Assets, L.L.C. | C | |
Relative Value Holdings, LLC | ||
Rhode Investments LLC | C | |
Securitized Asset Backed Receivables LLC | C | |
Sutton Funding LLC | C | |
TPLL LLC | C | |
TPProperty LLC | C | |
TPWorks LLC | C | |
US Secured Investments LLC | C | |
Vail 09 LLC | C | |
Vail Development 09 LLC | C | |
Vail Hotel 09 LLC | C | |
Vail Hotel A LLC | C | |
Vail Hotel B LLC | C | |
Vail Residential 09 LLC | C | |
Vail SC LLC | C | |
Vanoise Inc | H, I | |
Verain Investments LLC | I, J, K | |
Wilmington Riverfront Receivables LLC | J, K | |
Zambia
| ||
Barclays Bank Zambia Plc | ||
Kafue House Limited | ||
Zimbabwe
| ||
Afcarme Zimbabwe Holdings (Pvt) Limited | ||
Branchcall Computers (Pvt) Limited |
Other related undertakings
Unless otherwise stated, the undertakings below are consolidated and the share capital disclosed comprises ordinary or common shares which are held by subsidiaries of the Group. The ownership percentage is provided for each undertaking. Where multiple share classes are held the proportion of the nominal value of each class of shares held is the same as the ownership unless otherwise stated.
Other related undertakings | Percentage | Note | ||
United Kingdom
| ||||
Barclays Africa Limited | 62.32% | |||
Barclays Alma Mater Management Limited | ||||
Partnership | 30.00% | B, Z | ||
Barclays Covered Bond Funding LLP | 50.00% | B | ||
Barclays Infrastructure Investors Management LP | 38.00% | B, Z | ||
BEIF Management Limited Partnership | 30.00% | B, Z | ||
BMC (UK) Limited | 40.13% | Z | ||
Business Growth Fund PLC | 23.96% | Z | ||
Camperdown UK Limited | 50.00% | J, Z | ||
Claas Finance Limited | 51.00% | K | ||
Equistone Founder Partner II L.P. | 20.00% | B, Z | ||
Equistone Founder Partner III L.P. | 35.00% | B, Z |
Other related undertakings | Percentage | Note | ||
Equity Estates Basingstoke Limited | 31.16% | J, Z | ||
GN Tower Limited | 50.00% | Z | ||
Gresham Leasing March (3) Limited | 30.00% | Z | ||
GW City Ventures Limited | 50.00% | K, Z | ||
Igloo Regeneration (General Partner) Limited | 25.00% | L, Z | ||
Imalivest LP | 66.28% | B, Z | ||
Intelligent Processing Solutions Limited | 19.50% | Z | ||
PetroGranada Limited | 65.25% | Z | ||
PSA Credit Company Limited (in liquidation) | 50.00% | J, L | ||
Vocalink Holdings Limited | 15.00% | Z | ||
Woolwich Countryside Limited | 50.00% | O, Z | ||
Australia
| ||||
Hydra Energy Holdings Pty Ltd | 59.26% | Z | ||
Botswana
| ||||
Barclays Bank of Botswana Limited | 42.27% | |||
Barclays Insurance Services (Pty) Limited | 42.27% | |||
Barclays Life Botswana Proprietary Limited | 62.32% | |||
Canada
| ||||
Clearbrook Resources Inc | 20.71% | Z | ||
Cayman Islands
| ||||
Chrysaor Holdings Limited | 37.98% | Z | ||
Cupric Canyon Capital GP Limited | 49.90% | Z | ||
Cupric Canyon Capital LP | 38.10% | B, Z | ||
Southern Peaks Mining LP | 54.67% | B, Z | ||
SPM GP Limited | 49.61% | Z | ||
Third Energy Holdings Limited | 74.76% | Z | ||
France
| ||||
Financière DSBG SAS | 31.51% | Z | ||
Sogetrel | 27.31% | Z | ||
Germany
| ||||
Eschenbach Holding GmbH | 23.25% | Z | ||
Ghana
| ||||
Barclays Bank of Ghana Limited | 62.32% | |||
Hong Kong
| ||||
CR SpaClub at Sea (HK) Limited | 53.86% | Z | ||
Indonesia
| ||||
PT Barclays Capital Securities Indonesia | 99.00% | |||
Isle of Man
| ||||
Absa Manx Holdings Limited | 62.32% | |||
Absa Manx Insurance Company Limited | 62.32% | |||
Italy
| ||||
Eudea SpA | 22.03% | Z | ||
Jersey
| ||||
Barclays Index Finance Trust | 32.69% | S | ||
Kenya
| ||||
Barclays (Kenya) Nominees Limited | 42.69% | |||
Barclays Bank Insurance Agency Limited | 42.69% | |||
Barclays Bank of Kenya Limited | 42.69% | |||
Barclays Deposit-Taking Microfinance Limited | 42.69% | |||
Barclays Financial Services Limited | 42.69% | |||
Barclays Life Assurance Kenya Limited | 39.45% | |||
Barclays Pension Services Limited | 38.81% | |||
First Assurance Company Limited | 39.45% | |||
First Assurance Holdings Limited | 62.31% | |||
Korea, Republic of
| ||||
Woori BC Pegasus Securitization Specialty Co., Limited | 70.00% | |||
Luxembourg
| ||||
BNRI Limehouse No.1 Sarl | 96.30% | R | ||
Partnership Investments S.à r.l. | 33.40% | |||
Preferred Funding S.à r.l. | 33.33% | H | ||
Preferred Investments S.à r.l. | 33.33% | H, I | ||
Malta
| ||||
RS2 Software PLC | 18.25% | Z | ||
Mauritius
| ||||
Barclays Bank Mauritius Limited | 62.32% | G, H, J, K | ||
Monaco
| ||||
Société Civile Immobilière 31 Avenue de la Costa | 75.00% | |||
Mozambique
| ||||
Barclays Bank Moçambique SA | 61.58% | |||
Global Alliance Seguros, S.A. | 62.32% | |||
Namibia
| ||||
Absa Namibia Proprietary Limited | 62.32% | |||
EFS Namibia Proprietary Limited | 62.32% |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 303 |
Notes to the financial statements
46 Related undertakingscontinued
Other related undertakings | Percentage | Note | ||
Netherlands
| ||||
Tulip Oil Holding BV | 30.43% | Z | ||
Nigeria
| ||||
Absa Capital Representative Office Nigeria Limited | 62.32% | |||
Norway
| ||||
EnterCard Norge AS | 40.00% | Z | ||
Origo Exploration Holding AS | 23.08% | Z | ||
Seychelles
| ||||
Barclays Bank (Seychelles) Limited | 62.18% | |||
South Africa
| ||||
1900 Summerstrand Share Block Limited | 62.32% | |||
Absa Alternative Asset Management Proprietary Limited | 62.32% | |||
Absa Asset Management Proprietary Limited | 62.26% | |||
Absa Bank Limited | 62.32% | I, J | ||
Absa Capital Securities Proprietary Limited | 62.32% | F, I | ||
Absa Consultants and Actuaries Proprietary Limited | 62.32% | |||
Absa Development Company Holdings Proprietary Limited | 62.32% | F, I | ||
Absa Estate Agency Proprietary Limited | 62.32% | |||
Absa Financial Services Africa Holdings Proprietary Limited | 62.32% | |||
Absa Financial Services Limited | 62.32% | |||
Absa Fleet Services Proprietary Limited | 62.32% | |||
Absa Fund Managers Limited | 62.32% | |||
Absa idirect Limited | 62.32% | |||
Absa Insurance and Financial Advisers Proprietary Limited | 62.32% | |||
Absa Insurance Company Limited | 62.32% | |||
Absa Insurance Risk Management Services Limited | 62.32% | |||
Absa Investment Management Services Proprietary Limited | 62.32% | |||
Absa Life Limited | 62.32% | F, I | ||
Absa Mortgage Fund Managers Proprietary Limited | 62.32% | |||
Absa Nominees Proprietary Limited | 62.32% | |||
Absa Ontwikkelingsmaatskappy Eiendoms Beperk | 62.32% | |||
Absa Outsource Competency Centre Proprietary Limited | 62.32% | |||
Absa Portfolio Managers Proprietary Limited | 62.32% | |||
Absa Property Development Proprietary Limited | 62.32% | |||
Absa Secretarial Services Proprietary Limited | 62.32% | |||
Absa Stockbrokers Proprietary Limited | 62.32% | |||
Absa Technology Finance Solutions Proprietary Limited | 62.32% | |||
Absa Trading and Investment Solutions Holdings | 62.32% | |||
Proprietary Limited | ||||
Absa Trading and Investment Solutions Proprietary Limited | 62.32% | |||
Absa Trust (Natal) Limited | 62.32% | |||
Absa Trust Limited | 62.32% | I, J | ||
Absa Vehicle Management Proprietary Limited | 62.32% | |||
Absa Vehicle Management Solutions Proprietary Limited | 62.32% | |||
ABSAN Proprietary Limited | 62.32% | |||
Account on Us Proprietary Limited | 31.16% | |||
ACMB Specialised Finance Nominees Proprietary Limited | 62.32% | |||
(In Liquidation) | ||||
ACS Nominees Proprietary Limited | 62.32% | |||
African Spirit Trading 309 Proprietary Limited | 31.16% | Z | ||
AIMS Nominees (RF) Proprietary Limited | 62.32% | |||
Alberton Industrial Properties Proprietary Limited | 62.32% | |||
Allied Development Company Proprietary Limited | 62.32% | |||
Allied Grinaker Properties Proprietary Limited | 31.78% | |||
Allpay Consolidated Investment Holdings Proprietary Limited | 62.32% | |||
Allpay Eastern Cape Proprietary Limited – (In Liquidation) | 41.13% | |||
Allpay Free State Proprietary Limited (In Liquidation) | 37.39% | |||
Allpay Gauteng Proprietary Limited (In Liquidation) | 37.39% | |||
Allpay Limpopo Proprietary Limited (In Liquidation) | 62.32% | |||
Allpay Mpumalanga Proprietary Limited | 62.32% | |||
Allpay Northern Cape Proprietary Limited (In Liquidation) | 62.32% | |||
Allpay Northwest Proprietary Limited (In Liquidation) | 62.32% | |||
Allpay Payment Solutions Proprietary Limited (In Liquidation) | 62.32% | |||
Allpay Western Cape Proprietary Limited (In Liquidation) | 41.13% | |||
Bankorptrust Limited | 62.32% | |||
Barclays Africa Group Limited | 62.32% | |||
Barclays Africa Regional Office Proprietary Limited | 62.32% | |||
Barrie Island Property Investments Proprietary Limited | 62.32% | |||
Blue Age Properties 60 Proprietary Limited | 62.32% | |||
Campus on Rigel Proprietary Limited | 20.77% | Z | ||
Cedar Lakes Country Estates Proprietary Limited | 62.32% | |||
Combined Mortgage Nominees Proprietary Limited | 62.32% | |||
Compro Holdings Proprietary Limited | 62.32% | |||
Culemborg Investment Properties Proprietary Limited | 35.67% | J, K |
Other related undertakings | Percentage | Note | ||
Diluculo Investments Proprietary Limited | 62.32% | |||
Diluculo Properties Proprietary Limited | 62.32% | |||
Diluculo Property Trading Proprietary Limited | 62.32% | |||
Draaikloof Properties Proprietary Limited | 49.86% | |||
FFS Finance South Africa (RF) Proprietary Limited | 31.16% | |||
Fradey Nominees (RF) Proprietary Limited | 62.32% | |||
Goldreef Village Share Block Limited | 61.88% | |||
Guaret Investments No 1 Proprietary Limited | 62.32% | H, I | ||
Integrated Processing Solutions Proprietary Limited | 31.16% | |||
iSentials Proprietary Limited | 31.16% | |||
Kangrove Proprietary Limited (In Liquidation) | 62.32% | |||
Kempwest Proprietary Limited | 31.16% | |||
Lekkerleef Eiendoms Beperk | 62.32% | |||
Lodel Proprietary Limited (In Liquidation) | 62.32% | |||
MAN Financial Services (SA) (RF) Proprietary Limited | 31.16% | |||
Marmanet Retirement Village Proprietary Limited | 62.32% | |||
MB Acquired Operations Limited (In Liquidation) | 62.32% | |||
Meeg Asset Finance Proprietary Limited (In Liquidation) | 62.32% | |||
Merfin Proprietary Limited | 62.32% | |||
Nation-Wide Recovery Services Proprietary Limited | 31.16% | |||
NewFunds (RF) Proprietary Limited | 62.32% | |||
Newgold Issuer (RF) Limited | 62.32% | |||
Newgold Managers Proprietary Limited | 30.54% | |||
Ngwenya River Estate Proprietary Limited | 62.32% | |||
Nkwe Rosslyn Properties Proprietary Limited | 62.32% | |||
Northern Lights Trading 197 Proprietary Limited | 31.16% | Z | ||
Olieven Properties Proprietary Limited | 62.32% | |||
Ottawa Development Trust Proprietary Limited | 62.32% | |||
Pacific Heights Investments 196 Proprietary Limited | 31.16% | Z | ||
Palmietfontein Investments Proprietary Limited | 62.32% | |||
Pienaarsrivier Properties Proprietary Limited | 62.32% | |||
RainFin (RF) Proprietary Limited | 30.54% | Z | ||
Roodekop Townships Proprietary Limited | 62.32% | |||
Somerset West Autopark Proprietary Limited | 20.77% | Z | ||
T E AND M J Proprietary Limited (In Liquidation) | 62.32% | |||
Tembisa Mall Proprietary Limited | 31.16% | Z | ||
The Ballito Junction Development Proprietary Limited | 62.32% | F, I | ||
(in Liquidation) | ||||
Thebes Landgoed Eiendoms Beperk | 62.32% | |||
UBS Trust Limited | 62.32% | |||
United Development Corporation Proprietary Limited | 62.32% | |||
United Towers Proprietary Limited | 62.32% | |||
Up-Front Investments 132 Proprietary Limited | 31.16% | |||
Volkskas Eiendomsdienste Eiendoms Beperk | 62.32% | I, J | ||
Volkskastrust Beperk | 62.32% | I, J | ||
Woodbook Finance Proprietary Limited | 62.32% | |||
Woolworths Financial Services Proprietary Limited
| 31.16% | |||
Sweden
| ||||
EnterCard Holding AB | 40.00% | K, Z | ||
EnterCard Sverige AB | 40.00% | Z | ||
Tanzania, United Republic of
| ||||
Barclays Bank Tanzania Limited | 62.32% | |||
First Assurance Company Limited (Tanzania) | 34.43% | |||
National Bank of Commerce Limited | 41.06% | |||
Turkey
| ||||
CRKK RESORT OTEL ISLETMECILGI LIMITED SIRKETI | 54.40% | Z | ||
United States
| ||||
Blue River Land Company, LLC | 39.55% | C, Z | ||
Canyon Ranch Enterprises, LLC | 54.40% | C, Z | ||
Central Platte Valley Management, LLC | 51.78% | C, Z | ||
Continental Intermodal Group GP LLC | 50.00% | C, Z | ||
Continental Intermodal Group LP | 37.29% | B, Z | ||
CR Bodrum Management, LLC | 54.40% | C, Z | ||
CR Employment, Inc. | 54.40% | Z | ||
CR Las Vegas, LLC | 54.40% | C, Z | ||
CR Lenox Residences, LLC | 54.40% | C, Z | ||
CR License, LLC | 54.40% | C, Z | ||
CR Management, LLC | 54.40% | C, Z | ||
CR Miami Employment, LLC | 54.40% | C, Z | ||
CR Miami, LLC | 54.40% | C, Z | ||
CR Operating, LLC | 54.40% | C, Z | ||
CR Orlando, LLC | 54.40% | C, Z | ||
CR Products, LLC | 54.40% | C, Z | ||
CR Resorts, LLC | 54.40% | C, Z |
304 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
46 Related undertakingscontinued
Other related undertakings | Percentage | Note | ||
CR SpaClub at Sea, LLC | 54.40% | C, Z | ||
CR SPE1, LLC | 54.40% | C, Z | ||
CRE Diversified Holdings LLC | 80.00% | C, Z | ||
Crescent CR Holdings LLC | 80.00% | C, Z | ||
Crescent Crown Greenway Plaza SPV LLC | 80.00% | C, Z | ||
Crescent Crown Land Holding SPV LLC | 80.00% | C, Z | ||
Crescent Fresh Series B Hold Co. | 80.00% | Z | ||
Crescent McKinney Olive Holdings GP LLC | 80.00% | C, Z | ||
Crescent Plaza Hotel Owner GP, LLC | 80.00% | C, Z | ||
Crescent Plaza Hotel Owner, L.P. | 80.00% | B, Z | ||
Crescent Plaza Residential LP, LLC | 80.00% | C, Z | ||
Crescent Plaza Residential, L.P. | 80.00% | B, Z | ||
Crescent Plaza Residential, LLC | 80.00% | C, Z | ||
Crescent Plaza Restaurant GP, LLC | 80.00% | C, Z | ||
Crescent Property Services LLC | 80.00% | C, Z | ||
Crescent Real Estate Equities Limited Partnership | 80.00% | B, Z | ||
Crescent Real Estate Equities, LLC | 80.00% | C, Z | ||
Crescent Real Estate Holdings LLC | 80.00% | C, Z | ||
Crescent Resort Development LLC | 80.00% | C, Z | ||
Crescent Tower Residences GP, LLC | 80.00% | C, Z | ||
Crescent Tower Residences, L.P. | 80.00% | B, Z | ||
Crescent TRS Holdings LLC | 80.00% | C, Z | ||
Crescent-Fearing, L.P. | 40.00% | B, Z | ||
CREW Tahoe Holdings LLC | 80.00% | C, Z | ||
CREW Tahoe LLC | 60.80% | C, Z | ||
Cupric Canyon Capital LLC | 26.04% | C, Z | ||
DBL Texas Holdings LLC | 80.00% | C, Z | ||
Desert Mountain Development LLC | 80.00% | C, Z | ||
Desert Mountain Properties Limited Partnership | 74.40% | B, Z | ||
DG Solar Lessee II, LLC | 50.00% | C, Z | ||
DG Solar Lessee, LLC | 50.00% | C, Z | ||
East West Resort Development IV, L.P., L.L.L.P. | 71.11% | B, Z | ||
East West Resort Development V, L.P., L.L.L.P. | 74.75% | B, Z | ||
East West Resort Development VI, L.P., L.L.L.P. | 35.86% | B, Z | ||
East West Resort Development VII LLC | 80.00% | C, Z | ||
East West Resort Development VIII, L.P., L.L.L.P. | 71.11% | B, Z | ||
East West Resort Development XIV, L.P., L.L.L.P. | 33.52% | B, Z | ||
EW Deer Valley, LLC | 29.28% | C, Z | ||
EWRD Perry Holding, L.P., L.L.L.P. | 67.61% | B, Z | ||
EWRD Perry-Riverbend, LLC | 54.31% | C, Z | ||
EWRD Summit Holding, L.P., L.L.L.P. | 79.57% | B, Z | ||
EWRD Summit, LLC | 79.10% | C, Z | ||
Gray’s Station, LLC | 56.96% | C, Z | ||
Home Run Tahoe, LLC | 60.82% | C, Z | ||
Mira Vista Development LLC | 78.40% | C, Z | ||
Mira Vista Golf Club, L.C. | 76.83% | Z | ||
Moon Acquisition Holdings LLC | 80.00% | C, Z | ||
Moon Acquisition LLC | 80.00% | C, Z | ||
Mountainside Partners LLC | 80.00% | C, Z | ||
MV Penthouses, LLC | 51.20% | C, Z | ||
MVWP Development LLC | 30.40% | C, Z | ||
MVWP Investors LLC | 60.80% | C, Z | ||
Northstar Mountain Properties, LLC | 60.82% | C, Z | ||
Northstar Trailside Townhomes, LLC | 60.82% | C, Z | ||
Northstar Village Townhomes, LLC | 56.93% | C, Z | ||
Old Greenwood Realty, Inc. | 60.80% | Z | ||
Old Greenwood, LLC | 60.80% | C, Z | ||
Overlook at Sugarloaf Inc | 62.32% | |||
Parkside Townhomes, LLC | 47.63% | C, Z | ||
Sonoma Golf Club, LLC | 64.00% | C, Z | ||
Sonoma Golf, LLC | 64.00% | C, Z | ||
Sonoma National, LLC | 80.00% | C, Z | ||
Spa Project Advisors, LLC | 54.40% | C, Z | ||
St. Charles Place, LLC | 47.63% | C, Z | ||
Stellar Residences, LLC | 60.82% | C, Z | ||
Stellar Townhomes, LLC | 60.82% | C, Z | ||
Tahoe Club Company, LLC | 60.80% | C, Z | ||
Tahoe Club Employee Company | 60.80% | Z | ||
Tahoe Mountain Resorts, LLC | 60.82% | C, Z | ||
The Glades Tahoe, LLC | 60.82% | C, Z | ||
The Park at One Riverfront, LLC | 47.63% | C, Z | ||
Truckee Land, LLC | 74.75% | C, Z | ||
Tucson/Lenox Special Manager, Inc. | 54.40% | Z | ||
Tucson/Lenox, LLC | 54.40% | C, Z |
Other related undertakings | Percentage | Note | ||
Union Center LLC | 51.78% | C, Z | ||
Vendue/Prioleau Associates LLC | 49.60% | C, Z | ||
Village Walk, LLC | 46.08% | C, Z | ||
VS BC Solar Lessee I LLC | 50.00% | C, Z | ||
Water House on Main Street LLC | 35.26% | C, Z | ||
Zambia
| ||||
Barclays Life Zambia Limited | 62.32% | |||
Zimbabwe
| ||||
Barclays Bank of Zimbabwe Limited | 67.68% | |||
Barclays Merchant Bank of Zimbabwe Limited (In Liquidation) | 67.68% | |||
Barclays Zimbabwe Nominees (Pvt) Limited | 67.68% | |||
BRAINS Computer Processing (Pvt) Limited (In Liquidation) | 67.68% | F, I | ||
Fincor Finance Corporation Limited | 67.68% |
Subsidiaries by virtue of control
The related undertakings below are subsidiaries in accordance with s.1162 Companies Act 2006 as Barclays can exercise dominant influence or control over them. The entities are all owned by the Barclays Bank UK Retirement Fund.
Subsidiaries by virtue of control | Percentage | Note | ||
United Kingdom
| ||||
Oak Pension Asset Management Limited | 0.00% | Z | ||
Water Street Investments Limited | 0.00% | Z | ||
Cayman Islands
| ||||
Hornbeam Limited | 0.00% | Z |
Joint Ventures
The related undertakings below are Joint Ventures in accordance with s. 18, Schedule 4, The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and are proportionally consolidated.
Joint Ventures | Percentage | Joint management factors | ||
United Kingdom
| ||||
Vaultex UK Limited 21 Garlick Hill, London EC4V 2AU | 50.00% | The Joint Venture Board comprises two Barclays representative directors, two JV partner directors and three non-JV partner directors. The Board are responsible for setting the company strategy and budgets. |
Notes
A | Directly held by Barclays PLC |
B | Partnership Interest |
C | Membership Interest |
D | Trust Interest |
E | Guarantor |
F | Preference Shares |
G | A Preference Shares |
H | B Preference Shares |
I | Ordinary/Common Shares in addition to other shares |
J | A Ordinary Shares |
K | B Ordinary Shares |
L | C Ordinary Shares |
M | F Ordinary Shares |
N | O Ordinary Shares |
O | W Ordinary Shares |
P | Redeemable Ordinary Shares |
Q | Core Shares and Insurance (Classified) Shares |
R | B, C, D, E (94.36%), F (94.36%), G (94.36%), H (94.36%), I (94.36%), J (95.23%) and K Class Shares |
S | A and B Unit Shares |
T | Class A Residual Shares, Class B Residual Shares |
U | A Voting Shares and B Non-Voting Shares |
V | Class A Ordinary Shares, Class A Preference Shares (48.50%), Class B Ordinary Shares, Class C Ordinary Shares, Class C Preference Shares (92.53%), Class D Ordinary Shares, Class D Preference Shares, Class E Ordinary Shares, Class E Preference Shares, Class F Ordinary Shares, Class F Preference Shares, Class H 2012 Ordinary Shares, Class H 2012 Preference Shares, Class H Ordinary Shares, Class H Preference Shares (79.84%), Class I Preference Shares (50.00%), Class J Ordinary Shares, Class J Preference Shares |
W | Class A1, A2, A3, A4, A6, A8, A9, A10, A11, A12, A13, A14, A15, A16 and Class B |
X | PEF Carry Shares |
Y | EUR Tracker Shares, GBP Tracker Shares and USD Tracker Shares |
Z | Not Consolidated (see Note 37 for scope of consolidation) |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 305 |
Notes to the financial statements
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306 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
Shareholder information
Additional shareholder information
Articles of Association
Barclays PLC (the “Company”) is a public limited company registered in England and Wales under company number 48839. The Company, originally named Barclay & Company Limited, was incorporated in England and Wales on 20 July 1896 under the Companies Acts 1862 to 1890 as a company limited by shares. The company name was changed to Barclays Bank Limited on 17 February 1917 and it was registered on 15 February 1982 as a public limited company under the Companies Acts 1948 to 1980. On 1 January 1985, the Company changed its name to Barclays PLC.
Under the Companies Act 2006 a company’s Memorandum of Association now need only contain the names of the subscribers and the number of shares each subscriber has agreed to take. For companies in existence as of 1 October 2009, all other provisions which were contained in the company’s Memorandum of Association, including the company’s objects, are now deemed to be contained in the company’s articles. The Companies Act 2006 also states that a company’s objects are unrestricted unless the company’s articles provide otherwise.
The Articles of Association were adopted at the Company’s Annual General Meeting (“AGM”) on 30 April 2010 and amended at the AGM by special resolution of the Company on 25 April 2013.
The following is a summary and explanation of the current Articles of Association, which are available for inspection.
Directors
(i) The minimum number of Directors (excluding alternate Directors) is five. There is no maximum limit. There is no age limit for Directors.
(ii) Excluding executive remuneration and any other entitlement to remuneration for extra services (including service on board committees) under the Articles, a Director is entitled to a fee at a rate determined by the Board but the aggregate fees paid to all Directors shall not exceed £2,000,000 per annum or such higher amount as may be approved by an ordinary resolution of the Company. Each Director is entitled to reimbursement for all
reasonable travelling, hotel and other expenses properly incurred by him/her in or about the performance of his/her duties.
(iii) No Director may act (either himself/herself or through his/her firm) as an auditor of the Company. A Director may hold any other office of the Company on such terms as the Board shall determine.
(iv) At each AGM of the Company, one third of the Directors (rounded down) are required under the Articles of Association to retire from office by rotation and may offer themselves for re-election. The Directors so retiring are first, those who wish to retire and not offer themselves for re-election, and, second those who have been longest in office (and in the case of equality of service length are selected by lot). Other than a retiring Director, no person shall (unless recommended by the Board) be eligible for election unless a member notifies the Company Secretary in advance of his/her intention to propose a person for election. It is Barclays’ practice that all Directors offer themselves for re-election annually in accordance with the UK Corporate Governance Code.
(v) The Board has the power to appoint additional Directors or to fill a casual vacancy amongst the Directors. Any Director so appointed holds office until the next AGM, when he/she may offer himself/herself for reappointment. He/she is not taken into account in determining the number of Directors retiring by rotation.
(vi) The Board may appoint any Director to any executive position or employment in the Company on such terms as they determine.
(vii) The Company may by ordinary resolution remove a Director before the expiry of his/her period of office (without prejudice to a claim for damages for breach of contract or otherwise) and may by ordinary resolution appoint another person who is willing to act to be a Director in his/her place.
(viii) A Director may appoint either another Director or some other person approved by the Board to act as his/her alternate with power to attend Board meetings and generally to exercise the functions of the appointing Director in his/her absence (other than the power to appoint an alternate).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 307 |
Additional shareholder information
(ix) The Board may authorise any matter in relation to which a Director has, or can have, a direct interest that conflicts, or possibly may conflict with, the Company’s interests. Only Directors who have no interest in the matter being considered will be able to authorise the relevant matter and they may impose limits or conditions when giving authorisation if they think this is appropriate.
(x) A Director may hold positions with or be interested in other companies and, subject to legislation applicable to the Company and the FCA’s requirements, may contract with the Company or any other company in which the Company is interested. A Director may not vote or count towards the quorum on any resolution concerning any proposal in which he/she (or any person connected with him/her) has a material interest (other than by virtue of his/her interest in securities of the Company) or if he/she has a duty which conflicts or may conflict with the interests of the Company, unless the resolution relates to any proposal:
(a) to indemnify a Director or provide him/her with a guarantee or security in respect of money lent by him/her to, or any obligation incurred by him/her or any other person for the benefit of (or at the request of), the Company (or any other member of the Group);
(b) to indemnify or give security or a guarantee to a third party in respect of a debt or obligation of the Company (or any other member of the Group) for which the Director has personally assumed responsibility;
(c) to obtain insurance for the benefit of Directors;
(d) involving the acquisition by a Director of any securities of the Company (or any other member of the Group) pursuant to an offer to existing holders of securities or to the public;
(e) that the Director underwrite any issue of securities of the Company (or any other member of the Group);
(f) concerning any other company in which the Director is interested as an officer or creditor or Shareholder but, broadly, only if he/she (together with his/her connected persons) is directly or indirectly interested in less than 1% of either any
class of the issued equity share capital or of the voting rights of that company; and
(g) concerning any other arrangement for the benefit of employees of the Company (or any other member of the Group) under which the Director benefits or stands to benefit in a similar manner to the employees concerned and which does not give the Director any advantage which the employees to whom the arrangement relates would not receive.
(xi) A Director may not vote or be counted in the quorum on any resolution which concerns his/her own employment or appointment to any office of the Company or any other company in which the Company is interested.
(xii) Subject to applicable legislation, the provisions described in sub-paragraphs (x) and (xi) may be relaxed or suspended by an ordinary resolution of the members of the Company or any applicable governmental or other regulatory body.
(xiii) A Director is required to hold an interest in ordinary shares having a nominal value of at least £500, which currently equates to 2,000 Ordinary Shares unless restricted from acquiring or holding such interest by any applicable law or regulation or any applicable governmental or other regulatory body. A Director may act before acquiring those shares but must acquire the qualification shares within two months from his/her appointment. Where a Director is unable to acquire the requisite number of shares within that time owing to law, regulation or requirement of any governmental or other relevant authority, he/she must acquire the shares as soon as reasonably practicable once the restriction(s) end.
(xiv) The Board may exercise all of the powers of the Company to borrow money, to mortgage or charge its undertaking, property and uncalled capital and to issue debentures and other securities.
Classes of Shares
The Company only has Ordinary Shares in issue. The Articles of Association also provide for pound sterling preference shares of £100 each, US dollar preference shares of US$100 each, US dollar preference shares of $0.25 each, euro preference shares of€100 each and yen preference shares of ¥10,000 each (together, the “Preference Shares”). In accordance with the
308 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
authority granted at the AGM on 25 April 2013, Preference Shares may be issued by the Board from time to time in one or more series with such rights and subject to such restrictions and limitations as the Board may determine. No Preference Shares have been issued to date.
Dividends
Subject to the provisions of the Articles and applicable legislation, the Company in general meeting may declare dividends on the Ordinary Shares by ordinary resolution, but any such dividend may not exceed the amount recommended by the Board. The Board may also pay interim or final dividends if it appears they are justified by the Company’s financial position.
Each Preference Share confers the right to a preferential dividend (“Preference Dividend”) payable in such currency at such rates (whether fixed or calculated by reference to or in accordance with a specified procedure or mechanism), on such dates and on such other terms as may be determined by the Board prior to allotment thereof.
The Preference Shares rank in regard to payment of dividends in priority to the holders of Ordinary Shares and any other class of shares in the Company ranking junior to the Preference Shares.
Dividends may be paid on the Preference Shares if, in the opinion of the Board, the Company has sufficient distributable profits, after payment in full or the setting aside of a sum to provide for all dividends payable on (or in the case of shares carrying a cumulative right to dividends, before) the relevant dividend payment date on any class of shares in the Company ranking pari passu with or in priority to the relevant series of Preference Shares as regards participation in the profits of the Company.
If the Board considers that the distributable profits of the Company available for distribution are insufficient to cover the payment in full of Preference Dividends, Preference Dividends shall be paid to the extent of the distributable profits on a pro rata basis.
Notwithstanding the above, the Board may, at its absolute discretion, determine that any Preference Dividend which would
otherwise be payable may either not be payable at all or only payable in part.
If any Preference Dividend on a series of Preference Shares is not paid, or is only paid in part, for the reasons described above, holders of Preference Shares will not have a claim in respect of such non-payment.
If any dividend on a series of Preference Shares is not paid in full on the relevant dividend payment date, a dividend restriction shall apply. The dividend restriction means that, subject to certain exceptions, neither the Company nor Barclays Bank may (a) pay a dividend on, or (b) redeem, purchase, reduce or otherwise acquire, any of their respective ordinary shares, other preference shares or other share capital ranking equal or junior to the relevant series of Preference Shares until the earlier of such time as the Company next pays in full a dividend on the relevant series of Preference Shares or the date on which all of the relevant series of Preference Shares are redeemed.
All unclaimed dividends payable in respect of any share may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. If a dividend is not claimed after 12 years of it becoming payable, it is forfeited and reverts to the Company.
The Board may, with the approval of an ordinary resolution of the Company, offer Shareholders the right to choose to receive an allotment of additional fully paid Ordinary Shares instead of cash in respect of all or part of any dividend. The Company currently provides a scrip dividend programme pursuant to an authority granted at the AGM held on 25 April 2013.
Redemption and Purchase
Subject to applicable legislation and the rights of the other shareholders, any share may be issued on terms that it is, at the option of the Company or the holder of such share, redeemable. The Directors are authorised to determine the terms, conditions and manner of redemption of any such shares under the Articles of Association.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 309 |
Additional shareholder information
Calls on capital
The Directors may make calls upon the members in respect of any monies unpaid on their shares. A person upon whom a call is made remains liable even if the shares in respect of which the call is made have been transferred. Interest will be chargeable on any unpaid amount called at a rate determined by the Board (of not more than 20% per annum).
If a member fails to pay any call in full (following notice from the Board that such failure will result in forfeiture of the relevant shares), such shares (including any dividends declared but not paid) may be forfeited by a resolution of the Board, and will become the property of the Company. Forfeiture shall not absolve a previous member for amounts payable by him/her (which may continue to accrue interest).
The Company also has a lien over all partly paid shares of the Company for all monies payable or called on that share and over the debts and liabilities of a member to the Company. If any monies which are the subject of the lien remain unpaid after a notice from the Board demanding payment, the Company may sell such shares.
Annual and other general meetings
The Company is required to hold an AGM in addition to such other general meetings as the Directors think fit. The type of the meeting will be specified in the notice calling it. Under the Companies Act 2006, the AGM must be held within six months of the financial year end. A general meeting may be convened by the Board on requisition in accordance with the applicable legislation.
In the case of an AGM, a minimum of 21 clear days’ notice is required. The notice must be in writing and must specify the place, the day and the hour of the meeting, and the general nature of the business to be transacted. A notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as such. The accidental failure to give notice of a general meeting or the non-receipt of such notice will not invalidate the proceedings at such meeting.
Subject as noted above, all Shareholders are entitled to attend and vote at general meetings. The Articles do, however, provide that arrangements may be made for simultaneous attendance at a satellite meeting place or, if the meeting place is inadequate to accommodate all members and proxies entitled to attend,
another meeting place may be arranged to accommodate such persons other than that specified in the notice of meeting, in which case Shareholders may be excluded from the principal place.
Holders of Preference Shares have no right to receive notice of, attend or vote at, any general meetings of the Company as a result of holding Preference Shares.
Notices
A document or information may be sent by the Company in hard copy form, electronic form, by being made available on a website, or by another means agreed with the recipient, in accordance with the provisions set out in the Companies Act 2006. Accordingly, a document or information may only be sent in electronic form to a person who has agreed to receive it in that form or, in the case of a company, who has been deemed to have so agreed pursuant to applicable legislation. A document or information may only be sent by being made available on a website if the recipient has agreed to receive it in that form or has been deemed to have so agreed pursuant to applicable legislation, and has not revoked that agreement.
In respect of joint holdings, documents or information shall be sent to the joint holder whose name stands first in the register.
A member who (having no registered address within the UK) has not supplied an address in the UK at which documents or information may be sent in hard copy form, or an address to which notices, documents or information may be sent or supplied by electronic means, is not entitled to have documents or information sent to him/her.
In addition, the Company may cease to send notices to any member who has been sent documents on two consecutive occasions over a period of at least 12 months and when each of those documents is returned undelivered or notification is received that they have not been delivered.
Capitalisation of profits
The Company may, by ordinary resolution, upon the recommendation of the Board capitalise all or any part of an amount standing to the credit of a reserve or fund to be set free for distribution provided that amounts from the share premium account, capital redemption reserve or any profits not
310 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
available for distribution should be applied only in paying up unissued shares to be allotted to members credited as fully paid and no unrealised profits shall be applied in paying up debentures of the Company or any amount unpaid on any share in the capital of the Company.
Indemnity
Subject to applicable legislation, every current and former Director or other officer of the Company (other than any person engaged by the company as auditor) shall be indemnified by the Company against any liability in relation to the Company, other than (broadly) any liability to the Company or a member of the Group, or any criminal or regulatory fine.
Officers of the Group | Date of appointment as Officer | |||
Lawrence Dickinson
| Company Secretary
| 2002
| ||
Robert Le Blanc
| Chief Risk Officer
| 2004
| ||
Maria Ramos
| Chief Executive, Barclays Africa Group
| 2009
| ||
Ashok Vaswani
| Chief Executive, Personal and Corporate Banking
| 2012
| ||
Bob Hoyt
| Group General Counsel
| 2013
| ||
Thomas King
| Chief Executive, Investment Bank
| 2013
| ||
Tushar Morzaria
| Group Finance Director
| 2013
| ||
Michael Roemer
| Group Head of Compliance
| 2014
| ||
Michael Harte
| Chief Operations and Technology Officer
| 2014
| ||
Jonathan Moulds
| Group Chief Operating Officer
| 2015
| ||
James E Staley
| Group Chief Executive Officer
| 2015
| ||
Tristram Roberts
| Group Human Resources Director
| 2015
| ||
Amer Sajed
| Interim Chief Executive, Barclaycard
| 2015
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 311 |
Additional shareholder information
Dividends on the ordinary shares of Barclays PLC
Barclays PLC has paid dividends on its ordinary shares every year since its incorporation in 1896.
Since December 2009 Barclays has declared and paid dividends on a quarterly basis. A final dividend for the full year ended 31 December 2014 of 3.5p was paid in April 2015 and there were three equal payments in June, September and December 2015 of 1p per ordinary share. A final dividend for the full year ended 31 December 2015 of 3.5p will be announced on 1 March 2016 for payment on 5 April 2016.
The dividends declared for each of the last five years were:
Pence per 25p ordinary share
|
| |||||||||||||||||||
| 2015
|
|
| 2014
|
|
| 2013
|
|
| 2012
|
|
| 2011
|
| ||||||
Interim | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | |||||||||||||||
Final
|
| 3.50
|
|
| 3.50
|
|
| 3.50
|
|
| 3.50
|
|
| 3.00
|
| |||||
Total
|
| 6.50
|
|
|
6.50
|
|
|
6.50
|
|
|
6.50
|
|
|
6.00
|
| |||||
US Dollars per 25p ordinary share |
| |||||||||||||||||||
| 2015
|
|
| 2014
|
|
| 2013
|
|
| 2012
|
|
| 2011
|
| ||||||
Interim
|
|
0.05
|
|
|
0.05
|
|
|
0.05
|
|
|
0.05
|
|
|
0.05
|
| |||||
Final
|
| 0.05
|
|
|
0.05
|
|
|
0.05
|
|
|
0.05
|
|
|
0.05
|
| |||||
Total
|
|
0.10
|
|
|
0.10
|
|
|
0.10
|
|
|
0.10
|
|
|
0.10
|
| |||||
The gross dividends applicable to an American Depositary Share (ADS) representing four ordinary shares, before deduction of withholding tax, are as follows:
|
| |||||||||||||||||||
US Dollars per American Depositary Share |
| |||||||||||||||||||
| 2015
|
|
| 2014
|
|
| 2013
|
|
| 2012
|
|
| 2011
|
| ||||||
Interim
|
|
0.18
|
|
|
0.18
|
|
|
0.18
|
|
|
0.19
|
|
|
0.19
|
| |||||
Final
|
|
0.20
|
|
|
0.22
|
|
|
0.23
|
|
|
0.22
|
|
|
0.19
|
| |||||
Total
|
|
0.38
|
|
| 0.40
|
|
| 0.41
|
|
| 0.41
|
|
| 0.38
|
|
The final dividends shown above are expressed in Dollars translated at the closing spot rate for Pounds Sterling as determined by Bloomberg at 5pm in New York City (the ‘Closing Spot Rate’) on the latest practicable date for inclusion in this report. No representation is made that Pounds Sterling amounts
have been, or could have been, or could be, converted into Dollars at these rates.
Trading market for ordinary shares of Barclays PLC
The principal trading market for Barclays PLC ordinary shares is the London Stock Exchange. At the close of business on 31 December 2015, 16,804,603,949 ordinary shares were in issue.
Ordinary share listings were also obtained on the New York Stock Exchange (NYSE) with effect from 9 September 1986. Trading on the NYSE is in the form of ADSs under the symbol ‘BCS’. Each ADS represents four ordinary shares and is evidenced by an American Depositary Receipt (ADR). The ADR depositary is J P Morgan Chase Bank, N.A. Details of trading activity are published in the stock tables of leading daily newspapers in the US.
There were 523 ADR holders and 1,675 recorded holders of ordinary shares with US addresses at 31 December 2015, whose shareholdings represented approximately 0.02% of total outstanding ordinary shares on that date. Since a certain number of the ordinary shares and ADRs were held by brokers or other nominees, the number of recorded holders in the US may not be representative of the number of beneficial holders or of their country of residence.
The following table shows the high and low sales price for the ordinary shares during the periods indicated, based on mid-market prices at close of business on the London Stock Exchange and the high and low sale price for ADSs as reported on the NYSE composite tape.
Sale prices for ordinary shares |
| |||||||||||||||
25p ordinary shares |
| American
Depositary Shares |
| |||||||||||||
|
High |
|
|
Low |
|
|
High |
|
|
Low |
| |||||
|
p |
|
|
p |
|
|
US$ |
|
|
US$ |
| |||||
2016
| ||||||||||||||||
By month:
| ||||||||||||||||
February
|
| 182.8
|
|
| 147.9
|
|
| 10.66
|
|
| 8.63
|
| ||||
January
|
|
218.9
|
|
|
178.4
|
|
|
12.96
|
|
|
10.37
|
|
312 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
2015
| ||||||||||||||||
By month: | ||||||||||||||||
August | 288.95 | 244.7 | 17.98 | 15.29 | ||||||||||||
September | 262.5 | 239 | 16.28 | 14.58 | ||||||||||||
October | 257 | 232 | 15.81 | 14.23 | ||||||||||||
November | 236.05 | 220.05 | 14.61 | 13.27 | ||||||||||||
December | 234.75 | 209.1 | 14.09 | 12.8 | ||||||||||||
By Quarter: | ||||||||||||||||
First quarter | 266 | 223.55 | 16.31 | 13.63 | ||||||||||||
Second quarter | 274.45 | 248.9 | 17.15 | 14.94 | ||||||||||||
Third quarter | 288.95 | 239 | 17.98 | 14.58 | ||||||||||||
Fourth quarter | 257 | 209.1 | 15.81 | 12.8 | ||||||||||||
2014 | ||||||||||||||||
First quarter | 296.5 | 230.95 | 19.58 | 15.41 | ||||||||||||
Second quarter | 262.45 | 212.8 | 17.73 | 14.55 | ||||||||||||
Third quarter | 234.55 | 207.9 | 15.53 | 14.26 | ||||||||||||
Fourth quarter | 249.45 | 207.9 | 15.54 | 13.50 | ||||||||||||
2013 | 308.39 | 242.39 | 18.93 | 15.69 | ||||||||||||
2012 | 288.00 | 148.20 | 17.47 | 9.31 | ||||||||||||
2011 | 333.55 | 138.85 | 21.64 | 8.55 | ||||||||||||
2010 | 383.20 | 255.40 | 24.10 | 15.40 | ||||||||||||
2009 | 383.60 | 51.20 | 25.40 | 3.10 | ||||||||||||
2008 | 506.40 | 127.70 | 41.40 | 7.40 |
This section incorporates information on the prices at which securities of Barclays PLC have traded. It is emphasised that past performance cannot be relied upon as a guide to future performance.
Shareholdings at 31 December 2015a | Number of shareholders | Percentage of holders | Shares held | Percentage of capital | ||||
Classification of shareholders | ||||||||
Personal Holders | 279,092 | 95.97% | 470,007,048 | 2.80% | ||||
Banks and Nominees | 3,129 | 1.08% | 14,859,691,756 | 88.43% | ||||
Other Companies | 8,578 | 2.95% | 1,474,893,844 | 8.78% | ||||
Insurance Companies | 2 | 0.00% | 523 | 0.00% | ||||
Pension Funds | 8 | 0.00% | 10,778 | 0.00% | ||||
Total | 290,809 | 100.00% | 16,804,603,949 | 100.00% | ||||
Shareholding range | ||||||||
1 - 100 | 19,421 | 6.68% | 711,520 | 0.00% | ||||
101 - 250 | 59,269 | 20.38% | 12,073,995 | 0.07% | ||||
251 - 500 | 79,537 | 27.35% | 27,783,774 | 0.17% | ||||
501 - 1,000 | 46,810 | 16.10% | 33,197,807 | 0.20% | ||||
1,001 - 5,000 | 61,333 | 21.09% | 135,514,901 | 0.81% | ||||
5,001 - 10,000 | 12,899 | 4.44% | 90,575,688 | 0.54% | ||||
10,001 - 25,000 | 7,758 | 2.67% | 117,540,890 | 0.70% | ||||
25,001 - 50,000 | 1,799 | 0.62% | 61,645,616 | 0.37% | ||||
50,001 and over | 1,983 | 0.68% | 16,325,559,758 | 97.15% | ||||
Totals | 290,809 | 100.00% | 16,804,603,949 | 100.00% | ||||
United States Holdings | 1,675 | 0.58% | 4,150,392 | 0.02% |
Note
a | These figures do not include Barclays Sharestore members. |
Currency of presentation
In this report, unless otherwise specified, all amounts are expressed in Pound Sterling. For the months of September 2013 through to February 2014, the highest and lowest closing spot rates as determined by Bloomberg at 5:00 p.m (New York time) (the ‘Closing Spot Rate’), expressed in USD per GBP were:
(US Dollars per Pound Sterling) | ||||||||||||
February | January | December | November | October | September | |||||||
2016 | 2015 | |||||||||||
High | 1.46 | 1.47 | 1.52 | 1.54 | 1.55 | 1.56 | ||||||
Low
| 1.39
| 1.42
| 1.47
| 1.50
| 1.51
| 1.51
|
(US Dollars per Pound Sterling) | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Average | 1.53 | 1.65 | 1.56 | 1.59 | 1.61 |
On 29 February 2016, the Closing Spot Rate in Pound Sterling was $1.39.
No representation is made that Pounds Sterling amounts have been, or could have been, or could be, converted into USD at any of the above rates. For the purpose of presenting financial information in this report, exchange rates other than those shown above may have been used.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 313 |
Additional shareholder information
Taxation of UK holders
The following is a summary of certain UK tax issues which are likely to be material to the holding and disposal of Ordinary Shares of Barclays PLC, Preference Shares of Barclays Bank PLC (the ‘Bank’), or ADSs representing such Ordinary Shares or Preference Shares (together the ‘Shares’).
It is based on current law and the practice of Her Majesty’s Revenue and Customs (‘HMRC’), which may be subject to change, possibly with retrospective effect. It is a general guide for information purposes and should be treated with appropriate caution. It is not intended as tax advice and it does not purport to describe all of the tax considerations that may be relevant to a prospective purchaser, holder or disposer of Shares. In particular, save where expressly stated to the contrary, this summary deals with shareholders who are resident and, in the case of individuals, domiciled in (and only in) the UK for UK tax purposes, who hold their Shares as investments (other than under an individual savings account) and who are the absolute beneficial owners of their Shares and any dividends paid on them.
The statements are not addressed to: (i) shareholders who own (or are deemed to own) 10 per cent. or more of the voting power of Barclays PLC or the Bank; (ii) shareholders who hold Shares as part of hedging transactions; (iii) investors who have (or are deemed to have) acquired their Shares by virtue of an office or employment; and (iv) shareholders who hold Shares in connection with a trade, profession or vocation carried on in the UK (whether through a branch or agency or, in the case of a corporate shareholder, through a permanent establishment, or otherwise). It does not discuss the tax treatment of classes of shareholder subject to special rules, such as dealers in securities.
Persons who are in any doubt as to their tax position should consult their professional advisers. Persons who may be liable to taxation in jurisdictions other than the United Kingdom in respect of their acquisition, holding or disposal of Shares are particularly advised to consult their professional advisers as to whether they are so liable.
(i) Taxation of dividends
In accordance with UK law, Barclays PLC or the Bank (as the case may be) pays dividends on the Shares without any deduction or withholding tax in respect of any taxes imposed by the UK government or any UK taxing authority.
Under current UK law (but subject to the proposed changes in law discussed below), UK resident individuals receiving a dividend will generally be entitled to a tax credit in respect of such dividend which may be used by certain shareholders to set against any liability they may have to UK income tax on that dividend. The value of the tax credit is currently equal to one-ninth of the amount of the cash dividend. The cash dividend received plus the related tax credit (together, the ‘gross dividend’) will be part of the shareholder’s total income for UK income tax purposes. It will be regarded as the top slice of the shareholder’s income, and will be subject to UK income tax at a special rate (discussed below).
If the shareholder is a UK resident individual liable to UK income tax solely at the basic rate, then that shareholder will be liable to UK income tax of 10% of the gross dividend. Since the tax credit will fully match this liability, there should be no further tax liability in respect of the dividend received. A UK resident individual shareholder that is a higher or additional rate taxpayer will be liable to UK income tax on the gross dividend at special marginal rates (currently 32.5% or 37.5% respectively) against which the tax credit may be set. In that case, there will be a further liability to UK income tax for the shareholder as the tax credit will not fully match the tax liability.
On 9 December 2015 the UK Government published draft legislation which proposes to amend the taxation of dividends paid on or after 6 April 2016 to UK resident individuals. If enacted, that legislation will replace the tax credit described above with an annual tax-free dividend allowance of £5,000. It will also amend the rates of UK tax on dividends to 7.5 per cent. for a UK resident individual liable to UK income tax solely at the basic rate, 32.5 per cent. for a UK resident individual liable to UK income tax at the higher rate and 38.1 per cent for a UK resident individual liable to UK income tax at the additional rate.
314 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
Subject to special rules for small companies, UK resident shareholders within the charge to UK corporation tax will be subject to UK corporation tax on the dividends paid on the Shares unless the dividend falls within an exempt class and certain conditions are met.
UK resident shareholders are not entitled to any repayment of the tax credits attaching to the dividends paid on the Shares. A non-UK resident shareholder will not generally be entitled to any payment from HMRC of a tax credit in respect of a UK dividend paid on the Shares. Some non-UK resident shareholders may be able to recover some of the tax credit under an applicable double tax treaty and should consult their own professional advisers as to whether they are so entitled and as to the process for making such a claim.
(ii) Taxation of shares under the Dividend Reinvestment Plan
Where a shareholder elects to purchase shares using their cash dividend, such shareholders will generally be liable for income tax or corporation tax (as the case may be) on dividends reinvested in the Dividend Reinvestment Plan on the same basis as if they had received the cash and arranged the investment themselves. They should accordingly include the dividend received in their tax return in the normal way.
(iii) Taxation of capital gains
The disposal of Shares may, depending on the shareholder’s circumstances, give rise to a liability to tax on chargeable capital gains.
Where Shares are sold, a liability to tax may result if the proceeds from that sale exceed the sum of the base cost of the Shares sold and any other allowable deductions such as share dealing costs and, in certain circumstances, indexation relief. To arrive at the total base cost of any Barclays PLC shares held, in appropriate cases the amount subscribed for rights taken up in 1985, 1988 and 2013 must be added to the cost of all such shares held. For this purpose, current legislation permits the market valuation at 31 March 1982 to be substituted for the original cost of shares purchased before that date. Shareholders other than those within the charge to corporation tax should note that, following the Finance Act 2008, no indexation allowance will be available. Shareholders within the charge to UK corporation tax may be eligible for indexation allowance.
Chargeable capital gains may also arise from the gifting of Shares to connected parties such as relatives (although not spouses or civil partners) and family trusts.
The calculations required to compute chargeable capital gains may be complex. Shareholders are advised to consult their personal financial adviser if further information regarding a possible tax liability in respect of their holdings of shares is required.
(iv) Stamp duty and stamp duty reserve tax
Dealings in Shares will generally be subject to stamp duty or stamp duty reserve tax (although see the comments below as regards ADSs in the section ‘Taxation of US holders – Stamp Duty’). The transfer on sale of Ordinary Shares and Preference Shares will generally be liable to stamp duty at 0.5% of the consideration paid for that transfer. An unconditional agreement to transfer Ordinary Shares and Preference Shares, or any interest therein, will generally be subject to stamp duty reserve tax at 0.5% of the consideration given. Such liability to stamp duty reserve tax will be cancelled, or a right to a repayment (generally with interest) in respect of the stamp duty reserve tax liability will arise, if the agreement is completed by a duly stamped transfer within six years of the agreement having become unconditional. Both stamp duty and stamp duty reserve tax are normally the liability of the transferee.
Paperless transfers of Ordinary Shares and Preference Shares within CREST are liable to stamp duty reserve tax rather than stamp duty.
Stamp duty reserve tax on transactions settled within the CREST system or reported through it for regulatory purposes will be collected by CREST.
Special rules apply to certain categories of person, including intermediaries, market makers, brokers, dealers and persons connected with depositary arrangements and clearance services.
(v) Inheritance tax
An individual may be liable to inheritance tax on the transfer of Shares. Where an individual is so liable, inheritance tax may be charged on the amount by which the value of his or her estate
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 315 |
Additional shareholder information
is reduced as a result of any transfer by way of gift or other gratuitous transaction made by them or treated as made by them.
Taxation of US holders
The following is a summary of the principal US federal income tax consequences for US holders (as defined below) of Ordinary Shares of Barclays PLC, Preference Shares of Barclays Bank PLC (the ‘Bank’), or ADSs representing such Ordinary Shares or Preference Shares, who own the shares or ADSs as capital assets for tax purposes. It is not, however, a comprehensive analysis of all the potential tax consequences for such holders and it does not discuss the tax consequences of members of special classes of holders subject to special rules, including (i) dealers in securities, (ii) traders in securities that elect to use a mark-to-market method of accounting for securities holdings, (iii) tax-exempt organizations, (iv) life insurance companies, (v) holders liable for alternative minimum tax, (vi) holders that actually or constructively own 10 per cent or more of the voting stock of Barclays PLC or the Bank, (vii) holders that hold shares or ADSs as part of a straddle or a hedging or conversion transaction, (viii) holders that purchase or sell shares or ADSs as part of a wash sale, (ix) holders whose functional currency is not the US dollar, or (x) holders who are resident, or (in the case of individuals) ordinarily resident, or who are carrying on a trade, in the UK. The summary also does not address any aspect of US federal taxation other than US federal income taxation (such as the estate and gift tax or the Medicare tax on net investment income). Investors are advised to consult their tax advisers regarding the tax implications of their particular holdings, including the consequences under applicable state and local law, and in particular whether they are eligible for the benefits of the Treaty, as defined below.
This section is also based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions (the ‘Code’), and on the Double Taxation Convention between the UK and the US as entered into force in March 2003 (the ‘Treaty’), all of which are subject to change, possibly on a retroactive basis. This section is based in part upon the representations of the ADR Depositary and the assumption that each obligation of the Deposit Agreement and any related agreement will be performed in accordance with its terms.
A US holder is a beneficial owner of shares or ADSs that is, for US federal income tax purposes, (i) a citizen or resident of the US, (ii) a US domestic corporation, (iii) an estate whose income is subject to US federal income tax regardless of its source, or (iv) a trust if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust. If a partnership holds the shares or ADSs, the US federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the shares or ADSs should consult its tax adviser with regard to the US federal income tax treatment of an investment in the shares or ADSs.
For the purposes of the Treaty, the Estate and Gift Tax Convention between the UK and the US, and the Code, the holders of ADRs evidencing ADSs will be treated as owners of the underlying Ordinary Shares or Preference Shares, as the case may be. Generally, exchanges of shares for ADRs and ADRs for shares will not be subject to US federal income tax or to UK capital gains tax.
(i) Taxation of dividends
Subject to the PFIC rules discussed below, a US holder is subject to US federal income taxation on the gross amount of any dividend paid by Barclays PLC or the Bank, as applicable, out of its current or accumulated earnings and profits (as determined for US federal income tax purposes).
Dividends paid by Barclays PLC or the Bank, as applicable, with respect to the Ordinary Shares, Preference Shares or ADSs will generally be qualified dividend income. Dividends paid to a noncorporate US holder that constitute qualified dividend income will be taxable to the holder at preferential rates, provided that the holder has a holding period of the shares or ADSs of more than 60 days during the 121-day period beginning 60 days before the ex-dividend date (or, in the case of Preference Shares or ADSs relating thereto, if the dividend is attributable to a period or periods aggregating over 366 days, provided that the holder holds the shares or ADSs for more than 90 days during the 181-day period beginning 90 days before the ex-dividend date) and meets certain other holding period requirements. A US holder will not be subject to UK withholding tax. Dividends must be included in income when the US holder, in the case of shares, or the Depositary, in the
316 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
case of ADSs, actually or constructively receives the dividend, and will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. For foreign tax credit purposes, dividends will generally be income from sources outside the US and will, depending on a US holder’s circumstances, be either ‘passive’ or ‘general’ income for purposes of computing the foreign tax credit allowable to a US holder.
The amount of the dividend distribution includable in income will be the US Dollar value of the Pound Sterling payments made, determined at the spot Pound Sterling/US Dollar rate on the date the dividend distribution is includable in income, regardless of whether the payment is in fact converted into US Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includable in income to the date the payment is converted into US Dollars will be treated as ordinary income or loss and, for foreign tax credit limitation purposes, from sources within the US, and will not be eligible for the special tax rates applicable to qualified dividend income.
Distributions in excess of current or accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in the shares or ADSs and thereafter as capital gain. Because Barclays PLC and the Bank do not currently maintain calculations of earnings and profits for US federal income tax purposes, it is expected that distributions with respect to the shares and ADSs will generally be reported to US holders as dividends.
(ii) Taxation of capital gains
Subject to the PFIC rules discussed below, generally, US holders will not be subject to UK tax, but will be subject to US tax on capital gains realised on the sale or other disposition of Ordinary Shares, Preference Shares or ADSs. Generally, a US holder will recognise capital gain or loss for US federal income tax purposes equal to the difference between the US Dollar value of the amount realised and a US holder’s tax basis, determined in US Dollars, in its shares or ADSs. Capital gain of a noncorporate US holder is generally taxed at preferential rates where the holder has a holding period of greater than one year.
The gain or loss will generally be income or loss from sources within the US for foreign tax credit limitation purposes.
(iii) Taxation of premium on redemption or purchase of shares
No refund of tax will be available under the Treaty in respect of any premium paid on a redemption of Preference Shares by the Bank or on a purchase of Ordinary Shares by Barclays PLC. For US tax purposes, redemption premium generally will be treated as an additional amount realised in the calculation of a US holder’s gain or loss.
(iv) Taxation of passive foreign investment companies (PFICs)
Barclays PLC and the Bank believe that their respective shares and ADSs should not be treated as stock of a PFIC for US federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If Barclays PLC or the Bank were to be treated as a PFIC, then the gain realised on the sale or other disposition of the shares or ADSs would in general not be treated as a capital gain. Instead, unless a US holder elects to be taxed annually on a mark-to-market basis with respect to its shares or ADSs, such gain and certain ‘excess distributions’ would be treated as having been realised ratably over a US holder’s holding period for the shares or ADSs and generally would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, a US holder’s shares or ADSs will be treated as stock in a PFIC if Barclays PLC or the Bank, as applicable, was a PFIC at any time during such holder’s holding period in its shares or ADSs. Dividends that a US holder receives will not be eligible for the special tax rates applicable to qualified dividend income if Barclays PLC or the Bank is treated as a PFIC with respect to such US holder either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.
(v) Certain Reporting Requirements
US holders should consult their tax advisers regarding any tax reporting or filing requirements that may apply to receiving payments on or with respect to, acquiring, owning, or disposing of the shares or ADSs. Failure to comply with certain reporting obligations could result in the imposition of substantial penalties.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 317 |
Additional shareholder information
(vi) Stamp duty
No obligation to pay UK stamp duty will arise on the transfer on sale of an ADS, provided that any instrument of transfer is not executed in, and remains at all times outside, the UK. No UK stamp duty reserve tax is payable in respect of an agreement to transfer an ADS.
(vii) Estate and gift tax
Under the Estate and Gift Tax Convention between the UK and the US, a US holder generally is not subject to UK inheritance tax.
FATCA Risk Factor
In certain circumstances, shares or ADSs may be subject to US “passthru” withholding tax starting in 2019. The US has enacted rules, commonly referred to as ‘FATCA’, that generally impose a new reporting and withholding regime with respect to certain US source payments (including dividends and interest), gross proceeds from the disposition of property that can produce US source interest and dividends, and certain payments made by, and financial accounts held with, entities that are classified as financial institutions under FATCA. The US has entered into an intergovernmental agreement regarding the implementation of FATCA with the UK (the “UK IGA”). Under the UK IGA, as currently drafted, it is not expected that either Barclays PLC or the Bank will be required to withhold tax under FATCA on payments made with respect to the shares or ADSs. However, significant aspects of when and how FATCA will apply remain unclear, and no assurance can be given that withholding under FATCA will not become relevant with respect to payments made on or with respect to the shares or ADS in the future. Investors should consult their own tax advisers regarding the potential impact of FATCA.
The Barclays Group has registered with the Internal Revenue Service (‘IRS’) for FATCA. The Global Intermediary Identification Number (GIIN) for the Bank in the United Kingdom is E1QAZN.00001.ME.826 and it is a Reporting Model 1 FFI. The GIINs for other parts of the Barclays Group or Barclays branches outside of the UK may be obtained from your usual Barclays contact on request. The IRS list of registered Foreign Financial Institutions is publicly available at https://apps.irs.gov/app/fatcaFfilist/flu.jsf.
Exchange controls and other limitations affecting security holders
Other than certain economic sanctions which may be in force from time to time, there are currently no UK laws, decrees or regulations which would affect the transfer of capital or remittance of dividends, interest and other payments to holders of Barclays securities who are not residents of the UK. There are also no restrictions under the Articles of Association of either Barclays PLC or Barclays Bank PLC, or (subject to the effect of any such economic sanctions) under current UK laws, which relate only to non-residents of the UK, and which limit the right of such non-residents to hold Barclays securities or, when entitled to vote, to do so.
Documents on display
It is possible to read and copy documents that have been filed by Barclays PLC and Barclays Bank PLC with the US Securities and Exchange Commission at the US Securities and Exchange Commission’s office of Investor Education and Advocacy located at 100 F Street, NE Washington DC 20549. Please call the US Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Filings with the US Securities and Exchange Commission are also available to the public from commercial document retrieval services, and from the website maintained by the US Securities and Exchange Commission at www.sec.gov.
318 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional shareholder information
Fees and Charges Payable by a Holder of ADSs
The ADR depositary collects fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them.
The charges of the ADR depositary payable by investors are as follows:
Type of Service | ADR Depositary Actions | Fee | ||
ADR depositary or substituting the underlying shares |
Issuance of ADSs against the deposit of ordinary shares, including deposits and issuances in respect of: |
$5.00 or less per 100 ADSs (or portion thereof) evidenced by the new ADSs delivered | ||
– Share distributions, stock splits, rights issues, mergers | ||||
– Exchange of securities or other transactions or event or other distribution affecting the ADSs or deposited securities
| ||||
Receiving or distributing cash dividends
|
Distribution of cash dividends |
$0.04 or less per ADS* | ||
Selling or exercising rights |
Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities
|
$5.00 or less per each 100 ADSs (or portion thereof) | ||
Withdrawing an underlying ordinary share
|
Acceptance of ADSs surrendered for withdrawal of deposited ordinary shares
|
$5.00 or less for each 100 ADSs (or portion thereof)
| ||
General depositary services, particularly those charged on an annual basis
|
Other services performed by the ADR depositary in administering the ADS program |
No fee currently payable | ||
Expenses of the ADR depositary |
Expenses incurred on behalf of Holders in connection with: |
Expenses payable at the sole discretion of the ADR depositary by billing Holders or by deducting charges from one or more cash dividends or other cash distributions | ||
- Expenses of the ADR depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency) | ||||
– Taxes and other governmental charges | ||||
– Cable, telex and facsimile transmission/delivery | ||||
– Transfer or registration fees, if applicable, for the registration of transfers or underlying ordinary shares | ||||
– Any other charge payable by ADR depositary or its agents
| ||||
*The fee in relation to the distribution of cash dividends was $0.01 per ADS in respect of dividends paid in the year ended 31 December 2015. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 319 |
Additional shareholder information
Fees and Payments made by the ADR depositary to Barclays
The ADR depositary has agreed to provide Barclays with an amount based on the cash dividend fee charged on each ADS during each contract year running from August 11 of the relevant year to August 10 of the following year (a ‘Contract Year’) for expenses incurred by Barclays in connection with the ADS program (such amount being the ‘Contribution’ for the relevant Contract Year). The Contributions are paid to Barclays in two instalments each Contract Year.
The table below sets out the Contribution for the 2014/2015 Contract Year and thus the total amount received in the year ended 31 December 2015:
Cash Dividend Fee Amount Collected during 2014/2015
Contract Year | Amount provided in Contributions from the ADR depositary
for the year ended 31 December 2015 | |||
US$0.01 per ADS
|
$1,500,000
| |||
Total
|
$1,500,000
|
Under certain circumstances, including removal of the ADR depositary or termination of the ADS program by Barclays, Barclays may be charged by the ADR depositary certain fees (including in connection with depositary services, certain expenses paid on behalf of Barclays, an administrative fee, and any other reasonable fees/expenses incurred by the ADR depositary).
The ADR depositary has agreed to waive certain of its fees chargeable to Barclays with respect to standard costs associated with the administration of the ADS program.
320 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
External auditor objectivity and independence: Non-Audit Services
Our policy on the provision of services by the Group’s statutory Auditor (the ‘Policy’) sets out the circumstances in which the auditor may be permitted to undertake non-audit work for the Group.
The Board Audit Committee oversees compliance with the Policy and considers and, if appropriate, approves requests to use the Auditor for non-audit work. Allowable services are pre-approved up to but not including £100,000 or £25,000 in the case of certain taxation services. The Group Finance Director and the Company Secretary and their teams deal with day to day administration of the Policy, facilitating requests for approval.
Details of the services that are prohibited and allowed under the Policy are set out below:
Services that are prohibited include:
– | Bookkeeping; |
– | design and implementation of financial information systems; |
– | appraisal or valuation services; |
– | fairness opinions or contribution-in-kind reports; |
– | actuarial services; |
– | internal audit outsourcing; |
– | management and Human Resources functions; |
– | broker or dealer, investment advisor or investment banking services; and |
– | legal, expert and tax services involving advocacy or personal services to persons in a financial reporting role. |
Allowable services that the Board Audit Committee considers 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. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 321 |
Additional information
NYSE Corporate Governance Statement
As our main listing is on the London Stock Exchange, we follow the UK Corporate Governance Code. However, as Barclays also has American Depositary Receipts listed on the New York Stock Exchange (NYSE), we are also subject to the NYSE’s Corporate Governance Rules (NYSE Rules). We are exempt from most of the NYSE Rules, which US domestic 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. Key differences between the Code and NYSE Rules are set out here:
Director Independence
NYSE Rules require the majority of the Board to be independent. The Code requires at least half of the Board (excluding the Chairman) to be independent. The NYSE Rules contain different tests from the Code for determining whether a Director is independent. We follow the Code’s recommendations as well as developing best practices among other UK public companies. The independence of our non-executive Directors is reviewed by the Board on an annual basis and it takes into account the guidance in the Code and the criteria we have established for determining independence, which are described on page 37.
Board Committees
We have a Board Nominations Committee and a Board Remuneration Committee, both of which are broadly similar in purpose and constitution to the Committees required by the NYSE Rules and whose terms of reference comply with the Code’s requirements. The NYSE Rules state that both Committees must be composed entirely of independent Directors. As the Group Chairman was independent on appointment, the Code permits him to chair the Board Nominations Committee. Except for this appointment, both Committees are composed solely of non-executive Directors, whom the Board has determined to be independent. We comply with the NYSE Rules requirement that we have a Board Audit Committee comprised solely of independent non-executive Directors. However, we follow the Code recommendations, rather than the NYSE Rules, regarding the responsibilities of the Board Audit Committee (except for applicable mandatory responsibilities under the Sarbanes-Oxley Act), although both are broadly comparable. Although the NYSE Rules state that the Board Audit Committee is to take responsibility for risk oversight, Barclays has additional Board Committees which address different areas of risk management. To enhance Board governance of risk, Barclays has two risk committees; the Board Risk Committee and the Board Reputation Committee. A full description of each Board Committee can be found on page 96.
Corporate Governance Guidelines
The NYSE Rules require domestic US companies to adopt and disclose corporate governance guidelines. There is no equivalent recommendation in the Code but the Board Nominations Committee has developed corporate governance guidelines, ‘Corporate Governance in Barclays’, which have been approved and adopted by the Board.
Code of Ethics
The NYSE Rules require that domestic US companies adopt and disclose a code of business conduct and ethics for Directors, officers and employees. The Barclays Way was introduced in 2013, this is a Code of Conduct which outlines the Values and Behaviours which govern our way of working across our business globally. The Barclays Way has been adopted on a Group wide basis by all Directors, Officers and employees. The Barclays Way is available to view on the Barclays website at home.barclays/about-barclays/barclays-values.
Shareholder Approval of Equity-compensation Plans
The NYSE listing standards require that shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions to those plans. We comply with UK requirements, which are similar to the NYSE standards. However, the Board does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.
322 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Share Capital
Substantial shareholders
As at 29 February 2016 the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the UKLA of the following holdings of voting rights in its shares:
2015 | ||||||||||||||||
Holder
|
| Number of
Barclays Shares
|
|
| % of total
voting rights
attached to
issued share
capitala
|
|
| Number of
warrants
|
|
| % of total
voting rights
attached to
issued share
capitala
|
| ||||
Qatar Holding LLCb | 813,964,552 | 6.65 | - | - | ||||||||||||
BlackRock, Incc | 822,938,075 | 5.02 | - | - | ||||||||||||
The Capital Group Companies Incd | 1,172,090,125 | 6.98 | - | - | ||||||||||||
Norges Bank | 506,870,056 | 3.02 | - | - | ||||||||||||
a The percentage of voting rights detailed above were as calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR. b Qatar Holding LLC is wholly-owned by Qatar Investment Authority. c Total shown includes 1,408,618 contracts for difference to which voting rights are attached. On 25 January 2016, BlackRock, Inc. disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,109,026,156 ordinary shares of Barclays PLC as of 31 December 2015, representing 6.6% of that class of shares. d The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts (ADRs) with a ratio of 1 share to every 4 ADRs.
As at 27 February 2015 the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the UKLA of the following holdings of voting rights in its shares:
|
| |||||||||||||||
2014 | ||||||||||||||||
Holder
|
| Number of
Barclays Shares
|
|
| % of total
voting rights
attached to
issued share
capitala
|
|
| Number of
warrants
|
|
| % of total
voting rights
attached to
issued share
capitala
|
| ||||
Qatar Holding LLCb | 813,964,552 | 6.65 | - | - | ||||||||||||
BlackRock, Incc | 822,938,075 | 5.02 | - | - | ||||||||||||
The Capital Group Companies Incd | 861,142,569 | 5.22 | - | - | ||||||||||||
a The percentage of voting rights detailed above were as calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR. b Qatar Holding LLC is wholly-owned by Qatar Investment Authority. c Total shown includes 1,408,618 contracts for difference to which voting rights are attached. On 12 January 2015 BlackRock, Inc disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,032,843,875 ordinary shares of Barclays PLC as of 31 December 2014, representing 6.3% of that class of shares. d The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts (ADRs) with a ratio of 1 share to every 4 ADRs.
As at 4 March 2014, the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the UKLA of the following holdings of voting rights in its shares:
|
| |||||||||||||||
2013 | ||||||||||||||||
Holder
|
| Number of
Barclays Shares
|
|
| % of total
voting rights
attached to
issued share
capitala
|
|
| Number of
warrants
|
|
| % of total
voting rights
attached to
issued share
capitala
|
| ||||
Qatar Holding LLCb | 813,964,552 | 6.65 | - | - | ||||||||||||
BlackRock, Incc | 805,969,166 | 7.06 | - | - | ||||||||||||
The Capital Group Companies Incd | 809,174,196 | 5.03 | - | - |
a The percentage of voting rights detailed above were as calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR.
b Qatar Holding LLC is wholly-owned by Qatar Investment Authority. On 13 February 2014 Qatar Holding LLC disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,017,455,690 ordinary shares of Barclays PLC as of 31 December 2013, representing 6.31% of that class of shares.
c Total shown includes 8,003,236 contracts for difference to which voting rights are attached. On 17 January 2014 BlackRock, Inc disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,040,177,738 ordinary shares of Barclays PLC as of 31 December 2014, representing 6.5% of that class of shares.
d The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 323 |
Additional information
Disclosure controls and procedures
The Chief Executive, Jes Staley, and the Group Finance Director, Tushar Morzaria, conducted with Group Management an evaluation of the effectiveness of the design and operation of the Group’s disclosure controls and procedures of each of Barclays PLC and Barclays Bank PLC as at 31 December 2015, which are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the US Securities Exchange Act of 1934 is recorded, processed, summarised and reported within the time periods specified in the US Securities and Exchange Commission’s rules and forms. As of the date of the evaluation, the Chief Executive and Group Finance Director concluded that the design and operation of these disclosure controls and procedures were effective.
Change in Registrant’s Certifying Accountant
In 2015, in order to conform with the auditor rotation requirements of the final statutory audit services order published in October 2014 by the UK’s Competition and Markets Authority, which took effect in January 2015, the Board Audit Committee (through the Audit Tender Oversight Sub-Committee) conducted an external audit tender. Barclays did not request PwC to submit a tender proposal and PwC declined to stand for re-election as the Group’s auditor. Barclays identified KPMG as the preferred candidate for appointment as the new auditor and made a recommendation to the Board. The Board announced on 3 July 2015 that it had appointed KPMG as Auditor following the completion of the audit of the Barclay PLC and Barclays Bank PLC financial statements for the year ended 31 December 2016 and the audit of the effectiveness of internal control over financial reporting as of 31 December 2016. Accordingly, the engagement of PricewaterhouseCoopers LLP, Barclays’ current auditor, will not be renewed for 2017. The appointment of KPMG is subject to the approval of Barclays’ shareholders at the 2017 Annual General Meeting.
During the two years prior to 31 December 2015, (1) PwC has not issued any reports on the financial statements of Barclays PLC or Barclays Bank PLC or on the effectiveness of internal control over financial reporting that contained an adverse opinion or a disclaimer of opinion, nor were the auditors’ reports of PwC qualified or modified as to uncertainty, audit scope, or accounting principles, and (2) there has not been any disagreement over any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement if not resolved to PwC’s satisfaction would have caused it to make reference to the subject matter of the disagreement in connection with its auditors’ reports, or any “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.
Barclays has provided PwC with a copy of the foregoing disclosure and has requested that PwC furnish Barclays with a letter addressed to the SEC stating whether it agrees with such disclosure. A copy of the letter, dated 1 March 2015, is filed herewith as Exhibit 15.2.
Board of Directors
John McFarlane, Chairman
John is Chairman of Barclays. John joined the Board as a non-executive Director in January 2015 and became Chairman at the conclusion of the AGM in April 2015. He is also a non-executive director of Westfield Corporation and Old Oak Holdings. He is chairman of TheCityUK and a member of the Financial Services Trade and Investment Board and the European Financial Roundtable. John was formerly chairman of Aviva plc, where he oversaw a transformation of the company, the board and management, making Aviva one of the UK’s best-performing financial institutions. For a brief period he was also chairman of FirstGroup plc. John has a strong track record as a CEO and subsequently as a chairman and brings to Barclays extensive experience of investment, corporate and retail banking, as well as insurance, strategy, risk and cultural change. John is a senior figure in global banking and financial services circles and is in his 40th year in the sector including 20 years as a board director, 10 years as CEO and more recently as chairman.
Jes Staley, Chief Executive, Executive Director
Jes Staley joined Barclays as Group Chief Executive on 1 December 2015. Jes has nearly four decades of extensive experience in banking and financial services. He worked for more than 30 years at JP Morgan, initially training as a commercial banker, and later advancing to the leadership of major businesses involving equities, private banking and asset management, and ultimately heading the company’s Global Investment Bank. Most recently, Jes served as Managing Partner at BlueMountain Capital.
Sir Gerry Grimstone, Deputy Chairman, Non-executive Director
Sir Gerry Grimstone is Deputy Chairman and Senior Independent Director of Barclays and chairs the Board Reputation Committee. He is also chairman of Standard Life plc, one of the UK’s largest savings and investments businesses. He is an independent non-executive board member of Deloitte LLP where he represents the public interest. Within the UK public sector, he is the lead non-executive on the board of the Ministry of Defence and is a member of HM Treasury’s Financial Services Trade and Investment Board. From 2012-2015, Gerry served as the chairman of TheCityUK, the representative body for the financial and professional services industry in the UK. Gerry has held a number of board appointments in the public and private sectors and has served as one of the UK’s Business Ambassadors. He was previously a senior investment banker at Schroders and ran businesses in London, New York and Asia Pacific. He specialised in mergers and acquisitions and capital-raising for major companies worldwide. Prior to that, he was an official in HM Treasury where he was responsible for privatisation and policy towards state-owned enterprises. Sir Gerry’s other current principal external appointments are the Financial Services Trade and Investment Board and The Shareholder Executive.
Mike Ashley, Non-executive Director
Mike joined the Board as a non-executive Director in September 2013. He was formerly head of quality and risk management for KPMG Europe LLP (ELLP), which forms part of the KPMG global network, where his responsibilities included the management of professional risks
324 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
and quality control. He was a member of the ELLP Board and was also KPMG UK’s designated Ethics Partner. Mike has over 20 years’ experience as an audit partner, during which he was the lead audit partner for several large financial services groups, most recently HSBC Holdings PLC and Standard Chartered PLC, and also for the Bank of England. Mike has an in depth understanding of auditing and the associated regulatory issues, with specific experience of large, global banks. Mike’s other current principal external appointments are Institute of Chartered Accountants in England and Wales’ Ethics Standards Committee (member), European Financial Reporting Advisory Group’s Technical Expert Group (vice chair), Charity Commission (board member), Government Internal Audit Agency (chairman) and International Ethics Standards Board for Accountants.
Tim Breedon, Non-executive Director
Tim was appointed to the Board as a non-executive Director in November 2012. Tim held a number of roles at Legal & General Group plc (L&G) before joining its board as group director (Investments) and becoming group chief executive. He was later an adviser to L&G, primarily with responsibilities in connection with Solvency II. Tim was a director of the Association of British Insurers (ABI), and also served as its chairman. He was also chairman of the UK Government’s non-bank lending taskforce, an industry-led taskforce that looked at the structural and behavioural barriers to the development of alternative debt markets in the UK. Tim was a director of the Financial Reporting Council and was on the board of the Investment Management Association. Tim has over 25 years of experience in financial services and has extensive knowledge and experience of regulatory and government relationships. He brings to the Board the experience and knowledge of leading a financial services company, combined with an understanding of the UK and EU regulatory environment and risk management. His customer focus and understanding of investor issues, gained both at L&G and the ABI, is of particular relevance to Barclays. Tim’s other current principal external appointments are Apax Global Alpha Limited (chairman) and Marie Curie Cancer Care (trustee).
Crawford Gillies, Non-executive Director
Crawford joined the Board as a non-executive Director in May 2014. Crawford has over three decades of business and management experience, initially with Bain & Company, a firm of international management consultants, where he was managing director Europe from 2001 to 2005. While at Bain he worked with major companies in the UK, Continental Europe and North America across multiple sectors. Since 2007 he has been on the board of Standard Life plc, where he has chaired the remuneration committee. He was chairman of the law firm Hammonds, now Squire Sanders (2006 - 2009), has chaired Control Risks Group Holdings Ltd since 2007 and chaired Touch Bionics (2006 - 2011), an innovative medical device company. He joined the board of MITIE Group PLC in 2012. He has also held public sector posts in England and Scotland. He was an independent member of the Department of Trade and Industry (2002 - 2007) and chaired its Audit and Risk Committee (2003 - 2007). He is former Chairman of Scottish Enterprise and of the Confederation of British Industry in London. Crawford’s other current principal external appointments are as Non-executive Director SSE plc and Standard Life plc. Crawford intends to retire from his position at Standard Life plc in 2016.
Reuben Jeffery III, Non-executive Director
Reuben joined the Board in July 2009 as a non-executive Director. He is currently CEO, president and a director of Rockefeller & Co Inc. and Rockefeller Financial Services Inc. Reuben served in the US government as under secretary of State for Economic, Energy and Agricultural Affairs, as chairman of the Commodity Futures Trading Commission and as a special assistant to the President on the staff of the National Security Council. Before his government service, Reuben spent 18 years at Goldman, Sachs & Co where he was managing partner of Goldman Sachs in Paris and led the firm’s european financial institutions group in London. Prior to joining Goldman Sachs, Reuben was a corporate attorney with Davis Polk & Wardwell. Reuben has a broad range of financial services experience, particularly investment banking, and in addition brings extensive insight into the US political and regulatory environment. Reuben’s other current principal external appointments are International Advisory Council of the China Securities Regulatory Commission (member), Advisory Board of Towerbrook Capital Partners LP (member), Financial Services Volunteer Corps (Director) and the Advisory Board of J. Rothschild Capital Management Limited (member).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 325 |
Additional information
Wendy Lucas-Bull, Non-executive Director
Wendy was appointed to the Board as a non-executive Director in September 2013. She is currently chairman of Barclays Africa Group Limited (formerly Absa Group Limited), one of the largest financial services groups in Africa and majority owned by Barclays. She previously served as an executive director of Rand Merchant Bank and became chief executive of FirstRand Ltd’s retail businesses following the merger of Rand Merchant Bank and First National Bank. She has held senior board positions at the Development Bank of Southern Africa, the South African Financial Markets Advisory Board, Eskom, Aveng Ltd and Nedbank Group Limited. Wendy has also held positions on the boards of Telkom SA, Alexander Forbes Ltd, Dimension Data PLC and Anglo American Platinum Ltd. Wendy’s extensive experience provides the Board with valuable retail, commercial, asset management and investment banking expertise. Her widespread experience stems for board level positions in South African banks, having led some of South Africa’s blue chip companies, most notably as CEO of one of the largest retail banks in South Africa, serving as a senior executive of one of the major investment banks in South Africa, as well as providing consultancy services to the largest banks, financial exchanges and insurers in South Africa and internationally. As a CEO Wendy has a track record of successful financial turnaround and cultural transformation of a major South African bank. Her in-depth knowledge of banking in Africa also provides invaluable insight into banking in the region. Wendy has led or participated in a number of conduct related consultations throughout her career, and such knowledge and experience contribute greatly towards the discussion of culture at Barclays.
Tushar Morzaria, Group Finance Director, Executive Director
Tushar joined the Board and Group Executive Committee in October 2013 as Group Finance Director. Prior to this, he was CFO, corporate and investment bank at JP Morgan, a role he held on the merger of the investment bank and the wholesale treasury/security services business at JP Morgan. Prior to the merger, he was CFO of the investment bank and held other various roles during his career at JP Morgan.
Tushar qualified as an accountant at Coopers & Lybrand Deloitte and for most of his career he has worked in investment banking, having held various roles at SG Warburg, JP Morgan and Credit Suisse. Tushar has over 20 years of strategic financial management experience, which prove invaluable in his role as Group Finance Director.
Dambisa Moyo, Non-executive Director
Dambisa joined the Board in May 2010 as a non-executive Director. She is an international economist and commentator on the global economy, with a background in financial services. After completing a PhD in Economics, she worked for Goldman Sachs in the debt capital markets, hedge funds coverage and global macroeconomics teams. Dambisa has also worked for the World Bank and formerly served as a non-executive director of Lundin Petroleum AB (publ). Dambisa’s background as an economist, in particular her knowledge and understanding of global macroeconomic issues and African economic, political and social issues, provides an important contribution to the Board’s discussion of Barclays’ business and citizenship strategy. Dambisa’s other current principal external appointments are as non-executive director of SABMiller plc, Barrick Gold Corporation and Seagate Technology plc.
Frits van Paasschen, Non-executive Director
Frits was appointed to the Board as a non-executive Director in August 2013. Frits is an experienced director and CEO. He is the former CEO and president of Starwood Hotels and Resorts Worldwide Inc, one of the world’s largest hotel companies. He served as a non-executive director for two NYSE-listed companies, Jones Apparel Group and Oakley. He previously served as the CEO and President of Coors Brewing Company and has held various senior management positions with Nike, Inc. and Disney Consumer Products.
Frits’ extensive global and commercial experience and role as a CEO of an international business provides valuable strategic insight. In particular, his experience in developing and marketing brands, and a broad knowledge of enhancing business performance and the customer experience in a retail environment, is highly beneficial to many aspects of Barclays’ business.
326 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Diane de Saint Victor, Non-executive Director
Diane was appointed to the Board as a non-executive Director in June 2015. She is currently executive director, general counsel and company secretary of ABB Limited, the publicly listed international power and automation technologies company based in Switzerland.
Her responsibilities include Head of Legal and Integrity Group. She was formerly senior vice president and general counsel of The Airbus Group, formerly EADS Group, the European aerospace and defence company. Diane’s legal experience and her knowledge of regulatory and compliance matters allows her to provide a unique perspective to the Board and its Committees.
Diane Schueneman, Non-executive Director
Diane was appointed to the Board as a non-executive Director in June 2015. Diane has extensive experience in managing global, cross-discipline business operations, client services and technology in the financial services industry. She spent 37 years with Merrill Lynch and held senior roles with responsibility for banking, brokerage services and technology provided to the company’s retail and middle market clients, and latterly for IT, operations and client services worldwide as senior vice president and head of global infrastructure solutions. As a consultant at McKinsey & Company she advised the IRS Commissioner in the US and has held a number of non-executive directorships.
Steve Thieke, Non-executive Director
Steve was appointed to the Board as a non-executive Director in January 2014. He has four decades of experience in financial services, both in regulation and investment banking. Steve worked for the Federal Reserve Bank of New York for 20 years, where he held several senior positions in credit and capital market operations and banking supervision and later he became a non-executive director at the FSA. He has also held senior roles in investment banking and risk management with JP Morgan, where he spent ten years. He was head of the fixed income division, co-head of global markets, president and chairman of JP Morgan Securities, Inc. and head of the corporate risk management group, retiring from JP Morgan in 1999. He has significant board level experience, both in executive and non-executive roles, including spending seven years as a director of Risk Metrics Group, where latterly he served as chairman of the board, and nine years on the board of PNC Financial Services Group, Inc.
Group Executive Committee
Jes Staley, Group Chief Executive, Executive Director
See above for full biography.
Tushar Morzaria, Group Finance Director, Executive Director
See above for full biography.
Robert Le Blanc, Chief Risk Officer
Robert joined Barclays in 2002 as Head of Risk Management for the Investment Bank, and has been the Chief Risk Officer for the Group since 2004. Prior to joining Barclays, Robert spent most of his career at JP Morgan in the capital markets, fixed income, emerging market and credit and risk management areas in New York and London. Robert has been a member of the Group Executive Committee since November 2009. From May 2016, Robert will become Vice Chair of Risk and Strategy.
Michael Harte, Chief Operations and Technology Officer
Michael joined Barclays in July 2014, becoming a member of the Group Executive Committee. Before joining Barclays, Michael was group executive of enterprise services and chief information officer at the Commonwealth Bank of Australia Group (CBA), where he was responsible for group-wide retail and institutional banking systems and operations, brokerage, wealth and asset management systems. Together with his team, Michael transformed CBA into one of the most respected, customer focused and technology leading banks in the world: one of only 8 AA rated banks and top ten by market capitalisation. In his earlier career, Michael held the posts of executive vice president, chief information officer, IT and operations and technology posts at PNC Financial Services Group, Inc (2001-2006, New York) and at Citigroup (1996-2001, London and New York).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 327 |
Additional information
Bob Hoyt, Group General Counsel
Bob joined Barclays as Group General Counsel designate in October 2013 and became Group General Counsel in November 2013, responsible for all legal issues across Barclays. Bob is also a member of the Group Executive Committee. Bob joined Barclays from PNC Financial Services Group, where he was general counsel and chief regulatory affairs officer, having previously served as deputy general counsel since 2009. Prior to then he held roles in public service as general counsel at the US Department of the Treasury 2006-2009, and as special assistant and associate counsel at the White House. Bob spent much of the early part of his career in private practice, specialising in securities, litigation and corporate.
Tom King, Chief Executive, Investment Bank
Tom is Chief Executive of the Investment Bank. He is also a member of the Group Executive Committee. Tom joined Barclays in December 2009 as Head of Investment Banking Division (IBD), EMEA, and Co-Head of Global Corporate Finance. In April 2012, he assumed additional responsibility for jointly overseeing the newly combined Corporate Finance/M&A team. He was appointed Deputy Head of IBD in October 2012, and became Head of IBD in March 2013. Tom was appointed Co-Chief Executive of Corporate and Investment Banking on 1 May 2013 and joined the Group Executive Committee, in addition to his Investment Banking responsibilities. Previously, Tom was at Citigroup where he was most recently head of banking for EMEA. Tom joined Salomon Brothers in 1989 and moved to London in 1999 when he was appointed global head of mergers and acquisitions. He was named head of EMEA Investment Banking in 2005, and head of the combined Corporate and Investment Bank in 2008.
Jonathan Moulds, Group Chief Operating Officer
Jonathan joined Barclays in February 2015 as Group Chief Operating Officer. He also is a member of the Group Executive Committee. Jonathan began his career in finance with Chicago Research and Trading, which was acquired by Bank of America. Jonathan remained at Bank of America Merrill Lynch for over 15 years until 2012 holding a number of positions including head of Latin America, Canada and Europe, head of risk for global markets and head of international global markets. Latterly, Jonathan was Head of Bank of America Merrill Lynch Europe and CEO of Merrill Lynch International. More broadly, Jonathan has been a board member for bodies such as the Association of Financial Markets, Europe and the Global Markets Association. Jonathan is a renowned patron of the arts and was appointed CBE in the 2015 New Year Honours list for his services to philanthropy.
Maria Ramos, Chief Executive, Absa Group and Barclays Africa
Maria is the Chief Executive Officer of Barclays Africa Group Limited (formerly Absa), which is majority owned by Barclays. Prior to joining Absa on 1 March 2009, she was the group chief executive of Transnet Limited, the state-owned South African freight transport and logistics service provider. This was after a term as director-general of the National Treasury of South Africa (formerly the Department of Finance). She currently serves on the executive committees of the World Economic Forum’s International Business Council and Business Leadership South Africa. Maria joined the Group Executive Committee in November 2009.
Tristram Roberts, Group Human Resources Director
Tristram is the Group Human Resources Director. Tristram joined Barclays in July 2013 as HR Director for the Investment Bank. He expanded his remit in May 2014 to include HR responsibilities for Barclays Non-Core, and became the Group HR Director in December 2015. Prior to Barclays, Tristram was head of human resources for global functions and operations & technology at HSBC Holdings PLC, as well as group head of performance and reward. Previously, he was group reward and policy director for Vodafone Group plc. Tristram began his career in consulting. He became a partner with Arthur Andersen in 2001 and was subsequently a partner with both Deloitte and KPMG.
328 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Michael Roemer, Group Head of Compliance
Mike joined Barclays in January 2011 as the Head of Internal Audit, before becoming Group Head of Compliance in January 2014 and joining the Group Executive Committee. Mike joined Barclays from CIT Group where he was the chief auditor, reporting directly to the board audit committee and having global responsibility for CIT Group’s internal audit function. Mike has 27 years’ experience in internal audit, with 23 years of that time spent at JP Morgan. Mike currently serves on the advisory board of the Make-A-Wish Foundation of Metro New York where he is audit committee chair. He also serves on the board of Ronald McDonald House of New York, Inc. where he is also audit committee chair.
Amer Sajed, Interim CEO, Barclaycard
Amer is the Interim CEO of Barclaycard. He is also a member of the Group Executive Committee. Prior to his appointment as interim CEO for Barclaycard, Amer served as CEO for Barclaycard US. During his five years leading the US business it doubled in size to rank as one of the top ten credit card companies locally. Amer joined Barclaycard in August of 2006. Before assuming the US post, he was Chief Executive Officer for UK Cards. From 2010 to 2012, Amer also oversaw the South African Cards Issuing and Acquiring businesses. Before coming to Barclays, Amer worked at Citigroup for 20 years in various roles – most recently overseeing the travel and affluent segment. Previously, he served in senior finance roles.
Ashok Vaswani, CEO, Personal and Corporate Banking
Ashok is responsible for the Personal and Corporate Bank. Ashok joined Barclays in 2010, managing the credit card business across the UK, Europe and the Nordics, joining the board of Entercard Holdings AB. He went on to manage Barclays in Africa and then became CEO for Retail and Business Banking, covering Europe, Africa and the UK. Prior to Barclays, Ashok was a partner at Brysam Global Partners, a New York City based private equity firm focused on building retail financial service businesses in emerging markets. Ashok spent 20 years with Citigroup working in Asia, Middle East, Central Asia, Europe and North America, his last position being CEO of the global consumer bank in Asia Pacific. Ashok is on the advisory board of S. P. Jain Institute of Management and has served on the advisory board of Insead Singapore and Visa Asia Pacific. He is founder director of Lend-a-Hand, a non-profit organisation focused on economic development in India. Ashok represents Barclays as a non-executive director on the board of Barclays Africa Group Limited (formerly Absa Group Limited), having been appointed in February 2013. Ashok has been a member of the Group Executive Committee since October 2012.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 329 |
Additional information
Section 13(r) to the US Securities Exchange Act of 1934 (Iran sanctions and related disclosure)
Section 13(r) of the US Securities Exchange Act of 1934, as amended (the ‘Exchange Act’) requires each SEC reporting issuer to disclose in its annual and, if applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in certain activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the report. The required disclosure includes disclosure of activities not prohibited by US or other law even if conducted outside the US by non-US companies or affiliates in compliance with local law. Pursuant to Section 13(r) of the Exchange Act we note the following in relation to activity occurring in 2015, the period covered by this annual report, or in relation to activity we became aware of in 2015 relating to disclosable activity prior to the reporting period. Barclays earned total revenue of less than £28,000 from the activities disclosed below.
Legacy guarantees
Barclays entered into several guarantees for the benefit of Iranian banks between 1993 and 2006 in connection with the supply of goods and services by Barclays’ customers to Iranian buyers. These were counter guarantees issued to the Iranian banks to support guarantees issued by these banks to the Iranian buyers. The Iranian banks and a number of the Iranian buyers were then designated as Specially Designated Nationals (“SDNs”) by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). In addition, Barclays entered into similar guarantees between 1993 and 2005 for the benefit of a Syrian bank that is now an OFAC SDN. Some of the underlying buyers related to the Syrian guarantees have also been designated as OFAC SDNs.
The guarantees have been issued with the following conditions:
(i) | On an “extend or pay” basis, where until there is full performance under the contract to provide goods and/or services, the terms of the guarantee require Barclays to either maintain the guarantee or pay the beneficiary bank the full amount of the guarantee; or |
(ii) | Where Barclays obligations can only be discharged with the consent of the beneficiary, or counterparty. |
Barclays is not able to exit its obligations under the guarantees unilaterally, and thus maintains a limited legacy portfolio of these guarantees. The guarantees were in compliance with applicable laws and regulations at the time at which they were entered into. Revenue in the amount of less than £15,000 was received in the year ended 31 December 2015. Any payments made under the guarantees are made in compliance with applicable laws and regulations. Barclays intends to terminate each of these legacy guarantees if the applicable law changes so as to allow it.
Lease payments
Barclays is party to a long-term lease, entered into in 1979, with the National Iranian Oil Company (“NIOC”), pursuant to which Barclays rents part of NIOC House in London to house a Barclays bank branch. NIOC is the custodian trustee for the NIOC Pension Fund. The lease is for 60-years, contains no early termination clause and has 24 years remaining. Barclays makes quarterly lease payments to Naft Trading and Technology Ltd, a wholly-owned subsidiary of the NIOC Pension Fund in respect of this lease. NIOC is wholly owned by the Iranian Government and is an SDN. In December 2012, NIOC Pension Fund was sanctioned in the UK, by HM Treasury. From this point lease payments were made to a frozen account at Turkiye Is Bankasi in line with UK regulations. However, in 2014, Turkiye Is Bankasi refused to accept any further payments into the frozen account. Since then, no further lease payments have been made and Barclays continues to accrue ongoing rental payments on its books. In 2015 an additional payment of under £6,000 was made directly to a UK supplier by Barclays in respect of the upkeep of the branch.
330 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Local Clearing Systems
Banks in the United Arab Emirates (“UAE”), including certain of the Iranian banks that are or were OFAC SDNs, participate in the various banking payment and settlement systems used in the UAE (the “UAE Clearing Systems”). Barclays, by virtue of its banking activities in the UAE, participates in the UAE Clearing Systems, and its participation in the UAE Clearing Systems is in compliance with applicable law and regulations. However, in order to help mitigate the risk of participating in transactions in which participant Iranian OFAC SDN banks may be involved, Barclays has implemented restrictions relating to its participation in the UAE Image Cheque Clearance System (ICCS), the UAE Funds Transfer System (FTS), the Direct Debit System (DDS) Automated Teller Machine (ATM) / Cheque Deposit Machine (CDM) activity as well as restricting activity via the Wages Protection Scheme (WPS). Barclays attributed no revenue in 2015 from the OFAC SDN banks in relation to its participation in the UAE Clearing Systems.
Commercial mortgage
On 24 May 2013, a Barclays customer and its director were designated by OFAC under the Non-Proliferation and Weapons of Mass Destruction (“NPWMD”) regime. The customer continues to hold a commercial mortgage with Barclays. The terms and conditions of the commercial mortgage do not allow for an early exit and Barclays is legally required to maintain the loan until the maturity date or until the customer defaults on payments. Repayments of the mortgage by the customer are being made in accordance with applicable laws and regulations. Revenues earned by Barclays in 2015 were less than £19,000.
New OFAC notification
On 6 September 2012 “Organization for Peace and Development Pakistan” opened an account in Pakistani Rupees with Barclays Pakistan. On 7 April 2015 OFAC issued a notification advising that the “Organization for Peace and Development Pakistan” was a new alias for an already sanctioned entity, Revival of Islamic Heritage Society, which has been designated under the OFAC Specifically Designated Global Terrorist (“SDGT”) regime. It has also been listed by the European Union (“EU”) and in the UK by HM Treasury (“HMT”) under the Al Qaida Terrorism and
Terrorism Financing regime since January 2002. At the time the account was opened, Barclays Pakistan was not aware of the links to the designated entity. The account was identified on 7 April 2015, following the OFAC notification and was frozen by Barclays on 9 April 2015.
The account was closed on 12 May 2015 and the funds were held in an account in Barclays Bank Pakistan, pending the sale of Barclays Bank Pakistan to Habib Bank Ltd on 15 June 2015. A licence was granted by HMT to transfer the account to Habib Bank Ltd on 26 June 2015 (AFU/2015/015). The Barclays Bank PLC account holding the frozen funds was transferred to Habib Bank Ltd on 28 August 2015 in accordance with the licence. Barclays derived no revenue in relation to this account.
Review of designation
Mohammad Moinie, an existing customer, was designated by OFAC as a Special Designated National (SDN) on 6 September 2013, under EO 13599. In April 2015 Barclaycard identified the customer as the SDN designated by OFAC.
A review of the customer’s account established the account was held in GBP. No US nexus was identified in relation to any transactions undertaken on the account. The relationship was exited on 1 June 2015. Barclays derived no revenue throughout its relationship with the customer.
Identification of payments involving OFAC designated entity
In 2015, Barclays identified that payments to its customer, a media company, had potentially been received indirectly from Press TV via a third party in relation to a weekly news show on Press TV. Press TV is designated by OFAC due to its Iranian government ownership. Payments totalling GBP 138,040.00 have been received by the customer from that third party since April 2013. The accounts of the customer and associated persons were closed in February 2016. Revenue derived in 2015 from all account activity was less than £250.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 331 |
Additional information
Payment relating to exports to Iran
In April 2015 Barclays established that it had processed an inbound US dollar payment on 27 October 2014, for which the ultimate remitter was located in Iran. The transaction related to the export of video surveillance products from the UK to Iran, for use on commercial aircraft belonging to state owned entity, ATA Airlines, located in Iran.
A voluntary disclosure of the possible violation of the Iranian Transactions Sanctions Regulations (31 CFR Part 560) under the Economic Sanctions Enforcement Procedures of OFAC, 31 CFR Part 501, Appendix A was made to OFAC on 22 October 2015. There were no US origin goods involved. Furthermore, there was no breach of UK/EU regulations as the payment was below reporting threshold and a UK licence was held for the export of the goods involved. Revenues earned by Barclays were less than GBP 10.00 in 2014, but the case was not identified for disclosure in the 20F filed in March 2015. No revenue was derived in 2015.
The customer’s transactional accounts are to be exited.
Ministry of Industry, Mine and Trade
During 2015, a payment from 2014 was identified as disclosable. The payment was from a London-based Barclays customer made a payment in favour of an entity in Kazakhstan called Joint Stock Company KTZ Express. The payment was stopped in sanctions screening due to a system match unrelated to Iran. However, it was subsequently released based on information provided by the customer that the final destination of the goods was Istanbul and that there was no direct or indirect involvement of any sanctioned countries.
A return of the funds was received in April 2014 from KTZ Express in favour of the Barclays customer and contained the reference “Prepayment return due to unperformed services”. The customer advised Barclays that the seller of the wheat was unable to supply the wheat and that the order was never fulfilled. In response to a Barclays request, the US correspondent bank supplied a copy of the invoice which showed the Government of Iran (the Ministry of Industry, Mine and Trade) as the intended recipient of the wheat and appears to show the customer was acting on behalf of the Government of Iran.
Less than GBP 10.00 of revenue was derived by Barclays in 2014. No revenue was derived in 2015.
332 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Summary of Certain Share and Cash Plans and Long-Term Incentive Plans
Summary of Barclays Group share and cash plans and long-term incentive plans
Barclays operates a number of share and cash plans and long-term incentive plans. The principal plans used for awards made in or, in respect of, the 2015 performance year are shown in the table below. Awards are granted either by the plan trustee or by the Board Remuneration Committee, and are subject to the applicable plan rules. Barclays has a number of employee benefit trusts which operate with these plans. In some cases the trustee purchases shares in the market to satisfy awards; in others, new issue or treasury shares may be used to satisfy awards where the appropriate shareholder approval has been obtained. Maria Ramos, a member of the Executive Committee and Chief Executive of Barclays Africa Group Limited, also participates in share and cash plans and long-term incentive plans of Barclays Africa Group Limited.
Summary of principal share and cash plans and long-term incentive plans
| ||||||||
Name of plan
| Eligible employees
|
Executive Directors eligible
| Delivery
| Design details
| ||||
Share Value Plan (SVP) |
All employees (including executive Directors) |
Yes |
Deferred share bonus typically released in annual instalments over a three year period, dependent on future service and subject to malus provisions |
– Plan typically used for mandatory deferral of a proportion of bonus into Barclays shares where bonus is above a threshold (set annually by the Committee)
– This plan typically works in tandem with the CVP
– Deferred share bonus vests over three years in equal annual instalments dependent on future service
– Vesting is subject to malus, and suspension provisions and the other provisions of the rules of the plan
– Dividend equivalents may be released based on the number of shares under award that are released
– On cessation of employment, eligible leavers normally remain eligible for release (on the scheduled release dates) subject to the Committee and/or trustee discretion. For other leavers, awards will normally lapse
– On change of control, awards may vest at the Committee’s and/or trustee’s discretion
– For SVP awards made in 2015 to material Risk Takers (“MRTs”), a holding period of 6 months will apply to shares (after tax) on release
| ||||
Cash Value Plan (CVP) |
All employees (excluding executive Directors) |
No |
Deferred cash bonus paid in annual instalments over a three year period, dependent on future service and subject to malus provisions |
– Plan typically used for mandatory deferral of a proportion of bonus where bonus is above a threshold (set annually by the Committee)
– This plan typically works in tandem with the SVP
– Deferred cash bonus vests over three years in equal annual instalments dependent on future service
– Vesting is subject to malus, suspension provisions and the other provisions of the rules of the plan
– Participants may be awarded a service credit of 10% of the initial value of the award at the same time as the final instalment is paid (provided they are in active employment)
– Change of control and leaver provisions are as for SVP
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 333 |
Additional information
Summary of Certain Share and Cash Plans and Long-Term Incentive Plans
Barclays LTIP |
Selected employees (including executive Directors) |
Yes |
Awards over Barclays shares or over other capital instruments, subject to risk-adjusted performance conditions and malus provisions |
– Awarded on a discretionary basis with participation reviewed by the Committee
– Awards only vest if the risk-adjusted performance conditions are satisfied over a three year period
– Vesting is subject to malus, suspension provisions and the other provisions of the rules of the plan
– For awards made for the 2013-2015 performance period, 50% of any Barclays shares released (after payment of tax) will be subject to an additional two year holding period
– For awards made for the 2014-2016 performance period, any Barclays shares released (after payment of tax) will be subject to an additional two year holding period
– For the awards made for 2015-2017, any Barclays shares released (after payment of tax) will be subject to an additional two year holder period.
– On cessation of employment, eligible leavers normally remain eligible for release (on the scheduled release dates) pro-rated for time and performance. For other leavers, awards will normally lapse
– On change of control, awards may vest at the Committee’s discretion
| ||||
Business Unit Long-Term Incentive Plans |
Selected senior employees (excluding executive Directors) within each business unit |
No |
Design varies by business unit. Awards made after at least three years, with additional deferral after this period. Awards typically made 50% in cash and 50% in Barclays share awards |
– Participation on a discretionary basis
– Risk-adjusted performance conditions vary by business unit to reflect applicable business strategy
– Minimum plan duration is between three and five years (depending on plan)
– Award is subject to malus provisions and provisions of the plan rules
– Participation may cease if the participant leaves Barclays other than for eligible leaver reasons
– No new awards under business unit long-term incentive plans are expected to be made in 2016
| ||||
Sharesave |
All employees in the UK and Ireland
|
Yes |
Options over Barclays shares at a |
– HMRC approved in the UK and approved by the Revenue Commissioners in Ireland |
334 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Summary of Certain Share and Cash Plans and Long-Term Incentive Plans
discount of 20%, with shares or cash value of savings delivered after three to five years |
– Opportunity to purchase Barclays shares at a discount price (currently a 20% discount) set on award date with savings made over three, five or seven year term
– Maximum individual savings of £250 per month (€315 in Ireland)
– On cessation of employment, eligible leavers may exercise options and acquire shares to the extent of their savings for six months
– On change of control, participants may exercise options and acquire shares to the extent of their savings for six months
– At 31 December 2015, executive Directors and officers of Barclays PLC (involving 32 persons) held options to purchase a total of 17,206 (2014: 30,398) Barclays PLC ordinary shares of 25p each at prices ranging from 133.01p to 178p under Sharesave. The expiry dates on these options range from 1 May 2016 to May 1 2019.
| |||||||
Sharepurchase |
All employees in the UK |
Yes |
Barclays shares and dividend/matching shares held in trust for three to five years |
– HMRC approved plan
– Participants may purchase up to £1,800 of Barclays shares each tax year
– Barclays matches the first £600 of shares purchased by employees on a one for one basis for each tax year
– Dividends received are awarded as additional shares
– Purchased shares may be withdrawn at any time (though if removed prior to three years from award, the corresponding matching shares are forfeited).
– On cessation of employment, participants must withdraw shares
– Depending on reason for and timing of leaving, matching shares may be forfeited
– On change of control, participants are able to instruct the Sharepurchase trustee how to act or vote on their behalf
| ||||
Global Sharepurchase |
Employees in certain non-UK jurisdictions |
Yes |
Barclays shares and dividend/matching shares held in trust for three to five years |
– Global Sharepurchase is an extension of the Sharepurchase plan offered in the UK
– Operates in substantially the same way as Sharepurchase (see above)
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 335 |
Barclays’ approach to managing risks
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Risk management strategy, governance and risk culture | ![]() |
In this section we describe the approaches and strategies for managing risks at Barclays. It contains information on how risk management functions are organised, how they ensure their independence and foster a sound risk culture throughout the organisation.
§ | A discussion of how our risk management strategy is designed to foster a strong risk culture is contained on pages 337 and 338 |
§ | A governance structure, encompassing the organisation of the function as well as executive and Board committees, supports the continued application of the Enterprise Risk Management Framework (ERMF). This is discussed in pages 338 to 341 |
§ | The ERMF sets out the tools, techniques and organisational arrangements to ensure all material risks are identified and understood (see pages 344 and 345) |
§ | Pages 346 to 353 describe group-wide risk management tools that support risk management, ExCo and the Board in discharging their responsibilities, and how they are applied in the strategic planning cycle. |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
This section outlines the Group’s strategy for managing risk and how risk culture has been developed to ensure that there is a set of objectives and practices which are shared across the Group. It provides details of the Group’s governance, specific information on policies that the Group determines to be of particular significance in the current operating environment, committee structures and how responsibilities are assigned. The last part of the section provides an insight into how risk management is part of the strategy setting process, including the planning process, the setting of risk appetite and stress testing across the Group.
Risk Management Strategy
The Group has clear risk management objectives and a well-established strategy to deliver them through core risk management processes.
At a strategic level, the Group’s risk management objectives are to:
§ | identify the Group’s significant risks |
§ | formulate the Group’s risk appetite and ensure that business profile and plans are consistent with it |
§ | optimise risk/return decisions by taking them as close as possible to the business, while establishing strong and independent review and challenge structures |
§ | ensure that business growth plans are properly supported by effective risk infrastructure |
§ | manage risk profile to ensure that specific financial deliverables remain achievable under a range of adverse business conditions |
§ | help executives improve the control and co-ordination of risk taking across the business. |
A key element in the setting of clear management objectives is the Enterprise Risk Management Framework (ERMF), which sets out key activities, tools, techniques and organisational arrangements so that material risks facing the Group are identified and understood, and that appropriate responses are in place to protect Barclays and prevent detriment to its customers, employees or community. This will help the Group meet its goals, and enhance its ability to respond to new opportunities.
The ERMF covers those risks incurred by the Group that were foreseeable, continuous, and sufficiently material to merit establishing specific Group-wide control frameworks. These are known as Principal and Key Risks (see Principal and Key Risks on page 345 for more information).
The aim of the risk management process is to provide a structured, practical and easily understood set of three steps - Evaluate, Respond and Monitor (the E-R-M process) - that enables management to identify and assess risks, determine the appropriate risk response, and then monitor the effectiveness of the risk response and changes to the risk profile.
§ Evaluate: risk evaluation must be carried out by those individuals, teams and departments who manage the underlying operational or business process, and so are best placed to identify and assess the potential risks, and also include those responsible for delivering the objectives under review.
§ Respond: the appropriate risk response effectively and efficiently ensures that risks are kept within appetite, which is the level of risk that the Group is prepared to accept while pursuing its business strategy. There are three types of response: i) accept the risk but take necessary mitigating actions such as use of risk controls; ii) stop the existing activity/do not start the proposed activity; or iii) continue the activity but transfer risks to another party via use of insurance.
§Monitor: once risks have been identified and measured, and controls put in place, progress towards objectives must be tracked. Monitoring must be ongoing and can prompt re-evaluation of the risks and/or changes in responses. Monitoring must be carried out proactively. In addition to “reporting”, it includes ensuring risks are maintained within risk appetite and checking that controls are functioning as intended and remain fit for purpose.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 337 |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
The process is orientated around material risks impacting delivery of objectives, and is used to promote an efficient and effective approach to risk management. This three step risk management process:
§ | can be applied to every objective at every level in the bank, both top-down or bottom-up |
§ | is embedded into the business decision making process |
§ | guides the Group’s response to changes in the external or internal environment in which existing activities are conducted |
§ | involves all staff and all three lines of defence (see pages 343 and 344). |
Governance structure
Risk exists when the outcome of taking a particular decision or course of action is uncertain and could potentially impact whether, or how well, the Group delivers on its objectives.
The Group faces risks throughout its business, every day, in everything it does. Some risks are taken after appropriate consideration – such as lending money to a customer. Other risks may arise from unintended consequences of internal actions, for example an IT system failure or poor sales practices. Finally, some risks are the result of events outside the Group but which impact its business – such as major exposure through trading or lending to a market counterparty which later fails.
All employees must play their part in the Group’s risk management, regardless of position, function or location. All employees are required to be familiar with risk management policies that are relevant to their activities, know how to escalate actual or potential risk issues, and have a role-appropriate level of awareness of the ERMF (see Risk governance and assigning responsibilities for more information on page 343), risk management processes and governance arrangements.
Furthermore, from March 2016 members of the Board, Executive Committee and a limited number of specified senior individuals will be subject to additional rules included within the Senior Managers Regime (SMR), which clarifies their accountability and responsibilities. Members of the SMR are held to four additional specific rules of conduct in which they must:
§ | take reasonable steps to ensure that the Group is effectively controlled |
§ | take reasonable steps to ensure that the Group complies with relevant regulatory requirements and standards |
§ | take reasonable steps to ensure that any delegated responsibilities are to the appropriate individual and that the delegated responsibilities are effectively discharged |
§ | disclose appropriately any information to the FCA or PRA, which they would reasonably expect to made aware of. |
There are three key Board-level forums which review and monitor risk across the Group. These are: The Board itself, the Board Risk Committee and the Board Reputation Committee.
The Board
One of the Board’s (Board of Directors of Barclays PLC) responsibilities is the approval of risk appetite (see the Risk Management and Strategy section on page 346), which is the level of risk the Group chooses to take in pursuit of its business objectives. The Chief Risk Officer regularly presents a report to the Board 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 (Group Control Framework). It oversees the management of the most significant risks through regular review of risk exposures and related key controls. Executive management responsibilities relating to this are set out in the ERMF.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
The Board Risk Committee (BRC)
The BRC monitors the Group’s risk profile against the agreed financial appetite. Where actual performance differs from expectations, the actions being taken by management are reviewed to ensure that the BRC is comfortable with them. After each meeting, the Chair of the BRC prepares a report for the next meeting of the Board. All members are non-executive Directors. The Group Finance Director (GFD) and the Chief Risk Officer (CRO) attend each meeting as a matter of course.
The BRC also considers the Group’s risk appetite statement for operational risk and evaluates the Group’s operational risk profile and operational risk monitoring.
The BRC receives regular and comprehensive reports on risk methodologies, the effectiveness of the risk management framework, and the Group’s risk profile, including the key issues affecting each business portfolio and forward risk trends. The Committee also commissions in-depth analyses of significant risk topics, which are presented by the CRO or senior risk managers in the businesses. The Chair of the Committee prepares a statement each year on its activities.
The Board Audit Committee (BAC)
The BAC receives regular reports on the effectiveness of internal control systems, quarterly reports on material control issues of significance, and quarterly papers on accounting judgements (including impairment). It also receives 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 methodologies and the performance trends of peer banks. The Chairman of the BAC also sits on the BRC.
The Board Reputation Committee (RepCo)
The RepCo reviews management’s recommendations on conduct and reputational risk and the effectiveness of the processes by which the Group identifies and manages these risks. It also reviews and monitors the effectiveness of Barclays’ Citizenship strategy, including the management of Barclays’ economic, social and environmental contribution.
In addition, the Board Audit and Board Remuneration Committees receive regular risk reports to assist them in the undertaking of their duties.
The Board Remuneration Committee (RemCo)
The RemCo receives a detailed report on risk management performance from the BRC, regular updates on the risk profile and proposals for the ex-ante and ex-post risk adjustments to variable remuneration. These inputs are considered in the setting of performance incentives.
Summaries of the relevant business, professional and risk management experience of the Directors of the Board are presented in the Board of Directors section on pages 3 and 4 of the 2015 Form 20-F. The terms of reference and additional details on membership and activities for each of the principal Board Committees are available from the Corporate Governance section at: home.barclays/corporategovernance.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
The CRO is a member of the Executive Committee and has overall day-to-day accountability for risk management under delegated authority from the Chief Executive Officer (CEO). The CEO is accountable for proposing a risk appetite that underpins the strategic plan to the Board for approval, and the CRO is responsible for providing oversight, advice and challenge to the CEO, and preparing and recommending the Group’s risk appetite to the CEO and the Board. Risk appetite therefore sets the ‘tone from the top’ and provides a basis for ongoing dialogue between management and Board level around the Group’s current and evolving risk profile.
The CRO manages the independent risk function and chairs the Financial Risk Committee (FRC) and the Operational Risk Review Forum (ORRF), which monitor the Group’s financial and non-financial risk profile relative to agreed risk appetite. Principal Risk Officers (PROs), reporting to the CRO and supported by Key Risk Officers (KROs) where appropriate, are responsible for establishing a Group-wide framework for oversight of the relevant risks and controls. Their teams liaise with each business as part of the monitoring and management processes.
In addition, each business has an embedded risk management function, headed by a Business Chief Risk Officer (BCRO). BCROs 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 Central Risk in the formulation of Group policies and their implementation across the businesses. The BCROs’ report jointly to the CRO and to their respective business heads.
The Risk Executive Committee is responsible for the effectiveness and efficiency of risk management and embedding a strong risk culture, approval of the Group’s risk governance framework, and agreement and endorsement of the overall infrastructure strategy for the risk function. It is also the senior decision making forum for the risk function, excluding matters relating to the risk profile. It is chaired by the CRO with a membership comprising senior risk management.
The CEO must consult the Chairman of the BRC in respect of the CRO’s performance appraisal and compensation, as well as all appointments to or departures from the role.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
The Group Treasurer heads the Group Treasury function and chairs the Treasury Committee which:
§ | manages the Group’s liquidity, maturity transformation and structural interest rate exposure through the setting of policies and controls |
§ | monitors the Group’s liquidity and interest rate maturity mismatch |
§ | monitors usage of regulatory and economic capital |
§ | has oversight of the management of the Group’s capital plan. |
The Head of Compliance chairs the Conduct and Reputation Risk Committee (CRRC) which assesses the quality of the application of the Reputation and Conduct Risk Control Frameworks. It also recommends conduct risk appetite, sets policies to ensure consistent adherence to that appetite, and reviews known and emerging reputational and conduct related risks to consider if action is required.
Barclays’ risk culture
In Barclays, risk culture refers to the combination of the individual and collective norms, values, attitudes and behaviours of all of employees, in relation their awareness of risk, and how they take and manage risk.
The taking of risk is a fundamental part of banking, and so for Barclays to be successful it must have good risk management practices underpinned by a strong risk culture. To ensure that this is achieved all colleagues are required to:
§ | understand that risk management is important in all of our activities |
§ | have an awareness and sensitivity to the risk issues which could arise in their individual roles |
§ | take risk issues and considerations fully into account, before taking decisions and acting |
§ | have good practices on how they manage risk on an ongoing basis as appropriate: |
– | recognise when they are taking risk |
– | discuss and debate risks |
– | take action to manage and mitigate risks |
– | escalate risks where necessary |
– | identify areas for improvement and learn from mistakes |
– | seek to remediate and improve how we manage risk. |
§ | Value and promote these habits, practices and behaviours. |
There is a focus on four key areas that evidence a strong risk culture: tone from the top; accountability; effective communication and challenge; and incentives.
Tone from the top
Leaders should demonstrate through their everyday behaviours the importance of strong risk management and ensure that their teams have sufficient resource and capability to manage the risk environment.
Achieving good outcomes for customer and clients is central to colleagues’ approach to managing risk and managers will ensure that their teams identify and resolve risk issues within agreed timeframes and learn from mistakes to avoid repeating them.
Accountability
Barclays has implemented and operates a strong Risk Governance framework and ensures that colleagues understand the business processes, as well as the associated risks relevant to their role and the level of risk they can take, which is consistent with the Group’s risk appetite.
Colleagues must actively manage risk, believe it is the right thing to do and take personal responsibility for risk management issues.
Effective Communication and Challenge
Barclays ensures that colleagues feel empowered and supported to raise issues and that those issues are then appropriately escalated, investigated and reported.
Incentives
The Group’s desired risk management behaviours are supported by appropriate recruitment, performance, reward and promotion decisions. It also ensures that wrong behaviour is defined and that there are visible consequences to such actions.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Sustaining a sound risk culture
Barclays uses a variety of tools to sustain its risk culture including, for example, employee training, semi-annual performance reviews and adjustments to compensation. Employees are provided with regular role-specific mandatory quarterly training courses, which deliver training across the breadth of risk topics; with further optional training courses continuously available.
Semi-annual performance reviews include an assessment of risk and control performance, which is also considered as part of promotion decisions, particularly to Managing Director.
Risk performance is also measured (in the form of employee breaches and any involvement in other risk events) and taken into consideration for compensation purposes.
Risk Appetite and the ‘Tone from the top’
Communicating and enforcing risk appetite in all businesses creates a common understanding and fosters debate around what types of risks are acceptable, and what levels of risk are appropriate at business and Group level.
To develop a consistently strong risk culture across the Group, clear statements have been communicated as to the Group risk appetite for all risk types. In particular, risk appetite:
§ | articulates the types and level of risk we are willing to take and why, to enable specific risk taking activities. It also specifies those risks the Group seeks to avoid and why, to constrain specific risk taking activities |
§ | is embedded within key decision-making processes including business planning, mergers and acquisitions, new product approvals and business change initiatives |
§ | provides a framework for performance management and disciplinary consequences in cases of breach |
§ | is implemented under the direct leadership of the CEO, who is responsible for leading, managing and organising executive management to achieve execution of the strategy and business plans in line with risk appetite |
§ | is owned by the Board. |
Improvements to the approach in 2015 have delivered further embedment within the businesses, and improved alignment with stress testing. See risk appetite on page 346 and 347 for more information.
Supporting colleagues to manage risk – in the right way
By supporting colleagues to manage risk in the right way, the Group seeks to ensure that all risk managers share the Barclays’ Values and to promote a common understanding of the role that risk management plays:
§ | risk management capability and ability to act in a risk aware manner forms part of the assessment process for all new employees and promotion candidates globally |
§ | management of risk and control is assessed as part of the annual performance appraisal process for all colleagues globally. Positive risk management behaviours will be rewarded |
§ | the “Being Barclays” global induction programme supports new colleagues in understanding how risk management culture and practices support how the Group does business and the link to the Barclays’ values |
§ | leadership master classes cover the building, sustaining and supporting a trustworthy organisation and are offered to colleagues globally. |
Learning from our mistakes
Learning from mistakes is central to the Group’s culture and values, demonstrating a commitment to excellence, service and stewardship and taking accountability for failure as well as success. The Group seeks to learn lessons on a continuous basis to support achievement of strategic objectives; operational excellence and to meet commitments to stakeholders, including colleagues, customers, shareholders and regulators.
Barclays has implemented a Group Lessons Learnt Standard as part of the ERMF, setting out requirements for completing Lessons Learnt Assessments in response to significant events. The approach to Lessons Learnt builds on the process established for operational risk in
342 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
2012 and fulfils the Group’s Salz commitments by ensuring a consistent and effective approach applicable to all Principal Risks. The approach is directly aligned to the three lines of defence model (see below), with businesses and functions accountable for undertaking lessons learnt assessments; Principal and Key Risk Officers providing input, oversight and challenge; with independent review by internal audit.
Core components of the Lessons Learnt approach include:
§ | defined triggers for when lessons learnt assessments must be completed |
§ | requirements and guidance for root cause analysis to identify the causes of events within the Group |
§ | templates to ensure conclusions are reported consistently throughout management committees |
§ | a central system to record completed lessons learnt assessments and to facilitate sharing across the Group. |
Since its launch at the end of 2014, Lessons Learnt approach continues to evolve and an enhanced approach will be launched in 2016.
Risk governance and assigning responsibilities
Responsibility for risk management resides at all levels of the Group, from the Board and the Executive Committee down through the organisation to each business manager and risk specialist. These responsibilities are distributed so that risk/return decisions are: taken at the most appropriate level; as close as possible to the business; and are subject to robust and effective review and challenge. Responsibility for effective review and challenges resides at all levels.
The ERMF articulates a clear, consistent, comprehensive and effective approach for the management of all risks within the Group and creates the context for setting standards and establishing the right practices throughout the Group. It sets out a philosophy and approach that is applicable to the whole bank, all colleagues and to all types of risk. The ERMF sets out the key activities required for all employees to operate Barclays’ risk and control environment with specific requirements for key individuals, including the CRO and CEO, and the overall governance framework designed to support its effective operation. See risk culture on page 341 for more information.
The ERMF supports risk management and control by ensuring that there is a:
§ | sustainable and consistent implementation of the three lines of defence across all businesses and functions |
§ | clear segregation of activities and duties performed by colleagues across the whole bank |
§ | framework for the management of Principal Risks |
§ | consistent application of risk appetite across all Principal Risks |
§ | clear and simple policy hierarchy. |
Three lines of defence
The enterprise risk management process is the ‘defence’ and organising businesses and functions into three ‘lines’ enhances the E-R-M process by formalising independence and challenge, while still promoting collaboration and the flow of information between all areas. The three lines of defence operating model enables the Group to separate risk management activities:
First line: Manage operational and business processes; design, implement, operate, test and remediate controls
First line activities are characterised by:
§ | ownership of and direct responsibility for the Group’s returns or elements of its results |
§ | ownership of major operations, systems and processes fundamental to the operation of the bank |
§ | direct linkage of objective setting, performance assessment and reward to profit and loss performance. |
With respect to risk management the first line responsibilities include:
§ | taking primary accountability for risk identification, ownership, management and control (including performance of portfolios, trading positions, operational risks etc.) within approved mandate, as documented under the Key Risk Control Frameworks, including embedding a supportive risk culture |
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
§ | collaborating with second line on implementing and improving risk management processes and controls |
§ | monitoring the effectiveness of risk controls and the risk profile compared to the approved risk appetite |
§ | maintaining an effective control environment across all risks, processes and operations arising from the business, including implementing standards to meet Group policies. |
Second Line: Oversee and challenge the first line, and provide second line risk management activity.
Second line activities are characterised by:
§ | oversight, monitoring and challenge of the first line of defence activities |
§ | design, ownership or operation of Key Risk Control Frameworks impacting the activities of the first line of defence |
§ | operation of certain second line risk management activities (e.g. financial rescue of a firm) |
§ | no direct linkage of objective setting, performance assessment and reward to revenue (measures related to mitigation of losses and balancing risk and reward are permissible). |
With respect to risk management the second line of defence responsibilities include:
§ | defining the ERMF |
§ | establishing the policy architecture for the Key Risks, including Key Risk Control Frameworks, policies, and standards |
§ | defining delegated discretions and setting limits within the control frameworks to empower risk taking by the first line |
§ | assisting in setting the direction of the portfolio to achieve performance against risk appetite |
§ | may define and operate approval processes for certain decisions within the second line to protect the Group from material risks |
§ | communicating, educating and advising the first line on their understanding of the risk framework and its requirements |
§ | collaborating with the first line to support business growth and drive an appropriate balance between risk and reward without diminishing the independence from the first line |
§ | reporting on the effectiveness of the risk and control environment to executive management and Board committees. |
Third line: Provide assurance that the E-R-M process is fit-for-purpose, and that it is being carried out as intended
Third line activities are characterised by:
§ | providing independent and timely assurance to the Board and Executive Management over the effectiveness of governance, risk management and control. |
With respect to risk management the third line of defence responsibilities include:
§ | assessing the effectiveness of risk management and risk mitigation in the context of the current and expected business environment |
§ | acting independently and objectively. |
Following the annual review, in 2016, we have further refined the three lines of defence model by clarifying that responsibilities for risk management and control are defined in relation to the activities individuals undertake as part of their role. The three key activities are: “Setting Policy and Conformance” (second line); “Managing Operational or Business Process” (first and second line); and “Providing Independent Assurance” (third line). Second and third line activities have not changed, however we have emphasised the key responsibilities of the first line, which includes colleagues’ responsibility for understanding and owning the process end to end, and designing, operating, testing and remediating appropriate controls to manage those risks. Performed appropriately and by all colleagues, together these responsibilities will drive a stronger risk and control environment at Barclays, benefitting our customers, clients, shareholders and regulators.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Principal Risks comprise individual Key Risks to allow for more granular analysis. As at 31 December 2015 the five Principal Risks were: i) Credit; ii) Market; iii) Funding; iv) Operational; and v) Conduct. Since the beginning of 2015, Reputation Risk has been recognised as a Key Risk within Conduct Risk given their close alignment and the fact that as separate Principal Risks they had a common Principal Risk Officer.
Risk management responsibilities for Principal and Key Risks are set out in the ERMF. The ERMF creates clear ownership and accountability; ensures the Group’s most significant risk exposures are understood and managed in accordance with agreed risk appetite and risk tolerances; and ensures regular reporting of risk exposures and control effectiveness.
For each Key Risk, the Key Risk Officer is responsible for developing a risk appetite statement and overseeing and managing the risk in line with the ERMF. This includes the documentation, communication and maintenance of a Key Risk Control Framework which sets out, for every business across the firm, the mandated control requirements in managing exposures to that Key Risk. These control requirements are given further specification, according to the business or risk type, to provide a complete and appropriate system of internal control.
Business and Function heads are responsible for obtaining ongoing assurance that the key controls they have put in place to manage the risks to their business objectives are operating effectively. Reviews are undertaken on a six-monthly basis and support the regulatory requirement for the Group to make an annual statement about its system of internal controls. At the business level executive management holds specific Business Risk Oversight Meetings to monitor all Principal Risks.
Key Risk Officers report their assessments of the risk exposure and control effectiveness to Group-level oversight committees and their assessments form the basis of the reports that go to the:
Board Risk Committee:
§ Financial Risk Committee has oversight of Credit and Market Risks
§ Treasury Committee has oversight of Funding Risk
§ Operational Risk Review Forum has oversight of the risk profile of all Operational Risk types.
Board Reputation Committee:
§ Conduct and Reputation Risk Committee has oversight of Conduct and Reputation Risks.
Assurance
Assurance is undertaken to assess the control environment and to independently assess the ERMF, which includes testing specific elements of the control environment documented in standards and checking that control testing activities are reliable, to provide confidence to the Board in the risk and control framework.
The Credit Risk Review Group (CRRG) provides an independent review and monitoring of the quality and condition of all the wholesale loan and derivative portfolios through a review of the overall credit sanctioning process. CRRG has a mandate from the CRO and has direct access to the CRO and to the BRC.
Internal Audit is 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 executive management over the effectiveness of controls, mitigating current and evolving material risks and thus enhancing the control culture within the Group. The BAC reviews and approves Internal Audit’s plans and resources, and evaluates the effectiveness of Internal Audit. An assessment by independent external advisers is also carried out periodically.
Effectiveness of risk management arrangements
The embedding of the ERMF is monitored by executive and board committees as described above. The ERMF and its component key risks are subject to control testing assurance reviews to confirm its effectiveness or identify issues to be mitigated. Management and the Board are satisfied that these arrangements are appropriate given the risk profile of the Group.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Management of model risk
Model risk is the risk of suffering adverse consequences from decisions based on incorrect or misused model outputs and reports. Management of model risk is an important area of focus for the Group.
Model risk is inherent in each of the Key Risks where models are used for measurement or management and is, therefore, managed as part of each individual key risk control framework and supported by the Group Model Risk Policy (GMRP) and relevant standards.
Model risk is managed by a number of activities, including:
§ | ensuring that models are identified as per the GMRP definition, across businesses and recorded in the Group Models Database (GMD), the Group-wide model inventory |
§ | ensuring that every model has a model owner who is accountable for the model, and drives the development/maintenance of the model by a qualified model developer |
§ | ensuring that every model is subject to technical validation by the Independent Validation Unit (IVU) as required by GMRP |
§ | ensuring that every model is approved by appropriately senior and knowledgeable risk individuals in the organisation, following IVU validation |
§ | periodic model risk reporting to the senior management and the Board |
§ | Internal Audit provides independent challenge of model risk management through business line and thematic audits. |
The Executive Models Committee (EMC) fulfils the specific requirement of approving the Group’s most material (A*/High and Complex) models; the EMC decisions are based on business reviews and the associated IVU validations for these models. EMC is chaired by the accountable Risk ExCo member and has among its members the Deputy Group Finance Director and the Chief Risk Officer.
Group-wide risk management tools
To support the Group-wide management of risks, the Board uses risk appetite and stress testing as key inputs in the setting of the Group’s strategy.
Risk Appetite
Risk appetite is defined as the level of risk that the Group is prepared to accept while pursuing its business strategy, recognising a range of possible outcomes as business plans are implemented.
Risk appetite sets the ‘tone from the top’ and provides a basis for ongoing dialogue between management and Board with respect to the Group’s current and evolving risk profile, allowing strategic and financial decisions to be made on an informed basis.
The Risk Appetite Framework is intended to achieve the following objectives:
§ | describe agreed parameters for Group performance under various stress levels, for example: |
– | Profitability, loss and return metric |
– | Capital levels, CET1 ratio |
§ | consider all Principal and Key Risks both individually and, where appropriate, in aggregate |
§ | assess and communicate the acceptable level of risk for each risk types; this may be expressed in financial or non-financial terms, but must enable measurement and effective monitoring |
§ | articulate the risks the Group is willing to take and why to enable specific risk taking activities; and articulate those risks to avoid and why to constrain specific risk taking activities |
§ | be embedded in key decision-making processes including mergers and acquisitions, new product approvals and business change initiatives |
§ | monitor throughout the year and respond as appropriate. |
The risk appetite for financial risks is set by the Board on the basis of severe stress tests as it is during periods of macro-economic stress that losses materialise. In order to articulate the risk appetite for the firm, the Board first defines the deterioration in the firm’s performance it is willing to accept under stressed macroeconomic conditions. The acceptable deterioration is defined through a range of financial performance and capital metrics, which are reviewed by the Board on an annual basis. Barclays have moved to a scenario-based Stress Testing approach from the previous modelled approach of 1 in 7 and 1 in 25 risk events. The new approach continues to assess scenarios under stress conditions. For 2016 these are summarised in the following table.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Measure relevant to strategy and risk | Link between strategy and risk profile | |
Profit before tax, Return on equity, Return on RWAs | Fundamental economic and business indicators of the performance of the Bank and underpin the firm’s capacity to make capital distributions. | |
Common Equity Tier 1 and leverage ratios
| Monitor capital adequacy in relation to capital plan and targets. | |
Loan loss rate (LLR)
| Describes the credit risk profile and whether impairment is within appetite. | |
Return on equity (RoE),
Return on regulatory capital | Risk-return based performance metrics which allow strategic and financial decisions to be made on an informed basis. |
Barclays businesses run the stress test(s) as a fully integrated part of the annual Medium Term Planning (MTP) process, to ensure that the risk appetite business demand is based on the businesses’ most recent strategic plans. The deterioration of financial performance as a result of the stress test is subsequently compared to the tolerances agreed by the Board. Subsequently the risk appetite is allocated back to individual businesses and utilisation is monitored on a quarterly basis. This approach ensures that businesses’ risk appetite proposals are based on their latest strategic plans and allows the Board to allocate risk appetite such that it fully supports the firm’s chosen strategy within acceptable boundaries of risk taking.
Mandate and scale
Mandate and scale is a risk management approach that seeks to formally review and control business activities to ensure that they are within mandate (i.e. aligned with expectations), and are of an appropriate scale (relative to the risk and reward of the underlying activities) based on an extensive system of limits. Using limits and triggers helps mitigate the risk of concentrations which would be out of line with expectations, and which may lead to unexpected losses of a scale that would be detrimental to the stability of the relevant business line or the Group.
For example, for commercial property finance and construction portfolios, there is a comprehensive series of limits in place to control exposure within each business and geographic sector. 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.
The mandate and scale framework is used to:
§ | limit concentration risk |
§ | keep business activities within Group and individual business mandate |
§ | ensure activities remain of an appropriate scale relative to the underlying risk and reward |
§ | ensure risk-taking is supported by appropriate expertise and capabilities. |
As well as Group-level mandate and scale limits, further limits are set by risk managers within each business, covering particular portfolios. Unapproved excesses of limits will result in performance management and disciplinary consequences.
Stress testing
Group-wide stress tests are an integral part of the MTP process and annual review of risk appetite. They aim to ensure that the Group’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic stress. The Group-wide stress testing process is supported by a Capital Stress Testing Standard which sets out the minimum control requirements and defines clear roles and responsibilities across businesses and central functions. The diagram below outlines the key steps in the Group-wide stress testing process.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
The Group-wide stress testing process begins with a detailed scenario setting process, with the FRC and BRC agreeing the range of scenarios to be tested. The scenarios are designed to be severe but plausible, and relevant to the business. A wide range of macroeconomic parameters are defined (such as GDP, unemployment, house prices, FX and interest rates), which allows the impact of the scenarios across the wide range of products and portfolios to be assessed across the Group.
Businesses prepare detailed MTP business plans which form the baseline for the stress test assessment. The stress test process is detailed and comprehensive, using bottom-up analysis across the businesses including both on- and off-balance sheet positions, and combines running statistical models with expert judgement. An overview of the stress testing approach by Principal Risk is provided in the table below. As part of their stress test assessments, businesses are also required to identify potential management actions that could be taken to mitigate the impact of stress and document these within their results.
There is robust governance in place with detailed review of stress testing methodology and results both within businesses (including sign-off by BCROs and BCFOs) and by central functions.
The businesses stress test results are consolidated to form a Group view which is used for tax analysis and by Group Treasury to assess the stress impact on the Group’s capital plans. For the latter, capital management actions such as reducing dividends or redeeming certain capital instruments may be considered. The Group also maintains recovery plans which take into consideration actions to facilitate recovery from severe stress or an orderly resolution. These actions are additional to those included in the Group-wide stress testing results.
The overall stress testing results of the Group are presented for review and approval by the FRC and BRC, and are also shared with the Treasury Committee and included as part of the review and sign-off of the MTP by the Board.
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Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Summary of methodologies for Group-wide stress testing by risk type:
Principal Risk | Stress testing approach | |||||
¡ | Credit risk impairment: For retail portfolios businesses use regression models to establish a relationship between arrears movements and key macroeconomic parameters such as interest rates and unemployment, incorporating roll-rate analysis to estimate stressed levels of arrears by portfolio. In addition, combination of house price reductions and increased customer drawdowns for revolving facilities leads to higher LGD which also contributes to increased impairment levels. For wholesale portfolios the stress shocks on credit risk drivers (PDs, LGDs and EADs) are primarily calibrated using historical and expected relationships with key macro-economic parameters such as GDP, inflation and interest rates. | |||||
Credit risk | ¡ | Counterparty credit risk losses: The scenarios include market risk shocks that are applied to determine the market value under stress of contracts that give rise to Counterparty Credit Risk (CCR). Counterparty losses, including from changes to the Credit Valuation Adjustment and from defaults, are modelled based on the impact of these shocks as well as using stressed credit risk drivers (PDs and LGDs). The same approach is used to stress the market value of assets held as available for sale or at fair value in the banking book. | ||||
¡ | Credit risk weighted assets: The impact of the scenarios is calculated via a combination of business volumes and using similar factors to impairment drivers above, as well as the regulatory calculation and the level of pro-cyclicality of underlying regulatory credit risk models.
| |||||
Market risk | ¡ | Trading book losses: All market risk factors on the balance sheet are stressed using specific market risk shocks (and are used for the CCR analysis, above). The severity of the shocks applied are dependent on the liquidity of the market under stress, e.g. illiquid positions are assumed to have a longer holding period than positions in liquid markets. | ||||
¡ |
Pension fund: The funding position of pension funds are stressed, taking into account key economic drivers impacting future obligations (e.g. long-term inflation and interest rates) and the impact of the scenarios on the value of fund assets.
| |||||
¡ | The risk of a mismatch between assets and liabilities, leading to funding difficulties, is assessed. Businesses apply scenario variables to forecasts of customer loans and advances and deposits levels, taking into account management actions to mitigate the impact of the stress which may impact business volumes. The Group funding requirement under stress is then estimated and takes into account lower availability of funds in the market. | |||||
¡ | The analysis of funding risk also contributes to the estimate of stressed income and costs: | |||||
Funding risk | – | Stress impact on non-interest income is primarily driven by lower projected business volumes and hence lower income from fees and commissions | ||||
– | Impact on net interest income is driven by stressed margins, which depend on the level of interest rates under stress as well as funding costs, and on stressed balance sheet volumes. This can be partly mitigated by management actions that may include repricing of variable rate products, taking into account interbank lending rates under stress | |||||
– | The impact on costs is mainly driven by business volumes and management actions to partly offset profit reductions (due to impairment increases and decreases in income) such as headcount reductions and lower performance costs.
| |||||
Operational risk, and Conduct risk |
¡ |
These Principal Risks are generally not impacted as they are not directly linked to the economic scenario. Note that operational risk, however, is included as part of the reverse stress testing framework that incorporates assessment of idiosyncratic operational risk events.
|
The role of stress testing as input to businesses’ plans and setting of strategy is described in more detail in the section below. The results also feed into our internal capital adequacy assessment process (ICAAP) submission to the Prudential Regulation Authority (PRA).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 349 |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
In 2015, the internal Group-wide stress testing exercise was run as part of the MTP process, where the Group assessed the impact of an “Adverse” global recession scenario. This was used for the MTP Risk Review and risk appetite setting process.
Regulatory stress testing
In addition to running internal Group-wide stress tests , the Group also runs regulatory stress tests.
Additionally in 2015, the PRA ran its annual concurrent stress testing of the major UK banks, which was based on the Bank of England (BoE) stress scenario. The results of the stress test were published in December 2015, and support the BoE’s aim for increased transparency as part of its stress testing framework.
In 2016, the European Banking Authority will run a stress test across the major EU banks. This will be run in addition to the annual BoE stress test.
Reverse stress testing
The Group-wide stress testing framework also includes reverse stress testing techniques which aim to identify the circumstances under which the Group’s business model would no longer be viable, leading to a significant change in business strategy and to identify appropriate mitigating actions. Examples include extreme macroeconomic downturn scenarios (for example in 2015 Barclays ran a ‘Severely Adverse’ global recession scenario), or specific idiosyncratic events, covering both operational risk and capital/liquidity events.
Reverse stress testing is used to help support ongoing risk management and is an input to our Recovery Planning process.
Business and risk type specific stress tests
Stress testing techniques at portfolio and product level are also used to support risk management. For example, portfolio management in the US cards business employs stressed assumptions of loss rates to determine profitability hurdles for new accounts. In the UK mortgage business, affordability thresholds incorporate stressed estimates of interest rates. In the Investment Bank, global scenario testing is used to gauge potential losses that could arise in conditions of a severe but plausible market stress. Stress testing is also conducted on positions in particular asset classes, including interest rates, commodities, equities, credit and foreign exchange.
Risk management in the setting of strategy
The planning cycle is centred on the MTP process, performed annually. This embeds the Group’s objectives into detailed business plans which take into account the likely business and macroeconomic environment. The strategy is informed by a detailed risk assessment of the plans, which includes reviewing the Group’s risk profile and setting of risk appetite. The BRC has overall responsibility for reviewing the Group’s risk profile and making appropriate recommendations to the Board. The Board is ultimately responsible for approving the MTP and the Group’s risk appetite.
The planning cycle is summarised in the diagram below, and shows that the detailed risk assessment of the plans is an integral part of the MTP process. In particular, the risk appetite process ensures that senior management and the Board understand the MTP’s sensitivities to key risk types, and includes a set of limits to ensure the Group stays within appetite. Additionally, stress testing informs management about the impact to the business of adverse macroeconomic scenarios and potential management actions that could be taken to mitigate the impact of stress.
350 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Plan
Businesses prepare detailed business plans as part of the MTP process. A key component of this process is the businesses’ internal risk assessment, which combines running statistical models e.g. to calculate forecast impairments over the period of the plan, and risk subject matter expert judgement. The risk teams work closely with other functions within their businesses to inform the business plans.
Businesses are required to assess each of their portfolios and all Principal Risks (as relevant to their business) when preparing their business plans, and prepare detailed documentation, providing key risk metrics such as projected loan loss rate (LLR) by portfolio. As part of their internal risk assessment, businesses provide performance of their business plans under expected and stressed macroeconomic scenarios, which defines the proposed risk appetite reflected in their plans and feeds into the setting of risk appetite for the Group.
Additionally, businesses assess the performance of their business plans under stress, based on ‘severe, but plausible’ macroeconomic scenarios provided by risk in collaboration with business economists and agreed with the BRC at the start of the process. As part of their stress test assessment, businesses are required to identify and document management actions that would be taken to mitigate the impact of stress, such as cost reductions and increased collections activity to reduce impairments.
Within the businesses, there is detailed risk review of the business plans, involving senior risk managers, with BCROs required to sign off on the risk profile of the plans, including the risk appetite and stress testing assessments described above. The results of businesses’ internal risk assessment and corresponding detailed documentation forms the basis for discussion for the risk review process and setting of risk appetite for the Group, outlined below.
Evaluate
Following submissions by businesses of their MTP business plans, there is a detailed review process led by the central risk team. This includes a robust review and challenge of business’ plans to ensure that the financial projections are internally consistent, value creating, achievable given risk management capabilities (e.g. supported by appropriate risk infrastructure) and that they present a suitable balance between risk and reward. The risk review process is informed by the detailed documentation provided by businesses, which forms the basis for discussion. The format and content of the documentation is pre-agreed to ensure sufficient information is provided to allow a detailed and comprehensive risk review.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 351 |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
The risk review process includes a review of the proposed risk appetite by the business, including assessment of business plans under stress which is used to inform the MTP. If the businesses’ plans entail too high a level of risk, management will challenge the businesses’ plans. This assessment is based on a comparison of businesses’ own risk appetite assessment reflected in their business plans (‘bottom-up’ risk appetite) with the central risk team’s view (‘top-down’ risk appetite) based on the financial constraints set by the Board for the Group. Businesses may be asked to update their business plans to ensure the bottom-up risk appetite is within top-down appetite. There is also a detailed review of the stressed estimates and methodology used to translate the economic scenario to stressed estimates, as well as the management actions included in businesses’ results to ensure that these are appropriate and realistic in a stressed environment.
Risk review meetings are held with the CRO and each business, where the senior management of the business present their business plans and the findings from the risk reviews are discussed, including the risk appetite proposals and stress testing results. Businesses may be required to change their business plans as a result of these meetings.
Respond
Following detailed risk review of businesses plans, the central risk team will recommend to the BRC for approval by the Board an appropriate risk appetite for the Group, taking into account businesses’ stress testing results. Mandate and Scale limits are also set. Based on the agreed risk appetite, limits are reviewed for appropriateness by the central risk team, as outlined below, and recommended to the BRC.
Risk Appetite
The Group level loss appetite limit across principal financial risks is set by the Board as part of the annual setting of risk appetite. The allocation is consistent with the annual MTP risk review of the business strategy under stress.
Mandate and scale
Mandate and scale limits are set at Group or business level.
§ | Group limits are approved by the appropriate risk committee (e.g. Wholesale Credit Risk Management Committee) and are subject to additional escalation and governance requirements. |
§ | Business limits are approved by the relevant business risk team and reportable to the relevant risk committee. |
Limits reflect the nature of the risk being managed and controlled and are measured by total financing limits, LGD, stress loss or other metrics as appropriate. There is explicit identification of the exposures that are captured by limits and any material exclusion must be agreed. Limits are reviewed at least annually. The factors taken into consideration when setting the limit will include:
§ | Group Risk Appetite |
§ | current exposure / MTP forecasts |
§ | risk return considerations |
§ | senior risk management judgement. |
Mandate and scale limits are split between three types:
§ | caps: Hard limit, set to limit concentration to a live portfolio or risk |
§ | run off ceilings: Set to monitor legacy positions being managed down over time |
§ | triggers for discussion: Threshold set as trigger for follow up/investigation. |
352 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to managing risks
Risk management strategy, governance and risk culture
Monitor
Risk Appetite
The loss appetite allocation to businesses is tracked using an agreed and repeatable monitoring measure. The percentage utilisation of appetite is a risk metric that is part of the business Balanced Scorecard. Appetite utilisation is reported to the BRC on a quarterly basis. Breaches must be approved and remedial actions mandated.
Mandate and scale
The limit excess process includes the following key points:
§ | businesses must have adequate processes in place to monitor limit caps to avoid excesses |
§ | all excesses must be reported to the central risk team within 24 hours |
§ | credit applications that would cause or increase an excess can only be approved once the limit cap is increased |
§ | a remediation plan must be put in place. |
A limit breach will have occurred if a limit goes into excess without being authorised by the relevant authority; or where the limit excess process is not adhered to unless the policy or terms of the limit allows for temporary excess.
Stress testing
Stress testing is also used as part of the risk monitoring framework. For example, the stress testing results inform the retail early warning indicator framework which is designed to trigger actions that would be taken to mitigate the impact of stress.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 353 |
Management of | ![]() |
This section discusses the organisation specific to the management of credit risks
– | Pages 355 to 369 cover the aspects of the Group’s risk management framework specific to credit risk, including committees and the Group reporting structure |
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.
Overview
The granting of credit is one of the Group’s major sources of income and, as a Principal Risk, the Group dedicates considerable resources to its control. The credit risk that the Group faces arises mainly from wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts with clients. This is demonstrated by the impairment charge analysis chart. Other sources of credit risk arise from trading activities, including: debt securities, settlement balances with market counterparties, available for sale (AFS) assets and reverse repurchase agreements (reverse repos).
Credit risk management objectives are to:
§ | maintain a framework of controls to ensure credit risk-taking is based on sound credit risk management principles |
§ | 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 |
Total credit impairment charge and other provisions – Dec 15 (£2,114m)
Note: Wholesale and Retail Loans and Advances include charges against contingent liabilities and guarantees
§ | control and plan credit risk-taking in line with external stakeholder expectations and avoiding undesirable concentrations |
§ | monitor credit risk and adherence to agreed controls |
§ | ensure that risk-reward objectives are met. |
Organisation and structure
Wholesale and retail portfolios are managed separately to reflect the differing nature of the assets; wholesale balances tend to be larger and are managed on an individual basis, while retail balances are larger in number but smaller in value and are, therefore, managed on a homogenous portfolio basis.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 355 |
Barclays’ approach to managing risks
Management of credit risk
Credit risk management responsibilities have been structured so that decisions are taken as close as possible to the business, while ensuring robust review and challenge of performance, risk infrastructure and strategic plans. The credit risk management teams in each business are accountable to the relevant BCRO who, in turn, reports to the CRO.
Roles and responsibilities
The responsibilities of the credit risk management teams in the businesses, the sanctioning team and other shared services include: sanctioning new credit agreements (principally wholesale); setting policies for approval of transactions (principally retail); monitoring risk against limits and other parameters; maintaining robust processes, data gathering, quality, storage and reporting methods for effective credit risk management; performing effective turnaround and workout scenarios for wholesale portfolios via dedicated restructuring and recoveries teams; maintaining robust collections and recovery processes/units for retail portfolios; and review and validation of credit risk measurement models.
For wholesale portfolios, credit risk approval is undertaken by experienced credit risk professionals operating within a clearly defined delegated authority framework, with only the most senior credit officers entrusted with the higher levels of delegated authority. The largest credit exposures, which are outside the Risk Sanctioning Unit or Risk Distribution Committee authority, require the support of the Group Senior Credit Officer (GSCO), the Group’s most senior credit risk sanctioner. For exposures in excess of the GSCO authority, approval by Group CRO is required. In the wholesale portfolios, credit risk managers are organised in sanctioning teams by geography, industry and/or product.
The role of the Central Risk function is to provide Group-wide direction, oversight and challenge of credit risk-taking. Central Risk sets the Credit Risk Control Framework, which provides the structure within which credit risk is managed, together with supporting credit risk policies.
Reporting
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 five broad stages:
§ | measuring exposures and concentrations |
§ | monitoring performance and asset quality |
§ | monitoring for weaknesses in portfolios |
§ | raising allowances for impairment and other credit provisions |
§ | returning assets to a performing status or writing off assets when the whole or part of a debt is considered irrecoverable. |
Measuring exposures and concentrations
Loans and advances to customers provide the principal source of credit risk to the Group although it is also exposed to other forms of credit risk through, for example, loans and advances to banks, loan commitments and debt securities. 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 or customers are engaged in similar activities or geographies, 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, the Group constantly reviews its concentration in a number of areas including, for example, geography, maturity and industry.
Mandate and scale limits are used to maintain concentrations at appropriate levels, which are aligned with the businesses’ stated risk appetite. Limits are typically based on the nature of the lending and the amount of the portfolio meeting certain standards of underwriting criteria. Diversification, to reduce concentration risk, is achieved through setting maximum exposure guidelines to individual counterparties. Excesses are reported to the BRC.
356 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Monitoring performance and asset quality
Trends in the quality of the Group’s loan portfolio are monitored in a number of ways including tracking loan loss rate and coverage ratios.
Loan loss rate
The loan loss rate (LLR) provides a way of consistently monitoring trends in loan portfolio quality at the Group, business and product levels. The LLR represents the annualised impairment charges on loans and advances to customers and banks and other credit provisions as a percentage of the total, period-end loans and advances to customers and banks, gross of impairment allowances. Details of the LLR for the current period may be found in the Credit Risk Performance section in the 2015 Form 20-F.
Loan loss rate (bps) – longer-term trends
Note a: Restated to reflect the impact of IFRS10, which results in some former Exit Quadrant exposures being recorded at fair value from 2012 onwards
From a full year peak of 156bps at 31 December 2009, the LLR has been on an improving trend. By the end of 2011, the LLR of 77bps had returned to pre-crisis levels and was lower than the long-term average. The LLR fell from 2012 to 2014 and remained at a low level in 2015 at 47bps.
Coverage ratios
The impairment allowance is the aggregate of the identified and unidentified impairment (UI) balances. Impairment allowance coverage, or the coverage ratio, is reported at two levels:
§ | credit risk loans (CRLs) coverage ratio, calculated as impairment allowances as a percentage of CRL balances |
§ | potential credit risk loans coverage ratio (impairment allowances as a percentage of total CRL and Potential Problem Loan balances). |
See identifying potential credit risk loans on page 361 for more information for the criteria for these categories.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 357 |
Barclays’ approach to managing risks
Management of credit risk
CRL coverage
Note: Some Non-Core exposures are not reported as CRLs following the introduction of IFRS10, which accounts for these balances at fair value
Appropriate coverage ratios will vary according to the type of product but can be broadly shown to have typical severity rates based upon historic analysis:
§ | secured retail home loans: 10%-25% |
§ | credit cards, unsecured and other personal lending products: 65%-85% |
§ | 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 principle, a number of factors may affect the Group’s overall 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.
Details of the coverage ratios for the current period are shown in the above chart and may be found in the analysis of loans and advances and impairment section in the 2015 Form 20-F.
Monitoring weaknesses in portfolios
While the basic principles for monitoring weaknesses in wholesale and retail exposures are broadly similar, they reflect the differing nature of the assets. As a matter of policy, all facilities granted to corporate or wholesale counterparties are subject to a review on, at least, an annual basis, even when they are performing satisfactorily.
358 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Wholesale portfolios1
Within the wholesale portfolios, the Basel definitions of default are used as default indicators which have been aligned to the IAS 39 objective evidence of impairment. A default is triggered if individual identified impairment is recognised. Group definitions of default used are:
§ | bank puts the credit obligation on a non-accrued status |
§ | bank makes a charge-off or account specific identified impairment resulting from a significant perceived decline in credit quality |
§ | bank sells the credit obligation at a material credit-related economic loss |
§ | bank consents to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness or postponement of principal, interest or fees |
1 | Includes certain Business Banking facilities which are recorded as Retail for management purposes. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 359 |
Barclays’ approach to managing risks
Management of credit risk
§ | bank triggers a petition for obligor’s bankruptcy or similar order |
§ | bank becomes aware of the obligor having sought or having been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the banking group |
§ | bank becomes aware of an acceleration of an obligation by a firm |
§ | where the obligor is a bank – revocation of authorisation |
§ | where the obligor is a sovereign – trigger of default definition of an approved External Credit Assessment Institution (ECAI) such as a rating agency |
§ | obligor past due more than 90 days on any material credit obligation to the Group. |
Wholesale accounts that are deemed to contain heightened levels of risk are recorded on graded watchlists (WL) comprising three categories graded in line with the perceived severity of the risk attached to the lending, and its probability of default. Examples of heightened levels of risk may include, for example:
§ | a material reduction in profits |
§ | a material reduction in the value of collateral held |
§ | a decline in net tangible assets in circumstances which are not satisfactorily explained |
§ | periodic waiver requests or changes to the terms of the credit agreement over an extended period of time. |
These lists are updated monthly and circulated to the relevant risk control points. Once an account has been placed on WL, the exposure is monitored and, where appropriate, exposure reductions are effected. Should an account become impaired, it will normally, but not necessarily, have passed through each of the three categories, which reflects the need for increasing caution and control. While all counterparties, 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 counterparties in higher levels of WL, default, collection or insolvency. Their mandate is to maximise shareholder value, ideally via working intensively with the counterparty to help them to either return to financial health or, in the cases of insolvency, obtain the orderly and timely recovery of impaired debts. Where a counterparty’s financial health gives grounds for concern, it is immediately placed into the appropriate category.
Retail portfolios
Within the retail portfolios, which tend to comprise homogeneous assets, statistical techniques more readily allow potential credit 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 30 day cycle), which reflects the level of contractual payments which are overdue. An outstanding balance is deemed to be delinquent when it is one day or “one penny” down and goes into default when it moves into recovery, normally 180 days. Impairment is considered at all stages of the customer’s outstanding obligations.
The probability of default increases with the number of contractual payments missed, thus raising the associated impairment requirement.
Once a loan has passed through a prescribed number of cycles, normally six, it will be charged-off and enter recovery status. Charge-off refers to the point in time when collections activity changes from the collection of arrears to the recovery of the full balance. 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 status, such as in the case of insolvency or death.
The timings of the charge-off points are established based on the type of loan. For the majority of products, the standard period for charging off accounts is six cycles (180 days past due date of contractual obligation). Early charge-off points are prescribed for unsecured assets. For example, in case of customer bankruptcy or insolvency, associated accounts are charged off within 60 days of notification.
360 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Identifying potential credit risk loans
The Group reports potentially and actually impaired loans as PCRLs. PCRLs comprise two categories of loans: PPLs and 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 wholesale loan on a WL deteriorates to the highest category, or a Retail loan deteriorates to delinquency cycle 2, consideration is given to including it within the PPL category.
Should further evidence of deterioration be observed, a loan may move to the CRL category. 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: comprises loans where an individually 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. This category includes all retail loans that have been charged off to legal recovery. The category may include loans, which, while impaired, are still performing.
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.
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. See Forbearance and other concession programmes on page 365 to 368 for more detail.
Allowances for impairment and other credit provisions
The Group 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 estimated 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.
As one of the controls to ensure that adequate impairment allowances are held, movements in impairment to individual names with a total impairment allowance of £10m or more are presented to the GSCO for approval.
Individually assessed impairment
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 principal trigger point for impairment is the missing of a contractual payment which is evidence that an account is exhibiting serious financial problems, and where any further deterioration is likely to lead to failure. Details of other trigger points can be found above. 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 wholesale portfolios.
Collectively assessed impairment
For collective assessment, the principal trigger point for impairment is the missing of a contractual payment, which is the policy consistently adopted across all credit cards, unsecured loans, mortgages and most other retail lending. The calculation methodology relies on the historical experience of pools of similar assets; hence the impairment allowance is collective. The impairment calculation is typically based on a roll-rate approach, where the percentage of assets that move from the initial delinquency to default is derived from statistical probabilities based on historical experience. Recovery amounts are calculated using a weighted average for the relevant portfolio. This method applies mainly to the retail portfolios and is consistent with Group policy of raising an allowance as soon as impairment is identified. Unidentified impairment is also included in collective impairment.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 361 |
Barclays’ approach to managing risks
Management of credit risk
Impairment for losses incurred but not specifically indentified
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, termed as the outcome period. This is calculated on the present value of estimated future cash flows discounted at the financial asset’s effective interest rate. The emergence and outcome periods vary across products.
Wholesale portfolios
Impairment in the wholesale portfolios is generally calculated by valuing each impaired asset on a case by case basis, i.e. on an individual assessment basis. A relatively small amount of wholesale impairment relates to unidentified or collective impairment; in such cases, impairment is calculated using modelled Probability of Default (PD) x Loss Given Default (LGD) x Exposure at Default (EAD) adjusted for an emergence period.
Retail portfolios
For retail portfolios, the impairment allowance is mainly assessed on a collective basis and is based on the drawn balances adjusted to take into account the likelihood of the customer defaulting at a particular point in time (PDpit) and the amount estimated as not recoverable (LGD). The basic calculation is:
Impairment allowance = Total outstandings x PDpit x LGD
The PDpit increases with the number of contractual payments missed thus raising the associated impairment requirement.
In retail, the current policy also incorporates a high risk segment which is included in the unidentified impairment calculation. High risk segments are those which can be demonstrated to experience higher levels of loss within the performing segment. This segmentation allows for earlier identification of potential loss in a portfolio. Unidentified impairment is also referred to as collective impairment. This is to reflect the impairment that is collectively held against a pool of assets where a loss event has occurred, but has not yet been captured.
Sensitivity of the impairment to key assumptions
Wholesale portfolios
Impairment in the wholesale portfolios is generally calculated by valuing each impaired asset on a case by case basis, and is not therefore primarily model-driven. As such, the key assumptions that would have the most impact on impairment provisions in the wholesale portfolios are the valuations placed upon security and collateral held and the timing of asset realisations.
When calculating impairment, estimated future cash flows are discounted at the financial asset’s original effective interest rate. At present, in wholesale portfolios, the impact of discounting is relatively small in itself but would rise with reference rates. In addition, to the extent that a rise in interest rates impacted economic growth and/or serviceability of wholesale clients and customers, this would be expected to feed through in future impairment numbers.
In 2015, key judgements were made on a number of identified cases within Investment Bank, Corporate Banking and Wealth and Investment Management.
Retail portfolios
For Retail portfolios, impairment is calculated predominantly using models. The models are developed using historical data and include explicit and implicit assumptions such as debt sale estimates, house price valuations and the distribution of accounts. Model monitoring and validation are undertaken regularly, at least annually, to ensure that models are fit for purpose. Further to this, the Group accounts for the impact of changes in the economic environment and lags resulting from the design of the models to ensure overall impairment adequacy. See Management adjustments to Models for Impairment on page 137 for more information on key management judgements in 2015. See stress testing (pages 347 to 350) for further information.
Emergence and outcome periods
To develop models to calculate the allowance for impairment it is first necessary to estimate the time horizons of these models. These time horizons are called the emergence and outcome periods Emergence Period relates to the time between a loss event occurring and that event becoming apparent via the account becoming delinquent and attracting identified impairment. Outcome is an analytically derived period taken to capture lifetime defaults associated with the observed loss event.
362 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
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 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.
Wholesale portfolios
For wholesale portfolios in Corporate Banking and Investment Bank, the emergence period is portfolio specific and is based on the anticipated length of time from the occurrence of a loss event to identified impairment being incurred. The emergence period in Corporate Banking is derived from actual case file review. This is periodically benchmarked against the time taken to move between risk grades in internal watchlists, from WL1 or 2 into WL3, which is the level of risk that will attract a collective impairment allowance. Both methodologies produce similar results for the emergence period, which is currently six months. Within Corporate Banking, post model adjustments can be made to increase the emergence period for certain industry sectors to reflect, for example, a benign environment. The average life of the Investment Bank portfolio is estimated to be 18 months, during which time Investment Bank is exposed to losses on the portfolio. However, it is expected that incurred losses would become apparent within six months, therefore the Investment Bank also uses a six-month emergence period.
Retail portfolios
During 2015, the Retail Impairment Policy was significantly strengthened and required enhancements to modelling approaches to both emergence and outcome periods. Policy continues to define minimum emergence periods at a product level, as shown in the following table.
Emergence and outcome periods
| ||||
Emergence period
(months)
| ||||
Product Type
| 2015
| 2014
| ||
Credit cards |
2 |
3 | ||
Current Accounts / Overdrafts | 3 | 3 | ||
Unsecured Loans | 3 | 3 | ||
Secured Loans
| 6
| 3
|
Policy enhancement now requires businesses to capture lifetime defaults allowing consideration to cure rates and future events, subject to a minimum floor of 80%.
Businesses undertake regular analysis, at least annually, to validate that the minimum emergence periods above continue to reflect the actual observed time between the occurrence of a loss event and entry to an impaired state, in order to ensure they remain appropriate and provide sufficient coverage of future losses.
Where any shortfalls are identified at a business or portfolio level, the prescribed minimum emergence periods are increased to reflect our most up-to-date experience of customer behaviour.
The final approved emergence periods are incorporated within the rates used as part of the overall UI assessment, which now encompasses total outstanding balances on all accounts that are in order, and for which no identified impairment allowances are held.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 363 |
Barclays’ approach to managing risks
Management of credit risk
Individual evidence based outcome periods are also derived at a business/portfolio level, subject to the minimum period in the table above. Final outcome periods adopted are re-evaluated on an annual basis to ensure they continue to reflect the actual time elapsing from the initial indication of potential default to the default event.
Returning assets to a performing status
Wholesale portfolios
In wholesale portfolios, an account may only be returned to a performing status when it ceases to have any actual or perceived financial stress and no longer meets any of the WL criteria, or once facilities have been fully repaid or cancelled. Unless a facility is fully repaid or cancelled, the decision in Corporate Banking to return an account to performing status may only be taken by the credit risk team, while within the Investment Bank, the decision can only be taken by the Investment Bank watchlist Committee.
Retail portfolios
A retail asset, pre-point of charge-off, may only be returned to a performing status in the following circumstances:
§ | all arrears (both capital and interest) have been cleared and payments have returned to original contractual payments |
§ | for revolving products, a re-age event (see page 368) has occurred, when the customer is returned to an up-to-date status without having cleared the requisite level of arrears |
§ | for amortising products, which are performing on a programme of forbearance and meet the following criteria may be returned to the performing book classified as High Risk2: |
- | no interest rate concessions must have been granted |
- | restructure must remain within original product parameters (original term + extension) |
- | twelve consecutive payments at the revised contractual payment amount must have been received post the restructure event. |
For residential mortgages, accounts may also be considered for rehabilitation post charge-off, where customer circumstances have changed. The customer must clear all unpaid capital and interest, and confirm their ability to meet full payments going forward.
Recovery units
Recovery units are responsible for exposures where deterioration of the counterparty/customer credit profile is severe, to the extent that timely or full recovery of exposure is considered unlikely and default has occurred or is likely in the short-term. Recovery teams set and implement strategies to recover the Group’s exposure through realisation of assets and collateral, in co-operation with counterparties/customers and where this is not possible through insolvency and legal procedures.
In wholesale, for a case to be transferred to a recovery unit, it must be in default and have ceased to actively trade or be in insolvency. In Retail, the timings of the charge-off points to recovery units are established based on the type of loan. For the majority of products, the standard period for charging off accounts is six missed contractual payments (180 days past due date of contractual obligation) unless a Forbearance programme is agreed. Early points are prescribed for unsecured assets. For example, in case of customer bankruptcy or insolvency, associated accounts are charged off within 60 days of notification. See recovery information included in Analysis of Specific Portfolio and Asset Types section in the 2015 Form 20-F.
Foreclosures in process and properties in possession
Foreclosure is the process where the bank initiates legal action against a customer, with the intention of terminating the loan agreement whereby the bank may repossess the property subject to local law and recover amounts it is owed. This process can be initiated by the bank independent of the impairment treatment and it is therefore possible that the foreclosure process may be initiated while the account is still in collections (delinquent) or in recoveries (post charge-off) where the customer has not agreed a satisfactory repayment schedule with the bank.
2 The identification and subsequent treatment of up-to-date customers who, either through an event or observed behaviour exhibit potential financial difficulty. High Risk includes customers who have suffered recent financial dislocation, i.e. prior forbearance or re-age.
364 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Properties in possession include properties held as ‘loans and advances to customers’ and properties held as ‘other real estate owned’.
Held as ’loans and advances to customers’ (UK and Italy) refers to the properties where the customer continues to retain legal title but where the bank has enforced the possession order as part of the foreclosure process to allow for the disposal of the asset, or the court has ordered the auction of the property.
Held as ‘other real estate owned’ (South Africa and Portugal) refers to properties where the bank has taken legal ownership of the title as a result of purchase at an auction or similar and treated as ‘other real estate owned’ within other assets on the bank’s balance sheet.
Writing off assets
Write-off refers to the point where it is determined that the asset is irrecoverable, it is no longer considered economically viable to try and recover the asset, it is deemed immaterial, or full and final settlement is reached and a shortfall remains. In the event of write-off, the customer balance is removed from the balance sheet and the impairment reserve held against the asset is released.
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. The position of impaired loans is also 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.
For retail portfolios, the timings of the write-off points are established based on the type of loan. For unsecured, assets in the recoveries book will be written-off if the required qualifying repayments are not made within a rolling twelve-month period. For secured loans, the shortfall after the receipt of the proceeds from the disposal of the collateral is written off within three months of that date if no repayment schedule has been agreed with the borrower. 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. In 2015, total write-offs of impaired financial assets decreased 24% to £2.27bn (2014: £3.01bn).
Total write-offs of financial assets (£m)
Forbearance and other concession programmes
Forbearance programmes
Forbearance takes place when a concession is made on the contractual terms of a facility in response to an obligor’s financial difficulties. The Group offers forbearance programmes to assist customers and clients in financial difficulty through agreements that may include accepting less than contractual amounts due where financial distress would otherwise prevent satisfactory repayment within the original terms and conditions of the contract. These agreements may be initiated by the customer, the bank or a third party.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 365 |
Barclays’ approach to managing risks
Management of credit risk
Forbearance programmes for wholesale portfolios
The majority of wholesale client relationships are individually managed, with lending decisions made with reference to specific circumstances and on bespoke terms.
Forbearance occurs when, for reasons relating to the actual or perceived financial difficulty of an obligor, a concession is granted below the Group’s current standard rates (i.e. lending criteria below the Group’s current lending terms), that would not otherwise be considered. This includes all troubled debt restructures granted below our standard rates.
Forbearance would typically be evident where the concession(s) agreed impact the ability to repay debt or avoid recognising a default with a lack of appropriate commercial balance and risk mitigation/structural enhancement of benefit to the Group in return for concession(s).
The following list is not exhaustive but provides some examples of instances that would typically be considered to be evidence of forbearance:
§ | a reduction of current contractual interest rate for the sole purpose of maintaining performing debt status, with no other improvement to terms of benefit to the Group |
§ | non-enforcement of a material covenant breach impacting the counterparty’s ability to repay |
§ | converting a fully or partially amortising facility to a bullet repayment at maturity, with no other improvement to terms of benefit to the Group, for the sole purpose of avoiding a payment default due to customer’s inability to meet amortisation |
§ | extension in maturity date for a project finance facility that gives an effective contractual term longer than the underlying project contract being financed |
§ | any release of a material security interest without receiving appropriate value by way of repayment/alternate security offered or other improvement in terms available to the Group commensurate with the value of the security released. |
Where a concession is granted that is not a result of financial difficulty and/or is within our current market terms, the concession would not amount to forbearance. For example, a commercially balanced restructure within the Group’s current terms which involves the granting concessions and receiving risk mitigation/structural enhancement of benefit to the Group would not be indicative of forbearance.
The following list (not exhaustive) gives some examples of instances that would not typically be considered to be forbearance:
§ | temporary/permanent waivers/resets of covenants agreed in line with our current terms |
§ | amending contractual maturity to meet current lending terms that results in a previously amortising facility having a bullet repayment as a consequence of shorter maturity date |
§ | equity/warrants taken to increase return to the Group without compromising contractual interest |
§ | extension of maturity date where the extension is within the normally granted terms for the type of facility in question |
§ | release of a material security interest where commensurate value is received by way of repayment/other security offered. |
Cases where a technical default may have occurred, the Group has decided to reserve its position but does not consider the default to be sufficient to impact the counterparty’s ability to pay, would not typically be considered forbearance (as the counterparty would continue to meet its payment obligations under existing terms).
The Troubled Assets Policy requires that a permanent record is retained of all individual cases of forbearance, and upon granting forbearance the counterparty is placed on WL. The counterparty then remains on WL and is flagged as being in forbearance for a minimum of 12 months from the date forbearance is applied. Counterparties may be removed from WL status within 12 months in exceptional circumstances, e.g. full repayment of facilities or significant restructuring. Counterparties placed on WL status are subject to increased levels of credit risk oversight.
366 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Counterparties who have been granted forbearance are classified as a Basel ‘unlikeliness’ to pay default for capital purposes, with PD of 1 throughout the period that they remain classified as being in forbearance. This is on the basis that, without intervention by the Group, the counterparties are unlikely to meet their obligations in full which would lead to default.
Impairment is assessed on an individual basis and recognised where relevant impairment triggers have been reached including where counterparties are in arrears and require renegotiation of terms. Forbearance is considered to be an indicator that impairment may be present and an impairment test is performed for all cases placed in forbearance.
Given that these loans have already been assessed for impairment at the point of being classified as being in forbearance, the Group does not have additional procedures to evaluate the likelihood that these loans would default within the loss emergence and confirmation periods.
A control framework exists along with regular sampling to ensure policies for watchlist and impairment are enforced as defined and to ensure that all assets have suitable levels of impairment applied. Portfolios are subject to independent assessment.
Aggregate data for Wholesale forbearance cases is reviewed by the Wholesale Credit Risk Management Committee.
Forbearance programmes for retail portfolios
Retail forbearance is available to customers experiencing financial difficulties. Forbearance solutions take a number of forms depending on individual customer circumstances. Short-term solutions focus on temporary reductions to contractual payments and may change from capital and interest payments to interest only. For loan customers with longer-term financial difficulties, term extensions may be offered, which may include interest rate concessions, For credit card customers with longer-term financial difficulties, a switch to a fully amortising plan may be offered, which may include an interest rate concession.
When an account is placed into a programme of forbearance, the asset will be classified as such for the remainder of its term, unless after 12 months it qualifies for reclassification, upon which it will be returned to the up-to-date book and classified as high risk for a further 12 month period. When the Group agrees to a forbearance programme with a customer, the impairment allowance recognises the impact on cash flows of the agreement to receive less than the original contractual payments. The Retail Impairment Policy prescribes the methodology for impairment of forbearance assets, which is measured by comparing the debt outstanding to the revised expected repayment. This results in higher impairment, in general, than for fully performing assets, reflecting the additional credit risk attached to loans subject to forbearance.
Barclays has continued to assist customers in financial difficulty through the use of forbearance programmes. However, the extent of forbearance offered by the Group to customers and clients remains small in comparison to the overall size of the loan book.
The level of forbearance extended to customers in other Retail portfolios is not material and, typically, does not currently play a significant part in the way customer relationships are managed. However, additional portfolios will be added to this disclosure should the forbearance in respect of such portfolios become material.
A retail loan is not considered to be renegotiated where the amendment is at the request of the customer, there is no evidence of actual or imminent financial difficulty and the amendment meets with all underwriting criteria. In this case it would be treated as a new loan. In the normal course of business, customers who are not in financial difficulties frequently apply for new loan terms, for example to take advantage of a lower interest rate or to secure a further advance on a mortgage product. Where these applications meet our underwriting criteria and the loan is made at market interest rates, the loan is not classified as being in forbearance. Only in circumstances where a customer has requested a term extension, interest rate reduction or further advance and there is evidence of financial difficulty is the loan classified as forbearance and included in our disclosures on forbearance.
Please see the Credit risk performance section of the 2015 Form 20-F for details of principal wholesale and retail assets currently in forbearance.
Impairment of loans under forbearance
Loans under forbearance programmes are subject to Group policy. In both retail and wholesale portfolios, identified impairment is raised for such accounts, recognising the agreement between the Group and customer to pay less than the original contractual payment and is measured using a future discounted cash flow approach comparing the debt outstanding to the expected repayment on the debt.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 367 |
Barclays’ approach to managing risks
Management of credit risk
This results in higher impairment, in general, being held for loans under forbearance than for fully performing assets, reflecting the additional credit risk attached to loans subject to forbearance.
Sustainability of loans under forbearance
The Group monitors the sustainability of loans for which forbearance has been granted.
Wholesale portfolios
In the wholesale portfolios, counterparties that have been granted forbearance are placed on WL and therefore are subject to increased levels of credit risk oversight. Counterparties then remain on WL and are classified as being in forbearance with a PD of 1 for capital purposes for a minimum of 12 months from the date forbearance is applied until satisfactory performance is evidenced. Forbearance status and the related default treatment for capital can be removed after 12 months from being applied if any of the following criteria is met:
§ | the counterparty no longer benefits from a concession below our current market rates or reverts back to their original lending terms (prior to the concession being applied) |
§ | the counterparty ceases to have any actual or perceived financial stress |
§ | a significant restructure takes place which leads to a significant improvement in the credit profile of the counterparty. |
Counterparties may only be removed from being classified as being in forbearance with a PD of 1 for capital purposes within 12 months in exceptional circumstances, e.g. full repayment of facilities or significant restructuring that materially improves credit quality. Counterparties continuing to benefit from a concession below current market can be removed from WL and no longer be classified as in forbearance provided they do not meet any of the WL criteria and can evidence consistent satisfactory performance throughout the minimum twelve-month period.
Retail portfolios
In retail portfolios, the type of forbearance programme offered should be appropriate to the nature and the expected duration of the customer’s financial distress. It is imperative that the solution agreed is both appropriate to that customer and sustainable, with a clear demonstration from the customer of both willingness and ability to repay. Before any permanent programme of forbearance is granted, an affordability assessment is undertaken to ensure suitability of the offer. When customers exit forbearance, the accounts are ring-fenced as a High Risk segment within the up-to-date book for a period of at least twelve months.
For disclosure on the Group’s accounting policy with respect to impairment, see note 7 and pages 361 to 363.
Other programmes
Retail re-ageing activity
Re-ageing refers to the placing of an account into an up-to-date position without the requisite repayment of arrears. The re-age policy applies to revolving products only. No reduction is made to the minimum due payment amounts which are calculated, as a percentage of balance, with any unpaid principal included in the calculation of the following month’s minimum due payment.
The changes in timing of cash flows following re-aging do not result in any additional cost to the Group. The following are the conditions required to be met before a re-age may occur:
§ | the account must not have been previously charged off or written off |
§ | the borrower cannot be bankrupt, subject to an Individual Voluntary Arrangement (a UK contractual arrangement with creditors for individuals wishing to avoid bankruptcy), a fraud or deceased |
§ | the borrower must show a renewed willingness and ability to repay the debt. This will be achieved by the borrower making at least three consecutive contractual monthly payments or the equivalent cumulative amount. Contractual monthly payment is defined as the contractual minimum due. Funds may not be advanced for any part of this |
§ | the account must have been on book at least nine months (i.e. nine months prior to the three-month qualification period) |
§ | no account should be re-aged more than once within any twelve-month period, or more than twice in a five year period. |
Assets are considered to belong to a separate High Risk pool. Under High Risk, the performance of the assets is a risk characteristic and results in a higher probability of default being assigned to them in impairment models which meet the requirement of IAS 39, AG87-88.
368 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
This results in an appropriately higher impairment allowance being recognised on the assets.
Retail small arrears capitalisation
All small arrears capitalisations are now considered a form of Forbearance, based on the European Banking Authority’s requirements for Supervisory Reporting on Forbearance and Non-Performing exposures.
Refinancing risk
This is the risk that the borrower or group of correlated borrowers may be unable to repay bullet-repayment loans at expiry, and will therefore need refinancing.
From a large corporates perspective, refinancing risk will typically be associated with loans that have an element of bullet repayment incorporated into the repayment profile. Refinancing risk is taken into account on a case by case basis as part of the credit review and approval process for each individual loan. The review will consider factors such as the strength of the business model and sustainability of the cash flows; and for bridge loans, the certainty of the sources of repayment and any associated market risk.
Commercial real estate loans will frequently incorporate a bullet repayment element at maturity. Where this is the case, deals are sized and structured to enable the Group to term out the loan if the client were unable to refinance the loan at expiry. Credit review will incorporate an examination of various factors that are central to this consideration, such as tenant quality, tenancy agreements (including break clauses), property quality and interest rate sensitivity.
Loans to small and medium enterprises (SMEs) will typically be either revolving credit lines to cover working capital needs or amortising exposures, with periodic refinancing to give the opportunity to review structure, pricing, etc.
Please refer to the maturity analysis for UK CRE and customers with interest-only home loans in the credit risk performance section in the 2015 Form 20-F for more information.
Environmental Risk
The Group has a dedicated Environmental Risk Management team, as part of the central Credit Risk Management function, recognising that environment is a mainstream credit risk issue. Environmental issues are required considerations in credit risk assessment, and environmental risk standards are included in the Wholesale Credit Risk Control Framework.
The Group’s approach to environmental credit risk management addresses risk under three categories, namely Direct Risk and Indirect Risk, which are covered below, and Reputation Risk, on which more detail may be found in the Conduct Risk section on pages 408 and 409.
Direct Risk can arise when the Group takes commercial land as collateral. In many jurisdictions, enforcement of a commercial mortgage by the bank, leading to possession, potentially renders the Group liable for the costs of remediating a site if deemed by the regulator to be contaminated, including for pre-existing conditions. In the UK, the Group’s approach requires commercial land, if being pledged as collateral, to be subject to a screening mechanism. Where required further assessment of the commercial history of a piece of land and its potential for environmental contamination helps ensure any potential environmental degradation is reflected in the value ascribed to that security. It also identifies potential liabilities which may be incurred by the Group, if realisation of the security were to become a possibility.
Indirect Risk can arise when environmental issues may impact the creditworthiness of the borrower. For instance, incremental costs may be incurred in upgrading a business’ operations to meet emerging environmental regulations or tightening standards. In other circumstances, failure to meet those standards may lead to fines. Environmental impacts on businesses may also include shifts in the market demand for goods or services generated by our customers, or changing supply chain pressures. Environmental considerations affecting our clients can be varied. The bank has developed a series of environmental risk briefing notes, covering ten broad industry headings ranging from Agriculture and Fisheries to Oil and Gas, from Mining and Metals to Utilities and Waste Management. These briefing notes are available to colleagues in business development and credit risk functions across the organisation, outlining the nature of environmental and social risks of which to be aware, as well as the factors which mitigate those risks.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 369 |
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Management of credit risk mitigation techniques and counterparty credit risk
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Counterparty credit risk arises from derivatives and similar contracts. This section details the specific aspects of the risk framework related to this type of credit risk. As credit risk mitigation is one of the principal uses of derivative contracts by banks, this is also discussed in this section.
§ | On page 375 a high level description of the types of exposures incurred in the course of Barclays’ activity. |
§ | Mitigation techniques specific to counterparty credit risk are also discussed. |
§ | A more general discussion of credit risk mitigation (covering traditional credit risks) is also included from page 371. |
Credit risk mitigation
The Group employs a range of techniques and strategies to actively mitigate the counterparty credit risk. These can broadly be divided into three types:
§ | netting and set-off |
§ | collateral |
§ | risk transfer |
The Group has detailed policies in place to ensure that credit risk mitigation is appropriately recognised and recorded. The recognition of credit risk mitigation is subject to a number of considerations, including ensuring legal certainty of enforceability and effectiveness, ensuring the valuation and liquidity of the collateral is adequately monitored, and ensuring the value of the collateral is not materially correlated with the credit quality of the counterparty.
All three types of credit risk mitigation may be used by different areas of the Group for exposures with a full range of counterparties. For instance, Investment Bank, Corporate Banking and other business areas may all take property, cash or other physical assets as collateral for exposures to retailers, property companies or other client types.
Netting and set-off
In most jurisdictions in which the Group operates, credit risk exposures can be reduced by applying netting and set-off. In exposure terms, this credit risk mitigation technique has the largest overall impact on net exposure to derivative transactions, compared with other risk mitigation techniques.
For derivative transactions, the Group’s normal practice is to enter into standard master agreements with counterparties (e.g. ISDAs). These master agreements allow for netting of credit risk exposure to a counterparty resulting from a derivative transaction against the Group’s obligations to the counterparty in the event of default, produce a lower net credit exposure. These agreements may also reduce settlement exposure (e.g. for foreign exchange transactions) by allowing payments on the same day in the same currency to be set-off against one another.
Under IFRS, netting is permitted only if both of the following criteria are satisfied:
§ | the entity currently has a legally enforceable right to set off the recognised amounts |
§ | the entity intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. |
Under US GAAP, netting is also permitted, regardless of a currently legally enforceable right of set-off and/or the intention to settle on a net basis, where there is a counterparty master agreement that would be enforceable in the event of bankruptcy.
Collateral
The Group has the ability to call on collateral in the event of default of the counterparty, comprising:
§ | home loans: a fixed charge over residential property in the form of houses, flats and other dwellings. The value of collateral is impacted by property market conditions which drive demand and therefore value of the property. Other regulatory interventions on ability to repossess, longer period to repossession and granting of forbearance may also affect the collateral value |
§ | wholesale lending: a fixed charge over commercial property and other physical assets, in various forms |
§ | other retail lending: includes charges over motor vehicle and other physical assets; second lien charges over residential property, which are subordinate to first charges held either by the Group or by another party; and finance lease receivables, for which typically the Group retains legal title to the leased asset and has the right to repossess the asset on the default of the borrower |
§ | derivatives: the Group also often seeks to enter into a margin agreement (e.g. Credit Support Annex (CSA)) with counterparties with which the Group has master netting agreements in place. These annexes to master agreements provide a mechanism for further reducing credit risk, whereby collateral (margin) is posted on a regular basis (typically daily) to collateralise the mark to market exposure of a derivative portfolio measured on a net basis. The Group may additionally negotiate the receipt of an independent amount further mitigating risk by collateralising potential mark to market exposure moves |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 371 |
Barclays’ approach to managing risks
Management of counterparty credit risk and credit risk mitigation techniques
§ | reverse repurchase agreements: collateral typically comprises highly liquid securities which have been legally transferred to the Group subject to an agreement to return them for a fixed price |
§ | financial guarantees and similar off-balance sheet commitments: cash collateral may be held against these arrangements. |
For details of the fair value of collateral held, please refer to maximum exposure table on page 113.
In exposure terms, the main portfolios that the Group takes collateral for are home loans and Reverse Repurchase Agreements with financial institutions.
Floating charges over receivables
The Group may also obtain collateral in the form of floating charges over receivables and inventory of corporate and other business customers. The value of this collateral varies from period to period depending on the level of receivables and inventory. It is impracticable to provide an estimate of the amount (fair value or nominal value) of this collateral. The Group may in some cases obtain collateral and other enhancements at a counterparty level, which are not specific to a particular class of financial instrument. The fair value of the credit enhancement gained has been apportioned across the relevant asset classes.
Collateral for derivative contracts
The collateral obtained for derivatives is predominantly cash or government bonds (G7 and other highly rated governments). Appropriate haircuts may be applied to non-cash collateral, which are agreed when the margin agreement (e.g. CSA) is negotiated.
Valuation of collateral and impact of market moves
Typically, assets other than cash are subject to regular revaluation (for example via physical review, linking to an external index or depreciation of the asset), to ensure they continue to achieve appropriate mitigation of risk. Customer agreements often include requirements for provision of additional collateral, should valuations decline or credit exposure increase, for example due to market moves impacting a derivative exposure.
The carrying value of non-cash collateral reflects the fair value of the physical assets, limited to the carrying value of the asset where the exposure is over-collateralised. In certain cases, where active markets or recent valuations of the assets are not available, estimates are used. For assets collateralised by residential or commercial property (and certain other physical assets), where it is not practicable to assess current market valuations of each underlying property, values reflect historical fair values updated for movements in appropriate external indices. For further information on LTV ratios in principal home loans portfolios, see the Risk performance - Credit risk section of the 2015 form 20-F.
Liens over fluctuating assets such as inventory and trade receivables, known as floating charges, over the assets of a borrower are monitored annually. The valuation of this type of collateral takes into account the ability to establish objectively a price or market value, the frequency with which the value can be obtained (including a professional appraisal or valuation), and the volatility or a proxy for the volatility of the value of the collateral.
For assets collateralised by traded financial instruments, values reflect MTM or mark to model values of those assets, applying a haircut where appropriate. A haircut is the valuation percentage applicable to each type of collateral and will be largely based on liquidity and price volatility of the underlying security.
Valuation of collateral – property
When property is taken as collateral, it is monitored to establish whether the current value is less than its value at origination. Monitoring is undertaken annually for commercial property or via linking to an external index for residential property. More frequent monitoring may be carried out where the property sector is subject to significant deterioration.
Deterioration is monitored principally by geography. Specific exercises to monitor property values may be undertaken where the property sector in a given geography has been subject to significant deterioration and where the Group has a material concentration of property collateral.
372 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Monitoring may be undertaken either at a portfolio level (typically retail) or at an individual level (typically wholesale).
In retail businesses, monitoring on a portfolio level refers to a more frequent process of indexing collateral values on each individual loan, using a regional or national index, and updating LGD values. This monitoring may be a desk top assessment and need not necessarily include physical assessment of properties. In the event of charge-off, an individual valuation of the property is undertaken within 3 months of the charge-off event and subsequently undertaken at least every six months whilst in charge-off.
In wholesale, monitoring is undertaken by individuals who are not part of the sales / relationship part of the business. Where an appropriate local index is not available, property values are monitored on an individual basis as part of the annual review process for the loan. For larger loans, in addition to the regular annual review, the property value is reviewed by an independent valuer at least once every three years. This review is a more detailed assessment than the standard property monitoring review, and may include a fresh professional valuation. In addition, an independent valuer reviews the property valuation where information indicates that the value of the property may have declined materially relative to general market prices. In addition, trigger points are defined under which property values must be reviewed.
Valuation of collateral – distressed assets
The net realisable value from a distressed sale of collateral obtained by the Group upon default or insolvency of counterparty will in some cases be lower than the carrying value recognised. Assets obtained are normally sold, generally at auction, or realised in an orderly manner for the maximum benefit of the Group, the borrower’s other creditors and the borrower, in accordance with the relevant insolvency regulations. For business customers, in some circumstances, where excess funds are available after repayment in full of the outstanding loan, they are offered to any other, lower ranked, secured lenders. Any additional funds are returned to the borrower. The Group does not occupy repossessed properties for its business use or use assets obtained in its operations.
Additional revaluations are usually performed when a loan is moved to WL. Exceptions to this may be considered where it is clear a revaluation is not necessary, for instance where there is a very high margin of security or a recent valuation has been undertaken. Conversely, a material reduction in the value of collateral held represents an increase in credit risk and will often cause a loan to be placed on the WL.
Any one of the above events may also trigger a test for impairment, depending on individual circumstances of the loan. When calculating impairment, the difference between an asset’s carrying amount and the present value of all estimated cash flows discounted at the original effective interest rate will be recognised as impairment. Such cash flows include the estimated fair value of the collateral, which reflects the results of the monitoring and review of collateral values as detailed above and valuations undertaken as part of the Group’s impairment process.
Whether property values are updated as part of the annual review process, or by indexation of collateral values, the updated collateral values feed into the calculation of risk parameters which, in turn, feed into identified and unidentified impairment calculations at each balance sheet date.
Trends in LLRs incorporate the impact of any decrease in the fair value of collateral held.
Risk transfer
A range of instruments including guarantees, credit insurance, credit derivatives and securitisation can be used to transfer credit risk from one counterparty to another. These mitigate credit risk in two main ways:
§ | if the risk is transferred to a counterparty which is more credit worthy than the original counterparty, then overall credit risk is reduced |
§ | where recourse to the first counterparty remains, both counterparties must default before a loss materialises. This is less likely than the default of either counterparty individually so credit risk is reduced. |
Risk transfer can also be used to reduce risk concentrations within portfolios lowering the impact of stress events.
Risk transfer transactions are undertaken with consideration to whether the collateral provider is correlated with the exposure, the credit worthiness of the collateral provider and legal certainty of enforceability and effectiveness. Where credit risk mitigation is deemed to transfer credit risk, this exposure is appropriately recorded against the credit risk mitigation provider.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 373 |
Barclays’ approach to managing risks
Management of counterparty credit risk and credit risk mitigation techniques
In exposure terms, risk transfer is used most extensively as a credit risk mitigation technique for wholesale loans and derivative financial instruments.
Off-balance sheet risk mitigation
The Group applies fundamentally the same risk management policies for off-balance sheet risks as it does for its on-balance sheet risks. In the case of commitments to lend, counterparties/customers will be subject to the same credit management policies as for loans and advances. Collateral may be sought depending on the strength of the counterparty and the nature of the transaction.
Recognition of credit risk mitigation in capital calculations
Credit risk mitigation is used to reduce credit risk associated with an exposure, which may reduce potential losses in the event of obligor default or other specified credit events.
Credit risk mitigation that meets certain regulatory criteria may be used to improve risk parameters and reduce RWA consumption against a given obligor. Collateral that meets these regulatory conditions is referred to as eligible collateral. Eligibility criteria are specified in articles 195 to 204 of the Capital Regulations Requirement (CRR).
The Group’s policies and standards set out criteria for the recognition of collateral as eligible credit risk mitigation and are designed to be fully consistent with all applicable local regulations and regulatory permissions.
Where regulatory capital is calculated under AIRB regulations, the benefit of collateral is generally taken by adjusting LGDs. For standardised portfolios, the benefit of collateral is taken using the financial collateral comprehensive method: supervisory volatility adjustments approach.
For instruments that are deemed to transfer credit risk, in AIRB portfolios the protection is generally recognised by using the PD and LGD of the protection provider.
For exposures treated under the standardised approach, the impact of eligible credit risk mitigation is primarily recognised by reducing the EAD associated with the exposure that benefits from the mitigation.
Managing concentrations within credit risk mitigation
Credit risk mitigation taken by the Group to reduce credit risk may result in credit or market risk concentrations.
Guarantees that are treated as eligible credit risk mitigation are marked as an exposure against the guarantor and aggregated with other credit exposure to the guarantor. Limit monitoring at the counterparty level is then used for monitoring of concentrations in line with Group policy.
Commercial real estate lending is another potential source of concentration risk arising from the use of credit risk mitigation. The portfolio is regularly reviewed to assess whether a concentration in a particular region, industry or property type exists, and portfolio limits are in place to control the level of exposure to commercial, residential, investment and development activity. See pages 371 to 373 for more information on collateral, valuation and monitoring of concentrations.
374 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Counterparty credit risk
Derivative counterparty credit exposures
The Group enters into 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 daily margins with cash or other securities at the exchange, to which the holders look for ultimate settlement.
The Group also enters into financial instruments that are traded over the counter, rather than on a recognised exchange. These instruments range from standardised transactions in derivative markets, to trades where the specific terms are tailored to the requirements of the Group’s counterparties. In most 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 the Group’s counterparty is in default.
Counterparty credit exposure arises from the risk that parties are unable to meet their payment obligations under certain financial contracts such as derivatives, securities financing transactions (e.g. repurchase agreements), or long settlement transactions.
A Monte Carlo simulation engine is used to estimate the Potential Future Exposure (PFE) to derivative and securities financing counterparties. The exposure simulation model simulates future market states and the MTM of the derivative transactions under those states. Simulated exposures including the effect of credit mitigants such as netting, collateral and mandatory break clauses can then be generated.
Credit limits for CCR are assessed and allocated using the PFE measure. A number of factors are taken into account when setting credit limits for individual counterparties, including but not limited to the credit quality and nature of the counterparty the rationale for the trading activity entered into and any wrong-way risk considerations.
The expected exposures generated by this engine are also used as an input into both internal and regulatory capital calculations covering CCR.
‘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 MTM loss to the counterparty. Specific wrong-way risk trades, which are self-referencing or reference to other entities within the same counterparty group, require approval by a senior credit officer. The exposure to the counterparty will reflect the additional risk generated by these transactions.
Derivative CCR (credit value adjustments)
As the Group participates in derivative transactions it is exposed to CCR, which is the risk that a counterparty will fail to make the future payments agreed in the derivative contract. This is considered as a separate risk to the volatility of the MTM payment flows. Modelling this counterparty risk is an important part of managing credit risk on derivative transactions.
The counterparty risk arising under derivative transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the value is known as credit value adjustment (CVA). It is the difference between the value of a derivative contract with a risk-free counterparty and that of a contract with the actual counterparty. This is equivalent to the cost of hedging the counterparty risk in the Credit Default Swap (CDS) market.
CVAs for derivative positions are calculated as a function of the expected exposure, which is the average of future hypothetical exposure values for a single transaction or group of transactions with the same counterparty, the credit spread for a given horizon and the LGD.
The expected exposure is calculated using Monte Carlo simulations of risk factors that may affect the valuation of the derivative transactions in order to simulate the exposure to the counterparty through time. These simulated exposures include the effect of credit mitigants such as netting, collateral and mandatory break clauses. Counterparties with appropriate credit mitigants will generate a lower expected exposure profile compared to counterparties without credit mitigants in place for the same derivative transactions.
Derivative netting and collateral arrangements
Credit risk from derivatives is mitigated where possible through netting agreements whereby derivative assets and liabilities with the same counterparty can be offset. Group policy requires all netting arrangements to be legally documented. The ISDA Master Agreement is the Group’s preferred agreement for documenting OTC derivatives. It provides the contractual framework within which dealing activities across a full range of OTC products are conducted, and contractually binds both parties to apply close-out netting across all outstanding transactions covered by an agreement if either party defaults or other predetermined events occur. The majority of the Group’s OTC derivative exposures are covered by ISDA master netting and ISDA CSA collateral agreements.
Collateral is obtained against derivative assets, depending on the creditworthiness of the counterparty and/or nature of the transaction. Any collateral taken in respect of OTC trading exposures will be subject to a ‘haircut’, which is negotiated at the time of signing the collateral agreement. A haircut is the valuation percentage applicable to each type of collateral and will be largely based on liquidity and price volatility of the underlying security. The collateral obtained for derivatives is predominantly either cash, direct debt obligation government (G14+) bonds denominated in the domestic currency of the issuing country, debt issued by supranationals or letters of credit issued by an institution with a long-term unsecured debt rating of A+/A3 or better. Where the Group has ISDA master agreements, the collateral document will be the ISDA CSA. The collateral document must give Barclays the power to realise any collateral placed with it in the event of the failure of the counterparty.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 375 |
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This section describes the governance structure specific to the management of market risks, as well as a discussion of measurement techniques.
§ | Market risks are varied, and a range of techniques must be used to manage them. From page 377 we provide an overview of the market risks we incur across the Group |
§ | The governance structure specific to market risks is discussed on pages 378 and 379. |
The rest of the section is divided into traded, non-traded and other risks:
§ | Traded market risk, the risk of the Group being impacted by changes in the level or volatility of positions in the trading book, is covered on pages 379 to 388.Measurement techniques such as VaR, are discussed, as well as techniques applied when statistical techniques are not appropriate |
§ | Non-traded market risks, the risk that the Group is unable to hedge its banking book, mainly arising as a result of lending and deposit taking activities, are discussed from 388 to 390, along with a discussion of how they are managed |
§ | Other market risks, such as those associated with Barclays pension obligations, are analysed separately from page 390. |
Barclays’ approach to managing risks
Management of market risk
Introduction to the management of market risk
The risk of a reduction to earnings or capital due to volatility of trading book positions or as the consequence of running a banking book balance sheet and liquidity funding pools.
Overview
Traded market risk
Traded market risk arises primarily as a result of client facilitation in wholesale markets, involving market making activities, risk management solutions and execution of syndications. Upon execution of a trade with a client, the Group will look to hedge against the risk of the trade moving in an adverse direction. Mismatches between client transactions and hedges result in market risk due to changes in asset prices.
Non-traded market risk
Banking book operations generate non-traded market risk, primarily through interest rate risk arising from the sensitivity of net interest margins to changes in interest rates. As the principal banking businesses engage in internal derivative trades with Treasury to manage their interest rate risk to within its defined risk appetite. However, the businesses remain susceptible to market risk from four key sources:
§ | prepayment risk: balance run-off may be faster or slower than expected, due to customer behaviour in response to general economic conditions or interest rates. This can lead to a mismatch between the actual balance of products and the hedges executed with Treasury based on initial expectations |
§ | recruitment risk: the volume of new business may be lower or higher than expected, requiring the business to unwind or execute hedging transactions with Treasury at different rates than expected |
§ | residual risk and margin compression: the business may retain a small element of interest rate risk to facilitate the day-to-day management of customer business. Additionally, in the current low rate environment, deposits on which the Group sets the interest rate are exposed to margin compression. This is because for any further fall in base rate the Group must absorb an increasing amount of the rate move in its margin |
§ | lag risk: the risk of being unable to re-price products immediately after a change in interest rates due to mandatory notification periods. This is highly prevalent in managed rates savings product (e.g. Every Day Saver) where customers must be informed in writing of any planned reduction in their savings rates. |
Pension risk
The Group 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 principally through investments.
Pension risk arises because the estimated market value of the pension fund assets might decline; investment returns might reduce; or the estimated value of the pension liabilities might increase as a result of changes to the market process. The Group monitors the market risks arising from its defined benefit pension schemes, and works with the Trustees to address shortfalls. In these circumstances, The Group could be required or might choose to make extra contributions to the pension fund. The Group’s main defined benefit scheme was closed to new entrants in 2012.
Insurance risk
Insurance risk is managed within Africa Banking, where four categories of insurance risk are recognised: short-term insurance underwriting risk; life insurance underwriting risk; life insurance mismatch risk; life and insurance investment risk.
Insurance risk arises when:
§ | aggregate insurance premiums received from policyholders under a portfolio of insurance contracts are inadequate to cover the claims arising from those policies and the expenses associated with the management of the portfolio of policies and claims |
§ | premiums are not invested to adequately match the duration, timing and size of expected claims |
§ | unexpected fluctuations in claims arise or excessive exposure (e.g. in individual or aggregate exposures) relative to capacity is retained in the entity. |
Insurance entities also incur market risk (on the investment of accumulated premiums and shareholder capital), credit risk (counterparty exposure on investments and reinsurance transactions), liquidity risk and operational risk from their investments and financial operations.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 377 |
Barclays’ approach to managing risks
Management of market risk
Traded market risk in the businesses resides primarily in Investment Bank, Group Treasury, Africa Banking and Non-Core. These businesses have the mandate to incur traded market risk. Non-traded market risk is mostly incurred in PCB and Barclaycard.
Market risk oversight and challenge is provided by business committees, Group committees, including the Market Risk Committee and Group Market Risk. The chart above gives an overview of the business control structure.
Roles and responsibilities
The objectives of market risk management are to:
§ | understand and control market risk by robust measurement, limit setting, reporting and oversight |
378 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
§ | facilitate business growth within a controlled and transparent risk management framework |
§ | ensure that traded market risk in the businesses is controlled according to the allocated appetite |
§ | control non-traded market risk in line with approved appetite |
§ | control insurance risk in line with approved appetite |
§ | support the Non-Core strategy of asset reductions by ensuring that market risk remains within agreed risk appetite. |
To ensure the above objectives are met, a well established governance structure is in place to manage these risks consistent with the ERMF (evaluate-respond-monitor). See page 336 on risk management strategy, governance and risk culture.
The BRC recommends market risk appetite to the Board for their approval. The Market Risk Principal Risk Officer (MRPRO) is responsible for the Market Risk Control Framework and, under delegated authority from the CRO, agrees with the BCROs a limit framework within the context of the approved market risk appetite.
Across the Group, market risk oversight and challenge is provided by business committees, Group committees, including the Group Market Risk Committee and Group Market Risk. The chart above gives an overview of the business control structure.
The Group Market Risk Committee approves and makes recommendations concerning the Group-wide market risk profile. This includes overseeing the operation of the Market Key Risk Frameworks and associated standards and policies; reviewing arising market or regulatory issues, limits and utilisation; and risk appetite levels to the Board. The Committee is chaired by the MRPRO and attendees include the business heads of market risk, business aligned risk managers, and senior managers from Group Market Risk and Internal Audit.
The head of each business is accountable for all market risks associated with its activities, while the head of the market risk team covering each business is responsible for implementing the key risk control frameworks for market risk.
Risk management in the setting of strategy
Appetite for market risk is recommended by the risk function to BRC for agreement by the Board. Mandate and scales are set to control levels of market risk and ensure the Group remains within the BRC approved risk appetite. The Group runs an annual Group-wide stress testing exercise which aims to simulate the dynamics of exposures across the Group and cover all risk factors. The exercise is also designed to measure the impact to the Group’s fundamental business plan, and is used to manage the wider Group’s strategy.
See pages 350 to 353 for more detail on the role of risk in the setting of strategy.
Market risk culture
Market risk managers are independent from the businesses they cover, and their line management reports into the CRO. This embeds a risk culture with strong adherence to limits that support Group-wide risk appetite. See page 341 to 343 for more detail on risk culture.
Management of traded market risk, mitigation and hedging policies
The governance structure helps ensure all market risks that the Group is exposed to are well managed and understood.
Traded market risk is generated primarily as a result of market making activities, syndications and providing risk management solutions to clients. Group Treasury supports the businesses in managing their interest rate risk. Positions will contribute both to market risk limits and regulatory capital if relevant.
As part of the continuous monitoring of the risk profile, Market Risk meets with the businesses to discuss the risk profile on a regular basis. The outcome of these reviews includes further detailed assessments of event risk via stress testing, risk mitigation and risk reduction.
Traded market risk measurement – management view
Market risk management measures
A range of complementary approaches to measure traded market risk are used which aim to capture the level of losses that the bank is exposed to due to unfavourable changes in asset prices. The primary tools to control the firm’s exposures are:
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 379 |
Barclays’ approach to managing risks
Management of market risk
Measure
|
Description
| |
Management Value at Risk (VaR) |
An estimate of the potential loss arising from unfavourable market movements, if the current positions were to be held unchanged for one business day.
| |
Primary stress tests |
An estimate of potential losses that might arise from severe market moves or scenarios impacting key liquid market risk exposures.
| |
Secondary stress tests |
Modelled losses from unfavourable market movements to illiquid market risk exposures.
| |
Business scenario stresses |
Multi asset scenario analysis of severe, but plausible events that may impact the market risk exposures of the Investment Bank.
|
The use of Management VaR for traded market risk is broader than the application for use of VaR for regulatory capital, and captures standardised, advanced and certain banking books where traded market risks are deemed to exist. The wider scope of Management VaR is what the Group deems as material market risk exposures which may have a detrimental impact on the performance of the trading business. The scope used in Regulatory VaR (see page 383) is narrower as it applies only to trading book positions as approved by the PRA.
Stress testing and scenario analysis are also an important part of the risk management framework, to capture potential risk that may arise in severe but plausible events.
Management VaR
Estimates the potential loss arising from unfavourable market movements, over one day for a given confidence level:
§ | differs from the Regulatory VaR used for capital purposes in scope, confidence level and horizon |
§ | back testing is performed to ensure the model is fit for purpose. |
VaR 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. For internal market risk management purposes, a historical simulation methodology with a two-year equally weighted historical period, at the 95% confidence level is used for all trading books and some banking books. Risk factors driving VaR are grouped into key risk types as follows:
Risk factor
|
Description
| |
Interest rate |
Changes in the level or shape of interest rate expectations can impact prices of interest rate sensitive assets, such as bonds and derivatives instruments, such as interest rate swaps.
| |
Spread |
Difference between bond yields and swaps rates that arises when a business has positions in both bonds and interest rate/inflation derivatives instruments. Both assets may trade at different levels but are fundamentally exposed to similar risk.
| |
Foreign exchange | The impact of changes in foreign exchange rates and volatilities. | |
Equity |
Risk due to changes in equity prices, volatilities and dividend yields, for example as part of market making activities, syndication or underwriting of initial public offerings. | |
Commodity |
Arises primarily from providing hedging solutions to clients and access to financial investors to a range of commodity products on both a derivative and physical basis, and involves movements in the absolute and shape of the spot and forward curves.
| |
Inflation |
Arises from the impact of changes in inflation rates and volatilities on cash instruments and derivatives. This arises as part of market marking activities, whereby the Group may be exposed to changes in inflation rates, for example, market making syndications for inflation linked securities.
| |
Traded credit |
Arises from the uncertainty of credit quality impacting prices of assets, for example positions such as corporate bonds, securitised products and credit based derivative instruments, including credit default swaps.
| |
Basis |
The impact of changes in interest rate tenor basis (e.g. the basis between swaps vs 3M LIBOR and swaps vs 6M LIBOR) and cross-currency basis and is primarily generated as a result of market making activities.
|
380 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
In some instances, historical data is not available for particular market risk factors for the entire look-back period, for example, complete historical data would not be available for our equity security following an initial public offering. In these cases, market risk managers will proxy the unavailable market risk factor data with available data for a related market risk factor.
The output of the Management VaR model can be readily tested through back testing. This checks instances where actual losses exceed the predicted potential loss estimated by the VaR model. If the number of instances is higher than expected, where actual losses exceed the predicted potential loss estimated by the VaR model, this may indicate limitations with the VaR calculation, for example, a risk factor that would not be adequately captured by the model.
The Management VaR model in some instances may not appropriately measure some market risk exposures, especially for market moves that are not directly observable via prices. Market risk managers are required to identify risks which are not adequately captured in VaR (‘risks not in VaR’ or ‘RNIVs’, discussed below).
When reviewing VaR estimates, the following considerations are taken into account:
§ | the historical simulation uses the most recent two years of past data to generate possible future market moves, but the past may not be a good indicator of the future |
§ | the one-day time horizon may not fully capture the market risk of positions that cannot be closed out or hedged within one day |
§ | VaR is based on positions as at close of business and consequently, it is not an appropriate measure for intra-day risk arising from a position bought and sold on the same day |
§ | VaR does not indicate the potential loss beyond the VaR confidence level. |
Limits are applied at the total level as well as by risk factor type, which are then cascaded down to particular trading desks and businesses by the market risk management function.
See page 141 for a review of Management VaR in 2015.
Primary stress tests
§ | Key tool used by management to measure liquid market risks from extreme market movements or scenarios in each major trading asset class. |
Stress testing provides an estimate of potential significant future losses that might arise from extreme market moves or scenarios. Primary stress tests apply stress moves to key liquid risk factors for each of the major trading asset classes, namely:
§ | interest rates: shock to the level and structure of interest rates and inflation across currencies |
§ | credit: impact on traded corporate credit exposures, including across rating grades, geography, sectors and products |
§ | foreign exchange: impact of unfavourable moves in currency prices and volatility |
§ | equity: shocks to share prices including exposures to specific markets and sectors |
§ | commodities: adverse commodity price changes across both physical and derivative markets |
§ | securitised products: stresses to securitised structures and associated hedges. |
Primary stresses apply moves to liquid assets incorporating up to 10 days holding period. Shock scenarios are determined by a combination of observed extreme historical moves and forward looking elements as appropriate.
Primary stresses are calculated for each asset class on a standalone basis. Risk managers calculate several stress scenarios and communicate the results to senior managers to highlight concentrations and the level of exposures. Primary stress loss limits are applied across the trading businesses and is a key market risk control.
Secondary stress tests
§ | Key tool used by management to measure illiquid market risks from extreme market movements or scenarios in each major trading asset class. |
Secondary stress tests are used in measuring potential losses arising from market risks that are not captured in the primary stress tests. These may relate to financial instruments or risk exposures which are not readily or easily tradable or markets that are naturally sensitive to a rapid deterioration in market conditions.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 381 |
Barclays’ approach to managing risks
Management of market risk
For each asset class, secondary stresses are aggregated to a single stress loss which allows the business to manage its liquid and illiquid risk factors. Limits against secondary stress losses are also applied, which allows the firm to manage and control the level of illiquid risk factors.
Stresses are specific to the exposure held and are calibrated on both observed extreme moves and some forward-looking elements as appropriate.
Business scenario stresses
§ | Key tool used by management to measure aggregated losses across the entire trading book as a result of extreme forward-looking scenarios encompassing simultaneous shocks to multiple asset classes. |
Business scenario stresses apply simultaneous shocks to all risk factors assessed by applying changes to foreign exchange rates, interest rates, credit spreads, commodities and equities to the entire portfolio, for example, the impact of a rapid and extreme slowdown in the global economy. The measure shows results on a multi-asset basis across all trading exposures. Business scenarios are used for risk appetite monitoring purposes and are useful in identifying concentrations of exposures and highlighting areas that may provide some diversification.
The estimated impact on market risk exposures are calculated and reported by the market risk management function on a frequent and regular basis. The stress scenario and the calibration of the shocks are also reviewed by market risk managers periodically for its relevance considering the market environment.
Scenarios such as a global recession, deterioration in the availability of liquidity, contagion effects of a slowdown in one of the major economies, slowdown in a major economic region and a historical event scenario are examples of business scenarios. If necessary, market event-specific scenarios are also calculated, such as, a unilateral decision to exit the Eurozone by a member country, and the impact of a disorderly exit of quantitative easing programmes, including unexpected rapid and continuous interest rate rises as a result.
See page 142 for a review of business scenario stresses in 2015.
Traded market risk measurement – regulatory view
Regulatory view of traded positions
For regulatory purposes, the trading book is defined as one that consists of all positions in CRD financial instruments and commodities held either with trading intent, or in order to hedge other elements of trading, and which are either free of any restrictive covenants on their tradability, or able to be hedged. A CRD financial instrument is defined as a contract that gives rise to both a financial asset of one party and a financial liability or equity instrument of another party.
All of the below regulatory measures, including the standardised approach, generate market risk capital requirements, in line with the regulatory requirements set out in the Capital Requirements Directive (‘CRD IV’) and Regulation. Positions which cannot be included in the trading book are included within the banking book and generate risk capital requirements in line with this treatment.
Inclusion of exposures in the regulatory trading book
The Group maintains a Trading Book Policy, which defines the minimum requirements a business must meet to run trading positions and the process by which positions are allocated to trading or banking books. Trading intent is a key element in deciding whether a position should be treated as a trading or banking book exposure.
Positions in the trading book are subject to market risk capital, computed using models where regulatory approval has been granted, otherwise the market risk capital requirement is calculated using standard rules as defined in the Capital Requirement Regulation (CRR), part of the CRD IV package. If any of the criteria specified in the policy are not met for a position, then that position must be allocated to the banking book.
Most of the Group’s market risk regulatory models are assigned the highest model materiality rating. Consequently, the Regulatory VaR model is subject to annual re-approval at the Executive Models Committee (EMC), which is chaired by the CRO and the GFD. EMC considers evidence of model suitability provided by the model owner, as well as an independent validation conducted by the Independent Validation Unit. The following table summarises the models used for market risk regulatory purposes and the applicable regulatory thresholds.
382 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Valuation standards
CRR article 105 defines regulatory principles which need to be applied to fair value assets and liabilities, in order to determine a prudent valuation.
The Prudent Valuation Adjustment (PVA) is applied to accounting fair values where there are a range of plausible alternative valuations. It is calculated in accordance with Article 105 of the Capital Requirements Regulation (CRR), and includes (where relevant) adjustments for the following factors: unearned credit spreads, close-out costs, operational risk, market price uncertainty, early termination, investing and funding costs, future administrative costs and model risk. The PVA includes adjustment for all fair valued financial instruments and commodities, irrespective of whether they are in the trading or banking book.
Page 248 sets out the valuation control framework for accounting valuations and the related responsibilities of the Finance-Product Control Valuations function and the Valuation Committee. This function and committee are also responsible for the oversight of the PVA and ensuring compliance with article 105 of the CRR.
Regulatory measures for traded market risk
There are a number of regulatory measures which the Group has permission to use in calculating regulatory capital (internal models approval). These are listed below:
Measure
|
Definition
| |
Regulatory Value at Risk (VaR)
|
An estimate of the potential loss arising from unfavourable market movements calibrated to 99% confidence interval 10-day holding period.
| |
Stressed Value at Risk (SVaR)
|
An estimate of the potential loss arising from a twelve-month period of significant financial stress calibrated to 99% confidence interval 10-day holding period.
| |
Incremental Risk Charge (IRC)
|
An estimate of the incremental risk arising from rating migrations and defaults, beyond what is already captured in specific market risk VaR for the non-correlation trading portfolio. Uses a 99.9% confidence level and a one-year horizon.
| |
All Price Risk (APR)
|
An estimate of all the material market risk, including rating migration and default for the correlation trading portfolio.
|
Regulatory VaR
§ | Estimates the potential loss arising from unfavourable market movements. |
§ | Regulatory VaR differs from the management approach in the following respects. |
VaR Variable
|
Regulatory
|
Management
| ||
Confidence interval
|
99%
|
95%
| ||
Scope
|
As approved by the regulator (PRA)
|
Management view of market risk exposures. Includes trading books and banking books exposed to price risk
| ||
Look-back period
|
2 years
|
2 years
| ||
Liquidity Horizon (holding period)
|
10 days
|
1 day
|
Regulatory VaR allows oversight of the total potential losses, at a given confidence level, of those trading books which received approval from the regulator to be covered via an internal model. Regulatory VaR levels contribute to the calculation of the market risk RWAs.
Management VaR allows the bank to supervise the total market risk across the Group, including all trading books and some banking books.
Management VaR is also utilised for internal capital model (economic capital).
Regulatory VaR is fundamentally the same as the Management VaR (see page 380), with the key differences listed above.
The model is complemented with RNIVs, as described on page 387 and 388.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 383 |
Barclays’ approach to managing risks
Management of market risk
Stressed Value at Risk (SVaR)
§ | Estimates the potential loss arising from unfavourable market movements in a stressed environment. |
§ | Identical to Regulatory VaR, but calibrated over a one-year stressed period. |
Regulatory capital is allocated to individual businesses. For regulatory capital calculation purposes the Group computes a market risk capital requirement based on a ten-day, 99% VaR metric calibrated to a period of significant financial stress. This Stressed VaR (‘SVaR’) capital requirement is added to the market risk capital requirement arising from regulatory VaR, the Incremental Risk Charge and the All Price Risk on an undiversified basis.
The SVaR model must be identical to the VaR model used by the Group, with the exception that the SVaR model must be calibrated to a one-year period of significant financial stress (‘the SVaR period’). The Group selects the SVaR period to be a one-year period that maximises the sum of general market risk Regulatory VaR and specific market risk Regulatory VaR for positions in scope of regulatory approval. The SVaR period is reviewed on a quarterly basis or when required by material changes in market conditions or the trading portfolio.
SVaR cannot be meaningfully backtested as it is not sensitive to current market conditions. Many market risk factors with complete historical data over a two-year period may not have complete data covering the SVaR period and consequently, more proxies may be required for SVaR than for VaR. The SVaR metric itself has the same strengths and weaknesses as the Group’s VaR model.
Incremental Risk Charge (IRC)
§ | Captures risk arising from rating migrations and defaults for traded debt instruments incremental to that already captured by Regulatory VaR and SVaR. |
IRC captures the risk arising from ratings migrations or defaults in the traded credit portfolio. IRC measures this risk at a 99.9% confidence level with a one-year holding period and applies to all positions in scope for specific risk including sovereign exposure.
The Group’s IRC model simulates default and ratings transition events for individual names. The behaviour of names is correlated with one another to simulate a systemic factor to model the possibility of multiple downgrades or defaults. The correlations between non-sovereign names are based on the Basel-defined correlations stipulated in the IRB approach to measuring credit risk capital, with a fixed correlation between sovereign names.
The Group’s IRC model simulates the impact of a ratings transition by estimating the improvement or deterioration in credit spreads resulting from the transition and assumes that the historically observed average change in credit spreads (measured in relative terms) resulting from ratings transitions provides an accurate estimate of likely widening or tightening of credit spreads in future transitions. For each position, the model computes the impact of spread moves up or down at pre-specified relative movements, and the actual impact is obtained by interpolating or extrapolating the actual spread move from these pre-computed values.
The Group’s IRC model assumes that ratings transitions, defaults and any spread increases occur on an instantaneous basis.
All Price Risk (APR)
Captures all market risks affecting the correlation trading portfolio.
APR covers the correlation trading portfolio and is intended to adequately capture all risk factors relevant to corporate Nth-to-default (on a basket of referenced names) and tranched credit derivatives. The capital requirement is based on a 99.9% confidence interval over a one-year holding period. The model generates a scenario based on a Monte Carlo simulation and revalues the portfolio under the simulated market scenario. The model captures the following risk factors in the correlation trading portfolio:
§ | default and ratings migration over a one-year time horizon |
§ | credit spread volatility |
§ | recovery risk: uncertainty of the recoverable value under default |
§ | correlation risk |
§ | basis risk: basis between credit indices and its underlying constituents |
§ | hedge slippage: portfolio rebalancing assumption. |
The Group’s APR model is based on the IRC model but also captures market risks not related to transition or default events, such as movements in credit spreads or correlations. These risk factors are included as part of the Monte Carlo simulation using distributions calibrated to historically observed moves.
384 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Regulatory back testing
Back testing is the method by which the Group checks and affirms that its procedures for estimating VaR are reasonable and serve its purpose of estimating the potential loss arising from unfavourable market movements. The back testing process is a regulatory requirement and seeks to estimate the performance of the regulatory VaR model. Performance is measured by the number of exceptions to the model i.e. net trading P&L loss in one trading day is greater than the estimated VaR for the same trading day. The Group’s procedures could be underestimating VaR if exceptions occur regularly (a 99% confidence interval indicates that one exception will occur in 100 days).
Back testing is performed at a legal entity level, sub-portfolio levels and business-aligned portfolios (shown in the table below and in the charts on the next page) on the Group’s regulatory VaR model. Regulatory back testing compares Regulatory VaR at 99% confidence level (one-day holding period equivalent) to actual and hypothetical changes in portfolio value as defined in CRR Article 366. The consolidated Barclays Bank PLC and Barclays Capital Securities Ltd is the highest level of consolidation for the VaR models that are used in the calculation of regulatory capital.
A back testing exception is generated when a loss is greater than the daily VaR for any given day.
As defined by the PRA, a green model is consistent with a good working VaR model and is achieved for models that have four or fewer back testing exceptions in a 12-month period. Back testing counts the number of days when a loss exceeds the corresponding VaR estimate, measured at the 99% regulatory confidence level. For the Investment Bank’s regulatory DVaR model, green model status was maintained for 2015.
Back testing is also performed on management VaR to ensure it remains reasonable and fit for purpose.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 385 |
Barclays’ approach to managing risks
Management of market risk
The table below shows the VaR back testing exceptions on legal entities aligned to the Group’s business in 2015. A back testing exception is generated when a loss is greater than the VaR for a given day. Exceptions are shown by legal entity rather than asset class as in prior disclosures. Model performance at a legal entity level determines regulatory capital within those entities. Legal entity disclosure also reflects the management perspective as Barclays moves forward with structural change, where VaR and model performance of VaR for a legal entity across asset class becomes more relevant than asset class metrics across legal entity.
Legal Entities
| Total Exception
| Status
| ||
BBPLC Trading and BCSL
| 3
| Green
| ||
BBPLC Trading
| 4
| Green
| ||
BCSL
| 4
| Green
| ||
BBSA
| 2
| Green
| ||
BCI
| 2
| Green
|
The charts below show VaR for the Group’s regulatory portfolios aligned to legal entity where at least one exception has occurred during 2015. The dark blue lines indicate losses on the small number of days on which they exceeded the VaR amount.
The majority of the backtesting exceptions in the year were driven by markets moving in a fashion unanticipated by the model, primarily by increases in realised volatility compared to that predicted by the VaR at the 99% confidence level. Additional exceptions are caused by non-VaR type risks which may be related to events, such as corporate actions or pricing remarks in line with valuation policies, which are not captured in the VaR model.
Exceptions are reported to internal management and regulators on a regular basis and exceptions are investigated to ensure the model performs as expected. Overall back testing for the consolidated legal entity remains in the green zone, suggesting that the VaR remains fit for purpose.
386 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Management of risks not fully captured in models, including Risks not in VaR (RNIVs)
The Group’s’ risk identification process captures risks that either have been observed to, or have the capacity to, produce material losses in normal and stressed market conditions. To ensure risk coverage, the range of key risks is identified following either market convention, regulatory guidance, or the specific historical experience of the Group’s and is considered as part of the new product processes.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 387 |
Barclays’ approach to managing risks
Management of market risk
In some instances, the Management and Regulatory VaR model may not appropriately measure some market risks, especially where market moves are not directly observable via prices, the Group has policies to ensure that add-ons are applied where risks are not captured by the model. RNIVs refer to those key risks that are not captured, or not adequately captured, in VaR and SVaR. RNIVs can include:
§ | risks not fully captured elsewhere and/or illiquid risk factors such as cross-risks; |
§ | basis risks; |
§ | higher-order risks; |
§ | calibration parameters, for instance to model parameter uncertainty; and |
§ | potential losses in excess of fair valuation adjustments taken in line with the Valuation Control Framework. Please see note 18 ‘Fair value of assets and liabilities’ for more details on fair value adjustments. |
The treatment of RNIVs follows whether the risks are considered VaR type or non-VaR type, which depends on, and can change with, the evolving state of financial markets:
§ | VaR-type RNIVs: Typically represent risks that are not well captured in VaR, mainly because of infrastructure limitations or methodology limitations. In this instance two metrics are calculated, a VaR RNIV and a SVaR RNIV, using the same confidence level, capital horizon and observation period as VaR and SVaR respectively and are capitalised using the same multipliers as VaR and SVaR |
§ | Non-VaR-type RNIVs: Typically represent risks which would not be well captured by any VaR model either because it represents an event not historically observed in the VaR time series (e.g. currency peg break) or a market risk factor which is not seen to move frequently (e.g. correlation). These are typically estimated using stress scenarios. The stress methodology is calibrated equivalently to at least 99% confidence level and a capital horizon of at least 10 days over an appropriate observation period, depending on the liquidity of the risk. For the purpose of regulatory capital, the capital charge is equal to the loss arising from the stress test except when these risks are already adequately captured elsewhere e.g. via the IRC or APR models, which are intended to capture certain risks not adequately covered by VaR |
For regulatory capital these RNIVs are aggregated without any offsetting or diversification benefit.
Traded market risk control
The metrics that are used to measure market risk are controlled through the implementation of appropriate limit frameworks. Limits are set at the total Group level, asset class level, for example, interest rate risk, and at business level, for example, securitised products. Stress limits and many book limits, such as foreign exchange and interest rate sensitivity limits, are also used to control risk appetite.
Firm-wide limits are reported to the BRC and are termed A-level limits for total management VaR, asset class VaR, primary stress and secondary stresses and business scenarios. These are then cascaded down by risk managers in order to meet the firm-wide risk appetite.
Each A-level limit is set after consideration is given to revenue generation opportunities and overall risk appetite approved by the Board. Compliance with limits is monitored by the independent risk functions in the trading businesses with oversight provided by Group Market Risk.
Throughout 2015, Group Market Risk continued its ongoing programme of conformance reviews on the trading businesses’ market risk management practices. These reviews are intended to verify the business’s conformance with the Market Risk Control Framework and best practices.
Traded market risk reporting
Trading businesses market risk managers produce a number of detailed and summary market risk reports daily, weekly, fortnightly and monthly for business and risk managers. Where relevant on a Group-wide basis, these are sent to Group Market Risk for review and a risk summary is presented at the Group Market Risk Committee and the trading businesses’ various market risk committees. The overall market risk profile is also presented to BRC on a regular basis.
Management of non-traded market risk, mitigation and hedging policies
Barclays actively seeks to minimise interest risk in the banking book by actively hedging this risk with the use of interest rate products. At the same time Barclays actively manages the potential asset and liability mismatches and changes to interest rates that could reduce the value of our investment portfolios.
Non-traded risk measurement
Barclays uses a range of complementary technical approaches to measure non-traded market risk.
388 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Summary of measures for non-traded market risk
Measure
|
Definition
| |
Annual earnings at risk
|
Impact on earnings of a parallel (upward or downward) movement in interest rates.
| |
Economic value of equity (EVE)
|
Change in the present value of the banking book of a parallel (upward or downward) interest rate shock.
| |
Economic capital
|
Economic Capital (EC) is held to protect against unexpected loss (in excess of expected loss) and calculated over a one-year time horizon.
| |
Value at risk (VaR)
|
An estimate of the potential loss arising from unfavourable market movements, if the current positions were to be held unchanged for a set period of time.
| |
Stress testing
|
Scenario based stress testing using a variety of economic parameters to quantify the impact to profit and loss and the balance sheet under various levels of stress.
|
The risk in each business is measured and controlled using both an income metric (Annual Earnings at Risk) and value metrics (Economic Value of Equity, Economic Capital and VaR).
Annual Earnings at Risk (AEaR)
AEaR measures the sensitivity of net interest income over the next one-year period. It is calculated as the difference between the estimated income using the expected base rate forecast and the lowest estimated income following a parallel increase or decrease in interest rates (200bps), subject to a minimum interest rate of 0%. 200bp shocks are consistent with industry best practice and supported by banking regulators.
The main model assumptions are:
§ | The balance sheet is kept at the current level, i.e. no growth is assumed; and |
§ | Balances are adjusted for an assumed behavioural profile. This includes the treatment of fixed rate loans including mortgages. |
AEaR is applied to the entire banking book, including the liquidity buffer and internal trades with the trading book to hedge against interest rate risk in the banking book exposures. The metric provides a measure of how interest rate risk may impact the Group’s earnings, providing a simple comparison between risk and returns. The main disadvantage of the metric is its short-term focus, as it only measures the impact on a position in the first 12 months. In order to counter this, the Group has implemented additional economic value risk metrics.
See page 143 for a review of AEaR in 2015.
Economic Value of Equity (EVE)
EVE calculates the change in the present value of the non traded exposure for a parallel upward and downward interest rate (200bps) shock. This shock is useful for drawing comparisons across portfolios, and is also a regulatory reporting requirement. Note that the EVE calculation measures sensitivity in terms of present value, while AEaR measures income sensitivity.
The EVE measure is applied to the entire banking book, that is, the same coverage as AEaR, and covers the full life of transactions and hedges ensuring the risk over the whole life of positions are considered. The main weaknesses of this model stem from its simplicity. In particular, it does not capture the impact of business growth or of management actions, and is based on the balance sheet as at the reporting date.
Economic Capital (EC, for recruitment, prepayment and residual risk)
EC consistent models, based on DVaR methodologies, are used to measure unexpected losses to a 99.98% confidence interval over a one-year period. Within non-traded risk, this measure aims to capture recruitment risk, prepayment risk and residual risk for banking book products (see definitions on page 377). EC metrics typically measure variations in economic value from specific sources of risk, for example, prepayment risk EC for fixed rate mortgages predicts the cost of hedging to reduce any mismatch exposure resulting from the impact of an interest rate shock on customer prepayment levels.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 389 |
Barclays’ approach to managing risks
Management of market risk
EC is used in the active management of the banking book. Limits are set against EC metrics and breaches trigger mitigating actions to reduce exposure to appropriate levels. EC modelling is typically applied only to fixed rate products and the majority of variable rate and administered rate portfolios are not subject to an EC measure.
Advantages of EC are that it can calculate unexpected losses to an appropriate degree of confidence given the nature of the risks, and that it covers sources of loss beyond the scope of other models (AEaR only covers income changes over a one-year period; EVE only considers existing business and does not include any dynamic customer behaviour assumptions). The main weaknesses come from necessary simplifying assumptions. In the case of models based on statistical confidence intervals, the choice of the statistical distribution may drive under-prediction of very extreme events (i.e. the real distribution may be fat-tailed). To mitigate this, the Group continues to improve its models using long time series of historical data to capture extreme effects.
See pages 144 for a review of EC in 2015.
Value at Risk (VaR)
VaR is an estimate of the potential loss arising from unfavourable market movements, if the current positions were to be held unchanged for a set period. For internal market risk management purposes, a historical simulation methodology is used with a two-year equally weighted historical period, at the 95% confidence level for banking book portfolios covered by the measure. This calculation is a present value sensitivity while AEaR is an income sensitivity.
Daily VaR is used to measure residual interest and foreign exchange risks within certain banking book portfolios.
Quarterly scaled VaR is used to measure risk in the Liquidity Buffer Investment Portfolio. The calculation uses a five-year historical period, a 95% confidence level and is scaled from daily to quarterly by an approved constant factor.
Stress testing
Stress losses are calculated for the liquidity buffer portfolio, but not subject to controlled limits.
All non-traded market risk positions are subject to the Group’s annual stress testing exercise, where scenarios based on economic parameters are used to determine the potential impact of the positions on results and the balance sheet.
Non-traded market risk control
Non-traded market risk is controlled through the use of limits on many of the above risk measures. Limits are set at the total business level and then cascaded down. The total business level limits are owned by the BCROs, while the overall Group AEaR limit is agreed with Group Market Risk and approved by the FRC. Compliance with limits is monitored by the respective business market risk team with oversight provided by Group Market Risk.
Businesses manage their interest rate risk exposures by transferring this risk to Group Treasury, who then mitigate this risk using external markets if appropriate to keep the overall exposure within the agreed risk appetite. Group policy prevents non-trading businesses to run trading books; this is only permitted for the Investment Bank, Group Treasury, Barclays Non-Core and Africa Banking.
Non-traded market risk reporting
The Group Market Risk function produces a number of detailed market risk reports on a daily, weekly, fortnightly and monthly basis, for business and risk managers. A risk summary is presented at the Group Market Risk Committee and other market risk forums.
Management of Pension Risk
Pension risk control
The investment strategy of the UKRF is owned and defined by the Trustee who is independent to the bank. As such, pension risk is not governed by the conventional limit framework observed in traded and non-traded market risk. Instead, Group Market Risk have put in place a pension risk control framework to create consistency in the evaluation and monitoring of the risk in a coordinated way with other key risks across Barclays.
The risk and positions are reported monthly to the Market Risk Committee (MRC) and periodically to the Pensions Management Group (PMG), Pension Executive Board (PEB) and BRC.
390 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Group Market Risk is responsible for the ongoing challenge of the risk profile and to that aim will ensure:
§ | At least annual review of all pension funds shortfalls; |
§ | Detailed review of liability driven data; |
§ | A continuous and detailed interaction exists between Group Market Risk, the pension asset manager and other key stakeholders; |
§ | To conduct, where necessary, any ad-hoc analyses to ensure a consistent view of the risk positions of the fund. |
Pension risk measurements
The following metrics are used to describe pension risk:
§ | Asset/Liability mismatch under IAS19, Funding and Solvency Rules; |
§ | Asset VaR and liability VaR; |
§ | Total pension risk VaR i.e. which captures the hedging effect of the matching assets, and potential diversification between assets and liabilities. |
The VaR used for pension risk is calibrated at a 95% confidence level, with a one year horizon to reflect the long-term nature of the risk. Whilst the asset portfolio is sensitive to the volatility to any asset class the pension asset manager invests in, the liabilities are mainly exposed to interest rates and corporate credit spreads which are the main components of the discount rate; and inflation which drives the pension increase assumptions.
Group Market Risk also conduct regulatory and internal stress tests on material pension schemes to assess how these react to potential shock scenarios, the results of which form part of Barclays submission for the EU and Bank of England Stress Tests.
See page 146 for a review of pension risk in 2015.
Management of insurance risk
Insurance risk measurement
Risk measurement is largely based on best practice actuarial methodologies for the measurement of assets and liabilities, capital quantification and the monitoring of exposures against predetermined limits, in compliance with regulatory standards relevant to their application. The methodology can be deterministic or stochastic (both closed-form and simulation), depending on the application. Capital adequacy calculations are calculated at a 99.5% confidence level for regulatory purposes, and a higher confidence level for economic capital purposes. Absa Life extrapolates the underwriting Capital Adequacy Requirement (CAR) by assuming that life underwriting risk follows an appropriate statistical distribution.
The estimation of insurance technical provisions requires a number of assumptions. The appropriateness of the actuarial assumptions are reviewed by the independent external actuaries. Furthermore, the internal risk function acts as second line of defence, and provides oversight, review and challenge to the actuarial functions. Assumptions are made around demographic factors (e.g. mortality, morbidity), statistical factors (e.g. claims incidence, reporting and development patterns), and economic factors (e.g. yield curves, market returns). Stress testing can also be used to isolate and examine the impact of specific, or combinations of, variables.
Insurance risk control
Insurance risk is managed within Barclays Africa Group Limited. From an economic capital perspective, four significant categories of insurance risk and their governance procedures are:
§ | short-term insurance underwriting risk: monitored on a quarterly basis by the Underwriting Committee to ensure the risk taken is in line with underwriting guidelines and appropriately priced and reserved for. Risk governance is monitored by the Control Review Committee (CRC), the Actuarial Review Committee (ARC) and Key Risk reporting |
§ | life insurance underwriting risk: monitored on a quarterly basis by the Underwriting Committee to ensure the risk taken is in line with underwriting guidelines and appropriately priced and reserved for. Risk governance is monitored by the CRC, the ARC and Key Risk reporting |
§ | life insurance mismatch risk: monitored every other month by the entity’s Capital and Investment Risk Committee. A quarterly review is conducted by the Wealth, Investment Management and Insurance (WIMI) Financial Risk Committee, and an annual review by the ARC |
§ | life and short-term insurance investment risk: monitored by the entity Capital and Investment Risk Committee on at least a quarterly basis. |
Short-term insurance underwriting activities are undertaken by Absa Insurance Company and Absa idirect. Life insurance underwriting activities are undertaken by Absa Life, Barclays Life Botswana, Barclays Life Zambia and Woolworths Financial Services (through an Absa Life cell captive). Global Alliance Mozambique underwrites both life and short-term insurance business.
Short-term insurance underwriting risk, life insurance underwriting risk, life insurance mismatch risk and investment risks are core to the business of the insurance entities. The successful management of these risks ultimately impacts the success of the entities. The same risk management frameworks and governance structures that enabled the effective management of risks for the South African entities are implemented and embedded in any new entities.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 391 |
Management of operational risk | ![]() |
The sources of operational risks, and how those risks are managed, are detailed in this section.
§ | The types of risks that are classified as operational risks are described on page 394. |
§ | Governance, management and measurement techniques are covered on pages 394 to 396. |
Barclays’ approach to managing risks
Management of operational risk
Operational risk management overview
Any instance where there is a potential or actual impact to the Group resulting from inadequate or failed internal processes, people, systems, or from an external event. The impacts to the Group can be financial, including losses or an unexpected financial gain, as well as non-financial such as customer detriment, reputational or regulatory consequences.
Overview
The management of operational risk has two key objectives:
§ | minimise the impact of losses suffered, both in the normal course of business (small losses) and from extreme events (large losses) |
§ | improve the effective management of the Group and strengthen its brand and external reputation. |
The Group is committed to the management and measurement of operational risk and was granted a waiver by the FSA (now the PRA) to operate an Advanced Measurement Approach (AMA) for operational risk, which commenced in January 2008. The majority of the Group calculates regulatory capital requirements using AMA (93% of capital requirements), however, in specific areas the Basic Indicator Approach (7%) is applied. The Group works to benchmark its internal operational risk management and measurement practices with peer banks and to drive the further development of advanced techniques.
The Group is committed to operating within a strong system of internal control that enables business to be transacted and risk taken without exposing the Group to unacceptable potential losses or reputational damage. The Group has an overarching framework that sets out the approach to internal governance. This guide establishes the mechanisms and processes by which the Board directs the organisation, through setting the tone and expectations from the top, delegating authority and monitoring compliance.
Organisation and Structure
A key component is the Enterprise Risk Management Framework (ERMF), the purpose of which is to identify and set minimum requirements in respect of the main risks to achieving the Group’s strategic objectives and to provide reasonable assurance that internal controls are effective. The ERMF also defines the characteristics of an effective Control Environment, against which the businesses are assessed. Management, in all three lines of defence, are required to manage their businesses and functions in accordance with the characteristics set out below:
§ | there is a strong tone from the top and culture supporting the management of controls |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 393 |
§ | there is clear individual accountability and responsibility for the management of the control environment, starting at senior levels, and incorporated into performance objectives |
§ | key customer processes and other activities are clearly identified and understood |
§ | the material risks arising from these are identified and assessed |
§ | a risk appetite is established for the variable outcomes in these risks |
§ | a set of comprehensive and sustainable key controls is established and operated to remain within the risk appetite |
§ | any issues, events outside of risk appetite including control failures are identified and escalated |
§ | programmes for the remediation of control gaps or execution failures are established and implemented |
§ | a feedback loop including a “Lessons Learnt” process is used to inform and improve control performance |
§ | assurance is provided by 1st line and 2nd lines of defence on the reliability of control solutions and remediation activities for their own control areas. |
The key elements of the Group’s system of internal control, which is aligned to the recommendations of The Committee of Sponsoring Organizations of the Treadway Commission, Internal Control – Integrated Framework (COSO), are set out in the risk control frameworks relating to each of the Group’s Key Risks and in the Group Operational Risk Framework.
Operational Risk comprises a number of specific Key Risks defined as follows:
§ | external supplier: inadequate selection and ongoing management of external suppliers |
§ | financial crime: failure to comply with anti money laundering , anti-bribery and anti-corruption and sanctions policies. In early January 2016, the oversight of Financial Crime was transferred to Group Compliance |
§ | financial reporting: reporting mis-statement or omission within external financial or regulatory reporting |
§ | fraud: dishonest behaviour with the intent to make a gain or cause a loss to others |
§ | information: inadequate protection of the Group’s information in accordance with its value and sensitivity |
§ | legal: failure to identify and manage legal risks |
§ | payments process: failure in operation of payments processes |
§ | people: inadequate people capabilities, and/or performance/reward structures, and/or inappropriate behaviours |
§ | premises and security: unavailability of premises (to meet business demand) and/or safe working environments, and inadequate protection of physical assets, employees and customers against external threats |
§ | taxation: failure to comply with tax laws and practice which could lead to financial penalties, additional tax charges or reputational damage |
§ | technology (including CyberSecurity): failure to develop and deploy secure, stable and reliable technology solutions which includes risk of loss or detriment to the Group’s business and customers as a result of actions committed or facilitated through the use of networked information systems |
§ | transaction operations: failure in the management of critical transaction processes. |
In order to ensure complete coverage of the potential adverse impacts on the Group arising from operational risk, the operational risk taxonomy extends beyond the operational Key Risks listed above to cover areas included within conduct risk. For more information on Conduct Risk please see pages 406 to 409.
These risks may result in financial and/or non-financial impacts including legal/regulatory breaches or reputational damage.
Operational risk management
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. The operational risk profile and control environment is reviewed by business management through specific meetings which cover governance, risk and control. Businesses are required to report their operational risks on both a regular and an event-driven basis. The reports include a profile of the material risks that may threaten the achievement of their objectives and the effectiveness of key controls, material control issues, operational risk events and a review of scenarios.
394 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to managing risks
Management of operational risk
The Group Head of Operational Risk, as Principal Risk Officer, is responsible for establishing, owning and maintaining an appropriate Group-wide Operational Risk Framework and for overseeing the portfolio of operational risk across the Group.
Operational risk management acts in a second line of defence capacity is responsible for implementation of the framework and monitoring operational risk events, risk exposures and material control issues. Through attendance at Business Unit Governance, Risk and Controls meetings, it provides specific risk input into the issues highlighted and the overall risk profile of the business. Operational risk issues escalated from these meetings are considered by the Principal Risk Officer through the second line of defence review meetings, which also consider material control issues and their effective remediation. Depending on their nature, the outputs of these meetings are presented to the BRC or the BAC.
Specific reports are prepared by businesses, Key Risk Officers and Group Operational Risk on a regular basis for BRC and BAC.
Operational risk framework
The Operational Risk Strategy and Framework comprises a number of elements which allow the Group to manage and measure its operational risk profile and to calculate the amount of operational risk capital that the Group needs to hold to absorb potential losses. The minimum, mandatory requirements for each of these elements are set out in the group operational risk framework and supporting standards. This framework is implemented across the Group:
§ | vertically, through the organisational structure with all businesses required to implement and operate an operational risk framework that meets, as a minimum, the requirements detailed in these operational risk policies |
§ | horizontally, with the Group Key Risk officers required to monitor information relevant to their Key Risk from each operational risk framework element. |
The Operational Risk framework is a key component of the ERMF and has been designed to improve risk management and meet a number of external governance requirements including the Basel Capital Accord, the Capital Requirements Directive and Turnbull guidance as an evaluation framework for the purposes of Section 404(a) of the Sarbanes-Oxley Act. It also supports the Sarbanes-Oxley requirements.
The operational risk strategy and framework includes the following elements:
Risk and Control Self-Assessments
The Group identifies and assesses all material risks within each business and evaluates the key controls in place to mitigate those risks. Managers in the businesses use self-assessment techniques to identify risks, evaluate the effectiveness of key controls in place and assess whether the risks are effectively managed within business risk appetite. The businesses are then able to make decisions on what action, if any, is required to reduce the level of risk to the Group. These risk assessments are monitored on a regular basis to ensure that each business continually understands the risks it faces.
Risk events
An operational risk event is any circumstance where, through the lack or failure of a control, the Group has actually, or could have, made a loss. The definition includes situations in which the Group could have made a loss, but in fact made a gain, as well as incidents resulting in reputational damage or regulatory impact only.
A standard threshold is used across the Group for reporting risk events and part of the analysis includes the identification of improvements to processes or controls, to reduce the recurrence and/or magnitude of risk events. For significant events, both financial and non-financial, this analysis includes the completion of a formal lessons learnt.
The Group also maintains a record of external risk events which are publicly available and is a member of the Operational RiskData eXchange (ORX), a not-for-profit association of international banks formed to share anonymous loss data information. This external loss information is used to support and inform risk identification, assessment and measurement.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 395 |
Operational risk appetite
The Group’s approach to determining its operational risk appetite combines both quantitative measures and qualitative judgement, in order to best reflect the nature of non-financial risks.
The monitoring and tracking of operational risk measures is supplemented with qualitative review and discussion at senior management executive committees on the actions being taken to improve controls and reduce risk to an acceptable level.
Operational risk appetite is aligned to the Group’s Risk Appetite Framework. The BRC considers, and recommends to the Board for approval, the Group’s risk appetite statement for operational risk based on performance in the current year and the projections for financial volatility the following year.
Key Risk appetite statements are agreed with the Principal Risk Officer, utilising the same approach, and are contained within the respective Key Risk Frameworks.
Key indicators
Key indicators (KIs) are metrics which allow the Group to monitor its operational risk profile. KIs include measurable thresholds that reflect the risk appetite of the business and are monitored to alert management when risk levels exceed acceptable ranges or risk appetite levels and drive timely decision making and actions.
Key Risk scenarios
Key risk scenarios are a summary of the extreme potential risk exposure for each Key Risk in each business and function, and include an assessment of the potential frequency of risk events, the average size of losses and three extreme scenarios. The Key Risk scenario assessments are a key input to the Advanced Measurement Approach calculation of regulatory and economic capital requirements (see following section on operational risk measurement). The assessment considers analysis of internal and external loss experience, Key Risk indicators, risk and control self-assessments and other risk information. The businesses and functions analyse potential extreme scenarios, considering the:
§ | circumstances and contributing factors that could lead to an extreme event |
§ | potential financial and non-financial impacts (for example reputational damage) |
§ | controls that seek to limit the likelihood of such an event occurring, and the mitigating actions that would be taken if the event were to occur (for example crisis management procedures, business continuity or disaster recovery plans). |
Management may then conclude whether the potential risk is acceptable (within appetite) or whether changes in risk management control or business strategy are required.
The key risk scenarios are regularly re-assessed, taking into account trends in risk factors such as mis-selling, conduct and financial crime risks.
Reporting
The ongoing monitoring and reporting of operational risk is a key component of the Operational Risk Framework. Reports are used by the operational risk function and by business management to understand, monitor, manage and control operational risks and losses.
The operational risk profile is reviewed by senior management at the Operational Risk Review Forum, as well as BRC, BAC and the Board.
Operational risk measurement
The Group assesses its operational risk capital requirements using an Advanced Measurement Approach. The approach involves estimating the potential range of losses that could be incurred in a year from operational risk events, using statistical distributions. Regulatory capital requirements are set to cover 99.9% of the estimated losses. The Group also assesses its economic capital requirements to cover 99.98% of the estimated losses that exceed the typical losses (diversified across all risk classes).
The potential frequency and severity of losses is estimated for each Key Risk (within the Operational Risk and Conduct risk categories) across the Group’s businesses and functions. The potential range of individual loss severities is represented by a statistical distribution, estimated from the average loss size and three extreme scenarios (from Risk Assessments), as well as loss data from the Operational Riskdata eXchange (ORX).
The capital calculation also takes into account the possibility of dependences between operational risk losses occurring in a year (between businesses and functions and between risks).
In certain joint ventures and associates, the Group uses the Basic Indicator Approach to determine the capital requirements: some Africa Retail Banking, including Barclays Bank Mozambique and National Bank of Commerce (Tanzania); the business activities acquired from Lehman Brothers; and the portfolios of assets purchased from Woolworths Financial Services in South Africa, Standard Life Bank, ING Direct, MBNA Corporate Cards, Upromise, RCI, Egg Cards, EdCon, Sallie Mae, Ameriprice, Hawaiian Airlines and US Airways.
Insurance
As part of its risk management approach, the Group also uses insurance to mitigate the impact of some operational risks.
396 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
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Management of funding risk | ![]() |
This section provides an analysis of the management of liquidity and capital risk.
§ | Liquidity risk, with a focus on how it is managed to ensure that resources are adequate at all times including under stress, is discussed on pages 398 to 401 |
§ | Capital risk, including how the risk of insufficient capital and leverage ratios is managed, is discussed on pages 402 to 405. |
Barclays’ approach to managing risks
Management of funding risk
Funding Risk
The ability of the Group to achieve its business plans may be adversely impacted if it does not effectively manage its capital (including leverage) and liquidity ratios. Group Treasury manage Funding Risk on a day-to-day basis with the Treasury Committee acting as the key governance forum.
Capital and Liquidity Risks are managed by two separate areas; these are covered below.
Liquidity Risk
Liquidity risk is the risk that a firm, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost. This also results in a firm’s inability to meet regulatory liquidity requirements. This risk is inherent in all banking operations and can be affected by a range of Group-specific and market-wide events.
The Board has formally recognised a series of risks that are continuously present in Barclays and materially impact the achievement of Barclays objectives one of which is Funding risk. Liquidity risk is recognised as a Key risk within Funding risk. The efficient management of liquidity is essential to the Group in retaining the confidence of the financial markets and ensuring that the business is sustainable. Liquidity risk is managed through the Liquidity Risk Management Framework (the Liquidity Framework) which is designed to meet the following objectives:
§ | To maintain liquidity resources that are sufficient in amount and quality and a funding profile that is appropriate to meet the liquidity risk appetite as expressed by the Board; |
§ | To maintain market confidence in the Group’s name; |
This is achieved via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring. Together, these meet internal and regulatory requirements.
Governance and organisation
Barclays Treasury operates a centralised governance control process that covers all of the Group’s liquidity risk management activities. As per Enterprise Risk Management Framework the Key Risk Officer (KRO) approves the Key Risk Control Framework for Liquidity Risk (‘Key Risk Control Framework’) under which the treasury function operates. The KRO is in the Risk function. The Key Risk Control Framework describes liquidity policies and controls that the Group has implemented to manage liquidity risk within the Liquidity Risk Appetite (LRA) and is subject to annual review.
398 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
The Board sets the Liquidity Risk Appetite (LRA), over Group stress tests, being the level of risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The approved LRA is implemented and managed by the Treasury Committee through the Key Risk Control Framework.
Liquidity risk framework
Barclays has a comprehensive Key Risk Control Framework for managing the Group’s liquidity risk. The Key Risk Control Framework is designed to deliver the appropriate term and structure of funding consistent with the Liquidity Risk Appetite set by the Board.
The Key Risk Control Framework incorporates a range of ongoing business management tools to monitor, limit and stress test the Group’s balance sheet and contingent liabilities and a Contingency Funding Plan. Limit setting and transfer pricing are tools that are designed to control the level of liquidity risk taken and drive the appropriate mix of funds, which together reduce the likelihood that a liquidity stress event could lead to an inability to meet the Group’s obligations as they fall due. The stress tests assess potential contractual and contingent stress outflows under a range of scenarios, which are then used to determine the size of the liquidity pool that is immediately available to meet anticipated outflows, if a stress occurred.
The Group maintains a Contingency Funding Plan which details how liquidity stress events of varying severity would be managed. Since the precise nature of any stress event cannot be known in advance, the plans are designed to be flexible to the nature and severity of the stress event and provide a menu of options that could be used as appropriate at the time. Barclays also maintains Recovery Plans which consider actions to generate additional liquidity in order to facilitate recovery in a severe stress.
Ongoing business management
Risk Appetite and Planning
Under the Key Risk Control Framework, Barclays has established a Liquidity Risk Appetite (LRA), over Group stress tests, being the level of liquidity risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations.
The key expression of the liquidity risk is through stress test. It is measured with reference to the liquidity pool compared to anticipated stressed net contractual and contingent outflows for each of five stress scenarios.
The LRA for internal stress tests is approved by the Board. The LRA is reviewed on a continuous basis and is subject to formal review at least annually as part of the Individual Liquidity Adequacy Assessment Process (ILAAP).
Statement of Liquidity Risk Appetite: The Board has approved that the Group will maintain an amount of available liquidity resources to meet modelled and prescribed regulatory liquidity stress outflows over a period of time (minimum buffer duration):
● 30 days in a Barclays specific stress
● 90 days in a market wide stress
| ||
● 30 days in a combined stress
● LCR 30 days minimum ratio 100% (Pillar 1 basis)
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 399 |
Barclays’ approach to managing risks
Management of funding risk
The stress outflows are used to determine the size of the Group Liquidity Pool, which represents those resources immediately available to meet outflows in a stress. In addition to the liquidity pool, the Key Risk Control Framework provides for other management actions, including generating liquidity from other liquid assets on the Group’s balance sheet in order to meet additional stress outflows, or to preserve or restore the Liquidity Pool in the event of a liquidity stress.
Liquidity Limits
Barclays manages limits on a variety of on and off-balance sheet exposures, a sample of which is shown in the table below. These limits serve to control the overall extent and composition of liquidity risk taken by managing exposure to the cash outflows.
Internal Pricing and Incentives
Barclays actively manages the composition and duration of the balance sheet and of contingent liabilities through the transfer of liquidity premium directly to business units. Liquidity premiums are charged and credited to businesses according to the behavioural life of assets and liabilities and contingent liquidity risk under stress. These transfer pricing mechanisms are designed to ensure that liquidity risk is reflected in product pricing and performance measurement, thereby ensuring that the Liquidity Framework is integrated into business level decision making to drive the appropriate mix of sources and uses of funds.
Early Warning Indicators
Barclays monitors a range of market indicators for early signs of liquidity risk either in the market or specific to Barclays, a sample of which are shown in the table below. These are designed to immediately identify the emergence of increased liquidity risk to maximise the time available to execute appropriate mitigating actions. Early Warning Indicators are used as part of the assessment of whether to invoke the Group’s Contingency Funding Plan, which provides a framework for how the liquidity stress would be managed.
400 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Contingency Funding Plan
Barclays maintains a Contingency Funding Plan (CFP), which is designed to provide a framework where a liquidity stress could be effectively managed. The CFP is proportionate to the nature, scale and complexity of the business and is tested to ensure that it is operationally robust. The CFP details the circumstances in which the plan could be invoked, including as a result of adverse movements in Liquidity Early Warning Indicators. As part of the plan the Barclays Treasurer has established a Liquidity Management Committee (LMC.) On invocation of the CFP by the Executive Committee (ExCo), the LMC would meet to identify the likely impact of the event on the Group and determine the response, which would be proportionate to the nature and severity of the stress.
The CFP provides a communication plan and includes management actions to respond to liquidity stresses of varying severity. This could include monetising the liquidity pool, slowing the extension of credit, increasing the tenor of funding and securitising or selling assets.
Recovery and Resolution Planning (RRP)
In accordance with the requirements of the PRA Rulebook: Recovery and Resolution, Barclays has developed a Group Recovery Plan. The key objectives are to provide the Group with a range of options to ensure the viability of the firm in a stress, set consistent early warning indicators to identify when the Recovery Plan should be invoked and to enable the Group to be adequately prepared to respond to stressed conditions.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 401 |
Barclays’ approach to managing risks
Management of funding risk
Overview
Capital risk
Capital risk is the risk that the Group has insufficient capital resources to:
§ | Meet minimum regulatory requirements in the UK and in other jurisdictions such as the United States and South Africa where regulated activities are undertaken. The Group’s authority to operate as a bank is dependent upon the maintenance of adequate capital resources at each level where prudential capital requirements are applied; |
§ | Support its credit rating. A weaker credit rating would increase the Group’s cost of funds; and |
§ | Support its growth and strategic options. |
Organisation and structure
Capital Management is integral to the Group’s approach to financial stability and sustainability management and is therefore embedded in the way businesses and legal entities operate. Capital demand and supply is actively managed on a centralised basis, at a business level, at a local entity level and on a regional basis taking into account the regulatory, economic and commercial environment in which Barclays operates.
Roles and responsibilities
The Group’s Capital Management strategy is driven by the strategic aims of the Group and the Risk Appetite set by the Board. The Group’s objectives are achieved through well embedded capital management practices:
Capital planning
Capital forecasts are managed on a top-down and bottom-up basis through both short term (one year) and medium term (three to five years) financial planning cycles. Barclays’ capital plans are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group’s risk profile, regulatory and business needs. As a result, the Group holds a diversified capital base that provides strong loss absorbing capacity and optimised returns.
Barclays’ capital plans are continually monitored against relevant internal target capital ratios to ensure they remain appropriate, and that risks to the plan, including possible future regulatory changes, are considered.
Local management ensures compliance with an entity’s minimum regulatory capital requirements by reporting to local Asset and Liability Committees with oversight by the Group’s Treasury Committee, as required.
402 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Regulatory requirements
Capital planning is set in consideration of minimum regulatory requirements in all jurisdictions in which the Group operates. Regulatory capital requirements are determined by the PRA.
Under these regulatory frameworks, capital requirements are set in consideration of the level of risk that the firm is exposed to which is measured through both risk weighted assets (RWAs) and leverage.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 403 |
Barclays’ approach to managing risks
Management of funding risk
Capital held to support the level of risk identified is set in consideration of minimum ratio requirements and internal buffers.
Target ratios
The Group’s capital plan is set in consideration of our risk profile, business and regulatory requirements as determined by the PRA. The Group expects to meet the minimum requirements for leverage and capital ratios including the CET1, AT1, T2 and MREL/TLAC minima, both during the transition period and upon full implementation and also hold an internal buffer sized according to the firm’s assessment of various risks including uncontrollable market factors.
Regulatory reform
Further changes to capital requirements may occur due to continued regulatory focus on the risk weighting of assets, including Basel Committee on Banking Supervision (BCBS) proposals on fundamental review of the trading book, revisions to standardised rules for credit risk, counterparty credit risk, CVA volatility risk and operational risk as well as the application of RWA floor based on standardised approach to limit the use internal models in certain areas.
Additional capital requirements may also arise from other regulatory reforms, including UK, EU and US proposals on bank structural reform and current European Banking Authority (EBA) proposals for ‘Minimum Requirement for own funds and Eligible Liabilities (MREL) under the EU Bank Recovery and Resolution Directive (BRRD). Included within these reforms are the Bank of England proposals on MREL requirements for UK banks which were published in December 2015. We expect these requirements to be finalised and communicated to banks during the course of 2016.
However, many of the proposals are still subject to finalisation and implementation and may have a different effect when in final form, the impact of these proposals is still being assessed. For further information see Funding Risk in Material Risks Review and Regulatory Developments in the section on Supervision and Regulation.
Governance
The Group and legal entity capital plans are underpinned by the Capital Risk Framework, which includes capital management policies and practices approved by the Principal Risk Officer. These plans are implemented consistently in order to deliver on the Group objectives.
The Board approves the Group capital plan, stress tests and recovery plan. The Treasury Committee manages compliance with the Group’s capital management objectives. The Committee reviews actual and forecast capital demand and resources on a bi-monthly basis. The Board Risk Committee annually reviews risk appetite and then analyses the impacts of stress scenarios on the Group capital forecast in order to understand and manage the Group’s projected capital adequacy.
Monitoring and managing capital
Capital is monitored and managed on an ongoing basis through;
Stress testing:Internal group-wide stress testing is undertaken to quantify and understand the impact of sensitivities on the capital plan and capital ratios arising from stressed macroeconomic conditions. Actual recent economic, market and regulatory scenarios are used to inform the assumptions of stress tests and assess the effectiveness of mitigation strategies.
The Group also undertakes stress tests prescribed by the BoE and EBA. Legal entities undertake stress tests prescribed by their local regulators. These stress tests inform decisions on the size and quality of capital buffer required and the results are incorporated into the Group capital plan to ensure adequacy of capital under normal and severe, but plausible stressed conditions.
Risk mitigation: As part of the stress testing process actions are identified that should be taken to mitigate the risks that could arise in the event of material adverse changes in the current economic and business outlook.
As an additional layer of protection, the Barclays Recovery Plan defines the actions and implementation strategies available for the Group to increase or preserve capital resources in the event that stress events are more extreme than anticipated.
404 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to managing risks
Management of funding risk
Senior Management awareness and transparency:Barclays Treasury works closely with Risk, businesses and legal entities to support a proactive approach to identifying sources of capital ratio volatility which are considered in the Group’s capital plan. Capital risks against firm-specific and macroeconomic early warning indicators are monitored and reported to Treasury Committee, associated with clear escalation channels to senior management.
Capital management information is readily available at all times to support the Executive Management’s strategic and day-to-day business decision making, as may be required.
The Group submits its Board approved ICAAP document to the PRA on an annual basis, which forms the basis of the Individual Capital Guidance (ICG) set by the PRA.
Capital allocation: Capital allocations are approved by the Group Executive committee and monitored by the Treasury Committee, taking into consideration the risk appetite, growth and strategic aims of the Group. Regulated legal entities are, at a minimum, allocated adequate capital to meet their current and forecast regulatory and business requirements.
Transferability of capital: The Group’s policy is for surplus capital held in Group entities to be repatriated to BB PLC in the form of dividends and/or capital repatriation, subject to local regulatory requirements, exchange controls and tax implications. This approach provides optimal flexibility on the re-deployment of capital across legal entities. The Group is not aware of any material impediments to the prompt transfer of capital resources, in line with the above policy, or repayment of intra-group liabilities when due.
Foreign exchange risk: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 RWAs. As a result, the Group’s regulatory capital ratios are sensitive to foreign currency movements.
The Group’s capital ratio management 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 CET 1, Tier 1 and Total capital resources to foreign currency RWAs the same as the Group’s consolidated capital ratios.
The Group’s investments in foreign currency subsidiaries and branches, to the extent that they are not hedged for foreign exchange movements, translate into GBP upon consolidation creating CET1 capital resources sensitive to foreign currency movements. Changes in the GBP value of the investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET1 capital.
To create foreign currency Tier 1 and Total Capital resources additional to the CET1 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 PLC or Barclays Bank PLC in USD and EUR, but can also be achieved by subsidiaries issuing capital in local currencies, such as Barclays Africa Group Limited in South Africa.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 405 |
Management of conduct risk (including reputation risk) | ![]() |
This section provides an analysis of the management of conduct risk (including reputation risk).
§ | Conduct risk is the risk that detriment is caused to our customers, clients, counterparties or the Group and its employees because of inappropriate judgement in the execution of our business activities (see pages 407 and 408) |
§ | Reputation risk is the risk of damage to the Barclays brand arising from association, action or inaction which is perceived by stakeholders to be inappropriate or unethical (see pages 408 and 409) |
Barclays’ approach to managing risks
Management of conduct risk
Conduct risk
The risk that detriment is caused to customers, clients, counterparties or the Group because of inappropriate judgement in the execution of our business activities
Overview
The Group defines, manages and mitigates conduct risk with the goal of providing good customer outcomes and protecting market integrity.
The Group has defined seven Key Risks that are the main sub-risk types to Conduct Risk:
§ | Our products or services do not meet customers’ needs or have the potential to cause customer detriment |
§ | The way we design and undertake transaction services has the potential to cause customer detriment |
§ | The way we design or undertake customer servicing has the potential to cause customer detriment |
§ | Our strategy or business model has the potential to cause customer detriment |
§ | Our governance arrangements or culture has the potential to cause customer detriment |
§ | We fail to obtain and maintain relevant regulatory authorisations, permissions and licence requirements |
§ | Damage to Barclays reputation is caused during the conduct of our business |
Organisation and structure
The Conduct and Reputation Risk Committee (CRRC) derives its authority from the Barclays Group Head of Compliance. The purpose of the CRRC is to review and monitor the effectiveness of Barclays’ management of Conduct and Reputation Risk. In addition, specific committees monitor conduct risk and the control environment at the business level.
Roles and responsibilities
The Conduct Risk Principal Risk Framework (PRF) comprises a number of elements that allow the Group to manage and measure its conduct risk profile.
The PRF is implemented across the Group:
§ | Vertically, through an organisational structure that requires all businesses to implement and operate their own conduct risk framework that meets the requirements detailed within the ERMF |
§ | Horizontally, with Group Key Risk Officers (KROs) required to monitor information relevant to their Key Risk from each element of the Conduct Risk PRF |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 407 |
Barclays’ approach to managing risks
Management of conduct risk
The primary responsibility for managing conduct risk and compliance with control requirements sits with the business where the risk arises. The Conduct Risk Accountable Executive for each business is responsible for ensuring the implementation of, and adherence to the PRF.
The Conduct Principal Risk Officer is responsible for owning and maintaining an appropriate Group-wide Conduct Risk PRF and for overseeing Group-wide Conduct Risk management.
Businesses are required to report their conduct risks on both a quarterly and an event-driven basis. The quarterly reports detail conduct risks inherent within the business strategy and include forward looking horizon scanning analysis as well as backward looking evidence-based indicators from both internal and external sources. For details please refer to the Risk Review, Conduct and Reputation Risk Performance section of this report (page 175).
Business level reports are reviewed within Compliance. Compliance then creates Group level reports for consideration by CRRC and RepCo. The Group periodically assesses its management of conduct risk through independent audits and addresses issues identified.
Event-driven reporting consists of any risks or issues that breach certain thresholds for severity and probability. Any such risks or issues must be promptly escalated to the business and the appropriate KRO.
In 2015 Reputation Risk was re-designated as a Key Risk under the Conduct Risk Principal Risk. The Reputation Key Risk Framework outlines the processes and actions required of the business. These include regular and forward looking reviews of current and emerging reputation risks so that a topical and comprehensive reputation risk profile of the organisation can be maintained.
Reputation risk is the risk of damage to the Group’s brand arising from any association, action or inaction which is perceived by stakeholders (e.g. customers, clients, colleagues, shareholders, regulators, opinion formers) to be inappropriate or unethical. Damage to the Group’s brand and consequent erosion of our reputation reduces the attractiveness of the Group to stakeholders and may lead to negative publicity, loss of revenue, regulatory or legislative action, loss of existing and potential client business, reduced workforce morale and difficulties in recruiting talent. Ultimately it may destroy shareholder value.
Reputation risk may arise in many different ways, for example:
§ | failure to act in good faith and in accordance with the Group’s values and code of conduct; |
§ | failure (real or perceived) to comply with the law or regulation, or association (real or implied) with illegal activity; |
§ | failures in corporate governance, management or technical systems; |
§ | failure to comply with internal standards and policies; |
§ | association with controversial sectors or clients; |
§ | association with controversial transactions, projects, countries or governments; |
§ | association with controversial business decisions, including but not restricted to, decisions relating to: products (in particular new products), delivery channels, promotions/advertising, acquisitions, branch representation, sourcing/supply chain relationships, staff locations, treatment of financial transactions; |
§ | association with poor employment practices. |
In each case, the risk may arise from failure to comply with either stated norms, which are likely to change over time, so an assessment of reputation risk cannot be static. If not managed effectively, stakeholder expectations of responsible corporate behavior will not be met.
408 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays’ approach to managing risks
Management of conduct risk
Reputation Risk may also arise and cause damage to the Group’s image, through association with clients, their transactions or their projects if these are perceived by external stakeholders to be environmentally damaging. Where the Group is financing infrastructure projects which have potentially adverse environmental impacts, the Group’s Client Assessment and Aggregation policy and supporting Environmental and Social Risk Standard will apply. This policy identifies the circumstances in which the Group requires due diligence to include assessment of specialist environmental reports. These reports will include consideration of a wide range of the project’s potential impacts including on air, water and land quality, on biodiversity issues, on locally affected communities, including any material upstream and downstream impacts, and on working conditions together with employee and community health and safety. Adherence to the Environmental and Social Risk Standard is the mechanism by which Barclays fulfils the requirements of the Equator Principles. These Principles are an internationally recognised framework for environmental due diligence in project finance. Barclays was one of the four banks which collaborated in developing the Principles, ahead of their launch in 2003 with 10 adopting banks. There are now more than 80 banks worldwide which have adopted the Equator Principles (see www.equator-principles.com).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 409 |
Additional information
Additional financial disclosure (unaudited)
All disclosures in this section (pages 410 to 432) are unaudited unless otherwise stated.
Deposits and short-term borrowings
Deposits
Deposits include deposits from banks and customers account. The following table displays these balances on an average balance sheet basis.
Average for the year ended |
|
2015 |
|
|
2014 |
|
|
2013 |
| |||
31 Decembera
|
| £m
|
|
| £m
|
|
| £m
|
| |||
Deposits from banks | ||||||||||||
UK | 7,402 | 6,002 | 8,551 | |||||||||
Europe | 40,389 | 41,101 | 52,505 | |||||||||
Americas | 7,439 | 6,191 | 6,131 | |||||||||
Asia | 6,744 | 6,524 | 6,950 | |||||||||
Africa | 3,710 | 3,735 | 4,568 | |||||||||
Total deposits from banks | 65,684 | 63,553 | 78,705 | |||||||||
Customer Accounts | ||||||||||||
UK | 283,482 | 274,468 | 262,685 | |||||||||
Europe | 44,474 | 55,121 | 62,073 | |||||||||
Americas | 70,924 | 65,433 | 58,815 | |||||||||
Asia | 10,279 | 13,444 | 13,825 | |||||||||
Africa | 39,159 | 43,101 | 47,712 | |||||||||
Customer Accounts
|
| 448,318
|
|
| 451,567
|
|
| 445,110
|
|
Deposits from banks in offices in the United Kingdom received from non-residents amounted to £31,976m (2014: £42,172m). The balances below are on a spot basis as at 31 December 2015, rather than the average basis per the tables included above.
Year ended 31 December | 2015 | 2014 | 2013 | |||||||||
£m | £m | £m | ||||||||||
Customer Accounts
|
| 418,242
|
|
| 427,704
|
|
| 431,999
|
| |||
In offices in the United Kingdom: | ||||||||||||
Current and Demand Accounts | ||||||||||||
- interest free | 73,987 | 68,647 | 61,343 | |||||||||
Current and Demand Accounts | ||||||||||||
- interest bearing | 33,467 | 34,047 | 29,451 | |||||||||
Savings accounts | 119,838 | 114,828 | 107,865 | |||||||||
Other time deposits- retail | 13,903 | 12,100 | 15,113 | |||||||||
Other time deposits- wholesale | 70,399 | 72,150 | 60,457 | |||||||||
Total repayable in offices | 311,594 | 301,772 | 274,229 | |||||||||
in the United Kingdom
| ||||||||||||
In offices outside the United Kingdom: | ||||||||||||
Current and Demand Accounts | ||||||||||||
- interest free | 12,777 | 17,236 | 15,497 | |||||||||
Current and Demand Accounts | ||||||||||||
- interest bearing | 26,891 | 23,127 | 28,558 | |||||||||
Savings accounts | 15,729 | 16,335 | 15,620 | |||||||||
Other time deposits | 51,251 | 69,234 | 98,095 | |||||||||
Total repayable in offices
outside the United Kingdom | 106,648 | 125,932 | 157,770 |
Customer accounts deposits in offices in the United Kingdom received from non-residents amounted to £47,129m (2014: £48,654m).
Short-term borrowings
Short-term borrowings include deposits from banks, commercial paper, negotiable certificates of deposit and repurchase agreements.
Deposits from banks
Deposits from banks are taken from a wide range of counterparties and generally have maturities of less than one year.
2015 | 2014 | 2013 | ||||||||||
| £m
|
|
| £m
|
|
| £m
|
| ||||
Year-end balance | 47,080 | 58,390 | 55,615 | |||||||||
Average balancea, b | 65,684 | 63,553 | 78,705 | |||||||||
Maximum balancea | 84,270 | 72,810 | 95,808 | |||||||||
Average interest rate during year | 0.3% | 0.3% | 0.3% | |||||||||
Year-end interest rate
|
| 0.2%
|
|
| 0.4%
|
|
| 0.4%
|
|
Commercial paper
Commercial paper is issued by the Group, mainly in the United States, generally in denominations of not less than $100,000, with maturities of up to 270 days.
2015 | 2014 | 2013 | ||||||||||
| £m
|
|
| £m
|
|
| £m
|
| ||||
Year-end balance | 6,689 | 7,125 | 11,269 | |||||||||
Average balancea | 9,192 | 11,797 | 15,169 | |||||||||
Maximum balancea | 13,407 | 16,891 | 18,320 | |||||||||
Average interest rate during year | 0.3% | 0.3% | 0.2% | |||||||||
Year-end interest rate
|
| 0.3%
|
|
| 0.2%
|
|
| 0.2%
|
|
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 $100,000.
|
2015 |
|
|
2014 |
|
|
2013 |
| ||||
£m | £m | £m | ||||||||||
Year-end balance | 14,312 | 23,928 | 20,729 | |||||||||
Average balancea | 22,298 | 23,947 | 28,644 | |||||||||
Maximum balancea | 29,216 | 29,100 | 36,158 | |||||||||
Average interest rate during year | 1.0% | 0.9% | 1.0% | |||||||||
Year-end interest rate
|
| 1.0%
|
| 0.9% | 0.7% |
Repurchase Agreements
Repurchase agreements are entered into with both customers and banks and generally have maturities of not more than three months.
|
2015 |
|
|
2014 |
|
|
2013 |
| ||||
£m | £m | £m | ||||||||||
Year-end balanced | 25,035 | 124,479 | 196,748 | |||||||||
Average balancea, b, c, d | 114,933 | 191,181 | 246,562 | |||||||||
Maximum balancea, d | 167,343 | 218,523 | 280,203 | |||||||||
Average interest rate during year | 0.3% | 0.2% | 0.3% | |||||||||
Year-end interest rate | 0.3% | 0.2% | 0.1% |
Notes
a | Calculated based on month-end balances. |
b | The average balance differs to the average balance sheet as the latter excludes non-interest bearing settlement balances. |
c | The average balance differs to the average balance sheet as the latter is stated on a gross basis prior to any offsetting of liabilities against assets. |
d | During 2015, reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment to better align to the way the business manages the portfolio’s risk and performance. |
410 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Commitments and contractual obligations
Commercial commitments include guarantees, contingent liabilities and standby facilities.
Commercial commitments
|
| Amount of commitment expiration per period
| ||||||||||||||||
| Less than one year |
|
|
Between one to three years |
|
|
Between three to five years |
|
| After five years |
|
Total amounts committed | ||||||
£m | £m | £m | £m | £m | ||||||||||||||
As at 31 December 2015 | ||||||||||||||||||
Guarantees and letters of credit pledged as collateral security | 15,227 | 499 | 47 | 292 | 16,065 | |||||||||||||
Performance guarantees, acceptances and endorsements | 4,350 | 83 | 114 | 10 | 4,557 | |||||||||||||
Documentary credits and other short-term trade related transactions | 718 | 119 | 8 | 845 | ||||||||||||||
Forward starting reverse repurchase agreements | 93 | 93 | ||||||||||||||||
Standby facilities, credit lines and other commitments | 278,923 | 1,426 | 906 | 114 | 281,369 | |||||||||||||
As at 31 December 2014 | ||||||||||||||||||
Guarantees and letters of credit pledged as collateral security | 14,275 | 205 | 23 | 44 | 14,547 | |||||||||||||
Performance guarantees, acceptances and endorsements | 5,414 | 260 | 61 | 1,042 | 6,777 | |||||||||||||
Documentary credits and other short-term trade related transactions | 976 | 115 | 1,091 | |||||||||||||||
Forward starting reverse repurchase agreements | 13,856 | 13,856 | ||||||||||||||||
Standby facilities, credit lines and other commitments | 269,796 | 4,515 | 1,847 | 157 | 276,315 |
Contractual obligations include debt securities, operating lease and purchase obligations.
Contractual obligations | Payments due by period | |||||||||||||||||
| Less than
one year
|
|
| Between
one to
three years
|
|
| Between
three to
five years
|
|
| After five
years
|
| Total
| ||||||
£m | £m | £m | £m | £m | ||||||||||||||
As at 31 December 2015 | ||||||||||||||||||
Long-term debta | 30,525 | 23,101 | 17,773 | 31,978 | 103,377 | |||||||||||||
Operating lease obligations | 377 | 603 | 535 | 1,874 | 3,389 | |||||||||||||
Purchase obligations | 485 | 434 | 262 | 276 | 1,457 | |||||||||||||
Total | 31,387 | 24,138 | 18,570 | 34,128 | 108,223 | |||||||||||||
As at 31 December 2014 | ||||||||||||||||||
Long-term debta | 46,724 | 20,820 | 15,690 | 32,735 | 115,969 | |||||||||||||
Operating lease obligations | 444 | 687 | 566 | 2,036 | 3,733 | |||||||||||||
Purchase obligations | 511 | 371 | 153 | 208 | 1,243 | |||||||||||||
Total | 47,679 | 21,878 | 16,409 | 34,979 | 120,945 |
Net cash flows from derivatives used to hedge long-term debt amount to £5.5bn (2014: £6.3bn).
Further information on the contractual maturity of the Group’s assets and liabilities is given in the Funding section of the on page 103.
Notes
a | Long-term debt has been prepared to reflect cash flows on an undiscounted basis, which includes interest payments. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 411 |
Additional information
Additional financial disclosure (unaudited)
Securities
Securities at fair value
|
|
2015
|
|
|
2014
|
|
|
2013
|
| |||
As at 31 December
|
| £m
|
|
| £m
|
|
| £m
|
| |||
Investment securities – available for sale
| ||||||||||||
United Kingdom government
|
| 17,947
|
|
| 18,849
|
|
| 20,580
|
| |||
Other government
|
| 49,427
|
|
| 41,700
|
|
| 37,258
|
| |||
Other public bodies and US Agencies
|
| 5,462
|
|
| 6,034
|
|
| 8,890
|
| |||
Mortgage and asset backed securities
|
| 1,082
|
|
| 1,230
|
|
| 1,918
|
| |||
Bank and building society certificates of deposit
|
| –
|
|
| 38
|
|
| 42
|
| |||
Corporate and other issuers
|
| 15,360
|
|
| 17,688
|
|
| 22,610
|
| |||
Debt securities
|
| 89,278
|
|
| 85,539
|
|
| 91,298
|
| |||
Equity securities
|
| 989
|
|
| 527
|
|
| 458
|
| |||
Investment securities – available for sale
|
| 90,267
|
|
| 86,066
|
|
| 91,756
|
| |||
Other securities – held for trading
| ||||||||||||
United Kingdom government
|
| 4,020
|
|
| 7,450
|
|
| 10,361
|
| |||
Other government
|
| 19,503
|
|
| 29,720
|
|
| 40,690
|
| |||
Other public bodies and US Agencies
|
| 8,683
|
|
| 9,879
|
|
| 5,820
|
| |||
Mortgage and asset backed securities
|
| 2,927
|
|
| 7,165
|
|
| 10,962
|
| |||
Bank and building society certificates of deposit
|
| 559
|
|
| 240
|
|
| 182
|
| |||
Corporate and other issuers
|
| 9,884
|
|
| 11,544
|
|
| 16,545
|
| |||
Debt securities
|
| 45,576
|
|
| 65,998
|
|
| 84,560
|
| |||
Equity securities
|
| 29,055
|
|
| 44,576
|
|
| 42,659
|
| |||
Other securities – held for trading
|
| 74,631
|
|
| 110,574
|
|
| 127,219
|
|
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.
Maturities and yield of available for sale debt securities
|
| |||||||||||||||||||||||||||||||||||||||
As at 31 December 2015 |
| Maturing with one year |
|
| Maturing one but within five years |
|
| Maturing after five but within ten years |
|
| Maturing after ten years |
| Total | |||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||||||||
| £m
|
|
| %
|
|
| £m
|
|
| %
|
|
| £m
|
|
| %
|
|
| £m
|
|
| %
|
|
| £m
|
|
| %
|
| |||||||||||
Government
|
| 8,811
|
|
| 1.5%
|
|
| 29,419
|
|
| 1.4%
|
|
| 17,583
|
|
| 1.5%
|
|
| 11,561
|
|
| 2.6%
|
|
| 67,374
|
|
| 1.6%
|
| ||||||||||
Other public bodies and US Agencies
|
| 242
|
|
| 0.5%
|
|
| 3,368
|
|
| 1.3%
|
|
| 1,691
|
|
| 2.2%
|
|
| 161
|
|
| 1.5%
|
|
| 5,462
|
|
| 1.5%
|
| ||||||||||
Other issuers
|
| 2,322
|
|
| 1.9%
|
|
| 11,130
|
|
| 1.7%
|
|
| 2,130
|
|
| 2.1%
|
|
| 860
|
|
| 1.6%
|
|
| 16,442
|
|
| 1.8%
|
| ||||||||||
Total book value
|
| 11,375
|
|
| 1.5%
|
|
| 43,917
|
|
| 1.5%
|
|
| 21,404
|
|
| 1.6%
|
|
| 12,582
|
|
| 2.5%
|
|
| 89,278
|
|
| 1.6%
|
|
The yield for each range of maturities is calculated by dividing the annualised interest income prevailing at 31 December 2015 by the fair value of securities held at that date.
412 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Average balance sheet
Average balances are based upon monthly averages.
Assets | 2015 | |||||||||||||||||||||||
| Average
balance
|
|
| Interest
presented
within net
interest
income
|
|
| Interest
presented
elsewhere
|
|
| Total interest
|
|
| Rate
|
| ||||||||||
£m | £m | £m | £m | % | ||||||||||||||||||||
Loans and advances to banks | UK | 51,597 | 513 | 1 | 514 | 1.0 | ||||||||||||||||||
Loans and advances to banks | Non-UK | 48,521 | 186 | 5 | 191 | 0.4 | ||||||||||||||||||
Loans and advances to banksa | Total | 100,118 | 699 | 6 | 705 | 0.7 | ||||||||||||||||||
Loans and advances to customers | UK | 283,191 | 8,699 | 84 | 8,783 | 3.1 | ||||||||||||||||||
Loans and advances to customers | Non-UK | 120,252 | 6,033 | 212 | 6,245 | 5.2 | ||||||||||||||||||
Loans and advances to customersa | Total | 403,443 | 14,732 | 296 | 15,028 | 3.7 | ||||||||||||||||||
Available for sale investments | UK | 84,291 | 1,039 | - | 1,039 | 1.2 | ||||||||||||||||||
Available for sale investments | Non-UK | 9,436 | 348 | - | 348 | 3.7 | ||||||||||||||||||
Available for sale investments | Total | 93,727 | 1,387 | - | 1,387 | 1.5 | ||||||||||||||||||
Reverse repurchase agreements | UK | 86,322 | 18 | 187 | 205 | 0.2 | ||||||||||||||||||
Reverse repurchase agreements | Non-UK | 96,187 | 45 | 193 | 238 | 0.2 | ||||||||||||||||||
Reverse repurchase agreementsb | Total | 182,509 | 63 | 380 | 443 | 0.2 | ||||||||||||||||||
Other interest incomec | - | 320 | - | 320 | - | |||||||||||||||||||
Total interest earning assets not at fair value through P&L | 779,797 | 17,201 | 682 | 17,883 | 2.3 | |||||||||||||||||||
Less interest expense | - | (4,643 | ) | (625) | (5,268) | - | ||||||||||||||||||
Net interest | 779,797 | 12,558 | 57 | 12,615 | 1.6 | |||||||||||||||||||
Interest earning assets at fair value through P&L | UK | 48,360 | ||||||||||||||||||||||
Interest earning assets at fair value through P&L | Non-UK | 81,031 | ||||||||||||||||||||||
Interest earning assets at fair value through P&L | Total | 129,391 | ||||||||||||||||||||||
Total interest earning assets | 909,188 | |||||||||||||||||||||||
Impairments | (5,273 | ) | ||||||||||||||||||||||
Non-interest earning assets | 526,448 | |||||||||||||||||||||||
Total | 1,430,363 | |||||||||||||||||||||||
Percentage of total average interest earning assets in offices outside the UK | 39% |
Notes
a | Loans and advances to banks and customers include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group. |
b | Average balances for reverse repurchase agreements and cash collateral on securities borrowed have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. During 2015, reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment to better align to the way the business manages the portfolio’s risk and performance. |
c | Other interest income principally includes interest income relating to hedging activity. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 413 |
Additional information
Additional financial disclosure (unaudited)
Assets | 2014 | |||||||||||||||||||||
| Average
balance
|
|
| Interest
presented
within net
interest
income
|
|
| Interest
presented
elsewhere
|
|
| Total interest
|
|
| Rate
|
| ||||||||
£m | £m | £m | £m | % | ||||||||||||||||||
Loans and advances to banks | UK | 48,162 | 377 | - | 377 | 0.8 | ||||||||||||||||
Loans and advances to banks | Non-UK | 47,375 | 262 | - | 262 | 0.6 | ||||||||||||||||
Loans and advances to banksa | Total | 95,537 | 639 | - | 639 | 0.7 | ||||||||||||||||
Loans and advances to customers | UK | 272,463 | 8,779 | 74 | 8,853 | 3.2 | ||||||||||||||||
Loans and advances to customers | Non-UK | 137,122 | 5,898 | 184 | 6,082 | 4.4 | ||||||||||||||||
Loans and advances to customersa | Total | 409,585 | 14,677 | 258 | 14,935 | 3.6 | ||||||||||||||||
Available for sale investments | UK | 74,868 | 1,323 | - | 1,323 | 1.8 | ||||||||||||||||
Available for sale investments | Non-UK | 11,130 | 292 | - | 292 | 2.6 | ||||||||||||||||
Available for sale investments | Total | 85,998 | 1,615 | - | 1,615 | 1.9 | ||||||||||||||||
Reverse repurchase agreements | UK | 155,170 | 31 | 589 | 620 | 0.4 | ||||||||||||||||
Reverse repurchase agreements | Non-UK | 127,670 | 55 | 287 | 342 | 0.3 | ||||||||||||||||
Reverse repurchase agreementsb | Total | 282,840 | 86 | 876 | 962 | 0.3 | ||||||||||||||||
Other interest incomec | - | 346 | - | 346 | - | |||||||||||||||||
Total interest earning assets not at fair value through P&L | 873,960 | 17,363 | 1,134 | 18,497 | 2.1 | |||||||||||||||||
Less interest expense | - | (5,283 | ) | (980 | ) | (6,263 | ) | - | ||||||||||||||
Net interest | 873,960 | 12,080 | 154 | 12,234 | 1.4 | |||||||||||||||||
Interest earning assets at fair value through P&L | UK | 57,070 | ||||||||||||||||||||
Interest earning assets at fair value through P&L | Non-UK | 56,477 | ||||||||||||||||||||
Interest earning assets at fair value through P&L | Total | 113,547 | ||||||||||||||||||||
Total interest earning assets | 987,507 | |||||||||||||||||||||
Impairments | (6,770 | ) | ||||||||||||||||||||
Non-interest earning assets | 515,020 | |||||||||||||||||||||
Total | 1,495,757 | |||||||||||||||||||||
Percentage of total average interest earning assets in offices outside the UK | 38% |
Notes
a | Loans and advances to banks and customers include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group. |
b | Average balances for reverse repurchase agreements and cash collateral on securities borrowed have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. |
c | Other interest income principally includes interest income relating to hedging activity. |
414 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Assets | 2013 | |||||||||||||||||||||
| Average
balance
|
|
| Interest
presented
within net
interest
income
|
|
| Interest
presented
elsewhere
|
|
| Total interest
|
|
| Rate
|
| ||||||||
£m | £m | £m | £m | % | ||||||||||||||||||
Loans and advances to banks | UK | 51,185 | 383 | 35 | 418 | 0.8 | ||||||||||||||||
Loans and advances to banks | Non-UK | 61,204 | 304 | 1 | 305 | 0.5 | ||||||||||||||||
Loans and advances to banksa | Total | 112,389 | 687 | 36 | 723 | 0.6 | ||||||||||||||||
Loans and advances to customers | UK | 271,111 | 9,098 | 148 | 9,246 | 3.4 | ||||||||||||||||
Loans and advances to customers | Non-UK | 142,494 | 6,515 | 254 | 6,769 | 4.8 | ||||||||||||||||
Loans and advances to customersa | Total | 413,605 | 15,613 | 402 | 16,015 | 3.9 | ||||||||||||||||
Available for sale investments | UK | 73,212 | 1,346 | - | 1,346 | 1.8 | ||||||||||||||||
Available for sale investments | Non-UK | 14,802 | 458 | - | 458 | 3.1 | ||||||||||||||||
Available for sale investments | Total | 88,014 | 1,804 | - | 1,804 | 2.0 | ||||||||||||||||
Reverse repurchase agreements | UK | 193,303 | 8 | 715 | 723 | 0.4 | ||||||||||||||||
Reverse repurchase agreements | Non-UK | 132,488 | 33 | 342 | 375 | 0.3 | ||||||||||||||||
Reverse repurchase agreementsb | Total | 325,791 | 41 | 1,057 | 1,098 | 0.3 | ||||||||||||||||
Other interest incomec | - | 170 | - | 170 | - | |||||||||||||||||
Total interest earning assets not at fair value through P&L | 939,799 | 18,315 | 1,495 | 19,810 | 2.1 | |||||||||||||||||
Less interest expense | - | (6,715 | ) | (1,194 | ) | (7,909 | ) | - | ||||||||||||||
Net interest | 939,799 | 11,600 | 301 | 11,901 | 1.3 | |||||||||||||||||
Interest earning assets at fair value through P&L | UK | 65,534 | ||||||||||||||||||||
Interest earning assets at fair value through P&L | Non-UK | 75,763 | ||||||||||||||||||||
Interest earning assets at fair value through P&L | Total | 141,297 | ||||||||||||||||||||
Total interest earning assets | 1,081,096 | |||||||||||||||||||||
Impairments | (8,009 | ) | ||||||||||||||||||||
Non-interest earning assets | 575,219 | |||||||||||||||||||||
Total | 1,648,306 | |||||||||||||||||||||
Percentage of total average interest earning assets in offices outside the UK | 39% |
Notes
a | Loans and advances to banks and customers include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group. |
b | Average balances for reverse repurchase agreements and cash collateral on securities borrowed have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. |
c | Other interest income principally includes interest income relating to hedging activity. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 415 |
Additional information
Additional financial disclosure (unaudited)
Liabilities | 2015 | |||||||||||||||||||||||
| Average balance |
| | Interest presented within net interest income | | | Interest presented elsewhere | | Total interest | Rate | ||||||||||||||
£m | £m | £m | £m | % | ||||||||||||||||||||
Deposits by banks | UK | 46,577 | 69 | 5 | 74 | 0.2 | ||||||||||||||||||
Deposits by banks | Non-UK | 12,716 | 108 | - | 108 | 0.8 | ||||||||||||||||||
Deposits by banks | Total | 59,293 | 177 | 5 | 182 | 0.3 | ||||||||||||||||||
Customer accounts | UK | 237,723 | 402 | 28 | 430 | 0.2 | ||||||||||||||||||
Customer accounts | Non-UK | 84,304 | 528 | 92 | 620 | 0.7 | ||||||||||||||||||
Customer accounts | Total | 322,027 | 930 | 120 | 1,050 | 0.3 | ||||||||||||||||||
Debt securities in issue | UK | 45,625 | 1,130 | 58 | 1,188 | 2.6 | ||||||||||||||||||
Debt securities in issue | Non-UK | 35,507 | 592 | 44 | 636 | 1.8 | ||||||||||||||||||
Debt securities in issue | Total | 81,132 | 1,722 | 102 | 1,824 | 2.2 | ||||||||||||||||||
Subordinated liabilities | UK | 20,015 | 1,564 | - | 1,564 | 7.8 | ||||||||||||||||||
Subordinated liabilities | Non-UK | 818 | 80 | - | 80 | 9.8 | ||||||||||||||||||
Subordinated liabilities | Total | 20,833 | 1,644 | - | 1,644 | 7.9 | ||||||||||||||||||
Repurchase agreements | UK | 94,660 | - | 232 | 232 | 0.2 | ||||||||||||||||||
Repurchase agreements | Non-UK | 93,438 | 52 | 231 | 283 | 0.3 | ||||||||||||||||||
Repurchase agreementsa | Total | 188,098 | 52 | 463 | 515 | 0.3 | ||||||||||||||||||
Other interest expenseb | - | 118 | (65 | ) | 53 | - | ||||||||||||||||||
Total interest bearing liabilities not at fair value through P&L | 671,383 | 4,643 | 625 | 5,268 | 0.8 | |||||||||||||||||||
Interest bearing liabilities at fair value through P&L | UK | 51,164 | ||||||||||||||||||||||
Interest bearing liabilities at fair value through P&L | Non-UK | 63,779 | ||||||||||||||||||||||
Interest bearing liabilities at fair value through P&L | Total | 114,943 | ||||||||||||||||||||||
Total interest bearing liabilities | 786,326 | |||||||||||||||||||||||
Interest free customer deposits | UK | 71,763 | ||||||||||||||||||||||
Interest free customer deposits | Non-UK | 14,182 | ||||||||||||||||||||||
Interest free customer deposits | Total | 85,945 | ||||||||||||||||||||||
Other non-interest bearing liabilities | 490,992 | |||||||||||||||||||||||
Shareholders’ equity | 67,100 | |||||||||||||||||||||||
Total | 1,430,363 | |||||||||||||||||||||||
Percentage of total average interest bearing liabilities in offices outside the UK | 37% |
Notes
a | Average balances for repurchase agreements and cash collateral on securities lent have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. During 2015, reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment to better align to the way the business manages the portfolio’s risk and performance. |
b | Other interest expense principally includes interest expense relating to hedging activity. |
416 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Liabilities | 2014 | |||||||||||||||||||||
| Average balance |
| | Interest presented within net interest income | | | Interest presented elsewhere | | Total interest | Rate | ||||||||||||
£m | £m | £m | £m | % | ||||||||||||||||||
Deposits by banks | UK | 41,931 | 89 | - | 89 | 0.2 | ||||||||||||||||
Deposits by banks | Non-UK | 15,388 | 110 | 2 | 112 | 0.7 | ||||||||||||||||
Deposits by banks | Total | 57,319 | 199 | 2 | 201 | 0.4 | ||||||||||||||||
Customer accounts | UK | 231,792 | 744 | 6 | 750 | 0.3 | ||||||||||||||||
Customer accounts | Non-UK | 92,337 | 729 | 230 | 959 | 1.0 | ||||||||||||||||
Customer accounts | Total | 324,129 | 1,473 | 236 | 1,709 | 0.5 | ||||||||||||||||
Debt securities in issue | UK | 51,218 | 1,315 | 82 | 1,397 | 2.7 | ||||||||||||||||
Debt securities in issue | Non-UK | 38,515 | 607 | 54 | 661 | 1.7 | ||||||||||||||||
Debt securities in issue | Total | 89,733 | 1,922 | 136 | 2,058 | 2.3 | ||||||||||||||||
Subordinated liabilities | UK | 19,575 | 1,541 | - | 1,541 | 7.9 | ||||||||||||||||
Subordinated liabilities | Non-UK | 1,151 | 81 | - | 81 | 7.0 | ||||||||||||||||
Subordinated liabilities | Total | 20,726 | 1,622 | - | 1,622 | 7.8 | ||||||||||||||||
Repurchase agreements | UK | 166,224 | 64 | 376 | 440 | 0.3 | ||||||||||||||||
Repurchase agreements | Non-UK | 126,347 | 9 | 230 | 239 | 0.2 | ||||||||||||||||
Repurchase agreementsa | Total | 292,571 | 73 | 606 | 679 | 0.2 | ||||||||||||||||
Other interest expenseb | - | (6 | ) | - | (6 | ) | - | |||||||||||||||
Total interest bearing liabilities not at fair value through P&L | 784,478 | 5,283 | 980 | 6,263 | 0.8 | |||||||||||||||||
Interest bearing liabilities at fair value through P&L | UK | 37,722 | ||||||||||||||||||||
Interest bearing liabilities at fair value through P&L | Non-UK | 28,755 | ||||||||||||||||||||
Interest bearing liabilities at fair value through P&L | Total | 66,477 | ||||||||||||||||||||
Total interest bearing liabilities | 850,955 | |||||||||||||||||||||
Interest free customer deposits | UK | 65,294 | ||||||||||||||||||||
Interest free customer deposits | Non-UK | 15,033 | ||||||||||||||||||||
Interest free customer deposits | Total | 80,327 | ||||||||||||||||||||
Other non-interest bearing liabilities | 498,675 | |||||||||||||||||||||
Shareholders’ equity | 65,800 | |||||||||||||||||||||
Total | 1,495,757 | |||||||||||||||||||||
Percentage of total average interest bearing liabilities in offices outside the UK | 36% |
Notes
a | Average balances for repurchase agreements and cash collateral on securities lent have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. |
b | Other interest expense principally includes interest expense relating to hedging activity. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 417 |
Additional information
Additional financial disclosure (unaudited)
Liabilities | 2013 | |||||||||||||||||||||
| Average balance |
|
| Interest presented within net interest income |
| | Interest presented elsewhere | | Total interest | Rate | ||||||||||||
£m | £m | £m | £m | % | ||||||||||||||||||
Deposits by banks | UK | 52,518 | 78 | 52 | 130 | 0.2 | ||||||||||||||||
Deposits by banks | Non-UK | 17,308 | 123 | 1 | 124 | 0.7 | ||||||||||||||||
Deposits by banks | Total | 69,826 | 201 | 53 | 254 | 0.4 | ||||||||||||||||
Customer accounts | UK | 228,046 | 1,285 | 74 | 1,359 | 0.6 | ||||||||||||||||
Customer accounts | Non-UK | 94,640 | 1,371 | 198 | 1,569 | 1.7 | ||||||||||||||||
Customer accounts | Total | 322,686 | 2,656 | 272 | 2,928 | 0.9 | ||||||||||||||||
Debt securities in issue | UK | 62,019 | 1,523 | 39 | 1,562 | 2.5 | ||||||||||||||||
Debt securities in issue | Non-UK | 42,114 | 653 | 47 | 700 | 1.7 | ||||||||||||||||
Debt securities in issue | Total | 104,133 | 2,176 | 86 | 2,262 | 2.2 | ||||||||||||||||
Subordinated liabilities | UK | 21,764 | 1,462 | - | 1,462 | 6.7 | ||||||||||||||||
Subordinated liabilities | Non-UK | 1,406 | 110 | - | 110 | 7.8 | ||||||||||||||||
Subordinated liabilities | Total | 23,170 | 1,572 | - | 1,572 | 6.8 | ||||||||||||||||
Repurchase agreements | UK | 205,170 | 59 | 428 | 487 | 0.2 | ||||||||||||||||
Repurchase agreements | Non-UK | 149,651 | 68 | 355 | 423 | 0.3 | ||||||||||||||||
Repurchase agreementsa | Total | 354,821 | 127 | 783 | 910 | 0.3 | ||||||||||||||||
Other interest expenseb | - | (17 | ) | - | (17 | ) | - | |||||||||||||||
Total interest bearing liabilities not at fair value through P&L | 874,636 | 6,715 | 1,194 | 7,909 | 0.9 | |||||||||||||||||
Interest bearing liabilities at fair value through P&L | UK | 51,498 | ||||||||||||||||||||
Interest bearing liabilities at fair value through P&L | Non-UK | 30,333 | ||||||||||||||||||||
Interest bearing liabilities at fair value through P&L | Total | 81,831 | ||||||||||||||||||||
Total interest bearing liabilities | 956,467 | |||||||||||||||||||||
Interest free customer deposits | UK | 58,438 | ||||||||||||||||||||
Interest free customer deposits | Non-UK | 13,784 | ||||||||||||||||||||
Interest free customer deposits | Total | 72,222 | ||||||||||||||||||||
Other non-interest bearing liabilities | 558,116 | |||||||||||||||||||||
Shareholders’ equity | 61,501 | |||||||||||||||||||||
Total | 1,648,306 | |||||||||||||||||||||
Percentage of total average interest bearing liabilities in offices outside the UK | 35% |
Notes
a | Average balances for repurchase agreements and cash collateral on securities lent have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. |
b | Other interest expense principally includes interest expense relating to hedging activity. |
418 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Changes in total interest – volume and rate analysis
The following tables allocate changes in interest between changes in volume and changes in interest rates for the last two years. Volume and rate variances have been calculated on the movement in the average balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities. Where variances have arisen from changes in both volumes and interest rates, these have been allocated proportionately between the two.
Interest income |
| 2015/2014 Change due to increase/(decrease) in: |
|
| 2014/2013 Change due to increase/(decrease) in: | |||||||||||||||||||||
| Total change | | Volume | Rate | Total change | Volume | Rate | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||
Loans and advances to banks | UK | 137 | 28 | 109 | (41) | (24) | (17) | |||||||||||||||||||
Loans and advances to banks | Non-UK | (71) | 6 | (77) | (43) | (74) | 31 | |||||||||||||||||||
Loans and advances to banks | Total | 66 | 34 | 32 | (84) | (98) | 14 | |||||||||||||||||||
Loans and advances to customers | UK | (70) | 342 | (412) | (393) | 46 | (439) | |||||||||||||||||||
Loans and advances to customers | Non-UK | 163 | (802) | 965 | (687) | (249) | (438) | |||||||||||||||||||
Loans and advances to customers | Total | 93 | (460) | 553 | (1,080) | (203) | (877) | |||||||||||||||||||
Available for sale investments | UK | (284) | 152 | (436) | (23) | 30 | (53) | |||||||||||||||||||
Available for sale investments | Non-UK | 56 | (49) | 105 | (166) | (103) | (63) | |||||||||||||||||||
Available for sale investments | Total | (228) | 103 | (331) | (189) | (73) | (116) | |||||||||||||||||||
Reverse repurchase agreements | UK | (415) | (216) | (199) | (103) | (150) | 47 | |||||||||||||||||||
Reverse repurchase agreements | Non-UK | (104) | (79) | (25) | (33) | (14) | (19) | |||||||||||||||||||
Reverse repurchase agreements | Total | (519) | (295) | (224) | (136) | (164) | 28 | |||||||||||||||||||
Other interest income | (26) | - | (26) | 176 | - | 176 | ||||||||||||||||||||
Total interest receivable | (614) | (618) | 4 | (1,313) | (538) | (775) | ||||||||||||||||||||
Interest expense |
| 2015/2014 Change due to increase/(decrease) in: |
|
| 2014/2013 Change due to increase/(decrease) in: | |||||||||||||||||||||
| Total change | | Volume | Rate | Total change | Volume | Rate | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||
Deposits by banks | UK | | (15) | | 9 | (24) | (41) | (24) | (17) | |||||||||||||||||
Deposits by banks | Non-UK | (4) | (21) | 17 | (12) | (14) | 2 | |||||||||||||||||||
Deposits by banks | Total | (19) | (12) | (7) | (53) | (38) | (15) | |||||||||||||||||||
Customer accounts | UK | (320) | 19 | (339) | (609) | 22 | (631) | |||||||||||||||||||
Customer accounts | Non-UK | (339) | (78) | (261) | (610) | (37) | (573) | |||||||||||||||||||
Customer accounts | Total | (659) | (59) | (600) | (1,219) | (15) | (1,204) | |||||||||||||||||||
Debt securities in issue | UK | (209) | (148) | (61) | (165) | (288) | 123 | |||||||||||||||||||
Debt securities in issue | Non-UK | (25) | (53) | 28 | (39) | (61) | 22 | |||||||||||||||||||
Debt securities in issue | Total | (234) | (201) | (33) | (204) | (349) | 145 | |||||||||||||||||||
Subordinated liabilities | UK | 23 | 35 | (12) | 79 | (156) | 235 | |||||||||||||||||||
Subordinated liabilities | Non-UK | (1) | (27) | 26 | (29) | (19) | (10) | |||||||||||||||||||
Subordinated liabilities | Total | 22 | 8 | 14 | 50 | (175) | 225 | |||||||||||||||||||
Repurchase agreements | UK | (208) | (177) | (31) | (47) | (99) | 52 | |||||||||||||||||||
Repurchase agreements | Non-UK | 44 | (73) | 117 | (184) | (59) | (125) | |||||||||||||||||||
Repurchase agreements | Total | (164) | (250) | 86 | (231) | (158) | (73) | |||||||||||||||||||
Other interest expense | 59 | - | 59 | 11 | - | 11 | ||||||||||||||||||||
Total interest payable | (995) | (514) | (481) | (1,646) | (735) | (911) |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 419 |
Additional information
Additional financial disclosure (unaudited)
Credit risk additional disclosure
This section of the report contains supplementary information that is more detailed or contains longer histories than the data presented in the credit risk management section.
A. Impairment
Movements in allowance for impairment by geography | ||||||||||||||||||
|
2015
£m |
|
|
2014
£m |
|
|
2013
£m |
|
|
2012
£m |
|
2011
£m | ||||||
Allowance for impairment as at 1 January | 5,455 | 7,258 | 7,799 | 10,597 | 12,432 | |||||||||||||
Effects of the adoption of IFRS 10 | - | - | - | (1,701) | - | |||||||||||||
Acquisitions and disposals | - | 13 | (5) | (80) | (18) | |||||||||||||
Unwind of discount | (149) | (153) | (179) | (211) | (243) | |||||||||||||
Exchange and other adjustments | (617) | (1,047) | (260) | (206) | (440) | |||||||||||||
Amounts written off: | ||||||||||||||||||
United Kingdom | (1,354) | (1,313) | (1,548) | (1,972) | (2,401) | |||||||||||||
Europe | (200) | (742) | (957) | (1,119) | (932) | |||||||||||||
Americas | (411) | (535) | (276) | (311) | (954) | |||||||||||||
Africa and Middle East | (300) | (423) | (534) | (655) | (695) | |||||||||||||
Asia | (12) | (24) | (28) | (62) | (183) | |||||||||||||
Recoveries: | ||||||||||||||||||
United Kingdom | 281 | 147 | 119 | 127 | 159 | |||||||||||||
Europe | 15 | 27 | 18 | 31 | 43 | |||||||||||||
Americas | 52 | - | - | - | - | |||||||||||||
Africa and Middle East | 52 | 46 | 63 | 51 | 56 | |||||||||||||
Asia | - | 1 | 1 | 3 | 7 | |||||||||||||
New and increased impairment allowance: | ||||||||||||||||||
United Kingdom | 1,559 | 1,596 | 1,687 | 1,728 | 2,442 | |||||||||||||
Europe | 399 | 757 | 1,131 | 1,566 | 1,299 | |||||||||||||
Americas | 649 | 378 | 514 | 250 | 438 | |||||||||||||
Africa and Middle East | 438 | 449 | 566 | 853 | 727 | |||||||||||||
Asia | 11 | 50 | 31 | 50 | 56 | |||||||||||||
Reversals of impairment allowance: | ||||||||||||||||||
United Kingdom | (320) | (381) | (302) | (356) | (353) | |||||||||||||
Europe | (141) | (337) | (323) | (463) | (135) | |||||||||||||
Americas | (59) | (38) | (4) | (23) | (280) | |||||||||||||
Africa and Middle East | (22) | (45) | (45) | (70) | (113) | |||||||||||||
Asia | (5) | (8) | (9) | (16) | (50) | |||||||||||||
Recoveries: | ||||||||||||||||||
United Kingdom | (281) | (147) | (119) | (127) | (159) | |||||||||||||
Europe | (15) | (27) | (18) | (31) | (43) | |||||||||||||
Americas | (52) | - | - | - | - | |||||||||||||
Africa and Middle East | (52) | (46) | (63) | (51) | (56) | |||||||||||||
Asia | - | (1) | (1) | (3) | (7) | |||||||||||||
Allowance for impairment as at 31 December | 4,921 | 5,455 | 7,258 | 7,799 | 10,597 | |||||||||||||
Average loans and advances for the year | 503,561 | 505,122 | 525,995 | 564,128 | 548,944 |
420 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Analysis of impairment charges | ||||||||||||||||||
As at 31 December |
|
2015
£m |
|
|
2014
£m |
|
|
2013
£m |
|
|
2012
£m |
|
2011
£m | |||||
Impairment charges: | ||||||||||||||||||
United Kingdom | 958 | 1,068 | 1,266 | 1,245 | 1,930 | |||||||||||||
Europe | 243 | 393 | 790 | 1,072 | 1,121 | |||||||||||||
Americas | 538 | 340 | 510 | 227 | 158 | |||||||||||||
Africa and Middle East | 364 | 358 | 458 | 732 | 558 | |||||||||||||
Asia | 6 | 41 | 21 | 31 | (1) | |||||||||||||
Impairment on loans and advances | 2,109 | 2,200 | 3,045 | 3,307 | 3,766 | |||||||||||||
Impairment on available for sale assets | 17 | (31) | 1 | 40 | 1,860 | |||||||||||||
Impairment on reverse repurchase agreements | - | (5) | 8 | (3) | (48) | |||||||||||||
Impairment charges | 2,126 | 2,164 | 3,054 | 3,344 | 5,578 | |||||||||||||
Other credit provisions charge | (12) | 4 | 17 | (4) | 24 | |||||||||||||
Impairment charges | 2,114 | 2,168 | 3,071 | 3,340 | 5,602 |
The industry classifications in the tables below have been prepared at the level of the borrowing entity. This means that a loan to a subsidiary of a major corporation is classified by the industry in which the subsidiary operates, even though the Parent’s predominant business may be in a different industry.
Total impairment charges on loans and advances by industry | ||||||||||||||||||
As at 31 December |
|
2015
£m |
|
|
2014
£m |
|
|
2013
£m |
|
|
2012
£m |
|
2011
£m | |||||
United Kingdom: | ||||||||||||||||||
Financial institutions | (4) | (9) | 2 | 30 | 83 | |||||||||||||
Manufacturing | (8) | 1 | �� | 44 | 12 | 41 | ||||||||||||
Construction | 10 | 8 | 23 | 25 | 22 | |||||||||||||
Property | 11 | 10 | 25 | 82 | 59 | |||||||||||||
Energy and water | 42 | - | - | 1 | 5 | |||||||||||||
Wholesale and retail distribution and leisure | 38 | 54 | 52 | 109 | 297 | |||||||||||||
Business and other services | 108 | 73 | 86 | 138 | 138 | |||||||||||||
Home loans | 27 | 28 | 38 | 18 | 66 | |||||||||||||
Cards, unsecured and other personal lending | 735 | 893 | 980 | 799 | 1,200 | |||||||||||||
Other | (1) | 10 | 16 | 31 | 19 | |||||||||||||
Total United Kingdom | 958 | 1,068 | 1,266 | 1,245 | 1,930 | |||||||||||||
Overseas | 1,151 | 1,132 | 1,779 | 2,062 | 1,836 | |||||||||||||
Total Impairment charges | 2,109 | 2,200 | 3,045 | 3,307 | 3,766 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 421 |
Additional information
Additional financial disclosure (unaudited)
Allowance for impairment by industry | ||||||||||||||||||||||||||||||||||||||
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 | |||||||||||||||||||||||||
As at 31 December |
|
£m |
| % | £m | % | £m | % | £m | % | £m | % | ||||||||||||||||||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||
Financial institutions | 10 | 0.2 | 9 | 0.2 | 23 | 0.3 | 411 | 5.3 | 456 | 4.3 | ||||||||||||||||||||||||||||
Manufacturing | 30 | 0.6 | 32 | 0.6 | 84 | 1.2 | 37 | 0.5 | 97 | 0.9 | ||||||||||||||||||||||||||||
Construction | 32 | 0.7 | 33 | 0.6 | 45 | 0.6 | 31 | 0.4 | 53 | 0.5 | ||||||||||||||||||||||||||||
Property | 122 | 2.5 | 140 | 2.6 | 73 | 1.0 | 118 | 1.5 | 121 | 1.1 | ||||||||||||||||||||||||||||
Government and central bank | - | - | - | - | 18 | 0.2 | - | - | - | - | ||||||||||||||||||||||||||||
Energy and water | 90 | 1.8 | - | - | 1 | - | - | - | - | - | ||||||||||||||||||||||||||||
Wholesale and retail distribution and leisure | 124 | 2.5 | 137 | 2.5 | 124 | 1.7 | 243 | 3.1 | 378 | 3.6 | ||||||||||||||||||||||||||||
Business and other services | 238 | 4.8 | 205 | 3.8 | 202 | 2.8 | 217 | 2.8 | 258 | 2.4 | ||||||||||||||||||||||||||||
Home loans | 157 | 3.2 | 123 | 2.3 | 111 | 1.5 | 129 | 1.7 | 134 | 1.3 | ||||||||||||||||||||||||||||
Cards, unsecured and other personal lending | 1,652 | 33.6 | 1,912 | 35.1 | 2,228 | 30.7 | 2,043 | 26.2 | 2,469 | 23.3 | ||||||||||||||||||||||||||||
Other | 37 | 0.8 | 60 | 1.1 | 71 | 1.0 | 41 | 0.5 | 39 | 0.4 | ||||||||||||||||||||||||||||
Total United Kingdom | 2,492 | 50.6 | 2,652 | 48.6 | 2,980 | 41.1 | 3,270 | 41.9 | 4,005 | 37.8 | ||||||||||||||||||||||||||||
Overseas | 2,429 | 49.4 | 2,803 | 51.4 | 4,278 | 58.9 | 4,529 | 58.1 | 6,592 | 62.2 | ||||||||||||||||||||||||||||
Total | 4,921 | 100.0 | 5,455 | 100.0 | 7,258 | 100.0 | 7,799 | 100.0 | 10,597 | 100.0 | ||||||||||||||||||||||||||||
Amounts written off and recovered by industry | ||||||||||||||||||||||||||||||||||||||
|
Amounts written off |
|
|
Recoveries of amounts previously written off | ||||||||||||||||||||||||||||||||||
As at 31 December |
|
2015
£m |
|
|
2014
£m |
|
| 2013
£m |
|
| 2012
£m |
|
| 2011
£m |
|
| 2015
£m |
|
| 2014
£m |
|
| 2013
£m |
|
| 2012
£m |
| 2011
£m | ||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||
Financial institutions | 3 | 1 | 13 | 55 | 67 | 8 | 11 | 1 | 4 | - | ||||||||||||||||||||||||||||
Manufacturing | 6 | 13 | 55 | 76 | 28 | 2 | 6 | 4 | 2 | 4 | ||||||||||||||||||||||||||||
Construction | 13 | 21 | 26 | 52 | 45 | 3 | 3 | 2 | 4 | 2 | ||||||||||||||||||||||||||||
Property | 24 | 19 | 34 | 95 | 71 | 13 | 17 | 1 | 7 | 3 | ||||||||||||||||||||||||||||
Energy and water | - | - | 1 | 1 | 3 | 2 | - | - | - | - | ||||||||||||||||||||||||||||
Wholesale and retail distribution and leisure | 94 | 48 | 78 | 246 | 229 | 17 | 13 | 4 | 13 | 39 | ||||||||||||||||||||||||||||
Business and other services | 65 | 59 | 138 | 200 | 127 | 15 | 10 | 19 | 22 | 6 | ||||||||||||||||||||||||||||
Home loans | 22 | 15 | 39 | 36 | 45 | 3 | 2 | 2 | 2 | 3 | ||||||||||||||||||||||||||||
Cards, unsecured and other personal lending | 1,113 | 994 | 1,127 | 1,184 | 1,739 | 214 | 81 | 82 | 73 | 102 | ||||||||||||||||||||||||||||
Other | 14 | 144 | 37 | 27 | 47 | 4 | 4 | 4 | - | - | ||||||||||||||||||||||||||||
Total United Kingdom | 1,354 | 1,314 | 1,548 | 1,972 | 2,401 | 281 | 147 | 119 | 127 | 159 | ||||||||||||||||||||||||||||
Overseas | 923 | 1,723 | 1,795 | 2,147 | 2,764 | 119 | 74 | 82 | 85 | 106 | ||||||||||||||||||||||||||||
Total | 2,277 | 3,037 | 3,343 | 4,119 | 5,165 | 400 | 221 | 201 | 212 | 265 |
Impairment ratios | ||||||||||||||||||
|
2015
% |
|
|
2014
% |
|
| 2013
% |
|
| 2012
% |
| 2011
% | ||||||
Impairment charges as a percentage of average loans and advances | 0.42 | 0.44 | 0.58 | 0.59 | 0.69 | |||||||||||||
Amounts written off (net of recoveries) as a percentage of average loans and advances | 0.37 | 0.56 | 0.60 | 0.69 | 0.89 | |||||||||||||
Allowance for impairment balance as a percentage of loans and advances as at 31 December | 1.10 | 1.15 | 1.54 | 1.65 | 2.16 |
422 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
B. Potential credit risk loans
Credit risk loans summary | ||||||||||||||||||
|
2015 |
|
|
2014 |
| 2013 | 2012 | 2011 | ||||||||||
As at 31 December |
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
£m | |||||
Impaired loansa | 5,635 | 6,854 | 10,510 | 11,747 | 17,326 | |||||||||||||
Accruing loans which are contractually overdue 90 days or more as to principal or interest | 1,744 | 1,912 | 1,903 | 2,490 | 3,179 | |||||||||||||
Impaired and restructured loans
| 438 | 723 | 885 | 788 | 837 | |||||||||||||
Credit risk loans
| 7,817 | 9,489 | 13,298 | 15,025 | 21,342 | |||||||||||||
| ||||||||||||||||||
Credit risk loans |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||
As at 31 December
|
|
£m |
|
|
£m |
| £m | £m | £m | |||||||||
Impaired loans: | ||||||||||||||||||
United Kingdoma | 2,747 | 3,090 | 3,986 | 4,717 | 5,801 | |||||||||||||
Europe | 1,198 | 2,011 | 4,137 | 4,433 | 5,261 | |||||||||||||
Americas | 499 | 317 | 683 | 357 | 3,759 | |||||||||||||
Africa and Middle East | 1,106 | 1,353 | 1,626 | 2,167 | 2,408 | |||||||||||||
Asia
| 85 | 83 | 78 | 73 | 97 | |||||||||||||
Total
| 5,635 | 6,854 | 10,510 | 11,747 | 17,326 | |||||||||||||
Accruing loans which are contractually overdue 90 days or more as to principal or interest: | ||||||||||||||||||
United Kingdoma | 848 | 971 | 953 | 1,227 | 1,216 | |||||||||||||
Europe | 300 | 354 | 503 | 476 | 650 | |||||||||||||
Americas | 185 | 149 | 81 | 96 | 110 | |||||||||||||
Africa and Middle East | 411 | 437 | 364 | 688 | 1,195 | |||||||||||||
Asia
| - | 1 | 2 | 3 | 8 | |||||||||||||
Total
| 1,744 | 1,912 | 1,903 | 2,490 | 3,179 | |||||||||||||
Impaired and restructured loans: | ||||||||||||||||||
United Kingdom | 286 | 559 | 734 | 615 | 643 | |||||||||||||
Europe | 33 | 31 | 13 | 27 | 60 | |||||||||||||
Americas | 117 | 90 | 81 | 116 | 124 | |||||||||||||
Africa and Middle East | 2 | 42 | 56 | 25 | 7 | |||||||||||||
Asia | - | 1 | 1 | 5 | 3 | |||||||||||||
Total | 438 | 723 | 885 | 788 | 837 | |||||||||||||
Total credit risk loans: | ||||||||||||||||||
United Kingdoma | 3,881 | 4,620 | 5,673 | 6,559 | 7,660 | |||||||||||||
Europe | 1,531 | 2,396 | 4,653 | 4,936 | 5,971 | |||||||||||||
Americas | 801 | 556 | 845 | 569 | 3,993 | |||||||||||||
Africa and Middle East | 1,519 | 1,832 | 2,046 | 2,880 | 3,610 | |||||||||||||
Asia | 85 | 85 | 81 | 81 | 108 | |||||||||||||
Credit risk loans | 7,817 | 9,489 | 13,298 | 15,025 | 21,342 |
a | 2014 impaired loans, accruing loans which are contractually overdue 90 days or more as to principal or interest and total credit risk loans within the United Kingdom have been revised by £55m, £96m and £151m respectively to align methodology for determining arrears categories with other Home Finance risk disclosures. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 423 |
Additional information
Additional financial disclosure (unaudited)
Potential problem loans |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
2011 | |||||
As at 31 December
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
£m
| |||||
United Kingdoma | 983 | 942 | 1,112 | 1,035 | 1,110 | |||||||||||||
Europe | 158 | 208 | 285 | 430 | 530 | |||||||||||||
Americas | 487 | 146 | 99 | 80 | 106 | |||||||||||||
Africa and Middle East | 408 | 306 | 310 | 314 | 217 | |||||||||||||
Asia
|
| 14
|
|
| 10
|
|
| 2
|
|
| 1
|
| 9
| |||||
Potential problem loans
|
|
2,050
|
|
|
1,612
|
|
|
1,808
|
|
|
1,860
|
|
1,972
|
|
2015 |
|
|
2014 |
|
2013 | ||||
Interest foregone on credit risk loans
|
|
£m
|
|
|
£m
|
|
£m
| |||
Interest income that would have been recognised under the original contractual terms | ||||||||||
United Kingdom | 139 | 195 | 194 | |||||||
Rest of the World
|
| 151
|
|
| 173
|
| 217
| |||
Total
|
|
290
|
|
|
368
|
|
411
|
Total impairment allowance coverage of credit risk loans |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
| |||||
As at 31 December
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
| |||||
United Kingdomb | 64.2 | 57.4 | 52.5 | 49.9 | 52.3 | |||||||||||||||
Europe | 53.3 | 50.9 | 53.4 | 52.8 | 48.9 | |||||||||||||||
Americas | 90.5 | 89.7 | 77.4 | 83.0 | 53.3 | |||||||||||||||
Africa and Middle East | 55.3 | 54.7 | 52.7 | 48.0 | 40.1 | |||||||||||||||
Asia
|
| 57.9
|
|
| 96.5
|
|
| 72.8
|
|
| 86.4
|
|
| 90.7
|
| |||||
Total coverage of credit risk lending
|
|
63.0
|
|
|
57.5
|
|
|
54.6
|
|
|
51.9
|
|
|
49.7
|
| |||||
| ||||||||||||||||||||
Total impairment allowance coverage of potential credit risk loans |
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
| |||||
As at 31 December
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
| |||||
United Kingdomb | 51.2 | 48.7 | 43.9 | 43.1 | 45.7 | |||||||||||||||
Europe | 48.3 | 46.9 | 50.3 | 48.6 | 44.9 | |||||||||||||||
Americas | 56.3 | 71.1 | 69.3 | 72.7 | 51.9 | |||||||||||||||
Africa and Middle East | 43.6 | 46.9 | 45.8 | 43.2 | 37.8 | |||||||||||||||
Asia
|
| 49.5
|
|
| 86.3
|
|
| 71.1
|
|
| 85.4
|
|
| 83.8
|
| |||||
Total coverage of potential credit risk lending
|
|
49.9
|
|
|
49.7
|
|
|
48.0
|
|
|
46.2
|
|
|
45.5
|
|
a | 2014 potential problem loans within the United Kingdom have been revised by £121m to align methodology for determining arrears categories with other Home Finance risk disclosures. |
b | 2014 impairment allowance coverage of credit risk loans and of potential credit risk loans within the United Kingdom have been revised to align methodology for determining arrears categories with other Home Finance risk disclosures. |
424 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
C. Maturity Analysis of Loans and Advances
Maturity analysis of loans and advances to customers
|
| |||||||||||||||||||||||||||||||||||
As at 31 December 2015 | 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
year but
no more
than
three
years
£m | Over
three
years but
not more
than five
years
£m | Over five
years but
not more
than ten
years
£m | Over ten
years
£m | Total
£m | |||||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||||||||||||||
Corporate lending | 14,634 | 14,957 | 2,791 | 3,301 | 12,692 | 13,922 | 4,585 | 11,307 | 78,189 | |||||||||||||||||||||||||||
Other lending to customers in the United Kingdom | 3,811 | 4,157 | 2,454 | 5,248 | 18,925 | 15,911 | 33,604 | 79,279 | 163,389 | |||||||||||||||||||||||||||
Total United Kingdom | 18,445 | 19,114 | 5,245 | 8,549 | 31,617 | 29,833 | 38,189 | 90,586 | 241,578 | |||||||||||||||||||||||||||
Europe | 4,459 | 19,236 | 4,639 | 1,957 | 4,865 | 4,400 | 3,351 | 5,281 | 48,188 | |||||||||||||||||||||||||||
Americas | 3,090 | 30,144 | 2,788 | 5,336 | 10,987 | 8,450 | 4,926 | 4,807 | 70,528 | |||||||||||||||||||||||||||
Africa and Middle East | 4,034 | 3,021 | 1,503 | 2,435 | 7,057 | 5,855 | 4,485 | 5,910 | 34,300 | |||||||||||||||||||||||||||
Asia | 509 | 5,169 | 578 | 1,410 | 1,092 | 544 | 175 | 67 | 9,544 | |||||||||||||||||||||||||||
Total loans and advances to customers | 30,537 | 76,684 | 14,753 | 19,687 | 55,618 | 49,082 | 51,126 | 106,651 | 404,138 | |||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||||||||||||||
Corporate lending | 15,773 | 19,881 | 1,898 | 3,339 | 12,569 | 12,253 | 4,774 | 11,144 | 81,631 | |||||||||||||||||||||||||||
Other lending to customers in the United Kingdom | 3,974 | 3,595 | 2,309 | 4,574 | 17,686 | 16,350 | 32,634 | 81,441 | 162,563 | |||||||||||||||||||||||||||
Total United Kingdom | 19,747 | 23,476 | 4,207 | 7,913 | 30,255 | 28,603 | 37,408 | 92,585 | 244,194 | |||||||||||||||||||||||||||
Europe | 5,049 | 24,717 | 1,404 | 1,692 | 5,901 | 5,408 | 5,116 | 11,950 | 61,237 | |||||||||||||||||||||||||||
Americas | 2,624 | 42,198 | 1,487 | 3,800 | 9,219 | 8,665 | 4,382 | 4,685 | 77,060 | |||||||||||||||||||||||||||
Africa and Middle East | 4,847 | 2,875 | 2,126 | 2,220 | 8,769 | 5,552 | 6,417 | 7,438 | 40,244 | |||||||||||||||||||||||||||
Asia | 491 | 6,103 | 513 | 692 | 1,609 | 814 | 170 | 95 | 10,487 | |||||||||||||||||||||||||||
Total loans and advances to customers | 32,758 | 99,369 | 9,737 | 16,317 | 55,753 | 49,042 | 53,493 | 116,753 | 433,222 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 425 |
Additional information
Additional financial disclosure (unaudited)
Maturity analysis of loans and advances to banks
|
| |||||||||||||||||||||||||||||||||||
As at 31 December 2015 | 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
year but
no more
than
three
years
£m | Over
three
years but
not more
than five
years
£m | Over five
years but
not more
than ten
years
£m | Over ten
years
£m | Total
£m | |||||||||||||||||||||||||||
United Kingdom | 441 | 9,520 | 560 | - | 199 | 13 | - | - | 10,733 | |||||||||||||||||||||||||||
Europe | 1,109 | 7,885 | 832 | 26 | 66 | - | - | - | 9,918 | |||||||||||||||||||||||||||
Americas | 1,193 | 10,980 | 244 | 327 | 308 | 26 | - | - | 13,078 | |||||||||||||||||||||||||||
Africa and Middle East | 1,173 | 880 | 102 | 306 | 404 | 1 | - | 34 | 2,900 | |||||||||||||||||||||||||||
Asia | 1,438 | 2,274 | 216 | 175 | 602 | 3 | 12 | - | 4,720 | |||||||||||||||||||||||||||
Total loans and advances to banks | 5,354 | 31,539 | 1,954 | 834 | 1,579 | 43 | 12 | 34 | 41,349 | |||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||
United Kingdom | 623 | 6,159 | 327 | 325 | 38 | - | - | - | 7,472 | |||||||||||||||||||||||||||
Europe | 2,032 | 10,375 | 68 | 4 | 314 | - | - | - | 12,793 | |||||||||||||||||||||||||||
Americas | 1,172 | 10,914 | 893 | 186 | 18 | 20 | 24 | - | 13,227 | |||||||||||||||||||||||||||
Africa and Middle East | 939 | 1,086 | 502 | 478 | 245 | - | - | - | 3,250 | |||||||||||||||||||||||||||
Asia | 1,109 | 2,604 | 1,446 | 176 | 22 | - | 12 | - | 5,369 | |||||||||||||||||||||||||||
Total loans and advances to banks | 5,875 | 31,138 | 3,236 | 1,169 | 637 | 20 | 36 | - | 42,111 |
426 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
D. Industrial and Geographical Concentrations of Loans and Advances
Loans and advances to customers by industry |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||||
As at 31 December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 80,785 | 103,503 | 103,703 | 93,745 | 93,380 | |||||||||||||||
Manufacturing | 12,444 | 11,849 | 10,632 | 11,907 | 13,264 | |||||||||||||||
Construction | 3,798 | 3,767 | 4,245 | 4,625 | 4,931 | |||||||||||||||
Property | 20,019 | 19,544 | 20,844 | 22,575 | 25,087 | |||||||||||||||
Government and central bank | 5,942 | 7,127 | 4,999 | 4,809 | 6,135 | |||||||||||||||
Energy and water | 7,874 | 8,557 | 7,547 | 7,638 | 7,425 | |||||||||||||||
Wholesale and retail distribution and leisure | 14,034 | 13,635 | 13,288 | 15,070 | 16,818 | |||||||||||||||
Business and other services | 26,092 | 22,803 | 20,663 | 24,722 | 27,214 | |||||||||||||||
Home loans | 156,384 | 167,520 | 180,295 | 172,875 | 172,106 | |||||||||||||||
Cards, unsecured loans and other personal lending | 63,217 | 58,914 | 55,806 | 58,863 | 53,783 | |||||||||||||||
Other | 13,549 | 16,003 | 19,463 | 21,530 | 23,688 | |||||||||||||||
Loans and advances to customers | 404,138 | 433,222 | 441,485 | 438,359 | 443,831 | |||||||||||||||
Loans and advances to customers in the UK |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||||
As at 31 December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 18,530 | 23,728 | 22,101 | 22,290 | 20,257 | |||||||||||||||
Manufacturing | 5,735 | 6,274 | 5,411 | 6,078 | 6,282 | |||||||||||||||
Construction | 3,164 | 2,957 | 3,195 | 3,108 | 3,444 | |||||||||||||||
Property | 15,556 | 15,053 | 15,096 | 15,283 | 16,351 | |||||||||||||||
Government and central bank | 512 | 276 | 819 | 198 | 123 | |||||||||||||||
Energy and water | 1,922 | 2,096 | 1,715 | 2,286 | 1,598 | |||||||||||||||
Wholesale and retail distribution and leisure | 10,382 | 9,997 | 9,734 | 9,810 | 10,686 | |||||||||||||||
Business and other services | 16,314 | 13,944 | 13,052 | 15,971 | 16,731 | |||||||||||||||
Home loans | 132,324 | 132,864 | 129,703 | 119,781 | 112,394 | |||||||||||||||
Cards, unsecured loans and other personal lending | 30,452 | 28,061 | 30,396 | 31,772 | 29,881 | |||||||||||||||
Other | 6,687 | 8,944 | 8,444 | 9,476 | 8,404 | |||||||||||||||
Loans and advances to customers in the UK | 241,578 | 244,194 | 239,666 | 236,053 | 226,151 | |||||||||||||||
Loans and advances to customers in Europe |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||||
As at 31 December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 16,918 | 22,126 | 17,791 | 20,245 | 20,255 | |||||||||||||||
Manufacturing | 2,352 | 1,641 | 2,051 | 2,827 | 3,545 | |||||||||||||||
Construction | 68 | 193 | 625 | 663 | 943 | |||||||||||||||
Property | 796 | 1,175 | 2,652 | 3,242 | 4,023 | |||||||||||||||
Government and central bank | 3,415 | 3,759 | 1,583 | 2,458 | 2,167 | |||||||||||||||
Energy and water | 1,280 | 2,612 | 3,119 | 2,376 | 2,453 | |||||||||||||||
Wholesale and retail distribution and leisure | 711 | 1,105 | 1,524 | 2,588 | 3,134 | |||||||||||||||
Business and other services | 3,355 | 1,878 | 2,882 | 2,985 | 5,498 | |||||||||||||||
Home loans | 12,503 | 19,933 | 35,110 | 36,965 | 38,732 | |||||||||||||||
Cards, unsecured loans and other personal lending | 5,047 | 5,226 | 7,146 | 6,346 | 6,875 | |||||||||||||||
Other | 1,743 | 1,589 | 2,014 | 2,471 | 5,711 | |||||||||||||||
Loans and advances to customers in Europe | 48,188 | 61,237 | 76,497 | 83,166 | 93,336 | |||||||||||||||
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 427 |
Additional information
Additional financial disclosure (unaudited)
Loans and advances to customers in the Americas |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||||
As at 31 December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 39,798 | 49,171 | 49,457 | 43,428 | 46,636 | |||||||||||||||
Manufacturing | 1,562 | 1,458 | 1,308 | 1,229 | 1,400 | |||||||||||||||
Construction | 120 | 119 | 19 | 1 | 33 | |||||||||||||||
Property | 1,720 | 1,542 | 944 | 686 | 882 | |||||||||||||||
Government and central bank | 3 | 320 | 371 | 785 | 620 | |||||||||||||||
Energy and water | 2,914 | 2,487 | 1,496 | 1,761 | 2,170 | |||||||||||||||
Wholesale and retail distribution and leisure | 934 | 490 | 473 | 739 | 661 | |||||||||||||||
Business and other services | 3,363 | 3,262 | 2,227 | 2,368 | 1,605 | |||||||||||||||
Home loans | 624 | 770 | 783 | 480 | 566 | |||||||||||||||
Cards, unsecured loans and other personal lending | 18,140 | 15,666 | 12,936 | 12,047 | 9,691 | |||||||||||||||
Other | 1,350 | 1,775 | 1,301 | 1,235 | 1,319 | |||||||||||||||
Loans and advances to customers in the Americas | 70,528 | 77,060 | 71,315 | 64,759 | 65,583 | |||||||||||||||
| ||||||||||||||||||||
Loans and advances to customers in Africa and Middle East |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||||
As at 31 December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 1,860 | 4,169 | 6,298 | 4,546 | 2,343 | |||||||||||||||
Manufacturing | 2,320 | 1,856 | 1,229 | 1,252 | 1,459 | |||||||||||||||
Construction | 363 | 403 | 379 | 829 | 444 | |||||||||||||||
Property | 1,780 | 1,579 | 2,029 | 3,117 | 3,618 | |||||||||||||||
Government and central bank | 613 | 997 | 1,090 | 1,368 | 2,796 | |||||||||||||||
Energy and water | 1,025 | 645 | 739 | 822 | 819 | |||||||||||||||
Wholesale and retail distribution and leisure | 1,837 | 1,831 | 1,378 | 1,833 | 2,170 | |||||||||||||||
Business and other services | 2,685 | 3,358 | 2,058 | 2,760 | 3,012 | |||||||||||||||
Home loans | 10,689 | 13,591 | 14,347 | 15,376 | 19,912 | |||||||||||||||
Cards, unsecured loans and other personal lending | 8,081 | 8,605 | 4,043 | 7,540 | 6,521 | |||||||||||||||
Other | 3,047 | 3,210 | 7,073 | 7,827 | 7,660 | |||||||||||||||
Loans and advances to customers in Africa and Middle East | 34,300 | 40,244 | 40,663 | 47,270 | 50,754 | |||||||||||||||
| ||||||||||||||||||||
Loans and advances to customers in Asia |
|
2015 |
| 2014 | 2013 | 2012 | 2011 | |||||||||||||
As at 31 December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 3,679 | 4,309 | 8,056 | 3,236 | 3,889 | |||||||||||||||
Manufacturing | 475 | 620 | 633 | 521 | 578 | |||||||||||||||
Construction | 83 | 95 | 27 | 24 | 67 | |||||||||||||||
Property | 167 | 195 | 123 | 247 | 213 | |||||||||||||||
Government and central bank | 1,399 | 1,775 | 1,136 | - | 429 | |||||||||||||||
Energy and water | 733 | 717 | 478 | 393 | 385 | |||||||||||||||
Wholesale and retail distribution and leisure | 170 | 212 | 179 | 100 | 167 | |||||||||||||||
Business and other services | 375 | 361 | 444 | 638 | 368 | |||||||||||||||
Home loans | 244 | 362 | 352 | 273 | 502 | |||||||||||||||
Cards, unsecured loans and other personal lending | 1,497 | 1,356 | 1,285 | 1,158 | 815 | |||||||||||||||
Other | 722 | 485 | 631 | 521 | 594 | |||||||||||||||
Loans and advances to customers in Asia | 9,544 | 10,487 | 13,344 | 7,111 | 8,007 |
428 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Interest rate sensitivity of loans and advances
|
| 2015
|
|
| 2014
|
| ||||||||||||||||||
As at 31 December
|
|
Fixed rate
£m
|
|
|
Variable rate
£m
|
|
|
Total
£m
|
|
|
Fixed rate
£m
|
|
|
Variable rate
£m
|
|
|
Total
£m
|
| ||||||
Banks
|
| 12,348
|
|
| 29,001
|
|
| 41,349
|
|
| 12,949
|
|
| 29,162
|
|
| 42,111
|
| ||||||
Customers
|
| 121,960
|
|
| 282,178
|
|
| 404,138
|
|
| 134,086
|
|
| 299,136
|
|
| 433,222
|
|
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 429 |
Additional information
Additional financial disclosure (unaudited)
Foreign outstandings in currencies other than the local currency of the borrower for countries where this exceeds 0.75% of total Group assets |
| |||||||||||||||||||||
As % of
| Total
| Banks
and other
financial
institutions
| Government
and official
institutions
|
Commercial
industrial
and other
private
sectors
| ||||||||||||||||||
assets
| £m
| £m
| £m
| £m
| ||||||||||||||||||
As at 31 December 2015a | ||||||||||||||||||||||
United States | 6.9 | 76,744 | 11,648 | 18,422 | 46,674 | |||||||||||||||||
Germany | 1.7 | 18,564 | 10,054 | 5,916 | 2,594 | |||||||||||||||||
France | 1.6 | 18,388 | 6,250 | 7,694 | 4,444 | |||||||||||||||||
Netherlands | 0.9 | 10,574 | 1,074 | 3,208 | 6,292 | |||||||||||||||||
Cayman Islands | 1.0 | 10,748 | 78 | 1 | 10,669 | |||||||||||||||||
Switzerland | 0.8 | 9,336 | 1,452 | 6,642 | 1,242 | |||||||||||||||||
| ||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||
United States | 6.2 | 84,606 | 7,196 | 23,409 | 54,001 | |||||||||||||||||
Germany | 1.4 | 19,481 | 8,381 | 8,620 | 2,480 | |||||||||||||||||
France | 2.0 | 26,884 | 12,632 | 5,919 | 8,333 | |||||||||||||||||
Netherlands | 1.1 | 15,080 | 1,437 | 3,279 | 10,364 | |||||||||||||||||
Cayman Islands | 0.9 | 12,480 | 49 | 1 | 12,430 | |||||||||||||||||
| ||||||||||||||||||||||
As at 31 December 2013 | ||||||||||||||||||||||
United States | 6.3 | 82,471 | 7,656 | 15,997 | 58,818 | |||||||||||||||||
Germany | 2.1 | 27,584 | 6,757 | 5,785 | 15,042 | |||||||||||||||||
France | 2.9 | 38,350 | 18,038 | 9,422 | 10,890 | |||||||||||||||||
Netherlands | 1.2 | 15,184 | 3,132 | 4,450 | 7,602 | |||||||||||||||||
Spain | 1.0 | 12,622 | 9,111 | 1,068 | 2,443 |
Off-Balance Sheet and other Credit Exposures
|
|
2015
|
|
|
2014
|
|
|
2013
|
| |||||
As at 31 December
|
| £m
|
|
| £m
|
|
| £m
|
| |||||
Off-balance sheet exposures | ||||||||||||||
Contingent liabilities | 20,621 | 21,324 | 21,184 | |||||||||||
Commitments | 282,307 | 291,262 | 275,571 | |||||||||||
On-balance sheet exposures | ||||||||||||||
Trading portfolio assets | 77,348 | 114,717 | 133,069 | |||||||||||
Financial assets designated at fair value | 76,830 | 38,300 | 38,968 | |||||||||||
Derivative financial instruments | 327,709 | 439,909 | 350,300 | |||||||||||
Available for sale financial investments
|
| 90,267
|
|
| 86,066
|
|
| 91,756
|
| |||||
Notional principal amounts of credit derivatives
|
|
2015
|
|
|
2014
|
|
|
2013
|
| |||||
As at 31 December
|
| £m
|
|
| £m
|
|
| £m
|
| |||||
Credit derivatives held or issued for trading purposesb
|
|
948,646
|
|
|
1,183,963
|
|
|
1,576,184
|
|
Note
a | Figures are net of short securities. |
b | Includes credit derivatives held as economic hedges which are not designated as hedges for accounting purposes. |
430 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional information
Additional financial disclosure (unaudited)
Additional Related Parties disclosures
For US disclosure purposes, the aggregate emoluments of all Directors and Officers of Barclays PLC who held office during the year (2015: 32 persons, 2014: 33 persons, 2013: 37 persons) for the year ended 31st December 2015 amounted to £52.2m (2014: £56.9m, 2013: £70.0m). In addition, the aggregate amount set aside for the year ended 31st December 2015, to provide pension benefits for the Directors and Officers amounted to £0.3m (2014: £0.3m, 2013: £0.6m).
Selected financial statistics | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
| ||||||
Return on average shareholders’ equitya | 1.4 | 0.8 | 1.6 | (0.5 | ) | 5.6 | ||||||||||||||
Return on average total assetsb | 0.1 | - | 0.1 | - | 0.2 | |||||||||||||||
Average shareholders’ equity as a percentage of average total assets | 5.2 | 4.8 | 4.5 | 4.2 | 3.9 | |||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Selected income statement data |
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
| |||||
Continuing operations | ||||||||||||||||||||
Interest income | 17,195 | 17,369 | 18,315 | 19,211 | 20,589 | |||||||||||||||
Interest expense | (3,882 | ) | (5,231 | ) | (6,662 | ) | (7,561 | ) | (8,393 | ) | ||||||||||
Non-interest income | 13,442 | 13,677 | 16,810 | 13,807 | 20,927 | |||||||||||||||
Operating expenses | (20,677 | ) | (20,423 | ) | (21,974 | ) | (21,007 | ) | (20,881 | ) | ||||||||||
Impairment charges | (2,114 | ) | (2,168 | ) | (3,071 | ) | (3,340 | ) | (5,602 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | 47 | 36 | (56 | ) | 110 | 60 | ||||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | (637 | ) | (471 | ) | 6 | 28 | (94 | ) | ||||||||||||
Gain on acquisitions | - | - | 26 | 2 | - | |||||||||||||||
Profit before tax | 2,841 | 2,309 | 2,885 | 650 | 5,865 | |||||||||||||||
Profit attributable to equity holders of the parent | 911 | 528 | 963 | (306 | ) | 3,533 | ||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Selected balance sheet data |
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
|
|
£m |
| |||||
Total shareholders’ equity | 66,019 | 63,794 | 63,220 | 59,923 | 63,933 | |||||||||||||||
Subordinated liabilities | 21,955 | 21,685 | 22,249 | 24,422 | 24,870 | |||||||||||||||
Deposits from banks, customer accounts and debt securities in issue | 534,537 | 572,357 | 574,340 | 587,787 | 592,460 | |||||||||||||||
Loans and advances to banks and customers | 441,046 | 470,424 | 474,059 | 472,809 | 485,277 | |||||||||||||||
Total assets | 1,120,727 | 1,358,693 | 1,344,201 | 1,512,777 | 1,588,555 |
Notes
a | Return on average shareholders’ equity represents profit attributable to the equity holders of the parent as a percentage of average shareholders’ equity. |
b | Return on average total assets represents profit attributable to the equity holders of the parent as a percentage of average total assets. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 431 |
Additional information
Additional financial disclosure (unaudited)
Ratio of earnings to fixed charges – Barclays Plc
| ||||||||||||||||||||||
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
| ||||||||
|
(In £m except for ratios)
|
| ||||||||||||||||||||
Fixed charges | ||||||||||||||||||||||
Interest expense | 4,643 | 5,283 | 6,715 | 7,557 | 8,388 | |||||||||||||||||
Rental expense
|
| 211
|
|
| 261
|
|
| 254
|
|
| 251
|
|
| 268
|
| |||||||
Total Fixed charges
|
| 4,854
|
|
| 5,544
|
|
| 6,969
|
|
| 7,808
|
|
| 8,656
|
| |||||||
Earnings | ||||||||||||||||||||||
Income before taxes and non-controlling interests | 2,073 | 2,256 | 2,868 | 797 | 5,770 | |||||||||||||||||
Less: unremitted pre-tax income of associated companies and joint ventures
|
| (34
| )
|
| (45
| )
|
| 95
|
|
| (113
| )
|
| (47
| )
| |||||||
Total earnings excluding fixed charges | 2,039 | 2,211 | 2,963 | 684 | 5,723 | |||||||||||||||||
Fixed charges
|
| 4,854
|
|
| 5,544
|
|
| 6,969
|
|
| 7,808
|
|
| 8,656
|
| |||||||
Total earnings including fixed charges
|
| 6,893
|
|
| 7,755
|
|
| 9,932
|
|
| 8,492
|
|
| 14,379
|
| |||||||
Ratio of earnings to fixed charges
|
| 1.42
|
|
| 1.40
|
|
| 1.43
|
|
| 1.09
|
|
| 1.66
|
| |||||||
Ratio of earnings to fixed charges and preference shares – Barclays Plc
| ||||||||||||||||||||||
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
| ||||||||
|
(In £m except for ratios)
|
| ||||||||||||||||||||
Fixed charges, preference share dividends and similar appropriations | ||||||||||||||||||||||
Interest expense | 4,643 | 5,283 | 6,715 | 7,557 | 8,388 | |||||||||||||||||
Rental expense
|
| 211
|
|
| 261
|
|
| 254
|
|
| 251
|
|
| 268
|
| |||||||
Fixed charges | 4,854 | 5,544 | 6,969 | 7,808 | 8,656 | |||||||||||||||||
Preference share dividends and similar appropriations
|
| 345
|
|
| 443
|
|
| 412
|
|
| 466
|
|
| 514
|
| |||||||
Total fixed charges
|
| 5,199
|
|
| 5,987
|
|
| 7,381
|
|
| 8,274
|
|
| 9,170
|
| |||||||
Earnings | ||||||||||||||||||||||
Income before taxes and non-controlling interests | 2,073 | 2,256 | 2,868 | 797 | 5,770 | |||||||||||||||||
Less: unremitted pre-tax income of associated companies and joint ventures
|
| (34
| )
|
| (45
| )
|
| 95
|
|
| (113
| )
|
| (47
| )
| |||||||
Total earnings excluding fixed charges | 2,039 | 2,211 | 2,963 | 684 | 5,723 | |||||||||||||||||
Fixed charges
|
| 5,199
|
|
| 5,987
|
|
| 7,381
|
|
| 8,274
|
|
| 9,170
|
| |||||||
Total earnings including fixed charges
|
| 7,238
|
|
| 8,198
|
|
| 10,344
|
|
| 8,958
|
|
| 14,893
|
| |||||||
Ratio of earnings to fixed charges, preference share dividends and similar appropriations
|
| 1.39
|
|
| 1.37
|
|
| 1.40
|
|
| 1.08
|
|
| 1.62
|
|
432 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Independent Registered Public Accounting Firm’s Report
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Barclays Bank PLC
In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flow statements present fairly, in all material respects, the financial position of Barclays Bank PLC (“the Bank”) and its subsidiaries at 31 December 2015 and 31 December 2014, and the results of their operations and their cash flows for each of the three years in the period ended 31 December 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
London, United Kingdom
29 February 2016
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 433 |
Barclays Bank PLC data
[•••] Consolidated income statement
[•••] Consolidated statement of comprehensive income
[•••] Consolidated balance sheet
[•••] Consolidated statement of changes in equity
[•••] Consolidated cash flow statement
[•••] Notes to the accounts
[•••] Additional Financial data
Barclays Bank PLC is a wholly owned subsidiary of Barclays PLC, which is the Group’s ultimate parent company. The business activities of Barclays Bank PLC Group and Barclays PLC Group are fundamentally the same as the only difference is the holding company, Barclays PLC. Reporting differences between Barclays Bank PLC and Barclays PLC are driven by the holding company and resulting differences in funding structures. The significant differences are described below.
Instrument Type |
| Barclays PLC
£m |
|
| Barclays Bank PLC
£m |
| Primary reason for difference | |||
Preference shares
|
| -
|
|
| 5,486
|
| Preference shares and capital notes issued by Barclays Bank PLC are included within share capital in Barclays Bank PLC, and presented as non-controlling interests in the financial statements of Barclays PLC Group.
| |||
Other shareholders’ equity
|
|
-
|
|
|
485
|
| ||||
Non-controlling interests (NCI)
|
|
6,054
|
|
|
1,914
|
| ||||
Treasury shares | (68) | - | Barclays PLC shares held for the purposes of employee share schemes and for trading are recognised as available for sale investments and trading portfolio assets respectively within Barclays Bank PLC. Barclays PLC deducts these treasury shares from shareholders’ equity. | |||||||
Capital Redemption Reserve (CRR) | 394 | 24 | Arising from the redemption or exchange of Barclays PLC or Barclays Bank PLC shares respectively. |
Barclays Bank PLC Contingent Capital Notes (CCNs)
Barclays Bank PLC has in issue two series of contingent capital notes (CCNs). These both pay interest and principal to the holder unless the consolidated CRD IV CET 1 ratio (FSA October 2012 transitional statement) of Barclays PLC falls below 7%, in which case they are cancelled from the consolidated perspective. The coupon payable on the CCNs is higher than a market rate of interest for a similar note without this risk.
434 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC
The accounting for these instruments differs between the consolidated financial statements of Barclays PLC and Barclays Bank PLC as follows:
– | In the case of the 7.625% CCN issuance, the cancellation is effected by an automatic legal transfer of title from the holder to Barclays PLC. In these circumstances, Barclays Bank PLC remains liable to Barclays PLC. Barclays Bank PLC does not benefit from the cancellation feature although it pays a higher than market rate for a similar note, and therefore the initial fair value of the note recognised was higher than par. The difference between fair value and par is amortised to the income statement over time. |
– | In the case of the 7.75% CCN issuance, the cancellation is directly effected in Barclays Bank PLC. For Barclays Bank PLC, the cancellation feature is separately valued from the host liability as an embedded derivative with changes in fair value reported in the income statement. The initial fair value of the host liability recognised was higher than par by the amount of the initial fair value of the derivative and the difference is amortised to the income statement over time. |
Cash flow hedge
Barclays Bank PLC is no longer expected to be exposed to floating rate cash flows on assets which had previously been designated in cash flow hedges. This is as a direct result of anticipated bank ring fencing and the transfer of these assets to an entity which is not expected to be consolidated by Barclays Bank PLC (although is expected to be consolidated by Barclays PLC).
As a result, Barclays Bank PLC has recycled amounts which had been deferred into the cash flow hedge reserve pertaining to these cash flows and has prospectively discontinued its hedge accounting relationships on these cash flows, which has increased its income statement volatility. During Q4 2015 this has resulted in a net pre-tax income of £692m.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 435 |
Barclays Bank PLC data
Consolidated income statement
2015 | 2014 | 2013 | ||||||||||||
For the year ended 31 December
|
| Notes
|
|
| £m
|
|
| £m
|
| £m
| ||||
Continuing operations | ||||||||||||||
Interest income | a | 17,195 | 17,369 | 18,315 | ||||||||||
Interest expense
|
| a
|
|
| (3,882)
|
|
| (5,231)
|
| (6,662)
| ||||
Net interest income
|
| 13,313
|
|
| 12,138
|
| 11,653
| |||||||
Fee and commission income | b | 9,679 | 9,850 | 10,500 | ||||||||||
Fee and commission expense
|
| b
|
|
| (1,763)
|
|
| (1,662)
|
| (1,748)
| ||||
Net fee and commission income
|
| 7,916
|
|
| 8,188
|
| 8,752
| |||||||
Net trading income | c | 3,627 | 3,310 | 6,548 | ||||||||||
Net investment income | d | 1,138 | 1,328 | 680 | ||||||||||
Net premiums from insurance contracts | 709 | 669 | 732 | |||||||||||
Other income
|
| 52
|
|
| 182
|
| 98
| |||||||
Total income
|
| 26,755
|
|
| 25,815
|
| 28,463
| |||||||
Net claims and benefits incurred on insurance contracts
|
| (533)
|
|
| (480)
|
| (509)
| |||||||
Total income net of insurance claims | 26,222 | 25,335 | 27,954 | |||||||||||
Credit impairment charges and other credit provisions
|
| 7
|
|
| (2,114)
|
|
| (2,168)
|
| (3,071)
| ||||
Net operating income
|
| 24,108
|
|
| 23,167
|
| 24,883
| |||||||
Staff costs | 8 | (9,960) | (11,005) | (12,155) | ||||||||||
Infrastructure costs | e | (3,180) | (3,443) | (3,531) | ||||||||||
Administration and general expenses | e | (3,528) | (3,615) | (4,288) | ||||||||||
Provisions for UK customer redress | 27 | (2,772) | (1,110) | (2,000) | ||||||||||
Provision for ongoing investigations and litigation including Foreign Exchange
|
| 27
|
|
| (1,237)
|
|
| (1,250)
|
| -
| ||||
Operating expenses
|
| (20,677)
|
|
| (20,423)
|
| (21,974)
| |||||||
Share of post-tax results of associates and joint ventures | 47 | 36 | (56) | |||||||||||
(Loss)/gains on disposal of subsidiaries, associates and joint ventures | 9 | (637) | (471) | 6 | ||||||||||
Gain on acquisitions
|
| -
|
|
| -
|
| 26
| |||||||
Profit before tax | 2,841 | 2,309 | 2,885 | |||||||||||
Tax
|
| f
|
|
| (1,603)
|
|
| (1,455)
|
| (1,577)
| ||||
Profit after tax
|
| 1,238
|
|
| 854
|
| 1,308
| |||||||
Attributable to: | ||||||||||||||
Equity holders of the Parent | 911 | 528 | 963 | |||||||||||
Non-controlling interests
|
| n
|
|
| 327
|
|
| 326
|
| 345
| ||||
Profit after tax
|
| 1,238
|
|
| 854
|
| 1,308
|
The note numbers refer to the notes on pages 218 to 305, whereas the note letters refer to Barclays Bank PLC supplementary notes on pages 442 to 453.
Barclays Bank PLC supplementary notes provided on pages 442 to 453 cover the line items where there is a difference to Barclays PLC.
436 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Consolidated statement of comprehensive income
2015 | 2014 | 2013 | ||||||||
For the year ended 31 December
|
| £m
|
|
| £m
|
| £m
| |||
Profit after tax
|
| 1,238
|
|
| 854
|
| 1,308
| |||
Other comprehensive (loss)/income for continuing operations: | ||||||||||
Currency translation reservea | ||||||||||
- Currency translation differences | (476) | 486 | (1,767) | |||||||
Available for sale reservea | ||||||||||
- Net gains/(losses) from changes in fair value | 44 | 5,346 | (2,730) | |||||||
- Net gains transferred to net profit on disposal | (377) | (619) | (145) | |||||||
- Net losses/(gains) transferred to net profit due to impairment | 17 | (31) | (7) | |||||||
- Net (gains)/losses transferred to net profit due to fair value hedging | (148) | (4,074) | 2,376 | |||||||
- Changes in insurance liabilities | 86 | (94) | 28 | |||||||
- Tax | 132 | (102) | 100 | |||||||
Cash flow hedging reservea | ||||||||||
- Net (losses)/gains from changes in fair value | (1,091) | 2,687 | (1,914) | |||||||
- Net gains transferred to net profit | (276) | (767) | (547) | |||||||
- Tax | 221 | (380) | 571 | |||||||
Other
|
| 19
|
|
| (19)
|
| (37)
| |||
Total comprehensive (loss)/income that may be recycled to profit and loss | (1,849) | 2,433 | (4,072) | |||||||
Other comprehensive income/(loss) not recycled to profit and loss:
| ||||||||||
Retirement benefit remeasurements | 1,174 | 268 | (512) | |||||||
Tax
|
| (260)
|
|
| (63)
|
| (3)
| |||
Other comprehensive (loss)/income for the year
|
| (935)
|
|
| 2,638
|
| (4,587)
| |||
Total comprehensive income/(loss) for the year
|
| 303
|
|
| 3,492
|
| (3,279)
| |||
Attributable to: | ||||||||||
Equity holders of the Parent | 457 | 3,245 | (2,979) | |||||||
Non-controlling interests
|
| (154)
|
|
| 247
|
| (300)
| |||
| 303
|
|
| 3,492
|
| (3,279)
|
Notes
a | For further details refer to Note m |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 437 |
Barclays Bank PLC data
Consolidated balance sheet
2015 | 2014 | 2013 | ||||||||||||
As at 31 December | Notes | £m | £m | £m | ||||||||||
Assets | ||||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | |||||||||||
Items in the course of collection from other banks | 1,011 | 1,210 | 1,282 | |||||||||||
Trading portfolio assets | g | 77,398 | 114,755 | 133,089 | ||||||||||
Financial assets designated at fair value | 14 | 76,830 | 38,300 | 38,968 | ||||||||||
Derivative financial instruments | j | 327,870 | 440,076 | 350,460 | ||||||||||
Available for sale investments | h | 90,304 | 86,105 | 91,788 | ||||||||||
Loans and advances to banks | i | 41,829 | 42,657 | 39,822 | ||||||||||
Loans and advances to customers | i | 399,217 | 427,767 | 434,237 | ||||||||||
Reverse repurchase agreements and other similar secured lending | 22 | 28,187 | 131,753 | 186,779 | ||||||||||
Prepayments, accrued income and other assets | 3,027 | 3,604 | 3,919 | |||||||||||
Investments in associates and joint ventures | 39 | 573 | 711 | 653 | ||||||||||
Property, plant and equipment | 23 | 3,468 | 3,786 | 4,216 | ||||||||||
Goodwill and intangible assets | 24 | 8,222 | 8,180 | 7,685 | ||||||||||
Current tax assets | f | 385 | 334 | 181 | ||||||||||
Deferred tax assets | 10 | 4,495 | 4,130 | 4,807 | ||||||||||
Retirement benefit assets | 35 | 836 | 56 | 133 | ||||||||||
Non-current assets classified as held for disposal | 44 | 7,364 | 15,574 | 495 | ||||||||||
Total assets | 1,120,727 | 1,358,693 | 1,344,201 | |||||||||||
Liabilities | ||||||||||||||
Deposits from banks | 47,080 | 58,390 | 55,615 | |||||||||||
Items in the course of collection due to other banks | 1,013 | 1,177 | 1,359 | |||||||||||
Customer accounts | 418,307 | 427,868 | 432,032 | |||||||||||
Repurchase agreements and other similar secured borrowing | 22 | 25,035 | 124,479 | 196,748 | ||||||||||
Trading portfolio liabilities | 13 | 33,967 | 45,124 | 53,464 | ||||||||||
Financial liabilities designated at fair value | 17 | 91,745 | 56,972 | 64,796 | ||||||||||
Derivative financial instruments | j | 324,252 | 439,320 | 347,118 | ||||||||||
Debt securities in issue | 69,150 | 86,099 | 86,693 | |||||||||||
Subordinated liabilities | k | 21,955 | 21,685 | 22,249 | ||||||||||
Accruals, deferred income and other liabilities | 26 | 10,612 | 11,432 | 13,673 | ||||||||||
Provisions | 27 | 4,142 | 4,135 | 3,886 | ||||||||||
Current tax liabilities | f | 930 | 1,023 | 1,042 | ||||||||||
Deferred tax liabilities | 100 | 255 | 348 | |||||||||||
Retirement benefit liabilities | 35 | 423 | 1,574 | 1,958 | ||||||||||
Liabilities included in disposal groups classified as held for sale | 44 | 5,997 | 13,115 | – | ||||||||||
Total liabilities | 1,054,708 | 1,292,648 | 1,280,981 | |||||||||||
Total equity | ||||||||||||||
Called up share capital and share premium | l | 14,472 | 14,472 | 14,494 | ||||||||||
Other equity instruments | l | 5,350 | 4,350 | 2,078 | ||||||||||
Other reserves | m | 933 | 2,322 | – 233 | ||||||||||
Retained earnings | 43,350 | 42,650 | 44,670 | |||||||||||
Total equity excluding non-controlling interests | 64,105 | 63,794 | 61,009 | |||||||||||
Non-controlling interests | n | 1,914 | 2,251 | 2,211 | ||||||||||
Total equity | 66,019 | 66,045 | 63,220 | |||||||||||
Total liabilities and equity | 1,120,727 | 1,358,693 | 1,344,201 |
The note numbers refer to the notes on pages 218 to 305, whereas the note letters refer to those on pages 442 to 453.
These financial statements have been approved for issue by the Board of Directors on 29 February 2016.
438 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Consolidated statement of changes in equity
| Called up share capital and premiuma |
| | Other equity | |
| Available for sale reserveb |
|
| Cash flow hedging reserveb |
|
| Currency translation reserveb |
|
| Other reserves and other shareholders’ £m |
| | Retained earnings | | | Total equity excluding non- controlling interests £m | |
| Non- controlling interests |
|
| Total equity £m |
| |||||||||||
Balance as at 1 January 2015 | 14,472 | 4,350 | 578 | 1,817 | (582) | 509 | 42,650 | 63,794 | 2,251 | 66,045 | ||||||||||||||||||||||||||||||
Profit after tax | - | 345 | - | - | - | - | 566 | 911 | 327 | 1,238 | ||||||||||||||||||||||||||||||
Currency translation movements | - | - | - | - | (41) | - | - | (41) | (435) | (476) | ||||||||||||||||||||||||||||||
Available for sale investments | - | - | (240) | - | - | - | - | (240) | (6) | (246) | ||||||||||||||||||||||||||||||
Cash flow hedges | - | - | - | (1,108) | - | - | - | (1,108) | (38) | (1,146) | ||||||||||||||||||||||||||||||
Pension remeasurement | - | - | - | - | - | - | 916 | 916 | (2) | 914 | ||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | 19 | 19 | - | 19 | ||||||||||||||||||||||||||||||
Total comprehensive income for the year | - | 345 | (240) | (1,108) | (41) | - | 1,501 | 457 | (154) | 303 | ||||||||||||||||||||||||||||||
Issue and exchange of equity instruments | - | 1,000 | - | - | - | - | - | 1,000 | - | 1,000 | ||||||||||||||||||||||||||||||
Other equity instruments coupons paid | - | (345) | - | - | - | - | 70 | (275) | - | (275) | ||||||||||||||||||||||||||||||
Equity settled share schemes | - | - | - | - | - | - | 571 | 571 | - | 571 | ||||||||||||||||||||||||||||||
Vesting of Barclays PLC shares under share-based payment schemes | - | - | - | - | - | - | (755) | (755) | - | (755) | ||||||||||||||||||||||||||||||
Dividends paid on ordinary shares | - | - | - | - | - | - | (876) | (876) | (209) | (1,085) | ||||||||||||||||||||||||||||||
Dividends paid on preference shares and other shareholders’ equity | - | - | - | - | - | - | (343) | (343) | - | (343) | ||||||||||||||||||||||||||||||
Capital contribution from Barclays PLC | - | - | - | - | - | - | 560 | 560 | - | 560 | ||||||||||||||||||||||||||||||
Other reserve movements | - | - | - | - | - | - | (28) | (28) | 26 | (2) | ||||||||||||||||||||||||||||||
Balance as at 31 December 2015 | 14,472 | 5,350 | 338 | 709 | (623) | 509 | 43,350 | 64,105 | 1,914 | 66,019 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 439 |
Barclays Bank PLC data
Consolidated statement of changes in equity
Balance as at 1 January 2014 | 14,494 | 2,078 | 151 | 273 | (1,142) | 485 | 44,670 | 61,009 | 2,211 | 63,220 | ||||||||||||||||||||||||||||||
Profit after tax | - | 250 | - | - | - | - | 278 | 528 | 326 | 854 | ||||||||||||||||||||||||||||||
Currency translation movements | - | - | - | - | 560 | - | - | 560 | (74) | 486 | ||||||||||||||||||||||||||||||
Available for sale investments | - | - | 427 | - | - | - | - | 427 | (1) | 426 | ||||||||||||||||||||||||||||||
Cash flow hedges | - | - | - | 1,544 | - | - | - | 1,544 | (4) | 1,540 | ||||||||||||||||||||||||||||||
Pension remeasurement | - | - | - | - | - | - | 205 | 205 | - | 205 | ||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | (19) | (19) | - | (19) | ||||||||||||||||||||||||||||||
Total comprehensive income for the year | - | 250 | 427 | 1,544 | 560 | - | 464 | 3,245 | 247 | 3,492 | ||||||||||||||||||||||||||||||
Issue and exchange of equity instruments | (15) | 2,272 | - | - | - | 16 | (1,683) | 590 | - | 590 | ||||||||||||||||||||||||||||||
Redemption of preference Shares | (7) | - | - | - | - | 8 | (792) | (791) | - | (791) | ||||||||||||||||||||||||||||||
Other equity instruments coupons paid | - | (250) | - | - | - | - | 54 | (196) | - | (196) | ||||||||||||||||||||||||||||||
Equity settled share schemes | - | - | - | - | - | - | 693 | 693 | - | 693 | ||||||||||||||||||||||||||||||
Vesting of Barclays PLC shares under share-based payment schemes | - | - | - | - | - | - | (866) | (866) | - | (866) | ||||||||||||||||||||||||||||||
Dividends on ordinary shares | - | - | - | - | - | - | (821) | (821) | (190) | (1,011) | ||||||||||||||||||||||||||||||
Dividends on preference shares and other shareholders’ equity | - | - | - | - | - | - | (441) | (441) | - | (441) | ||||||||||||||||||||||||||||||
Capital contribution from Barclays PLC | - | - | - | - | - | - | 1,412 | 1,412 | - | 1,412 | ||||||||||||||||||||||||||||||
Other reserve movements | - | - | - | - | - | - | (40) | (40) | (17) | (57) | ||||||||||||||||||||||||||||||
Balance as at 31 December 2014 | 14,472 | 4,350 | 578 | 1,817 | (582) | 509 | 42,650 | 63,794 | 2,251 | 66,045 | ||||||||||||||||||||||||||||||
Balance as at 1 January 2013 | 14,494 | - | 526 | 2,099 | 59 | 645 | 39,244 | 57,067 | 2,856 | 59,923 | ||||||||||||||||||||||||||||||
Profit after tax | - | - | - | - | - | - | 963 | 963 | 345 | 1,308 | ||||||||||||||||||||||||||||||
Currency translation movements | - | - | - | - | (1,201) | - | - | (1,201) | (566) | (1,767) | ||||||||||||||||||||||||||||||
Available for sale investments | - | - | (375) | - | - | - | - | (375) | (3) | (378) | ||||||||||||||||||||||||||||||
Cash flow hedges | - | - | - | (1,826) | - | - | - | (1,826) | (64) | (1,890) | ||||||||||||||||||||||||||||||
Pension remeasurement | - | - | - | - | - | - | (503) | (503) | (12) | (515) | ||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | (37) | (37) | - | (37) | ||||||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | - | - | (375) | (1,826) | (1,201) | - | 423 | (2,979) | (300) | (3,279) | ||||||||||||||||||||||||||||||
Issue of other equity instruments | - | 2,078 | - | - | - | - | - | 2,078 | - | 2,078 | ||||||||||||||||||||||||||||||
Equity settled share schemes | - | - | - | - | - | - | 689 | 689 | - | 689 | ||||||||||||||||||||||||||||||
Vesting of Barclays PLC shares under share-based payment schemes | - | - | - | - | - | - | (1,047) | (1,047) | - | (1,047) | ||||||||||||||||||||||||||||||
Dividends on ordinary shares | - | - | - | - | - | - | (734) | (734) | (342) | (1,076) | ||||||||||||||||||||||||||||||
Dividends on preference shares and other shareholders’ equity | - | - | - | - | - | - | (471) | (471) | - | (471) | ||||||||||||||||||||||||||||||
Redemption of capital instruments | - | - | - | - | - | (100) | - | (100) | - | (100) | ||||||||||||||||||||||||||||||
Capital contribution from Barclays PLC | - | - | - | - | - | - | 6,553 | 6,553 | - | 6,553 | ||||||||||||||||||||||||||||||
Other reserve movements | - | - | - | - | - | (60) | 13 | (47) | (3) | (50) | ||||||||||||||||||||||||||||||
Balance as at 31 December 2013 | 14,494 | 2,078 | 151 | 273 | (1,142) | 485 | 44,670 | 61,009 | 2,211 | 63,220 |
Notes
a | For further details refer to Note l |
b | For further details refer to Note m |
440 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Consolidated cash flow statement
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| |||
Continuing operations | ||||||||||||
Reconciliation of profit before tax to net cash flows from operating activities: | ||||||||||||
Profit before tax | 2,841 | 2,309 | 2,885 | |||||||||
Adjustment for non-cash items: | ||||||||||||
Allowance for impairment | 2,105 | 2,168 | 3,071 | |||||||||
Depreciation, amortisation and impairment of property, plant, equipment and intangibles | 1,324 | 1,279 | 1,276 | |||||||||
Other provisions, including pensions | 4,335 | 3,600 | 3,673 | |||||||||
Net profit on disposal of investments and property, plant and equipment | (374) | (620) | (145) | |||||||||
Other non-cash movements | (2,050) | (1,699) | (2,162) | |||||||||
Changes in operating assets and liabilities | ||||||||||||
Net decrease/(increase) in loans and advances to banks and customers | 27,629 | 3,538 | (3,906) | |||||||||
Net decrease/(increase) in reverse repurchase agreements and other similar lending | 103,566 | 55,021 | (10,264) | |||||||||
Net (decrease) in deposits and debt securities in issue | (37,820) | (1,983) | (13,447) | |||||||||
Net (decrease) in repurchase agreements and other similar borrowing | (99,444) | (72,269) | (20,430) | |||||||||
Net (increase)/decrease in derivative financial instruments | (2,862) | 2,586 | 811 | |||||||||
Net decrease in trading assets | 37,330 | 18,350 | 13,423 | |||||||||
Net (decrease)/increase in trading liabilities | (11,157) | (8,340) | 8,670 | |||||||||
Net (increase) in financial investments | (3,757) | (7,156) | (6,114) | |||||||||
Net (increase)/decrease in other assets | (2,343) | (14,694) | 125 | |||||||||
Net (decrease)/increase in other liabilities | (2,236) | 7,409 | (1,190) | |||||||||
Corporate income tax paid | (1,643) | (1,590) | (1,558) | |||||||||
Net cash from operating activities | 15,444 | (12,091) | (25,282) | |||||||||
Purchase of available for sale investments | (120,251) | (108,639) | (92,024) | |||||||||
Proceeds from sale or redemption of available for sale investments | 113,048 | 120,843 | 69,474 | |||||||||
Purchase of property, plant and equipment | (852) | (657) | (737) | |||||||||
Other cash flows associated with investing activities | (379) | (886) | 632 | |||||||||
Net cash from investing activities | (8,434) | 10,661 | (22,655) | |||||||||
Dividends paid | (1,428) | (1,452) | (1,547) | |||||||||
Proceeds of borrowings and issuance of subordinated debt | 1,138 | 826 | 700 | |||||||||
Repayments of borrowings and redemption of subordinated debt | (682) | (1,100) | (1,424) | |||||||||
Net redemption of shares and other equity instruments | 655 | (1,100) | 2,078 | |||||||||
Capital Contribution from Barclays PLC | 560 | 1,412 | 6,553 | |||||||||
Net redemption of shares issued to non-controlling interests | - | - | (100) | |||||||||
Net cash from financing activities | 243 | (1,414) | 6,260 | |||||||||
Effect of exchange rates on cash and cash equivalents | 824 | (431) | 198 | |||||||||
Net decrease in cash and cash equivalents | 8,077 | (3,275) | (41,479) | |||||||||
Cash and cash equivalents at beginning of year | 78,479 | 81,754 | 123,233 | |||||||||
Cash and cash equivalents at end of year | 86,556 | 78,479 | 81,754 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | |||||||||
Loans and advances to banks with original maturity less than three months | 35,876 | 36,282 | 35,259 | |||||||||
Available for sale treasury and other eligible bills with original maturity less than three months | 816 | 2,322 | 644 | |||||||||
Trading portfolio assets with original maturity less than three months | 153 | 180 | 164 | |||||||||
86,556 | 78,479 | 81,754 |
Interest received by The Group was £20,370m (2014: £21,372m) and interest paid by The Group was £6,992m (2014: £8,566m).
The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £4,369m at 31 December 2015 (2014: £4,448m).
For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 441 |
Barclays Bank PLC data
Notes to the accounts
a Net interest income
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Cash and balances with central banks | 158 | 193 | 219 | |||||||||
Available for sale investments | 1,387 | 1,615 | 1,804 | |||||||||
Loans and advances to banks | 535 | 452 | 468 | |||||||||
Loans and advances to customers | 14,732 | 14,677 | 15,613 | |||||||||
Other | 383 | 432 | 211 | |||||||||
Interest income | 17,195 | 17,369 | 18,315 | |||||||||
Deposits from banks | (171 | ) | (204 | ) | (201 | ) | ||||||
Customer accounts | (1,035 | ) | (1,434 | ) | (2,602 | ) | ||||||
Debt securities in issue | (1,593 | ) | (1,915 | ) | (2,177 | ) | ||||||
Subordinated liabilities | (1,605 | ) | (1,611 | ) | (1,572 | ) | ||||||
Other | 522 | (67 | ) | (110 | ) | |||||||
Interest expense | (3,882 | ) | (5,231 | ) | (6,662 | ) | ||||||
Net interest income | 13,313 | 12,138 | 11,653 |
Interest income includes £149m (2014: £153m, 2013: £179m) accrued on impaired loans.
Other interest income principally includes interest income relating to reverse repurchase agreements and hedging activity. Similarly, other interest expense principally includes interest expense relating to repurchase agreements and hedging activity.
Included in net interest income is hedge ineffectiveness as detailed in the Barclays Plc disclosures in Note 15 Derivative Financial Instruments.
b Net fee and commission income
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Banking, investment management and credit related fees and commissions | 9,521 | 9,695 | 10,332 | |||||||||
Foreign exchange commission | 158 | 155 | 168 | |||||||||
Fee and commission income | 9,679 | 9,850 | 10,500 | |||||||||
Fee and commission expense | (1,763 | ) | (1,662 | ) | (1,748 | ) | ||||||
Net fee and commission income | 7,916 | 8,188 | 8,752 | |||||||||
c Net Trading Income
| ||||||||||||
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Trading income | 3,197 | 3,276 | 6,768 | |||||||||
Own credit gains/(losses) | 430 | 34 | (220 | ) | ||||||||
Net trading income | 3,627 | 3,310 | 6,548 |
442 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Notes to the accounts
d Net investment income
| ||||||||||||
| 2015
£m |
|
| 2014
£m |
|
| 2013
£m |
| ||||
Net gain from disposal of available for sale assets | 374 | 620 | 145 | |||||||||
Dividend income | 8 | 9 | 14 | |||||||||
Net gain from financial instruments designated at fair value | 238 | 233 | 203 | |||||||||
Other investment income | 518 | 466 | 318 | |||||||||
Net investment income | 1,138 | 1,328 | 680 | |||||||||
e Administrative and general expenses
| ||||||||||||
| 2015
£m |
|
| 2014
£m |
|
| 2013
£m |
| ||||
Infrastructure costs | ||||||||||||
Property and equipment | 1,353 | 1,570 | 1,610 | |||||||||
Depreciation of property, plant and equipment | 554 | 585 | 647 | |||||||||
Operating lease rentals | 500 | 594 | 645 | |||||||||
Amortisation of intangible assets | 617 | 522 | 480 | |||||||||
Impairment of property, equipment and intangible assets | 153 | 172 | 149 | |||||||||
Gain on property disposals | 3 | - | - | |||||||||
Total infrastructure costs | 3,180 | 3,443 | 3,531 | |||||||||
Administration and general costs | ||||||||||||
Consultancy, legal and professional fees | 1,191 | 1,104 | 1,260 | |||||||||
Subscriptions, publications, stationery and communications | 760 | 842 | 869 | |||||||||
Marketing, advertising and sponsorship | 536 | 558 | 583 | |||||||||
Travel and accommodation | 218 | 213 | 307 | |||||||||
UK bank levy | 476 | 462 | 504 | |||||||||
Goodwill Impairment | 102 | - | 79 | |||||||||
Other administration and general expenses | 245 | 436 | 686 | |||||||||
Total administration and general costsa | 3,528 | 3,615 | 4,288 | |||||||||
Staff costsb | 9,960 | 11,005 | 12,155 | |||||||||
Provision for UK customer redress | 2,772 | 1,110 | 2,000 | |||||||||
Provision for ongoing investigations and litigation including Foreign Exchange | 1,237 | 1,250 | - | |||||||||
Operating expenses | 20,677 | 20,423 | 21,974 |
a | Total administration and general expenses of £20,677m (2014: £20,423m; 2013: £21,974m) include depreciation of property, plant and equipment of £554m (2014: £585m; 2013: £647m), amortisation of intangible assets of £617m (2014: £522m; 2013: £480m), goodwill impairment of £102m (2014 £nil; 2013: £79m) and administration and other expenses of £19,404m (2014 £19,316m; 2013: £20,678m). |
b | The Group has realigned outsourcing costs from administration and general expenses to staff costs in order to more appropriately reflect the nature and internal management of these costs. The net effect of these movements is to reduce administration and general expenses and to increase staff costs to £1,034m in 2015 and £1,055m in 2014. |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 443 |
Barclays Bank PLC data
Notes to the accounts
f Tax
| 2015
£m |
|
| 2014
£m |
| 2013
£m | ||||
Current tax charge | ||||||||||
Current year | 2,068 | 1,448 | 2,031 | |||||||
Adjustment for prior years | (183) | (19) | 156 | |||||||
1,885 | 1,429 | 2,187 | ||||||||
Deferred tax charge/(credit) | ||||||||||
Current year | (360) | 92 | (96) | |||||||
Adjustment for prior years | 78 | (66) | (514) | |||||||
(282) | 26 | (610) | ||||||||
Tax charge | 1,603 | 1,455 | 1,577 | |||||||
Tax relating to each component of other comprehensive income can be found in the consolidated statement of comprehensive income which additionally includes within Other a tax credit of £19m (2014: £19m charge) principally relating to share based payments.
The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to The Group’s profit before tax.
| ||||||||||
| 2015
£m |
|
| 2014
£m |
| 2013
£m | ||||
Profit before tax from continuing operations | 2,841 | 2,309 | 2,885 | |||||||
Tax charge based on the standard UK corporation tax rate of 20.25% (2014:21.5%, 2013:23.25%) | 575 | 496 | 671 | |||||||
Non-creditable taxes including withholding taxes | 309 | 329 | 559 | |||||||
Non-deductible provisions for UK customer redress | 283 | - | - | |||||||
Non-UK profits at statutory tax rates different from the UK statutory tax rate | 274 | 253 | 328 | |||||||
Non-deductible provisions for ongoing investigations and litigation including Foreign Exchange | 261 | 387 | - | |||||||
Non-deductible expenses including UK Bank Levy | 207 | 285 | 296 | |||||||
Impact of change in tax rates | 158 | �� | 8 | (155) | ||||||
Tax adjustments in respect of share based payments | 30 | 21 | (13) | |||||||
Non-deductible impairments and losses on disposal | 26 | 234 | - | |||||||
Non-taxable gains and income | (241) | (282) | (234) | |||||||
Adjustments in respect of prior years | (105) | (85) | (358) | |||||||
Changes in recognition and measurement of deferred tax assets | (77) | (183) | 409 | |||||||
Other items | (54) | 74 | 135 | |||||||
Non-UK losses at statutory tax rates different from the UK statutory tax rate | (43) | (82) | (61) | |||||||
Tax charge | 1,603 | 1,455 | 1,577 | |||||||
Effective tax rate | 56.4% | 63.0% | 54.7% |
444 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Notes to the accounts
Current tax assets and liabilities
Movements on current tax assets and liabilities were as follows:
| 2015
£m |
|
| 2014
£m |
| |||
Assets | 334 | 181 | ||||||
Liabilities | (1,023 | ) | (1,042 | ) | ||||
As at 1 January | (689 | ) | (861 | ) | ||||
Income statement | (1,885 | ) | (1,429 | ) | ||||
Other comprehensive income | 145 | (1 | ) | |||||
Corporate income tax paid | 1,643 | 1,590 | ||||||
Other movementsa | 241 | 12 | ||||||
(545 | ) | (689 | ) | |||||
Assets | 385 | 334 | ||||||
Liabilities | (930 | ) | (1,023 | ) | ||||
As at 31 December | (545 | ) | (689 | ) | ||||
a Other movements include current tax amounts relating to acquisitions, disposals and exchange gains and losses. | ||||||||
g Trading portfolio assets
| ||||||||
| 2015
£m |
|
| 2014
£m |
| |||
Debt securities and other eligible bills | 45,626 | 66,035 | ||||||
Equity securities | 29,055 | 44,576 | ||||||
Traded loans | 2,474 | 2,693 | ||||||
Commodities | 243 | 1,451 | ||||||
Trading portfolio assets | 77,398 | 114,755 | ||||||
h Available for sale financial investments
| ||||||||
| 2015
£m |
|
| 2014
£m |
| |||
Debt securities and other eligible bills | 89,278 | 85,552 | ||||||
Equity securities | 1,026 | 553 | ||||||
Available for sale financial investments | 90,304 | 86,105 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 445 |
Barclays Bank PLC data
Notes to the accounts
i Loans and advances to banks and customers
| 2015 £m |
|
| 2014 £m |
| |||||||
Gross loans and advances to banks | 41,829 | 42,657 | ||||||||||
Loans and advances to banks | 41,829 | 42,657 | ||||||||||
Gross loans and advances to customers | 404,138 | 433,222 | ||||||||||
Less: allowance for impairment | (4,921 | ) | (5,455 | ) | ||||||||
Loans and advances to customers | 399,217 | 427,767 | ||||||||||
j Derivative financial instruments
| ||||||||||||
| Notional contract amount £m |
|
| Fair value Assets £m |
|
| Liabilities £m |
| ||||
Year ended 31 December 2015 | ||||||||||||
Total derivative assets/(liabilities) held for trading | 29,437,102 | 326,933 | (323,788 | ) | ||||||||
Total derivative assets/(liabilities) held for risk management | 316,605 | 937 | (464 | ) | ||||||||
Derivative assets/(liabilities) | 29,753,707 | 327,870 | (324,252 | ) | ||||||||
Year ended 31 December 2014 | ||||||||||||
Total derivative assets/(liabilities) held for trading | 32,624,342 | 438,437 | (438,623 | ) | ||||||||
Total derivative assets/(liabilities) held for risk management | 268,448 | 1,639 | (697 | ) | ||||||||
Derivative assets/(liabilities) | 32,892,790 | 440,076 | (439,320 | ) | ||||||||
k Subordinated liabilities
| ||||||||||||
| 2015 £m |
|
| 2014 £m |
| |||||||
Undated subordinated liabilities | 5,248 | 5,640 | ||||||||||
Dated subordinated liabilities | 16,707 | 16,045 | ||||||||||
Total subordindated liabilities | 21,955 | 21,685 |
446 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Notes to the accounts
l Ordinary shares, share premium, and other equity
Called up share capital, allotted and fully paid
| Ordinary share capital £m |
|
| Preference share capital £m |
|
| Share premium £m |
|
| Total share capital and share premium £m |
|
| Other equity instruments £m |
| ||||||
As at 1 January 2015 | 2,342 | 38 | 12,092 | 14,472 | 4,350 | |||||||||||||||
AT1 securities issuance | - | - | - | - | 1,000 | |||||||||||||||
As at 31 December 2015 | 2,342 | 38 | 12,092 | 14,472 | 5,350 | |||||||||||||||
As at 1 January 2014 | 2,342 | 60 | 12,092 | 14,494 | 2,078 | |||||||||||||||
AT1 securities issuance | - | - | - | - | 2,272 | |||||||||||||||
Other movements | - | (22 | ) | - | (22 | ) | - | |||||||||||||
As at 31 December 2014 | 2,342 | 38 | 12,092 | 14,472 | 4,350 |
Ordinary shares
The issued ordinary share capital of Barclays Bank PLC, as at 31 December 2015, comprised 2,342 million ordinary shares of £1 each (2014: 2,342 million).
Ordinary share capital constitutes 60% (2014: 60%) of total share capital issued.
Preference shares
The issued preference share capital of Barclays Bank PLC, as at 31 December 2015, comprised 1,000 Sterling Preference Shares of £1 each (2014: 1,000); 31,856 Euro Preference Shares of€100 each (2014: 31,856); 20,930 Sterling Preference Shares of £100 each (2014: 20,930); 58,133 US Dollar Preference Shares of $100 each (2014: 58,133); and 237 million US Dollar Preference Shares of $0.25 each (2014: 237 million).
Preference share capital constitutes 40% (2014: 40%) of total share capital issued.
Sterling £1 Preference Shares
1,000 Sterling cumulative callable preference shares of £1 each (the £1 Preference Shares) were issued on 31 December 2004 at nil premium.
The £1 Preference Shares entitle the holders thereof to receive Sterling cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a rate reset semi-annually equal to the Sterling interbank offered rate for six-month sterling deposits.
Barclays Bank PLC shall be obliged to pay such dividends if: (1) it has profits available for the purpose of distribution under the Companies Act 2006 as at each dividend payment date; and (2) it is solvent on the relevant dividend payment date, provided that a capital regulations condition is satisfied on such dividend payment date. The dividends shall not be due and payable on the relevant dividend payment date except to the extent that Barclays Bank PLC could make such payment and still be solvent immediately thereafter. Barclays Bank PLC shall be considered solvent on any date if: (1) it is able to pay its debts to senior creditors as they fall due; and (2) its auditors have reported within the previous six months that its assets exceed its liabilities. If Barclays Bank PLC shall not pay, or shall pay only in part, a dividend for a period of seven days or more after the due date for payment, the holders of the £1 Preference Shares may institute proceedings for the winding-up of Barclays Bank PLC. No remedy against Barclays Bank PLC shall be available to the holder of any £1 Preference Shares for the recovery of amounts owing in respect of £1 Preference Shares other than the institution of proceedings for the winding-up of Barclays Bank PLC and/or proving in such winding-up.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 447 |
Barclays Bank PLC data
Notes to the accounts
On a winding-up or other return of capital (other than a redemption or purchase by Barclays Bank PLC of any of its issued shares, or a reduction of share capital, permitted by the Articles of Barclays Bank PLC and under applicable law), the assets of Barclays Bank PLC available to shareholders shall be applied in priority to any payment to the holders of ordinary shares and any other class of shares in the capital of Barclays Bank PLC then in issue ranking junior to the £1 Preference Shares on such a return of capital and pari passu on such a return of capital with the holders of any other class of shares in the capital of Barclays Bank PLC then in issue (other than any class of shares in the capital of Barclays Bank PLC then in issue ranking in priority to the £1 Preference Shares on a winding-up or other such return of capital), in payment to the holders of the £1 Preference Shares of a sum equal to the aggregate of: (1) an amount equal to the dividends accrued thereon for the then current dividend period (and any accumulated arrears thereof) to the date of the commencement of the winding-up or other such return of capital; and (2) an amount equal to £1 per £1 Preference Share. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the £1 Preference Shares will have no right or claim to any of the remaining assets of Barclays Bank PLC and will not be entitled to any further participation in such return of capital.
The £1 Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, subject to the Companies Act 2006 and its Articles. Holders of the £1 Preference Shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC.
Euro Preference Shares
140,000 Euro 4.75% non-cumulative callable preference shares of€100 each (the 4.75% Preference Shares) were issued on 15 March 2005 for a consideration of€1,383.3m (£966.7m), of which the nominal value was€14m and the balance was share premium. The 4.75% Preference Shares entitle the holders thereof to receive Euro non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 4.75% per annum on the amount of€10,000 per preference share until 15 March 2020, and thereafter quarterly at a rate reset quarterly equal to 0.71% per annum above the Euro interbank offered rate for three-month Euro deposits.
The 4.75% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 March 2020, and on each dividend payment date thereafter at€10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
Sterling Preference Shares
75,000 Sterling 6.0% non-cumulative callable preference shares of £100 each (the 6.0% Preference Shares) were issued on 22 June 2005 for a consideration of £743.7m, of which the nominal value was £7.5m and the balance was share premium. The 6.0% Preference Shares entitle the holders thereof to receive Sterling non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 6.0% per annum on the amount of £10,000 per preference share until 15 December 2017, and thereafter quarterly at a rate reset quarterly equal to 1.42% per annum above the London interbank offered rate for three-month Sterling deposits.
The 6.0% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 December 2017, and on each dividend payment date thereafter at £10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
448 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Notes to the accounts
US Dollar Preference Shares
100,000 US Dollar 6.278% non-cumulative callable preference shares of $100 each (the 6.278% Preference Shares), represented by 100,000 American Depositary Shares, Series 1, were issued on 8 June 2005 for a consideration of $995.4m (£548.1m), of which the nominal value was $10m and the balance was share premium. The 6.278% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a fixed rate of 6.278% per annum on the amount of $10,000 per preference share until 15 December 2034, and thereafter quarterly at a rate reset quarterly equal to 1.55% per annum above the London interbank offered rate for three-month US Dollar deposits.
The 6.278% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 December 2034, and on each dividend payment date thereafter at $10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
30 million US Dollar 6.625% non-cumulative callable preference shares of $0.25 each (the 6.625% Preference Shares), represented by 30 million American Depositary Shares, Series 2, were issued on 25 and 28 April 2006 for a consideration of $727m (£406m), of which the nominal value was $7.5m and the balance was share premium. The 6.625% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 6.625% per annum on the amount of $25 per preference share.
The 6.625% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
55 million US Dollar 7.1% non-cumulative callable preference shares of $0.25 each (the 7.1% Preference Shares), represented by 55 million American Depositary Shares, Series 3, were issued on 13 September 2007 for a consideration of $1,335m (£657m), of which the nominal value was $13.75m and the balance was share premium. The 7.1% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 7.1% per annum on the amount of $25 per preference share.
The 7.1% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole or in part, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
46 million US Dollar 7.75% non-cumulative callable preference shares of $0.25 each (the 7.75% Preference Shares), represented by 46 million American Depositary Shares, Series 4, were issued on 7 December 2007 for a consideration of $1,116m (£550m), of which the nominal value was $11.5m and the balance was share premium. The 7.75% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 7.75% per annum on the amount of $25 per preference share.
The 7.75% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole or in part, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
106 million US Dollar 8.125% non-cumulative callable preference shares of $0.25 each (the 8.125% Preference Shares), represented by 106 million American Depositary Shares, Series 5, were issued on 11 April 2008 and 25 April 2008 for a total consideration of $2,650m (£1,345m), of which the nominal value was $26.5m and the balance was share premium. The 8.125% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 8.125% per annum on the amount of $25 per preference share.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 449 |
Barclays Bank PLC data
Notes to the accounts
The 8.125% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole or in part, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
No redemption or purchase of any 4.75% Preference Shares, the 6.0% Preference Shares, the 6.278% Preference Shares, the 6.625% Preference Shares, the 7.1% Preference Shares, the 7.75% Preference Shares and the 8.125% Preference Shares (together, the Preference Shares) may be made by Barclays Bank PLC without the prior approval of the UK PRA and any such redemption will be subject to the Companies Act 2006 and the Articles of Barclays Bank PLC.
On a winding-up of Barclays Bank PLC or other return of capital (other than a redemption or purchase of shares of Barclays Bank PLC, or a reduction of share capital), a holder of Preference Shares will rank in the application of assets of Barclays Bank PLC available to shareholders: (1) junior to the holder of any shares of Barclays Bank PLC in issue ranking in priority to the Preference Shares; (2) equally in all respects with holders of other preference shares and any other shares of Barclays Bank PLC in issue ranking pari passu with the Preference Shares; and (3) in priority to the holders of ordinary shares and any other shares of Barclays Bank PLC in issue ranking junior to the Preference Shares.
The holders of the £13m 6% Callable Perpetual Core Tier One Notes and the $569m 6.86% Callable Perpetual Core Tier One Notes of Barclays Bank PLC (together, the TONs) and the holders of the £35m 5.3304% Step-up Callable Perpetual Reserve Capital Instruments, the $159m 5.926% Step-up Callable Perpetual Reserve Capital Instruments, the £33m 6.3688% Step-up Callable Perpetual Reserve Capital Instruments, the $117m 7.434% Step-up Callable Perpetual Reserve Capital Instruments and the £3,000m 14% Step-up Callable Perpetual Reserve Capital Instruments of Barclays Bank PLC (together, the RCIs) would, for the purposes only of calculating the amounts payable in respect of such securities on a winding-up of Barclays Bank PLC, subject to limited exceptions and to the extent that the TONs and the RCIs are then in issue, rank pari passu with the holders of the most senior class or classes of preference shares then in issue in the capital of Barclays Bank PLC. Accordingly, the holders of the preference shares would rank equally with the holders of such TONs and RCIs on such a winding-up of Barclays Bank PLC (unless one or more classes of shares of Barclays Bank PLC ranking in priority to the preference shares are in issue at the time of such winding-up, in which event the holders of such TONs and RCIs would rank equally with the holders of such shares and in priority to the holders of the preference shares).
Subject to such ranking, in such event, holders of the preference shares will be entitled to receive out of assets of Barclays Bank PLC available for distributions to shareholders, liquidating distributions in the amount of€10,000 per 4.75% Preference Share, £10,000 per 6.0% Preference Share, $10,000 per 6.278% Preference Share, $25 per 6.625% Preference Share, $25 per 7.1% Preference Share, $25 per 7.75% Preference Share and $0.25 per 8.125% Preference Share, plus, in each case, an amount equal to the accrued dividend for the then current dividend period to the date of the commencement of the winding-up or other such return of capital. If a dividend is not paid in full on any preference shares on any dividend payment date, then a dividend restriction shall apply.
This dividend restriction will mean that neither Barclays Bank PLC nor Barclays PLC may (a) declare or pay a dividend (other than payment by Barclays PLC of a final dividend declared by its shareholders prior to the relevant dividend payment date, or a dividend paid by Barclays Bank PLC to Barclays PLC or to a wholly owned subsidiary) on any of their respective ordinary shares, other preference shares or other share capital or (b) redeem, purchase, reduce or otherwise acquire any of their respective share capital, other than shares of Barclays Bank PLC held by Barclays PLC or a wholly owned subsidiary, until the earlier of: (1) the date on which Barclays Bank PLC next declares and pays in full a preference dividend; and (2) the date on or by which all the preference shares are redeemed in full or purchased by Barclays Bank PLC.
Holders of the preference shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC. Barclays Bank PLC is not permitted to create a class of shares ranking as regards participation in the profits or assets of Barclays Bank PLC in priority to the preference shares, save with the sanction of a special resolution of a separate general meeting of the holders of the preference shares (requiring a majority of not less than three-fourths of the holders of the
450 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Notes to the accounts
preference shares voting at the separate general meeting) or with the consent in writing of the holders of three-fourths of the preference shares.
Except as described above, the holders of the preference shares have no right to participate in the surplus assets of Barclays Bank PLC.
Other equity instruments
Other equity instruments of £5,350m (2014: £4,350m) include AT1 securities issued by Barclays Bank PLC. In 2015, there was one issuance of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities, with a principal amount of £1.0bn.
The AT1 securities are perpetual securities with no fixed maturity and are structured to qualify as AT1 instruments under CRD IV.
Other shareholders’ equity | ||||||||||||
The Group | The Bank | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
£m | £m | £m | £m | |||||||||
As at 1 January | 485 | 485 | 549 | 549 | ||||||||
As at 31 December | 485 | 485 | 549 | 549 |
Included in other shareholders’ equity are capital notes which bear interest at rates fixed periodically in advance, based on London interbank rates. These notes are repayable in each case, at the option of the Bank, in whole on any interest payment date. The Bank is not obliged to make a payment of interest on its capital notes if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC.
m Reserves
Currency translation reserve
The currency translation reserve represents the cumulative gains and losses on the retranslation of the Group’s net investment in foreign operations, net of the effects of hedging.
As at 31 December 2015 there was a debit balance of £623m (2014: £582m debit) in the currency translation reserve. The increase in the debit balance of £41m (2014: £560m decrease to a debit balance) principally reflected the depreciation of ZAR and EUR against GBP, offset by the appreciation of USD against GBP. The currency translation reserve movement associated with non-controlling interests was a £435m debit (2014: £74m debit) reflecting the depreciation of ZAR against GBP.
During the year a £65m net loss (2014: £91m net gain) from recycling of the currency translation reserve was recognised in the income statement.
Available for sale reserve
The available for sale reserve represents the unrealised change in the fair value of available for sale investments since initial recognition.
As at 31 December 2015 there was a credit balance of £338m in the available for sale reserve (2014: £578m credit). The decrease of £240m (2014: £427m increase) principally reflected a £350m loss from changes in fair value on Government Bonds, predominantly held in the liquidity pool, £148m of losses from related hedging, £378m of net gains transferred to net profit, partially offset by £396m gain from changes in fair value of equity investments in Visa Europe and an £86m change in insurance liabilities. A tax credit of £132m was recognised in the period relating to these items. The tax credit on AFS movements represented an effective rate of tax of 35.5% (2014: 19.4%). This is significantly higher than the UK corporation tax rate of 20.25% (2014: 21.5%) due to AFS movements including the VISA Europe gain that will be offset by existing UK capital losses for which a deferred tax asset has not been recognised.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 451 |
Barclays Bank PLC data
Notes to the accounts
Cash flow hedging reserve
The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss.
As at 31 December 2015 there was a credit balance of £709m (2014: £1,817m credit) in the cash flow hedging reserve. The decrease of £1,108m (2014: £1,544m increase) principally reflected a £1,062m decrease in the fair value of interest rate swaps held for hedging purposes as interest rate forward curves increased and £255m gains recycled to the income statement in line with when the hedged item affects profit or loss, partially offset by a tax credit of £206m. The tax credit on cash flow hedging reserve movements represented an effective rate of tax of 10.6% (2014: 19.8%). This is significantly lower than the UK corporation tax rate of 20.25% (2014: 21.5%) due to the tax rate changes introduced by the UK Summer Budget increasing associated deferred tax liabilities.
n Non-controlling interests
| Profit attributable to Non- Controlling interest | |
| Equity attributable to Non- Controlling interest |
|
| Dividends paid to Non- Controlling interest |
| ||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Barclays Africa Group Limited | 325 | 320 | 1,902 | 2,247 | 209 | 189 | ||||||||||||||||||
Other non-controlling interests | 2 | 6 | 12 | 4 | - | 1 | ||||||||||||||||||
Total | 327 | 326 | 1,914 | 2,251 | 209 | 190 |
Barclays Bank PLC owns 62.5% (2014: 62.3%) of Barclays Africa Group Limited.
Summarised financial information for Barclays Africa Group Limited
Summarised financial information for Barclays Africa Group Limited, before intercompany eliminations, is set out below:
| Barclays Africa Group Limited | | | Barclays Africa Group Limited | | |||
2015 | 2014 | |||||||
£m | £m | |||||||
Income statement information | ||||||||
Total income net of insurance claims | 3,418 | 3,530 | ||||||
Profit after tax | 781 | 765 | ||||||
Total other comprehensive income for the year, after tax | 26 | (7 | ) | |||||
Total comprehensive income for the year | 807 | 758 | ||||||
Statement of cash flows information | ||||||||
Net cash inflows | 923 | 43 | ||||||
Balance sheet information | ||||||||
Total assets | 49,471 | 55,378 | ||||||
Total liabilities | 45,200 | 50,150 | ||||||
Shareholder equity | 4,271 | 5,228 |
452 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Barclays Bank PLC data
Notes to the accounts
o Dividends on ordinary shares
Ordinary dividends were paid to enable Barclays PLC to fund its dividend to shareholders.
The 2015 financial statements include £876m (2014: £821m) of dividends paid. This includes the final dividend declared in relation to 2014 of £476m (2014: £512m) and interim dividends of £400m (2014: £309m), resulting in interim dividends of 17p (2014: 13p) per ordinary share and a total dividend for the year of 37p (2014: 35p) per ordinary share paid during the year.
Dividends paid on the 4.75%€100 preference shares amounted to £339.67 per share (2014: £394.46). Due to share buybacks in 2014 no dividends were paid on the 4.875%€100 preference shares (2014: £385.81). Dividends paid on the 6.0% £100 preference shares amounted to £600.00 per share (2014: £600.00). Dividends paid on the 6.278% US$100 preference shares amounted to £410.28 per share (2014: £383.45). Dividends paid on the 6.625% US$0.25 preference shares amounted to £1.09 per share (2014: £1.02). Dividends paid on the 7.1% US$0.25 preference shares amounted to £1.17 per share (2014: £1.09). Dividends paid on the 7.75% US$0.25 preference shares amounted to £1.28 per share (2014: £1.19). Dividends paid on the 8.125% US$0.25 preference shares amounted to £1.34 per share (2014: £1.25).
Dividends paid on preference shares amounted to £343m (2014: £441m). Dividends paid on other equity instruments amounted to £348m (2014: £252m).
p Capital
The Barclays Bank PLC Group’s policies and objectives for managing capital are the same as those for the Barclays PLC Group, disclosed on pages 103 and 104.
The table below provides details of the Barclays Bank PLC Group at 31 December 2015.
Regulatory capital | 2015 | |||
|
£m |
| ||
Fully loaded Common Equity Tier 1 | 40,741 | |||
PRA Transitional Tier 1 | 52,634 | |||
PRA Transitional Total Capital Resources | 66,527 |
The capital composition of Barclays Bank PLC Group is broadly equivalent to Barclays PLC Group shown in the table on page 150.
q Segmental reporting
Segmental reporting by Barclays Bank PLC is the same as that presented in the Barclays PLC financial statements, except for:
– | the difference in profit before tax of £768m (2014: £53m) between Barclays PLC and Barclays Bank PLC is included in Head Office Functions and Other Operations and Investment Bank; and |
– | the difference in total assets of £715m (2014: £787m) is represented by holdings of Barclays PLC shares held for employee share schemes and Barclays Bank Plc issued loan notes to fund the derivatives created in Barclays Plc. |
r Related Parties
The aggregate emoluments of all Directors and Officers of Barclays Bank PLC who held office during the year (2015: 33 persons, 2014: 34 persons, 2013: 38 persons) for the year ended 31st December 2015 amounted to £52.5m (2014: £57.0m, 2013: £70.3m). In addition, the aggregate amount set aside by the Bank and its subsidiaries for the year ended 31st December 2015, to provide pension benefits for the Directors and Officers amounted to £0.3m (2014: £0.3m, 2013: £0.6m).
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 453 |
Additional Financial data
Selected financial statistics | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
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% |
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% |
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% |
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% |
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% |
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Return on average shareholders’ equitya | 1.4 | 0.8 | 1.6 | (0.5 | ) | 5.6 | ||||||||||||||
Return on average total assetsb | 0.1 | - | 0.1 | - | 0.2 | |||||||||||||||
Average shareholders’ equity as a percentage of average total assets | 5.2 | 4.8 | 4.5 | 4.2 | 3.9 | |||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Selected income statement data |
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£m |
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£m |
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£m |
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£m |
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£m |
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Continuing operations | ||||||||||||||||||||
Interest income | 17,195 | 17,369 | 18,315 | 19,211 | 20,589 | |||||||||||||||
Interest expense | (3,882 | ) | (5,231 | ) | (6,662 | ) | (7,561 | ) | (8,393 | ) | ||||||||||
Non-interest income | 13,442 | 13,677 | 16,810 | 13,807 | 20,927 | |||||||||||||||
Operating expenses | (20,677 | ) | (20,423 | ) | (21,974 | ) | (21,007 | ) | (20,881 | ) | ||||||||||
Impairment charges | (2,114 | ) | (2,168 | ) | (3,071 | ) | (3,340 | ) | (5,602 | ) | ||||||||||
Share of post-tax results of associates and joint ventures | 47 | 36 | (56 | ) | 110 | 60 | ||||||||||||||
Profit on disposal of subsidiaries, associates and joint ventures | (637 | ) | (471 | ) | 6 | 28 | (94 | ) | ||||||||||||
Gain on acquisitions | - | - | 26 | 2 | - | |||||||||||||||
Profit before tax | 2,841 | 2,309 | 2,885 | 650 | 5,865 | |||||||||||||||
Profit attributable to equity holders of the parent | 911 | 528 | 963 | (306 | ) | 3,533 | ||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Selected balance sheet data |
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£m |
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£m |
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£m |
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£m |
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£m |
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Total shareholders’ equity | 66,019 | 63,794 | 63,220 | 59,923 | 63,933 | |||||||||||||||
Subordinated liabilities | 21,955 | 21,685 | 22,249 | 24,422 | 24,870 | |||||||||||||||
Deposits from banks, customer accounts and debt securities in issue | 534,537 | 572,357 | 574,340 | 587,787 | 592,460 | |||||||||||||||
Loans and advances to banks and customers | 441,046 | 470,424 | 474,059 | 472,809 | 485,277 | |||||||||||||||
Total assets | 1,120,727 | 1,358,693 | 1,344,201 | 1,512,777 | 1,588,555 |
Notes
a | Return on average shareholders’ equity represents profit attributable to the equity holders of the parent as a percentage of average shareholders’ equity. |
b | Return on average total assets represents profit attributable to the equity holders of the parent as a percentage of average total assets. |
454 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Additional Financial data
Ratio of earnings to fixed charges – Barclays Bank Plc (unaudited) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
(In £m except for ratios) | ||||||||||||||||||||
Ratio of earnings to fixed charges | ||||||||||||||||||||
Fixed charges | ||||||||||||||||||||
Interest expense | 3,882 | 5,231 | 6,662 | 7,561 | 8,393 | |||||||||||||||
Rental expense | 211 | 261 | 254 | 251 | 268 | |||||||||||||||
Total fixed charges | 4,093 | 5,492 | 6,916 | 7,812 | 8,661 | |||||||||||||||
Earnings | ||||||||||||||||||||
Income before taxes and non-controlling interests | 2,841 | 2,309 | 2,885 | 650 | 5,974 | |||||||||||||||
Less: unremitted pre-tax income of associated companies and joint ventures | (34 | ) | (45 | ) | 95 | (113 | ) | (47 | ) | |||||||||||
Total earnings excluding fixed charges | 2,807 | 2,264 | 2,980 | 537 | 5,927 | |||||||||||||||
Fixed charges | 4,093 | 5,492 | 6,916 | 7,812 | 8,661 | |||||||||||||||
Total earnings including fixed charges | 6,900 | 7,756 | 9,896 | 8,349 | 14,588 | |||||||||||||||
Ratio of earnings to fixed charges | 1.69 | 1.41 | 1.43 | 1.07 | 1.68 | |||||||||||||||
Ratio of earnings to fixed charges and preference shares – Barclays Bank Plc (unaudited) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
(In £m except for ratios) | ||||||||||||||||||||
Combined fixed charges, preference share dividends and similar appropriations | ||||||||||||||||||||
Interest expense | 3,882 | 5,231 | 6,662 | 7,561 | 8,393 | |||||||||||||||
Rental expense | 211 | 261 | 254 | 251 | 268 | |||||||||||||||
Fixed charges | 4,093 | 5,492 | 6,916 | 7,812 | 8,661 | |||||||||||||||
Preference share dividends and similar appropriations | 345 | 443 | 412 | 466 | 514 | |||||||||||||||
Total fixed charges | 4,438 | 5,935 | 7,328 | 8,278 | 9,175 | |||||||||||||||
Earnings | ||||||||||||||||||||
Income before taxes and non-controlling interests | 2,841 | 2,309 | 2,885 | 650 | 5,974 | |||||||||||||||
Less: unremitted pre-tax income of associated companies and joint ventures | (34 | ) | (45 | ) | 95 | (113 | ) | (47 | ) | |||||||||||
Total earnings excluding fixed charges | 2,807 | 2,264 | 2,980 | 537 | 5,927 | |||||||||||||||
Fixed charges | 4,438 | 5,935 | 7,328 | 8,278 | 9,175 | |||||||||||||||
Total earnings including fixed charges | 7,245 | 8,199 | 10,308 | 8,815 | 15,102 | |||||||||||||||
Ratio of earnings to fixed charges, preference share dividends and similar appropriations | 1.63 | 1.38 | 1.41 | 1.06 | 1.65 |
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 455 |
Glossary
Glossary of terms
‘A-IRB’ / ‘Advanced-Internal Ratings Based’ See ‘Internal Ratings Based (IRB)’.
‘ABS CDO Super Senior’ Super senior tranches of debt linked to collateralised debt obligations of asset backed securities (defined below). Payment of super senior tranches takes priority over other obligations.
‘Acceptances and endorsements’ An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but reimbursement by the customer is normally immediate. Endorsements are residual liabilities of the Group in respect of bills of exchange which have been paid and subsequently rediscounted.
‘Additional Tier 1 (AT1) capital’ In the context of CRD IV, a measure of a bank’s financial strength as defined in the Capital Requirements Regulation (CRR).
‘Additional Tier 1 (AT1) securities’ Securities that are traded as additional tier 1 (AT1) capital in the context of CRD IV.
‘Adjusted attributable profit’ Adjusted profit after tax that is attributable to ordinary equity holders of the parent adjusted for the after tax amounts of capital securities classified as equity.
‘Adjusted basic earnings per share’ Basic earnings per share, based on adjusted attributable earnings.
‘Adjusted compensation: net operating income’ Compensation costs as a proportion of adjusted net operating income (adjusted income less credit impairment charges and other provisions).
‘Adjusted cost: income ratio’ Adjusted operating expenses (defined below) compared to adjusted income (defined below).
‘Adjusted income’ Total income net of insurance claims adjusted to exclude the impact of own credit, Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology and gain on US Lehman acquisition assets.
‘Adjusted total operating expenses’ Total operating expenses adjusted to exclude impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange and gain on valuation of a component of the defined retirement benefit liability.
‘Adjusted profit after tax’ Adjusted profit before tax (defined below) less tax.
‘Adjusted profit before tax’ Profit before tax adjusted to exclude the impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, loss on sale relating to the Spanish, Portuguese and Italian businesses, Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology, and gain on valuation of a component of the defined retirement benefit liability.
‘Adjusted return on average risk weighted assets’ Adjusted profit after tax as a proportion of average risk weighted assets.
‘Adjusted return on average shareholders’ equity’ Adjusted profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests and other equity instruments.
‘Adjusted return on average tangible shareholders’ equity’ Adjusted profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill.
‘Advanced Measurement Approach’ Under CRD IV, operational risk charges can be calculated by using one of three methods (or approaches) that increase in sophistication and risk sensitivity: (i) the Basic Indicator Approach; (ii) the Standardised Approach; and (iii) Advanced Measurement Approach (AMA). Under AMA the banks are allowed to develop their own empirical model to quantify required capital for operational risk.
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Glossary
Banks can only use this approach subject to approval from their local regulators.
‘Africa Banking’ The previously reported Africa Retail and Business Banking combined with other businesses across Africa previously reported within Barclaycard, the Investment Bank, Corporate Banking and Wealth Management. The Africa head office function is also included in Africa Banking. This combined Africa Banking business is managed under three primary businesses: Retail and Business Banking; Wealth, Investment Management and Insurance; and Corporate and Investment Banking. The resulting African business comprises the Barclays Africa Group Limited (BAGL) listed entity, together with Barclays Egypt and Zimbabwe businesses.
‘Agencies’ Bonds issued by state and / or government agencies or government-sponsored entities.
‘Agency Mortgage-Backed Securities’ Mortgage-Backed Securities issued by government-sponsored institutions.
‘All price risk (APR)’ An estimate of all the material market risks, including rating migration and default for the correlation trading portfolio.
‘American Depository Receipts (ADR)’ A negotiable certificate that represents the ownership of shares in a non-US company (for example Barclays) trading in US financial markets.
‘Americas’ Geographic segment comprising the USA, Canada and countries where Barclays operates within Latin America.
‘Annual Earnings at Risk (AEaR)’ Impact on earnings of a parallel (upward or downward) movement in interest rates.
‘Application scorecards’ Algorithm based decision tools used to aid business decisions and manage credit risk based on available customer data at the point of application for a product.
‘Arrears’ Customers are said to be in arrears when they are behind in fulfilling their obligations with the result that an outstanding loan is unpaid or overdue. Such customers are also said to be in a state of delinquency. When a customer is in arrears, their entire outstanding balance is said to be delinquent, meaning that delinquent balances are the total outstanding loans on which payments are overdue.
‘Arrears Managed accounts’ Arrears Managed accounts are principally Business Lending customers in arrears with an exposure limit less than £50,000 in the UK and€100,000 in Europe, supervised using processes designed to manage a homogeneous set of assets.
‘Asia’ Geographic segment comprising countries where Barclays operates within Asia (including Singapore, Japan, China and India), Australasia and the Middle East.
‘Asset Backed Commercial Paper’ Typically short-term notes secured on specified assets issued by consolidated special purpose entities for funding purposes.
‘Asset Backed Securities (ABS)’ Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can comprise any assets which attract a set of associated cash flows but are commonly pools of residential or commercial mortgages and, in the case of Collateralised Debt Obligations (CDOs), the referenced pool may be ABS or other classes of assets.
‘Attributable profit’ Profit after tax that is attributable to ordinary equity holders of the parent adjusted for the after tax amounts of capital securities classified as equity.
‘Back testing’ Includes a number of techniques that assess the continued statistical validity of a model by simulating how the model would have predicted recent experience.
‘Balance weighted Loan to Value (LTV) ratio’ In the context of the credit risk disclosures on secured home loans, a means of calculating marked to market LTVs derived by calculating individual LTVs at account level and weighting it by the balances to arrive at the average position. Balance weighted loan to value is calculated using the following formula: LTV = ((loan balance 1 x MTM LTV% for loan 1) + (loan balance 2 x MTM LTV% for loan 2) + ... )) / total outstandings in portfolio.
‘The Bank’ Barclays Bank PLC.
‘Barclaycard’ An international consumer payments company serving the needs of businesses and consumers through credit cards, consumer lending, merchant acquiring, commercial cards and point of sale finance. Barclaycard has scaled operations in UK, US, Germany, Iberia and Scandinavia.
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‘Barclays Core’ The Core Barclays business of Personal and Corporate Banking, Barclaycard, Africa Banking and the Investment Bank, along with Head Office and Other Operations. See also ‘Barclays Non-Core’
‘Barclays Core Operating businesses’ The Core Barclays business of Personal and Corporate Banking, Barclaycard, Africa Banking and the Investment Bank. See also ‘Barclays Non-Core’
‘Barclays Direct’A Barclays brand, comprising the savings and mortgage businesses acquired from ING Direct UK in March 2013.
‘Barclays Non-Core’ This unit groups together businesses and assets that are not strategically attractive to Barclays and that will be exited, or run down, over time. See also ‘Barclays Core’
‘Basel 2’ The second of the Basel accords. It sets a framework of minimum capital requirements for banks – covering credit, operational and market risk; supervisory review of banks’ assessment of capital adequacy and disclosure requirements.
‘Basel 3’ The third of the Basel Accords on banking supervision. Developed in response to the financial crisis of 2008, setting new requirements on composition of capital, counterparty credit risk, liquidity and leverage ratios.
‘Basel Committee of Banking Supervisors (BCBS or The Basel Committee)’ A forum for regular cooperation on banking supervisory matters which develops global supervisory standards for the banking industry. Its members are officials from central banks or prudential supervisors from 27 countries and territories.
‘BCBS 270 leverage exposure’ The denominator of the internationally agreed Basel III leverage ratio. The exposure measure makes certain adjustments to Total assets under IFRS in accordance with the requirements stated in BCBS 270 (“Basel III leverage ratio framework and disclosure requirements”).
‘Basis point(s)’ / ‘bp(s)’ One hundredth of a per cent (0.01%); 100 basis points is 1%. The measure is used in quoting movements in interest rates, yields on securities and for other purposes.
‘Basis risk’ Measures the impact of changes in tenor basis (e.g., the basis between swaps vs. 3 month (3M) Libor and swaps vs. 6 month (6M) Libor) and cross currency basis.
‘Behavioural scorecards’ Algorithm based decision tools used to aid business decisions and manage credit risk based on existing customer data derived from account usage.
‘Book quality’ In the context of the Funding Risk, Capital section, changes in RWAs caused by factors such as underlying customer behaviour or demographics leading to changes in risk profile.
‘Book size’In the context of the Funding Risk, Capital section, changes in RWAs driven by business activity, including net originations or repayments.
‘Businesses’ In the context of Non-Core Analysis of Total income, Non Core Businesses comprise ongoing businesses seeking to be sold-off or run down including Europe retail and non-core elements of the Investment Bank and other non strategic businesses.
‘Business Lending’ Business Lending in Personal and Corporate Banking that primarily relates to small and medium enterprises typically with exposures up to £3m or with a turnover up to £5m.
‘Business scenario stresses’ Multi asset scenario analysis of extreme, but plausible events that may impact the market risk exposures of the Investment Bank.
‘Buy to let mortgage’ A mortgage where the intention of the customer (investor) was to let the property at origination.
‘Capital Conservation Buffer (CCB)’ Common Equity Tier 1 capital required to be held under CRD IV to ensure that banks build up surplus capital outside periods of stress which can be drawn down if losses are incurred.
‘Capital ratios’ Key financial ratios measuring the Group’s capital adequacy or financial strength. These include the CET 1 ratio, Tier 1 capital ratio and Total Capital ratio.
‘Capital requirements’ Amount to be held by the Group to cover the risk of losses to a certain confidence level.
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Glossary
‘Capital Requirements Regulation (CRR)’ Regulation (EU) No 575/2013, which accompanies CRD IV and sets out detailed rules for capital eligibility, the calculation of RWAs, the measurement of leverage, the management of large exposures and minimum standards for liquidity.
‘Capital resources’ Financial instruments on balance sheet that are eligible to satisfy capital requirements.
‘Central Counterparty’ / ‘Central Clearing Counterparties (CCPs)’ A clearing house mediating between the buyer and the seller in a financial transaction, such as a derivative contract or repurchase agreement (repo). Where a central counterparty is used, a single bi-lateral contract between the buyer and seller is replaced with two contracts, one between the buyer and the CCP and one between the CCP and the seller. The use of CCPs allows for greater oversight and improved credit risk mitigation in over-the-counter (OTC) markets.
‘Charge-off’ In the retail segment this refers to the point in time when collections activity changes from the collection of arrears to the recovery of the full balance. This is normally when six payments are in arrears.
‘Charges add-on and non VaR’ In the context of risk weighted assets, any additional Market Risk not captured within Modelled VaR, including Incremental Risk charges and Correlation Risk.
‘Client Assets’ Assets managed or administered by Barclays on behalf of clients including Assets under Management (AUM), Custody assets, Assets under Administration and client deposits.
‘CLOs and Other insured assets’ Highly rated CLO positions wrapped by monolines, non-CLOs wrapped by monolines and other assets wrapped with Credit Support Annex (CSA) protection.
‘Collateralised Debt Obligation (CDO)’ Securities issued by a third party which reference Asset Backed Securities (ABSs) (defined above) and/or certain other related assets purchased by the issuer. CDOs may feature exposure to sub-prime mortgage assets through the underlying assets.
‘Collateralised Loan Obligation (CLO)’ A security backed by the repayments from a pool of commercial loans. The payments may be made to different classes of owners (in tranches).
‘Collateralised Mortgage Obligation (CMO)’ A type of security backed by mortgages. A special purpose entity receives income from the mortgages and passes them on to investors of the security.
‘Collectively assessed impairment allowances’ Impairment of financial assets is measured collectively where a portfolio comprises homogenous assets and where appropriate statistical techniques are available.
‘Commercial paper (CP)’ Short-term notes issued by entities, including banks, for funding purposes.
‘Commercial real estate’ Commercial real estate includes office buildings, industrial property, medical centres, hotels, retail stores, shopping centres, farm land, multifamily housing buildings, warehouses, garages, and industrial properties and other similar properties. Commercial real estate loans are loans backed by a package of commercial real estate. Note: for the purposes of the Credit Risk section, the UK CRE portfolio includes property investment, development, trading and housebuilders but excludes social housing contractors.
‘Committee of Sponsoring Organisations of the Treadway Commission Framework (COSO)’ A joint initiative of five private sector organisations dedicated to providing development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence.
‘Commodity derivatives’ Exchange traded and over-the-counter (OTC) derivatives based on an underlying commodity (e.g. metals, precious metals, oil and oil related, power and natural gas).
‘Commodity risk’ Measures the impact of changes in commodity prices and volatilities, including the basis between related commodities (e.g. Brent vs. WTI crude prices).
‘Common Equity Tier 1 (CET1) capital’In the context of CRD IV, a measure of capital that is predominantly common equity as defined by the Capital Requirements Regulation.
‘Common Equity Tier 1 (CET1) ratio’ A measure of the Group’s Common Equity Tier 1 capital as a percentage of risk-weighted assets under CRD IV. The Group must meet a prescribed ratio.
‘Compensation: income ratio’ The ratio of compensation to employees over total income net of insurance claims.
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Glossary
Compensation represents total staff costs less non-compensation items consisting of outsourcing, bank payroll tax, staff training, redundancy costs and retirement costs.
‘Constant Currency Basis’ Excludes the impact of foreign currency conversion to GBP when comparing financial results in two different financial periods.
‘Contingent capital notes (CCNs)’ Interest bearing debt securities issued by Barclays PLC or its subsidiaries that are either permanently written off or converted into an equity instrument from the issuer’s perspective in the event of Barclays PLC Group’s core tier 1 (CT1) or common equity tier 1 (CET1) ratio, as appropriate, falling below a specified level.
‘Core deposit intangibles’ Premium paid to acquire the deposit base of an institution.
‘Correlation risk’ Refers to the change in marked to market value of a security when the correlation between the underlying assets changes over time.
‘Cost: income ratio’ Operating expenses compared to total income net of insurance claims.
‘Cost of Equity’ The rate of return targeted by the equity holders of a company.
‘Cost: net operating income ratio’ Operating expenses compared to total income net of insurance claims less credit impairment charges and other provisions.
‘Cost to Achieve (CTA)’ Non-recurring investment in initiatives to drive cost and business efficiency across Barclays through rightsizing, industrialisation and innovation.
‘Cost to income jaws’ Relationship of the percentage change movement in total operating expenses relative to total income net of insurance claims
‘Counter-Cyclical Capital Buffer (CCCB)’ CET1 Capital of up to 2.5% of risk weighted assets that is required to be held under CRD IV rules to ensure that banks build up surplus capital when macroeconomics conditions indicate areas of the economy are overheating.
‘Counterparty credit risk’ In the context of Risk Weighted Assets by Risk, a component of risk weighted assets that represents the risk of loss in derivatives, repurchase agreements and similar transactions resulting from the default of the counterparty.
‘Coverage ratio’ In the context of the credit risk disclosures, impairment allowances as a percentage of credit risk loan balances.
‘Covered bonds’ Debt securities backed by a portfolio of mortgages that are segregated from the issuer’s other assets solely for the benefit of the holders of the covered bonds.
‘CRD IV’ The Fourth Capital Requirements Directive, an EU Directive and an accompanying Regulation (CRR) that together prescribe EU capital adequacy and liquidity requirements and implements Basel 3 in the European Union. CRD IV came into effect on 1 January 2014.
‘Credit conversion factor (CCF)’ Factor used to estimate the risk from off-balance sheet commitments for the purpose of calculating the total Exposure at Default (EAD) used to calculate risk weighted assets (RWAs).
‘Credit default swaps (CDS)’ A contract under which the protection seller receives premiums or interest-related payments in return for contracting to make payments to the protection buyer in the event of a defined credit event. Credit events normally include bankruptcy, payment default on a reference asset or assets, or downgrades by a rating agency.
‘Credit derivatives (CDs)’ An arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of the protection.
‘Credit enhancements’ See ‘Liquidity and Credit enhancements’.
‘Credit impairment charges’ Also known as ‘credit impairment’. Impairment charges on loans and advances to customers and banks and in respect of undrawn facilities and guarantees (see ‘Loan impairment’) and impairment charges on available for sale assets and reverse repurchase agreements.
‘Credit market exposures’ Assets and other instruments relating to commercial real estate and leveraged finance businesses that have been significantly impacted by the deterioration in the global credit markets. The exposures include positions subject to fair value movements in the Income Statement, positions that are classified as loans and advances and available for sale and other assets.
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Glossary
‘Credit Products’Represents Credit and Securitised Products income.
‘Credit quality step’ In the context of the Standardised Approach to calculating credit risk RWAs, a “credit quality assessment scale” maps the credit assessments of a recognised credit rating agency or export credit agency to credit quality steps that determine the risk weight to be applied to an exposure.
‘Credit risk’ The risk of the Group suffering financial loss if a counterparty fails to fulfil its contractual obligations to the Group under a loan agreement or similar. In the context of Risk Weighted Assets by Risk, it is the component of risk weighted assets that represents the risk of loss in loans and advances and similar transactions resulting from the default of the counterparty.
‘Credit Risk Loans (CRLs)’ A loan becomes a credit risk loan when evidence of deterioration has been observed, for example a missed payment or other breach of covenant. A loan may be reported in one of three categories: impaired loans, accruing past due 90 days or more, impaired or restructured loans. These may include loans which, while impaired, are still performing but have associated individual impairment allowances raised against them.
‘Credit risk mitigation’ A range of techniques and strategies to actively mitigate credit risks to which the bank is exposed. These can be broadly divided into three types; Collateral, Netting and set-off, and Risk Transfer.
‘Credit spread’ The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality.
‘Credit Valuation Adjustment (CVA)’ The difference between the risk-free value of a portfolio of trades and the market value which takes into account the counterparty’s risk of default. The CVA therefore represents an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk of the counterparty due to any failure to perform on contractual agreements.
‘CRL Coverage’ Impairment allowances as a percentage of total CRL (See ‘Credit Risk Loans’). Also known as the ‘CRL coverage ratio’.
‘Customer assets’ Represents loans and advances to customers. Average balances are calculated as the sum of all daily balances for the year to date divided by number of days in the year to date.
‘Customer deposits’ In the context of Funding Risk, Liquidity section, money deposited by all individuals and companies that are not credit institutions. Such funds are recorded as liabilities in the Group’s balance sheet under Customer Accounts.
‘Customer liabilities’ Customer deposits.
‘Customer net interest income’ The sum of customer asset and customer liability net interest income. Customer net interest income reflects interest related to customer assets and liabilities only and does not include any interest on securities or other non-customer assets and liabilities.
‘CVA volatility charge’ The volatility charge added to exposures that adjusts for mid-market valuation on a portfolio of transactions with a counterparty. This is to reflect the current market value of the credit risk associated with the counterparty to the Bank. The charge is prescribed by CRR.
‘Daily Value at Risk (DVaR)’ An estimate of the potential loss which might arise from market movements under normal market conditions, if the current positions were to be held unchanged for one business day, measured to a specified confidence level.
‘DBRS’ A credit rating agency.
‘Debit Valuation Adjustment (DVA)’ The opposite of credit valuation adjustment (CVA). It is the difference between the risk-free value of a portfolio of trades and the market value which takes into account the Group’s risk of default. The DVA, therefore, represents an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk of the Group due to any failure to perform on contractual agreements. The DVA decreases the value of a liability to take into account a reduction in the remaining balance that would be settled should the Group default or not perform in terms of contractual agreements.
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‘Debt buy-backs’ Purchases of the Group’s issued debt securities, including equity accounted instruments, leading to their de-recognition from the balance sheet.
‘Debt securities in issue’ Transferable securities evidencing indebtedness of the Group. These are liabilities of the Group and include certificates of deposit and commercial paper.
‘Default grades’ Barclays classify ranges of default probabilities into a set of 21 intervals called default grades, in order to distinguish differences in the probability of default risk.
‘Derivatives’ In the context of Non-Core Analysis of Total income, Derivatives comprise non strategic businesses from the non-core Investment Bank
‘Derivatives netting’ Adjustments applied across asset and liability mark-to-market derivative positions pursuant to legally enforceable bilateral netting agreements and eligible cash collateral received in derivative transactions that meet the requirements of BCBS 270.
‘Diversification effect’ Reflects the fact the risk of a diversified portfolio is smaller than the sum of the risks of its constituent parts. It is measured as the sum of the individual asset class DVaR (see above) estimates less the total DVaR.
‘Dodd-Frank Act (DFA)’ The US Dodd-Frank Wall Street Reform and Consumer Protection Act.
‘Early warning lists (EWL)’ Categorisations for wholesale customers used within Personal and Corporate Banking to identify at an early stage those customers where it is believed that difficulties may develop, allowing timely corrective action to be taken. There are three categories of EWL, with risk increasing from EWL 1 (caution) to EWL 2 (medium) and EWL 3 (high). It is expected that most cases would be categorised EWL 1 before moving to 2 or 3, but it is recognised that some cases may be categorised to EWL 2 or 3 directly.
‘Early Warning List (EWL) Managed accounts’ EWL Managed accounts are Business Lending customers that exceed the Arrears Managed limits and are monitored with standard processes that record heightened levels of risk through an EWL grading.
‘Earnings per Share contribution’ The attributable profit or loss generated by a particular business or segment divided by the
weighted average number of Barclays shares in issue to illustrate on a per share basis how that business or segment contributes total EPS.
‘Economic Value of Equity (EVE)’ Change in the present value of the banking book of a parallel (upward or downward) interest rate shock.
‘Encumbrance’ The use of assets to secure liabilities, such as by way of a lien or charge.
‘Enterprise Risk Management Framework (ERMF)’ Barclays Risk management responsibilities are laid out in the Enterprise Risk Management Framework. This framework, which was introduced in 2013, creates clear ownership and accountability, ensures the Group’s most significant risk exposures are controlled, understood and managed in accordance with agreed risk appetite, and ensures regular reporting of both risk exposures and the operating effectiveness of controls. This framework also clarifies the definition of the three lines of defence and extends its scope to all businesses and functions.
‘Equities’ Trading businesses encompassing Cash Equities, Equity Derivatives & Equity Financing
‘Equity and stock index derivatives’ Derivatives whose value is derived from equity securities. This category includes equity and stock index swaps and options (including warrants, which are equity options listed on an exchange). The Group also enters into fund-linked derivatives, being swaps and options whose underlyings include mutual funds, hedge funds, indices and multi-asset portfolios. 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.
‘Equity risk’ In the context of trading book capital requirements, the risk of change in market value of an equity investment.
‘Equity structural hedge’ An interest rate hedge in place to manage the volatility in net earnings generated by businesses on the Group’s equity, with the impact allocated to businesses in line with their economic capital usage.
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Glossary
‘Euro Interbank Offered Rate (EURIBOR)’ A benchmark interest rate at which banks can borrow funds from other banks in the European interbank market.
‘Europe’ Geographic segment comprising countries in which Barclays operates within the EU (excluding UK), Northern Continental and Eastern Europe.
‘European Securities and Markets Authority (ESMA)’ An independent European Supervisory Authority with the remit of enhancing the protection of investors and reinforcing stable and well-functioning financial markets in the European Union. ESMA replaced the Committee of European Securities Regulators (CESR) on 1 January 2011.
‘Expected losses’ The Group’s measure of anticipated losses for exposures captured under an internal ratings based credit risk approach for capital adequacy calculations. It is measured as the Barclays modelled view of anticipated losses based on Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD), with a one year time horizon.
‘Expert lender models’ Models of risk measures that 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.
‘Exposure’ Generally refers to positions or actions taken by the firm, or consequences thereof, that may put a certain amount of a bank’s resources at risk.
‘Exposure At Default (EAD)’ The estimation of the extent to which Barclays may be exposed to a customer or counterparty in the event of, and at the time of, that counterparty’s default. At default, the customer may not have drawn the loan fully or may already have repaid some of the principal, so that exposure may be less than the approved loan limit.
‘External Credit Assessment Institutions (ECAI)’ Institutions whose credit assessments may be used by credit institutions for the determination of risk weight exposures according to the Capital Requirements Directives (CRD).
‘F-IRB / Foundation-Internal Ratings Based’ See ‘Internal Ratings Based (IRB)’.
‘Financial Conduct Authority (FCA)’ The statutory body responsible for conduct of business regulation and supervision of UK authorised firms from 1 April 2013. The FCA also has responsibility for the prudential regulation of firms that do not fall within the PRA’s scope.
‘Financial Services Compensation Scheme (FSCS)’ The UK’s fund for compensation of authorised financial services firms that are unable to pay claims.
‘Fitch’ A credit rating agency.
‘Forbearance’ Forbearance programmes to assist customers in financial difficulty through agreements to accept less than contractual amounts due where financial distress would otherwise prevent satisfactory repayment within the original terms and conditions of the contract. These agreements may be initiated by the customer, Barclays or a third party and include approved debt counselling plans, minimum due reductions, interest rate concessions and switches from capital and interest repayments to interest-only payments.
‘Forbearance Programmes for Credit Cards’ Can be split into 2 main types: Repayment plans- A temporary reduction in the minimum payment due, for a maximum of 60 months. This may involve a reduction in interest rates to prevent negative amortization; Fully amortising- A permanent conversion of the outstanding balance into a fully amortising loan, over a maximum period of 60 months for cards and 120 months for loans.
‘Forbearance Programmes for Home Loans’ Can be split into 4 main types: Interest-only conversions- A temporary change from a capital and interest repayment to an interest-only repayment, for a maximum of 24 months; Interest rate reductions- A temporary reduction in interest rate, for a maximum of 12 months; Payment concessions- An agreement to temporarily accept reduced loan repayments, for a maximum of 24 months; Term extensions- A permanent extension to the loan maturity date which may involve a reduction in interest rates, and usually involves the capitalisation of arrears.
‘Forbearance Programmes for Unsecured Loans’ Can be split into 3 main types: Payment concessions- An agreement to temporarily accept reduced loan repayments, for a maximum of 12 months; Term extensions- A permanent extension to the loan maturity date, usually involving the capitalisation of arrears; Fully amortising- A permanent conversion of the
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Glossary
outstanding balance into a fully amortising loan, over a maximum period of 60 months for cards and 120 months for loans.
‘Foreclosures in Progress’ The process by which the bank initiates legal action against a customer with the intention of terminating a loan agreement whereby the bank may repossess the property subject to local law and recover amounts it is owed.
‘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. Currency swaps 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.
‘Foreign exchange risk’ In the context of DVaR, the impact of changes in foreign exchange rates and volatilities.
‘Front Arena’ A deal solution that helps to trade and manage positions and risk in the global capital markets.
‘Full time equivalent’ Full time equivalent units are the on-job hours paid for employee services divided by the number of ordinary-time hours normally paid for a full-time staff member when on the job (or contract employees where applicable).
‘Fully loaded’ When a measure is presented or described as being on a fully loaded basis, it is calculated without applying the transitional provisions set out in Part Ten of the CRD IV Regulation.
‘Fully loaded CET1 ratio’ An estimated risk based ratio calculated as CRD IV Common Equity Tier 1 capital divided by CRD IV Risk Weighted Assets (before the application of transitional provisions set out in CRD IV and interpretive guidance published by the PRA).
‘Funding for Lending Scheme (FLS)’ Scheme launched by the Bank of England in July 2012 to incentivise banks and building societies to lend to UK households and non-financial companies through reduced funding costs, the benefits of which are passed on to UK borrowers in the form of cheaper and more easily available loans.
‘Funding mismatch’ In the context of Eurozone balance sheet funding exposures, the excess of local euro denominated external assets, such as customer loans, over local euro denominated liabilities, such as customer deposits.
‘Funding risk’ The risk that the Group may not be able to achieve its business plans due to being unable to maintain appropriate capital ratios (Capital Risk), being unable to meet its obligations as they fall due (Liquidity Risk), rating agency methodology changes or of adverse changes in interest rate curves impacting structural hedges of non – interest bearing assets/ liabilities or on income or foreign exchange rates on capital ratios (Structural risk).
‘Funds and fund-linked products’ Includes holdings in mutual funds, hedge funds, fund of funds and fund linked derivatives.
‘Gains on acquisitions’ The amount by which the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, recognised in a business combination, exceeds the cost of the combination.
‘General market risk’ The risk of a price change in a financial instrument due to a change in level of interest rates or owing to a broad equity market movement unrelated to any specific attributes of individual securities.
‘Globally-Systemically Important Financial Institutions (G-SIFIs)’ Global financial institutions whose size, complexity and systemic interconnectedness, mean that their distress or failure would cause significant disruption to the wider financial system and economic activity. The Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) have identified a group of 30 globally systemically important banks.
‘Grandfathering’ In the context of CRD IV capital resources, the application of the rules on instrument eligibility during the transitional period as defined in the Capital Requirements Regulation.
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‘Gross charge-off rates’ Represents the balances charged-off to recoveries in the reporting period, expressed as a percentage of average outstanding balances excluding balances in recoveries. Charge-off to recoveries generally occurs when the collections focus switches from the collection of arrears to the recovery of the entire outstanding balance, and represents a fundamental change in the relationship between the bank and the customer. This is a measure of the proportion of customers that have gone into default during the period.
‘Gross new lending’ New lending advanced to customers during the period.
‘Group’ Barclays PLC together with its subsidiaries.
‘Guarantee’ Unless otherwise described, an undertaking by a third party to pay a creditor should a debtor fail to do so. It is a form of credit substitution.
‘Head Office and Other Operations’ A business segment comprising Brand and Marketing, Finance, Head Office, Human Resources, Internal Audit, Legal and Compliance, Risk, Treasury and Tax and other operations.
‘High Net Worth’ Businesses within Personal and Corporate Banking that provide banking and other services to high net worth customers.
‘High Risk’ In Retail, ‘High Risk’ is defined as the subset of up-to-date customers who, either through an event or observed behaviour exhibit potential financial difficulty. Where appropriate, these customers are proactively contacted to assess whether financial assistance is required.
‘Home loan’ A loan to purchase a residential property. The property is then used as collateral to guarantee repayment of the loan. The borrower gives the lender a lien against the property and the lender can foreclose on the property if the borrower does not repay the loan per the agreed terms. Also known as a residential mortgage.
‘IMA / Internal Model Approach’ In the context of Risk Weighted Assets by Risk Type, Risk Weighted Assets for which the exposure amount has been derived via the use of a PRA approved internal market risk model.
‘Impairment allowances’ A provision held on the balance sheet as a result of the raising of a charge against profit for incurred
losses in the lending book. An impairment allowance may either be identified or unidentified and individual or collective.
‘Income’ Total income net of insurance claims, unless otherwise specified.
‘Incremental Risk Charge’ An estimate of the incremental risk arising from rating migrations and defaults beyond what is already captured in specific market risk VaR for the non correlation trading portfolio.
‘Independent Commission on Banking (ICB)’ Body set up by HM Government to identify structural and non-structural measures to reform the UK banking system and promote competition.
‘Individual liquidity guidance (ILG)’ Guidance given to a firm about the amount, quality and funding profile of liquidity resources that the PRA has asked the firm to maintain.
‘Inflation risk’ In the context of DVaR, the impact of changes in inflation rates and volatilities on cash instruments and derivatives.
‘Insurance Risk’ The risk of the Group’s aggregate insurance premiums received from policyholders under a portfolio of insurance contracts being inadequate to cover the claims arising from those policies.
‘Interchange’ Income paid to a credit card issuer for the clearing and settlement of a sale or cash advance transaction.
‘Interest only home loans’ Under the terms of these loans, the customer makes payments of interest only for the entire term of the mortgage, although customers may make early repayments of the principal within the terms of their agreement. The customer is responsible for repaying the entire outstanding principal on maturity, which may require the sale of the mortgaged property.
‘Interest rate derivatives’ Derivatives linked to interest rates. This category includes interest rate swaps, collars, floors options and swaptions. 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.
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Glossary
‘Interest rate risk’ The risk of interest rate volatility adversely impacting the Groups net interest margin. In the context of the calculation of market risk DVaR, measures the impact of changes in interest (swap) rates and volatilities on cash instruments and derivatives.
‘Internal Assessment Approach (IAA)’ one of three types of calculation that a firm with permission to use the Internal Ratings Based (IRB) approach may apply to securitisation exposures. It consists of mapping a firm’s internal rating methodology for credit exposures to those of an external credit assessment institution (ECAI) to determine the appropriate risk weight based on the ratings based approach. Its applicability is limited to ABCP programmes related to liquidity facilities and credit enhancement.
‘Internal Capital Adequacy Assessment Process (ICAAP)’ Companies are required to perform a formal internal Capital Adequacy Assessment Process (ICAAP) as part of the Pillar 2 requirements (BIPRU) and to provide this document to the PRA on a yearly basis. The ICAAP document summarises the group’s risk management framework, including approach to managing all risks (i.e. Pillar 1 and non-Pillar 1 risks); and, the group’s risk appetite, economic capital and stress testing frameworks.
‘IMM’ / ‘Internal model method’ In the context of Risk Weighted Assets by Risk Type, Risk Weighted Assets for which the exposure amount has been derived via the use of a PRA approved internal counterparty credit risk model.
‘Internal Ratings Based (IRB)’ An approach under the CRR framework that relies on the bank’s internal models to derive the risk weights. The IRB approach is divided into two alternative applications, Advanced and Foundation:
– | Advanced IRB (‘A-IRB’): the bank uses its own estimates of probability of default (PD), loss given default (LGD) and credit conversion factor to model a given risk exposure. |
– | Foundation IRB: the bank applies its own PD as for Advanced, but it uses standard parameters for the LGD and the credit conversion factor. The Foundation IRB approach is specifically designed for wholesale credit exposures. Hence retail, equity, securitisation positions and non-credit obligations asset exposures are treated under Standardised or A-IRB. |
‘Investment Bank’ Consists of origination led and returns focused markets and banking business.
‘Investment Banking Fees’ In the context of Investment Bank Analysis of Total Income, fees generated from origination activity businesses – including financial advisory, Debt and Equity underwriting.
‘Investment grade’ A debt security, treasury bill or similar instrument with a credit rating of AAA to BBB as measured by external credit rating agencies.
‘ISDA Master Agreement’ The most commonly used master contract for OTC derivative transactions internationally. It is part of a framework of documents, designed to enable OTC derivatives to be documented fully and flexibly. The framework consists of a master agreement, a schedule, confirmations, definition booklets, and a credit support annex. The ISDA master agreement is published by the International Swaps and Derivatives Association (ISDA).
‘Key Risk Scenarios (KRS)’ Key Risk Scenarios are a summary of the extreme potential risk exposure for each Key Risk in each business and function, including an assessment of the potential frequency of risk events, the average size of losses and three extreme scenarios. The Key Risk Scenario assessments are a key input to the Advanced Measurement Approach calculation of regulatory and economic capital requirements.
‘Lending’ In the context of Investment Bank Analysis of Total Income, lending income includes net interest income, gains or losses on loan sale activity, and risk management activity relating to the loan portfolio.
‘Letters of credit’ A letter typically used for the purposes of international trade guaranteeing that a debtor’s payment to a creditor will be made on time and in full. In the event that the
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Glossary
debtor is unable to make payment, the bank will be required to cover the full or remaining amount of the purchase.
‘Level 1 assets’ High quality liquid assets under the Basel Committee’s Liquidity Coverage Ratio (LCR), including cash, central bank reserves and higher quality government securities.
‘Level 2 assets’ Under the Basel Committee’s Liquidity Coverage Ratio high quality liquid assets (HQLA) are comprised of Level 1 and Level 2 assets, with the latter comprised of Level 2A and Level 2B assets. Level 2A assets include, for example, lower quality government securities, covered bonds and corporate debt securities. Level 2B assets include lower rated corporate bonds, residential mortgage backed securities and equities that meet certain conditions.
‘Leverage ratio’ A measure of the Group’s Tier 1 capital to total leverage exposure under CRD IV.
‘Liquidity Coverage Ratio (LCR)’ The ratio of the stock of high quality liquid assets to expected net cash outflows over the next 30 days. High-quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible. These include, for example, cash and claims on central governments and central banks.
‘Liquidity Pool’ The Group liquidity pool comprises cash at central banks and highly liquid collateral specifically held by the Group as a contingency to enable the bank to meet cash outflows in the event of stressed market conditions.
‘Liquidity risk appetite (LRA)’ The level of liquidity risk that the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations.
‘Liquidity Risk Management Framework (the Liquidity Framework)’ The Liquidity Risk Management Framework (the Liquidity Framework), which is sanctioned by the Board Risk Committee (BRC), incorporates liquidity policies, systems and controls that the Group has implemented to manage liquidity risk within tolerances approved by the Board and regulatory agencies.
‘Litigation and conduct charges’ Litigation and conduct charges include regulatory fines, litigation settlements and conduct related customer redress.
‘Loan loss rate’ Is quoted in basis points and represents total loan impairment divided by gross loans and advances to customers and banks held at amortised cost at the balance sheet date.
‘Loan to deposit ratio’ The ratio of loans and advances to customer accounts calculated for PCB, Africa Banking, Barclaycard and Non-Core Retail. This excludes particular liabilities issued by the retail businesses that have characteristics comparable to retail deposits (for example structured Certificates of Deposit and retail bonds), which are included within debt securities in issue.
‘Loan to value (LTV) ratio’ Expresses the amount borrowed against an asset (i.e. a mortgage) as a percentage of the appraised value of the asset. The ratios are used in determining the appropriate level of risk for the loan and are generally reported as an average for new mortgages or an entire portfolio. Also see ‘Marked to market (MMT) LTV ratio.’
‘London Interbank Offered Rate (LIBOR)’ A benchmark interest rate at which banks can borrow funds from other banks in the London interbank market.
‘Long-term refinancing operation (LTRO)’ The European Central Bank’s 3 year long term bank refinancing operation.
‘Loss Given Default (LGD)’ The fraction of Exposure at Default (EAD) (defined above) that will not be recovered following default. LGD comprises the actual loss (the part that is not expected to be recovered), together with the economic costs associated with the recovery process.
‘Macro Products’ Represents Rates, Currency and Commodities income.
‘Management DVaR’ For internal market risk management purposes, the investment bank uses a Daily Value at Risk (DVaR) with a two-year equally weighted historical period, at a 95% confidence level, for all trading portfolios and certain banking books.
‘Mandatory break clause’In the context of counterparty credit risk, a contract clause that means a trade will be ended on a particular date.
‘Marked to market (MTM) LTV ratio’ The loan amount as a percentage of the current value of the asset used to secure the loan. Also see ‘Balance weighted Loan to Value (LTV) ratio’ and ‘Valuation weighted Loan to Value (LTV) ratio.’
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Glossary
‘Market risk’ The risk of the Group suffering financial loss due to changes in market prices. In the context of Risk Weighted Assets by Risk, it is the component of risk weighted assets that represents the risk of loss resulting from fluctuations in the market value of positions held in equities, commodities, currencies, derivatives and interest rates.
‘Master netting agreements’ An agreement that provides for a single net settlement of all financial instruments and collateral covered by the agreement in the event of the counterparty’s default or bankruptcy or insolvency, resulting in a reduced exposure.
‘Master trust securitisation programmes’ A securitisation structure where a trust is set up for the purpose of acquiring a pool of receivables. The trust issues multiple series of securities backed by these receivables.
‘Matchbook (or matched book)’ An asset/liability management strategy where assets are matched against liabilities of equivalent value and maturity.
‘Material Risk Takers (MRTs)’ Categories of staff whose professional activities have or are deemed to have a material impact on Barclays’ risk profile, as determined in accordance with the European Banking Authority regulatory technical standard on the identification of such staff.
‘Methodology and policy’ In the context of the Funding Risk, Capital section, the effect on RWAs of methodology changes driven by regulatory policy changes.
‘Minimum capital requirement’ Under Pillar 1 of the Basel framework, the amount of capital required for an exposure.
‘Model updates’ In the context of the Funding Risk, Capital section, changes in RWAs caused by model implementation, changes in model scope or any changes required to address model malfunctions.
‘Model validation’ Process through which models are independently challenged, tested and verified to prove that they have been built, implemented and used correctly, and that they continue to be fit-for-purpose.
‘Modelled—VaR’ In the context of risk weighted assets, market risk calculated using value at risk models laid down by the CRR and supervised by the PRA.
‘Money market funds’ Investment funds typically invested in short-term debt securities.
‘Monoline derivatives’ Derivatives with a monoline insurer such as credit default swaps referencing the underlying exposures held.
‘Moody’s’ A credit rating agency.
‘Mortgage Current Accounts (MCA) Reserves’ A secured overdraft facility available to home loan customers which allows them to borrow against the equity in their home. It allows draw-down up to an agreed available limit on a separate but connected account to the main mortgage loan facility. The balance drawn must be repaid on redemption of the mortgage.
‘Multilateral development banks’ Financial institutions created for the purposes of development, where membership transcends national boundaries.
‘National discretion’ Discretions in CRD IV given to member states to allow the local regulator additional powers in the application of certain CRD IV rules in its jurisdiction.
‘Net asset value per share’ Calculated by dividing shareholders equity, excluding non-controlling interests and other equity instruments, by the number of issued ordinary shares.
‘Net interest income’ The difference between interest income on assets and interest expense on liabilities.
‘Net interest margin’ Net interest income divided by the sum of the average assets and average liabilities for those businesses.
‘Net investment income’ Changes in the fair value of financial instruments designated at fair value, dividend income and the net result on disposal of available for sale assets.
‘Net Stable Funding Ratio (NSFR)’ The ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed scenario. The ratio is required to be over 100% with effect from 2015. Available stable funding would include such items as equity capital, preferred stock with a maturity of over 1 year, or liabilities with a maturity of over 1 year. The required amount of stable funding is calculated as the sum of the value of the assets held and funded by the institution, multiplied by a specific Required Stable Funding (RSF) factor assigned to each particular asset type, added to the amount of potential liquidity exposure multiplied by its associated RSF factor.
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Glossary
‘Net tangible asset value per share’ Calculated by dividing shareholders equity, excluding non-controlling interests and other equity instruments, less goodwill and intangible assets, by the number of issued ordinary shares.
‘Net trading income’ Gains and losses arising from trading positions which are held at fair value, in respect of both market-making and customer business, together with interest, dividends and funding costs relating to trading activities.
‘Net written credit protection’ In the context of leverage exposure, the net notional value of credit derivatives protection sold and credit derivatives protection bought.
‘New bookings’ The total of the original balance on accounts opened in the reporting period, including any applicable fees and charges included in the loan amount.
‘Non-asset backed debt instruments’ Debt instruments not backed by collateral, including government bonds; US agency bonds; corporate bonds; commercial paper; certificates of deposit; convertible bonds; corporate bonds and issued notes.
‘Non-customer net interest income(NII)’ / ‘Non-customer interest income’ Principally comprises the impact of product and equity structural hedges, as well as certain other net interest income received on government bonds and other debt securities held for the purposes of interest rate hedging and liquidity for local banking activities.
‘Non-model method (NMM)’ In the context of Risk Weighted Assets, Counterparty credit risk, Risk Weighted Assets where the exposure amount has been derived through the use of CRR norms, as opposed to an internal model.
‘Non-performance costs’ Costs other than performance costs.
‘Non-performing proportion of outstanding balances’ Defined as balances greater than 90 days delinquent (including forbearance
accounts greater than 90 days and accounts charged off to recoveries), expressed as a percentage of outstanding balances.
‘Non-significant holdings in financial institutions’ Investments that the Group holds in the capital of banking, financial or insurance entities that are outside the scope of regulatory consolidation and where the bank owns less than 10% of the issued share capital of the entity.
‘Non-Traded Market Risk’ The risk of a reduction to earnings or capital due to an inability to hedge the banking book balance sheet.
‘Notch’ A single unit of measurement in a credit rating scale.
‘Notional amount’ The nominal or face amount of a financial instrument, such as a loan or a derivative, that is used to calculate payments made on that instrument.
‘Operational risk’ The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In the context of Risk Weighted Assets, it is the component of risk weighted assets that represents the risk of loss resulting from these risks.
‘Operational RiskData eXchange (ORX)’ The Operational Riskdata eXchange Association (ORX) is a not-for-profit industry association dedicated to advancing the measurement and management of operational risk in the global financial services industry. Barclays is a member of ORX.
‘Origination led’ Focus on high margin low capital fee based activities and related hedging opportunities.
‘Over-the-counter (OTC) derivatives’ Derivative contracts that are traded (and privately negotiated) directly between two parties. They offer flexibility because, unlike standardised exchange-traded products, they can be tailored to fit specific needs.
‘Own credit’ The effect of changes in the Group’s own credit standing on the fair value of financial liabilities.
‘Owner occupied mortgage’ A mortgage where the intention of the customer was to occupy the property at origination.
‘Past due items’ Refers to loans where the borrower has failed to make a payment when due under the terms of the loan contract.
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Glossary
‘Payment Protection Insurance (PPI) redress’ Provision for the settlement of PPI miss-selling claims and related claims management costs.
‘Pension Risk’ The risk of the Group’s earnings and capital being adversely impacted by the Group’s defined benefit obligations increasing or the value of the assets backing these defined benefit obligations decreasing due to changes in both the level and volatility of prices.
‘Performance costs’ The accounting charge recognised in the period for performance awards. For deferred incentives and long-term incentives, the accounting charge is spread over the relevant periods in which the employee delivers service.
‘Personal and Corporate Banking’ An operating segment that combines core elements of UK Retail and Business Banking, global Wealth and Investment Management, and global Corporate Banking. Transfers to the Non-Core segment include the UK retail insurance underwriting and investment businesses; selected non-core corporate banking in Europe and the Middle East and certain long-dated corporate loans; local Wealth operations in certain overseas locations; and certain asset management businesses. The African businesses of Corporate Banking and Wealth Management have been moved to Africa Banking.
‘Pillar 1’ The part of the Basel framework that sets outs the rules that govern the calculation of minimum capital requirements for credit, market and operational risks.
‘Pillar 2’ The part of the Basel framework that covers the supervisory reviews of the bank’s internal assessment of capital to ensure that firms have adequate capital to support all the relevant risks in their business.
‘Pillar 3’ The part of the Basel framework that covers external communication of risk and capital information by banks to promote transparency and good risk management.
‘Post-model adjustment (PMA)’ In the context of Basel models, a PMA is a short term increase in regulatory capital applied at portfolio level to account for model input data deficiencies, inadequate model performance or changes to regulatory definitions (e.g. definition of default) to ensure the model output is accurate, complete and appropriate.
‘Potential Credit Risk Loans (PCRLs)’ Comprise the outstanding balances to Potential Problem Loans (defined below) and the three categories of Credit Risk Loans (defined above).
‘Potential Future Exposure on Derivatives’ A regulatory calculation in respect of the Group’s potential future credit exposure on both exchange traded and OTC derivative contracts, calculated by assigning a standardised percentage (based on the underlying risk category and residual trade maturity) to the gross notional value of each contract.
‘Potential Problem Loans (PPLs)’ Loans where serious doubt exists as to the ability of the borrowers to continue to comply with repayment terms in the near future.
‘PRA waivers’ PRA approvals that specifically give permission to the Bank to either modify or waive existing rules. Waivers are specific to an organisation and require applications being submitted to and approved by the PRA.
‘Primary securitisations’The issuance of securities (bonds and commercial papers) for fund-raising.
‘Primary Stress Tests’ In the context of Traded Market Risk, stress testing provides an estimate of potentially significant future losses that might arise from extreme market moves or scenarios. Primary stress tests apply stress moves to key liquid risk factors for each of the major trading asset classes.
‘Prime Services’ Involves financing of fixed income and equity positions using Repo and Stock Lending facilities. The Prime Services business also provides brokerage facilitation services for Hedge Fund clients offering execution and clearance facilities for a variety of asset classes.
‘Principal’ In the context of a loan, the amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest).
‘Principal Investments’ Private equity investments.
‘Private equity investments’ Equity securities in operating companies not quoted on a public exchange. Investment in private equity often involves the investment of capital in private companies or the acquisition of a public company that results in the delisting of public equity. Capital for private equity investment is raised by retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.
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Glossary
‘Private-label securitisation’ Residential mortgage backed security transactions sold or guaranteed by entities that are not sponsored or owned by the government.
‘Probability of Default (PD)’ The likelihood that a loan will not be repaid and will fall into default. PD may be calculated for each client who has a loan (normally applicable to wholesale customers/clients) or for a portfolio of clients with similar attributes (normally applicable to retail customers). To calculate 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 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.
‘Product structural hedge’ An interest rate hedge that converts short term interest margin volatility on product balances (such as non-interest bearing current accounts and managed rate deposits) into a more stable medium term rate and which is built on a monthly basis to achieve a targeted maturity profile.
‘Properties in Possession held as ‘Loans and Advances to Customers’’ Properties in the UK and Italy where the customer continues to retain legal title but where the bank has enforced the possession order as part of the foreclosure process to allow for the disposal of the asset or the court has ordered the auction of the property.
‘Properties in Possession held as ‘Other Real Estate Owned’’ Properties in South Africa, Spain and Portugal where the bank has taken legal ownership of the title as a result of purchase at an auction or similar and treated as ‘Other Real Estate Owned’ within other assets on the bank’s balance sheet.
‘Proprietary trading’ When a bank, brokerage or other financial institution trades on its own account, at its own risk, rather than on behalf of customers, so as to make a profit for itself.
‘Prudential Regulation Authority (PRA)’ The statutory body responsible for the prudential supervision of banks, building societies, insurers and a small number of significant investment
firms in the UK from 1 April 2013. The PRA is a subsidiary of the Bank of England.
‘Prudential valuation adjustment (PVA)’ A calculation which adjusts the accounting values of positions held on balance sheet at fair value to comply with regulatory valuation standards, which place greater emphasis on the inherent uncertainty around the value at which a trading book position could be exited.
‘Public benchmark’ Unsecured medium term notes issued in public syndicated transactions.
‘Qualifying Revolving Retail Exposure (QRRE)’ In the context of the IRB approach to credit risk RWA calculations, an exposure meeting the criteria set out in BIPRU 4.6.42 R (2). Includes most types of credit card exposure.
‘Rates’ In the context of Investment Bank income analysis, trading revenue relating to government bonds and linear interest rate derivatives.
‘Re-aging’ Re-aging is the returning of a delinquent account to up-to-date status without collecting the full arrears (principal, interest and fees).
‘Real Estate Mortgage Investment Conduits (REMICs)’An entity that holds a fixed pool of mortgages and that is separated into multiple classes of interests for issuance to investors.
‘Recoveries Impairment Coverage Ratio’ Impairment allowance held against recoveries balances expressed as a percentage of balance in recoveries.
‘Recoveries proportion of outstanding balances’ Represents the amount of recoveries (gross month-end customer balances of all accounts that have charged-off) as at the period end compared to total outstanding balances. The size of the recoveries book would ultimately have an impact on the overall impairment requirement on the portfolio. Balances in recoveries will decrease if: assets are written-off; amounts are collected; or assets are sold to a third party (i.e. debt sale).
‘Redenomination risk’The risk of financial loss to the Group should one or more countries exit from the Euro, potentially leading to the devaluation of local balance sheet assets and liabilities.
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Glossary
‘Regulatory capital’ The amount of capital that a bank holds to satisfy regulatory requirements.
‘Renegotiated loans’ Loans are generally renegotiated either as part of an ongoing customer relationship or in response to an adverse change in the circumstances of the borrower. In the latter case renegotiation can result in an extension of the due date of payment or repayment plans under which the Group offers a concessionary rate of interest to genuinely distressed borrowers. This will result in the asset continuing to be overdue and will be individually impaired where the renegotiated payments of interest and principal will not recover the original carrying amount of the asset. In other cases, renegotiation will lead to a new agreement, which is treated as a new loan.
‘Repricing lag risk’ The risk that when underlying interest rates change it can take a number of months to change the customer rate e.g. should rates decrease then we would need to let our variable savings rate customers know that we would be decreasing their savings rates. This could result in a loss of income as this may take several months whereas the “funding/investment” benefit reduces immediately.
‘Repurchase agreement (repo)’ / ‘reverse repurchase agreement (reverse repo)’ Arrangements that allow counterparties to use financial securities as collateral for an interest bearing cash loan. The borrower agrees to sell a security to the lender subject to a commitment to repurchase the asset at a specified price on a given date. For the party selling the security (and agreeing to repurchase it in the future) it is a repurchase agreement or repo; for the counterparty to the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement or reverse repo.
‘Re-securitisations’The repackaging of securitised products into securities. The resulting securities are therefore securitisation positions where the underlying assets are also predominantly securitisation positions.
‘Reserve Capital Instruments (RCIs)’ Hybrid issued capital securities which may be debt or equity accounted, depending on the terms.
‘Residential Mortgage-Backed Securities (RMBS)’ Securities that represent interests in a group of residential mortgages. Investors
in these securities have the right to cash received from future mortgage payments (interest and/or principal).
‘Residual maturity’ The remaining contractual term of a credit obligation associated with a credit exposure.
‘Restructured loans’ Comprises loans 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 original effective interest rate being less than the loan’s carrying value, an impairment allowance will be raised.
‘Retail Loans’ Loans to individuals or small and medium enterprises rather than to financial institutions and larger businesses. It includes both secured and unsecured loans such as mortgages and credit card balances, as well as loans to certain smaller business customers, typically with exposures up to £3m or with a turnover up to £5m.
‘Return on average risk weighted assets’ Statutory profit as a proportion of average risk weighted assets.
‘Return on average shareholders’ equity’ Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests and other equity instruments.
‘Return on average tangible shareholders’ equity’ Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill.
‘Risk Appetite’ Risk Appetite is defined as the level of risk that Barclays is prepared to accept whilst pursuing its business strategy, recognising a range of possible outcomes as business plans are implemented.
‘Risk weighted assets (RWAs)’ A measure of a bank’s assets adjusted for their associated risks. Risk weightings are established in accordance with the rules as implemented by CRD IV and local regulators.
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Glossary
‘Risks not in VaR (RNIVS)’ Refers to all the key risks which are not captured or not well captured within the VaR model framework.
‘Roll rate analysis’The measurement of the rate at which retail accounts deteriorate through delinquency phases.
‘Sales commissions, commitments and other incentives’ Includes commission-based arrangements, guaranteed incentives and Long Term Incentive Plan awards.
‘Sarbanes-Oxley requirements’ The Sarbanes-Oxley Act 2002 (SOX) was introduced by the U.S. Government to safeguard against corporate governance scandals such as Enron, WorldCom and Tyco. All US-listed companies must comply with SOX.
‘Second Lien’ Debt that is issued against the same collateral as higher lien debt but that is subordinate to it. In the case of default, compensation for this debt will only be received after the first lien has been repaid and thus represents a riskier investment than the first lien.
‘Secondary Stress Tests’ Secondary stress tests are used in measuring potential losses arising from illiquid market risks that cannot be hedged or reduced within the time period covered in Primary Stress tests.
‘Securities and loans’ In the context of Non-Core Analysis of Total income, Non-Core Securities and Loans comprise non strategic businesses, predominantly from the non-core Investment Bank and Corporate.
‘Securities Financing Transactions (SFT)’ In the context of risk weighted assets (RWAs), any of the following transactions: a repurchase transaction, a securities or commodities lending or borrowing transaction, or a margin lending transaction whereby cash collateral is received or paid in respect of the transfer of a related asset.
‘Securities financing transactions adjustments’ In the context of leverage ratio, a regulatory add-on calculated as exposure less collateral, taking into account master netting agreements.
‘Securities lending arrangements’ Arrangements whereby securities are legally transferred to a third party subject to an agreement to return them at a future date. The counterparty generally provides collateral against non performance in the form of cash or other assets.
‘Securitisation’ Typically, a process by which debt instruments such as mortgage loans or credit card balances are aggregated into a pool, which is used to back new securities. A company sells assets to a special purpose vehicle (SPV) which then issues securities backed by the assets. This allows the credit quality of the assets to be separated from the credit rating of the original borrower and transfers risk to external investors.
‘Securitised Products’ A business within Investment Bank that offers a range of products relating to residential mortgage backed securities, commercial mortgage backed securities and other asset backed securities, in addition to restructuring and unwinding legacy credit structures.
‘Set-off clauses’In the context of counterparty credit risk, contract clauses that allow Barclays to set off amounts owed to us by a counterparty against amounts owed by us to the counterparty.
‘Settlement balances’ Are receivables or payables recorded between the date (the trade date) a financial instrument (such as a bond) is sold, purchased or otherwise closed out, and the date the asset is delivered by or to the entity (the settlement date) and cash is received or paid.
‘Slotting’Slotting is a Basel 2 approach that requires a standard set of rules to be used in the calculation of RWAs, based upon an assessment of factors such as the financial strength of the counterparty. The requirements for the application of the Slotting approach is detailed in BIPRU 4.5.
‘South Africa’ The operations of Africa Banking based in South Africa.
‘Sovereign exposure(s)’ Exposures to central governments, including holdings in government bonds and local government bonds.
‘Specific market risk’ A risk that is due to the individual nature of an asset and can potentially be diversified or the risk of a price change in an investment due to factors related to the issuer or, in the case of a derivative, the issuer of the underlying investment.
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Glossary
‘Spread risk’ Measures the impact of changes to the swap spread, i.e. the difference between swap rates and government bond yields.
‘Standard & Poor’s’ A credit rating agency.
‘Standby facilities, credit lines and other commitments’ Agreements to lend to a customer in the future, subject to certain conditions. Such commitments are either made for a fixed period, or have no specific maturity but are cancellable by the lender subject to notice requirements.
‘Statutory’ Line items of income, expense, profit or loss, assets, liabilities or equity stated in accordance with the requirements of the UK Companies Act 2006, which incorporates the requirements of International Financial Reporting Standards (IFRS). See ‘Adjusted profit before tax’ for details of the adjustments made to the statutory results in arriving at the adjusted profit.
‘Statutory return on average shareholders’ equity’ Statutory profit after tax attributable to ordinary shareholders as a proportion of average shareholders’ equity.
‘STD’ / ‘Standardised approach’ A method of calculating Risk Weighted Assets that relies on a mandatory framework set by the regulator to derive risk weights based on counterparty type and a credit rating provided by an External Credit Assessment Institute.
‘Stress Testing’ A process which involves identifying possible future adverse events or changes in economic conditions that could have unfavourable effects on the Group (either financial or non-financial), assessing the Group’s ability to withstand such changes, and identifying management actions to mitigate the impact.
‘Stressed Value at Risk (SVaR)’ An estimate of the potential loss arising from a 12 month period of significant financial stress over a one day horizon.
‘Structured entity’ An entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities
are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities.
‘Structural hedge’ / ‘hedging’ An interest rate hedge which functions to reduce the impact of the volatility of short-term interest rate movements on positions that exist within the balance sheet that carry interest rates that do not re-price with market rates. See also ‘Equity structural hedge’ and ‘Product structural hedge’.
‘Structural model of default’ A model based on the assumption that an obligor will default when its assets are insufficient to cover its liabilities.
‘Structured credit’ Includes legacy structured credit portfolio primarily comprising derivative exposure and financing exposure to structured credit vehicles.
‘Subordinated liabilities’ Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer.
‘Supranational bonds’ Bonds issued by an international organisation, where membership transcends national boundaries (e.g. the European Union or World Trade Organisation).
‘Synthetic Securitisation Transactions’Securitisation transactions effected through the use of derivatives.
‘Tangible equity’ Shareholders’ equity excluding non-controlling interests adjusted for the deduction of intangible assets and goodwill.
‘Term premium’ Additional interest required by investors to hold assets with a longer period to maturity.
‘The three lines of defence’ The three lines of defence operating model enables Barclays to separate risk management activities between those parties that: own and take risk, and implement controls (first line); oversee and challenge the first line, provide second line risk management activity and support controls (second line); and, provide assurance that the Evaluate, Respond and Monitor (‘E-R-M’) process is fit-for-purpose, and that it is being carried out as intended (third line).
‘Tier 1 capital’ The sum of the Common Equity Tier 1 capital and Additional Tier 1 capital.
474 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Glossary
‘Tier 1 capital ratio’ The ratio expresses Tier 1 capital as a percentage of risk weighted assets.
‘Tier 2 (T2) capital’ In the context of CRD IV, a measure of a bank’s financial strength, including qualifying subordinated debt and other Tier 2 securities as defined in the Capital Requirements Regulation.
‘Total capital ratio’Total regulatory capital as a percentage of risk weighted assets.
‘Total outstanding balance’ In Retail, total outstanding balance is defined as the gross month-end customer balances on all accounts including accounts charged off to recoveries.
‘Total return swap’ 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 of the protection in return receives a predetermined amount.
‘Traded Market Risk’ The risk of a reduction to earnings or capital due to volatility of trading book positions.
‘Trading book’ All positions in financial instruments and commodities held by an institution either with trading intent, or in order to hedge positions held with trading intent.
‘Traditional Securitisation Transactions’Securitisation transactions in which an underlying pool of assets generates cash flows to service payments to investors.
‘Transform’ Package of measures to realise Barclays goal of becoming the ‘Go- to’ Bank, including delivering returns on equity higher than cost of equity in all of the Group’s businesses, and longer-term action in culture, rewards, control and costs.
‘Transitional’ In the context of CRD IV a measure is described as transitional when the transitional provisions set out in Part Ten of the CRD IV Regulation are applied in its calculation.
‘Turnbull guidance’ The Turnbull guidance sets out best practice on internal control for UK listed companies, and assists them in applying section C.2 of the Combined Code on Corporate Governance.
‘United Kingdom (UK)’ Geographic segment where Barclays operates comprising the UK. Also see ‘Europe’.
‘UK Bank levy’ A levy that applies to UK banks, building societies and the UK operations of foreign banks. The levy is payable based on a percentage of the chargeable equity and liabilities of the bank on its balance sheet date.
‘US Partner Portfolio’ Co-branded credit card programs with companies across various sectors including travel, entertainment, retail and financial sectors.
‘US Residential Mortgages’ Securities that represent interests in a group of US residential mortgages.
‘Unencumbered’ Assets not used to secure liabilities or otherwise pledged.
‘Valuation weighted Loan to Value (LTV) Ratio’ In the context of credit risk disclosures on secured home loans, a means of calculating marked to market LTVs derived by comparing total outstanding balance and the value of total collateral we hold against these balances. Valuation weighted loan to value is calculated using the following formula: LTV = total outstandings in portfolio /total property values of total outstandings in portfolio.
‘Value at Risk (VaR)’ See ‘DVaR’.
‘Weighted off balance sheet commitments’ Regulatory add-ons to the leverage exposure measure based on credit conversion factors used in the standardised approach to credit risk.
‘Wholesale loans’ / ‘lending’ Lending to larger businesses, financial institutions and sovereign entities.
‘Write-off’ Refers to the point where it is determined that an asset is irrecoverable, or it is no longer considered economically viable to try to recover the asset or it is deemed immaterial or full and final settlement is reached and the shortfall written off. In the event of write-off, the customer balance is removed from the balance sheet and the impairment reserve held against the asset is released.
‘Wrong-way risk’ Arises, in a trading exposure, 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.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 475 |
Shareholder information
Contents
Resources for shareholders including contact details for shareholder enquiries
Page | ||||||
§ Your Barclays shareholding | 477 | |||||
§ Useful contact details
| 478 |
476 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Shareholder information
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Key dates | |
5 April 2016 Final dividend payment date
27 April 2016 Q1 Results Announcement
28 April 2016 Annual General Meeting
19 September 2016a Interim dividend payment date
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Annual General Meeting (AGM)
This year’s AGM will be held at the Royal Festival Hall, Southbank Centre, Belvedere Road, London SE1 8XX on Thursday, 28 April 2016 at 11.00am.
The Chairman and Chief Executive will update shareholders on our performance in 2015 and our goals for 2016. Shareholders will also have the opportunity to ask the Board questions at the meeting.
![]() | You can find out more at home.barclays/agm |
Returning funds to shareholders
Over 60,000 shareholders did not cash their Rights Issue cheques which were sent out in September 2013.
During 2015, we conducted a tracing process to reunite these shareholders with their monies together with any unclaimed dividends. At the end of 2015, we had returned over £2.2m to our shareholders.
|
Note
a | Please note that these dates are provisional and subject to change. |
Dividends
We have declared a final dividend of 3.5 pence per share, making 6.5 pence in total for 2015. However, we intend to pay a dividend of 3.0 pence for both 2016 and 2017. This will help us accelerate the imperative rundown of Non-Core. We recognise the importance of paying a meaningful dividend as part of total shareholder returns and are committed to doing so in the future. We will pay dividends semi-annually from 2016 rather than quarterly.
How do Barclays shareholders receive their dividends?
As at 31 December 2015, Barclays shareholders received their dividends in the following ways:
![]() | 1 Direct to your bank account 2 Cheque 3 Scrip dividend programme (new shares) | 52% 27% 21% | ||
You can choose how you would like to receive your Barclays dividends – save time and receive your dividends faster
You can have your dividends paid directly into your bank or building society account. It is easy to set up and your money will be in your bank account on the dividend payment date. If you hold 2,500 shares or less, you can provide your bank or building society details quickly and easily over the telephone using the Equiniti contact details overleaf. If you hold more than 2,500 shares, please write to Equiniti.
Scrip Dividend Programme (the Programme)
Shareholders can choose to have their dividends reinvested in new ordinary Barclays shares through the Programme. More information, including the Programme Terms and Conditions and application form, are available on our website.
![]() | To find out more, contact Equiniti or visit home.barclays/dividends |
Donation to charity
We launched a special share dealing service in October 2015 for shareholders holding 4,000 shares or less. Shareholders could donate their sale proceeds to ShareGift if they wished. Our shareholders donated nearly £130,000.
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Action for shareholders
Keep your personal details up to date
Please remember to tell Equiniti if:
§ | You move house |
§ | You need to update your bank or building society details |
If you are a Shareview member, you can update your bank or building society account or address details online. If you hold 2,500 shares or less, you can update details quickly and easily over the telephone using the Equiniti contact details overleaf. If you hold more than 2,500 shares you will need to write to Equiniti. You must provide a copy of your share certificate, Sharestore statement or most recent dividend tax voucher. If these are not available, you will need to provide a copy of a utility bill or bank statement dated in the last three months.
Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 477 |
Shareholder information continued
Managing your shares online
Shareview
An increasing number of Barclays shareholders go online to manage their shareholding and find out about Barclays’ performance.
By joining Shareview, you:
§ | will receive the latest updates from Barclays direct by email |
§ | can update your address and bank details online |
§ | can vote in advance of general meetings |
To join Shareview, please follow these 3 easy steps: | ||
Step 1 | Go to shareview.co.uk | |
Step 2 | Register for electronic communications by following the instructions on screen | |
Step 3
| You will be sent an activation code in the post the next working day
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Shareholder Security
Shareholders should be wary of any cold calls with an offer to buy or sell shares. These fraudsters use persuasive and high-pressure techniques to lure shareholders into high-risk investments or scams. You should treat any unsolicited calls with caution.
Please keep in mind that firms authorised by the Financial Conduct Authority (FCA) are unlikely to contact you out of the blue. You should consider getting independent financial or professional advice from someone unconnected to the respective firm before you hand over any money.
Report a scam.If you suspect you have been approached by fraudsters please tell the FCA using the share fraud reporting form atfca.org.uk/scams. You can also call the FCA Helpline on 0800 111 6768 or through Action Fraud on 0300 123 2040. |
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The Barclays share register is maintained by Equiniti. If you have any questions about your Barclays shares, please contact Equiniti:shareview.co.uk | ||
Equiniti | ||
0371 384 2055a (in the UK) +44 121 415 7004 (from overseas) 0371 384 2255a (for the hearing impaired in the UK) +44 121 415 7028 (for the hearing impaired from overseas) | ||
Aspect House Spencer Road Lancing West Sussex BN99 6DA | ||
Shareholder Relations
| ||
To give us your feedback or if you have any questions, please contact:privateshareholderrelations@barclays.com | ||
Shareholder Relations | ||
Barclays PLC 1 Churchill Place London E14 5HP | ||
American Depositary Receipts (ADRs)
| ||
If you have any questions about ADRs, please contact J.P. Morgan:jpmorgan.adr@wellsfargo.com or visitadr.com | ||
J.P. Morgan Shareholder Services | ||
+1 800 990 1135 (toll free in US and Canada) +1 651 453 2128 (outside the US and Canada) | ||
JPMorgan Chase Bank N.A. PO Box 64504 St Paul MN 55165-0854 USA | ||
Share price
| ||
| Information on the Barclays share price and other share price tools are available at:home.barclays/investorrelations
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Alternative formats | ||
| Shareholder documents can be provided in large print, audio CD or braille free of charge by calling Equiniti. | |
0371 384 2055a (in the UK) | ||
+44 121 415 7004 (from overseas) | ||
Audio versions of the Strategic Report will also be available at the AGM.
|
Note
a | Lines open 8.30am to 5.30pm Monday to Friday, excluding public holidays. |
478 | Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F |
Signatures
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
Date March 1st, 2016
| Barclays PLC
(Registrant) | |||||
By | ||||||
/s/ Tushar Morzaria | ||||||
Tushar Morzaria, Group Finance Director |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
Date March 1st, 2016 | Barclays Bank PLC
(Registrant) | |||||
By | ||||||
/s/ Tushar Morzaria | ||||||
Tushar Morzaria, Group Finance Director |
EXHIBIT INDEX
Exhibit | Description | |
1.1 | Articles of Association of Barclays PLC (incorporated by reference to the Form 6-K filed on May 2nd, 2013) | |
1.2 | Articles of Association of Barclays Bank PLC (incorporated by reference to the Form 6-K filed on May 13th, 2010) | |
2.1 | Long Term Debt Instruments: Neither Barclays PLC nor Barclays Bank PLC is party to any single instrument relating to long-term debt pursuant to which a total amount of securities exceeding 10% of either Barclays PLC’s or Barclays Bank PLC’s total assets (on a consolidated basis) is authorised to be issued. Each of Barclays PLC and Barclays Bank PLC hereby agrees to furnish to the Securities and Exchange Commission (the “Commission”), upon its request, a copy of any instrument defining the rights of holders of its long-term debt or the rights of holders of the long-term debt of any of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed with the Commission. | |
4.0 | Rules of the Barclays Group Performance Share Plan (2005) (incorporated by reference to the 2006 Form 20-F filed on March 26th, 2007) | |
4.1 | Rules of the Barclays PLC Renewed 1986 Executive Share Option Scheme (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008) | |
4.2 | Rules of the Barclays PLC Approved Incentive Share Option Plan (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008) | |
4.3 | Rules of the Barclays PLC Unapproved Incentive Share Option Plans (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008) | |
4.4 | Rules of the Barclays PLC Executive Share Award Scheme (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-173899) filed on May 3rd, 2011) | |
4.5 | Rules of the Barclays Group Special Award Performance Share Plan (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008) | |
4.6 | Rules of the Barclays Group Incentive Share Plan (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008) | |
4.7 | Rules of Barclays Bank PLC 1999 Directors Deferred Compensation Plan (amended and restated, effective January 1, 2008) (incorporated by reference to Barclays Bank PLC’s Registration Statement on Form S-8 (File no. 333-149301) filed on February 19th, 2008) | |
4.8 | Rules of Barclays Bank PLC Senior Management Deferred Compensation Plan (amended and restated, effective January 1, 2008) (incorporated by reference to Barclays Bank PLC’s Registration Statement on Form S-8 (File no. 333-149302) filed on February 19th, 2008) | |
4.9 | Rules of the Barclays Group Share Value Plan (incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014) | |
4.10 | Rules of the Barclays PLC Long Term Incentive Plan (Incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-173899) filed on May 3rd, 2011) | |
4.11 | Contract of Employment – Tushar Morzaria (Incorporated by reference to the 2014 Form 20-F filed on March 14th, 2014) | |
4.12 | Appointment Letter – Reuben Jeffery III (incorporated by reference to the 2009 Form 20-F filed on March 19th, 2010) | |
4.13 | Appointment Letter – Dambisa Moyo (incorporated by reference to the 2010 Form 20-F filed on March 21st, 2011) | |
4.14 | Appointment Letter – Tim Breedon (incorporated by reference to the 2012 Form 20-F filed on March 13th, 2013) |
4.15 | Appointment Letter – Diane de Saint Victor (incorporated by reference to the 2012 Form 20-F filed on March 13th, 2013) | |
4.16 | Appointment Letter – Michael Ashley (Incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014) | |
4.17 | Appointment Letter – Wendy Lucas-Bull (Incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014) | |
4.18 | Appointment Letter – Stephen Thieke (Incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014) | |
4.19 | Appointment Letter – Frits van Paasschen (Incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014) | |
4.20 | Appointment Letter - Crawford Gillies (Incorporated by reference to the 2014 Form 20-F filed on March 3rd, 2015) | |
4.21 | Appointment Letter - John McFarlane (Incorporated by reference to the 2014 Form 20-F filed on March 3rd, 2015) | |
4.22 | Appointment Letter – Sir Gerry Grimstone | |
4.23 | Appointment Letter – Diane Schueneman | |
4.24 | Contract of employment – James E Staley | |
7.1 | Ratios of earnings to fixed charges. The calculations can be found in the Barclays Bank PLC financial data on page 455 of the Form 20-F. | |
7.2 | Ratios of earnings to combined fixed charges, preference share dividends and similar appropriations. The calculations can be found in the Barclays Bank PLC financial data on page 455 of the Form 20-F. | |
7.3 | Ratios of earnings to fixed charges. The calculations can be found in the Barclays PLC financial data on page 432 of the Form 20-F. | |
7.4 | Ratios of earnings to combined fixed charges, preference share dividends and similar appropriations. The calculations can be found in the Barclays PLC financial data on page 432 of the Form 20-F. | |
8.1 | List of subsidiaries – The list of subsidiaries of Barclays PLC can be found in Note 36 of the Barclays PLC financial statements on pages 285-286 and in Note 46 of the Barclays PLC financial statements on pages 299-305 of the Form 20-F. | |
11.1 | Code of Ethics | |
12.1 | Certifications filed pursuant to 17 CFR 240. 13(a)-14(a) | |
13.1 | Certifications filed pursuant to 17 CFR 240. 13(a) and 18 U.S.C 1350(a) and 1350(b) | |
15.1 | Consent of PricewaterhouseCoopers LLP for incorporation by reference of reports in certain securities registration statements of Barclays PLC and Barclays Bank PLC. | |
15.2 | Letter from PricewaterhouseCoopers LLP regarding change in registrants’ certifying accountant | |
15.3 | Chief Executive Officer – Strategy Update (incorporated by reference to the Form 6-K filed on March 1st, 2016) | |
99.1 | A table setting forth the issued share capital of Barclays PLC and the Barclays PLC Group’s total shareholders’ equity, indebtedness and contingent liabilities as at 31 December 2015 | |
99.2 | A table setting forth the issued share capital of Barclays Bank PLC and the Barclays Bank PLC Group’s total shareholders’ equity, indebtedness and contingent liabilities as at 31 December 2015 |