UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
February 2008
Barclays PLC and
Barclays Bank PLC
(Names of Registrants)
1 Churchill Place
London E14 5HP
England
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No x
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
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This Report is a joint Report on Form 6-K filed by Barclays PLC and Barclays
Bank PLC. All of the issued ordinary share capital of Barclays Bank PLC is
owned by Barclays PLC.
This Report comprises:
Information given to The London Stock Exchange and furnished pursuant to
General Instruction B to the General Instructions to Form 6-K.
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EXHIBIT INDEX
Final Results announcement released 19 February 2008
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of
the registrants has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BARCLAYS PLC
(Registrant)
Date: February 19, 2008 By: /s/ Patrick Gonsalves
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Patrick Gonsalves
Deputy Secretary
BARCLAYS BANK PLC
(Registrant)
Date: February 19, 2008 By: /s/ Patrick Gonsalves
----------------------
Patrick Gonsalves
Joint Secretary
Results Announcement
BARCLAYS PLC
RESULTS ANNOUNCEMENT FOR 2007
TABLE OF CONTENTS
PAGE
Performance highlights 2
Summary of key information 3
Financial highlights 4
Group Chief Executive's Review 5
Group Finance Director's Review 8
Consolidated income statement 11
Consolidated balance sheet 12
Results by business 14
Notes to the accounts 41
Consolidated statement of recognised income and expense 82
Summary consolidated cash flow statement 83
Performance management 84
Additional information 92
Appendix 1- Absa Group Limited results 98
Appendix 2- Profit before business disposals 100
Index 102
BARCLAYS PLC, 1 CHURCHILL PLACE, LONDON, E14 5HP, ENGLAND, UNITED KINGDOM.
TELEPHONE: +44 (0) 20 7116 1000. COMPANY NO. 48839
BARCLAYS PLC
The information in this announcement, which was approved by the Board of
Directors on 18th February 2008, does not comprise statutory accounts for the
years ended 31st December 2007 or 31st December 2006, within the meaning of
Section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for the
year ended 31st December 2007, which also include certain information required
for the Joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC
to the US Securities and Exchange Commission (SEC), will be delivered to the
Registrar of Companies in accordance with Section 242 of the Act. Statutory
accounts for the year ended 31st December 2006 have been delivered to the
Registrar of Companies and the Group's auditors have reported on those accounts
and have given an unqualified report which does not contain a statement under
Section 237(2) or (3) of the Act. The 2007 Annual Review and Summary Financial
Statement will be posted to shareholders together with the Group's full Annual
Report for those shareholders who request it.
Forward-looking statements
This document contains certain forward-looking statements within the meaning of
Section 21E of the US Securities Exchange Act of 1934, as amended, and Section
27A of the US Securities Act of 1933, as amended, with respect to certain of the
Group's plans and its current goals and expectations relating to its future
financial condition and performance. 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 'aim',
'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal',
'believe', or other words of similar meaning. Examples of forward-looking
statements include, among others, statements regarding the Group's future
financial position, income growth, impairment charges, business strategy,
projected levels of growth in the banking and financial markets, projected
costs, estimates of capital expenditures, and plans and objectives for future
operations. By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances, including,
but not limited to, UK domestic and global economic and business conditions, the
effects of continued volatility in credit markets, market related risks such as
changes in interest rates and exchange rates, the policies and actions of
governmental and regulatory authorities, changes in legislation, the further
development of standards and interpretations under International Financial
Reporting Standards (IFRS) applicable to past, current and future periods,
evolving practices with regard to the interpretation and application of
standards under IFRS, progress in the integration of Absa into the Group's
business and the achievement of synergy targets related to Absa, the outcome of
pending and future litigation, the success of future acquisitions and other
strategic transactions and the impact of competition - a number of which factors
are beyond the Group's control. As a result, the Group's actual future results
may differ materially from the plans, goals, and expectations set forth in the
Group's forward-looking statements.
Any forward-looking statements made by or on behalf of Barclays speak only as of
the date they are made. Barclays does not undertake to update forward-looking
statements to reflect any changes in Barclays expectations with regard thereto
or any changes in events, conditions or circumstances on which any such
statement is based. The reader should, however, consult any additional
disclosures that Barclays has made or may make in documents it has filed or may
file with the SEC.
Absa Definitions
'Absa Group Limited' refers to the consolidated results of the South African
group of which the parent company is listed on the Johannesburg Stock Exchange
(JSE Limited) in which Barclays owns a controlling stake.
'Absa' refers to the results for Absa Group Limited as consolidated into the
results of Barclays PLC; translated into Sterling with adjustments for
amortisation of intangible assets, certain head office adjustments, transfer
pricing and minority interests.
'International Retail and Commercial Banking-Absa' is the portion of Absa's
results that is reported by Barclays within the International Retail and
Commercial Banking business.
'Absa Capital' is the portion of Absa's results that is reported by Barclays
within the Barclays Capital business.
Glossary of terms
'Income' refers to total income net of insurance claims, unless otherwise
specified.
Profit before business disposals' represents profit before tax and disposal of
subsidiaries, associates and joint ventures. Details of the impact on each
business and the Group can be found in Appendix 2 on page 100.
'Cost:income ratio' is defined as operating expenses compared to total income
net of insurance claims.
'Cost:net income' ratio is defined as operating expenses compared to total
income net of insurance claims less impairment charges.
'Compensation:net income ratio' is defined as staff compensation based costs
compared to total income net of insurance claims less impairment charges.
'Return on average economic capital' is defined as attributable profit compared
to average economic capital.
'Average net income generated per member of staff' is defined as total operating
income compared to the average of staff numbers for the reporting period.
'Risk Tendency' is a statistical estimate of the average loss for each loan
portfolio for a 12-month period, taking into account the size of the portfolio
and its risk characteristics under current economic conditions, and is used to
track the change in risk as the portfolio of loans changes over time.
'Economic profit' is defined as profit after tax and minority interests less
capital charge (average shareholders' equity excluding minority interests
multiplied by the Group cost of capital).
'Daily Value at Risk (DVaR)' is an estimate of the potential loss which might
arise from unfavourable market movements, if the current positions were to be
held unchanged for one business day, measured to a confidence level of 98%.
PERFORMANCE HIGHLIGHTS
- Resilient performance for the year with results in line with Q3 trading update
- Group profit before tax GBP7.1bn, demonstrating the benefits of increasing
business diversification
- Group profit before business disposals 3% ahead of prior year
- Barclays Capital profit ahead of record 2006 performance, including
GBP1.6bn of net losses from credit market turbulence
- Barclays Global Investors and Barclays Wealth both benefiting from
significant asset inflows
- Improved profit and productivity in UK Banking
- Strong profit growth at Barclaycard driven by returns on international
investments and improved UK impairment
- Very strong income growth in International Retail and Commercial
Banking and significant investment for future growth
- Tier 1 capital ratio well ahead of target at 7.8%
- Final dividend increased 10% to 22.5p, making 34.0p for the full year
(2006: 31.0p)
John Varley, Group Chief Executive commented:
"Barclays delivered a resilient performance in 2007, with profits broadly in
line with the record prior year results. Investment Banking and Investment
Management performed well in the tough market conditions of 2007. Global Retail
and Commercial Banking is showing good momentum in the UK, in Western Europe and
especially in Emerging Markets. The strength of our diversified businesses gives
us confidence for the period ahead."
SUMMARY OF KEY INFORMATION
Group Results
2007 2006 % Change
GBPm GBPm
Total income net of insurance claims 23,000 21,595 7
Impairment charges and other credit
provisions (2,795) (2,154) 30
Operating expenses (13,199) (12,674) 4
Profit before tax 7,076 7,136 (1)
Profit before business disposals 7,048 6,813 3
Profit attributable to minority
interests 678 624 9
Profit attributable to equity holders of
the parent 4,417 4,571 (3)
Economic profit 2,290 2,704 (15)
p p
Earnings per share 68.9 71.9 (4)
Diluted earnings per share 66.7 69.8 (4)
Dividend per share 34.0 31.0 10
% %
Tier 1 Capital ratio(1) 7.8 7.7
Return on average shareholders' equity 20.3 24.7
Profit before tax by business(2) GBPm GBPm % Change
UK Banking 2,653 2,546 4
-------- --------
UK Retail Banking 1,282 1,181 9
Barclays Commercial Bank 1,371 1,365 0
-------- --------
Barclaycard 540 458 18
International Retail and Commercial
Banking 935 1,216 (23)
Barclays Capital 2,335 2,216 5
Barclays Global Investors 734 714 3
Barclays Wealth 307 245 25
(1) Tier 1 Capital ratio is calculated under Basel I FSA requirements.
(2) Summary excludes Head office functions and other operations.
FINANCIAL HIGHLIGHTS
2007 2006
RESULTS GBPm GBPm
Net interest income 9,610 9,143
Net fee and commission income 7,708 7,177
Principal transactions 4,975 4,576
Net premiums from insurance contracts 1,011 1,060
Other income 188 214
--------- ---------
Total income 23,492 22,170
Net claims and benefits incurred under insurance
contracts (492) (575)
--------- ---------
Total income net of insurance claims 23,000 21,595
Impairment charges and other credit provisions (2,795) (2,154)
--------- ---------
Net income 20,205 19,441
Operating expenses (13,199) (12,674)
Share of post-tax results of associates and joint
ventures 42 46
Profit on disposal of subsidiaries, associates
and joint ventures 28 323
--------- ---------
Profit before tax 7,076 7,136
--------- ---------
Profit attributable to equity holders of the
parent 4,417 4,571
Economic profit 2,290 2,704
PER ORDINARY SHARE p p
Earnings 68.9 71.9
Diluted earnings 66.7 69.8
Dividend 34.0 31.0
Net asset value 353 303
PERFORMANCE RATIOS % %
Return on average shareholders' equity 20.3 24.7
Cost:income ratio 57 59
Cost:net income ratio 65 65
2007 2006
BALANCE SHEET GBPm GBPm
Shareholders' equity excluding minority interests 23,291 19,799
Minority interests 9,185 7,591
--------- ---------
Total shareholders' equity 32,476 27,390
Subordinated liabilities 18,150 13,786
--------- ---------
Total capital resources 50,626 41,176
--------- ---------
Total assets 1,227,361 996,787
Risk weighted assets 353,476 297,833
CAPITAL RATIOS(1) % %
Tier 1 ratio 7.8 7.7
Risk asset ratio 12.1 11.7
(1) Capital ratios are calculated under Basel I FSA requirements.
GROUP CHIEF EXECUTIVE'S REVIEW
Barclays delivered a resilient financial performance in 2007 in a year of
contrasting market conditions. The excellent results of the first half were
achieved in a relatively benign environment; in the second half we were not
immune from the impact of the credit market turbulence, but profit before
business disposals for the year still increased 3 per cent. I am pleased to
report profits again above GBP7bn, which is well ahead of the average level of
the previous three years.
At a time of significant market turbulence, it is important to be clear and
confident about strategy. The strategy of Barclays is to achieve superior growth
through time by diversifying our profit base. The precondition of successful
growth is relevance to customers. We seek to maximise the alignment between the
sources of growth in the financial services industry (in particular anticipating
what customers want and need) with what we have in Barclays (in terms of brand,
capability and physical footprint). We recommit to our strategy following our
bid for ABN AMRO, and in the light of the market volatility and because of our
confidence that our strategy offers the best route to strong growth in the years
ahead.
The structure of the Group, which comprises two business groupings, Global
Retail and Commercial Banking ("GRCB") and Investment Banking and Investment
Management ("IBIM"), is designed both to enable us to be well positioned for the
significant growth which we anticipate in the global financial services industry
and to help us serve customers and clients well. We continued to invest heavily
across the Group in 2007, increasing the number of employees who serve customers
and clients and developing our distribution networks.
In IBIM I believe that we handled well the stress test of market turbulence in
the second half of 2007. Both Barclays Capital and Barclays Global Investors
ended 2007 with profits ahead of 2006, which was a year of rapid growth and
record profitability for both. We have benefited significantly from the business
diversification that we have pursued in recent years: the development of
capabilities by Barclays Capital in commodities, foreign exchange and equity
products enabled us to deliver excellent income growth in those areas. The cost
flexibility that we have built into the business model here has also served
shareholders well, enabling us to reduce expenses year on year, and improve the
cost:net income and compensation ratios. In Barclays Global Investors, iShares'
assets under management grew over $100bn to $408bn, and this growth illustrates
the significant diversification of Barclays Global Investors earnings base that
we have engineered in recent years. Meanwhile Barclays Wealth is making good
progress towards the achievement of its profit goal of GBP500m in the medium
term, benefiting as it is from proximity to the structuring and manufacturing
capabilities of Barclays Capital and Barclays Global Investors.
We are building significant momentum in GRCB. In particular, we have been
growing distribution to create a much broader business base for the years ahead.
During 2007, we opened over 600 new branches and sales centres outside the
United Kingdom, increasing by over one third the number of distribution points
across these parts of our GRCB business. This growth is feeding through
powerfully into activity levels. Income increased 28% in International Retail
and Commercial Banking - excluding Absa in 2007. Absa performed well, including
delivering on its synergy target 18 months ahead of schedule.
In UK Banking, we delivered a further two percentage points improvement in our
cost:income ratio, excluding the impact of the settlement on overdraft fees,
bringing the total to eight percentage points improvement over three years
compared with our target of six percentage points. The turnaround of UK Retail
Banking continued during 2007, with strong income growth in core product areas,
including mortgages. We have announced today our intention to reduce UK Retail
Banking's cost:income ratio by a further three percentage points over the next
three years. In Barclaycard, we have made excellent progress towards our goal of
re-establishing a leadership position in the United Kingdom and in the
aggressive expansion of our International Cards business. Profits in Barclaycard
grew strongly in 2007 as we reduced the impairment charge in the UK, and moved
Barclaycard International, including Barclaycard US, into profit.
In reviewing our use of capital and assets, our principal focus has been on the
risk weighted balance sheet rather than the nominal balance sheet. Whilst we
monitor internally a range of different ratios, our publicly expressed target
has been to maintain a ratio of tier 1 capital to risk weighted assets of 7.25%.
At the end of 2007 we were comfortably ahead of that target under both Basel I
and Basel II measurement bases. Risk weighted asset growth in 2007 was 19%, a
brisker rate than in recent years reflecting in part the syndication constraints
of the second half of the year. We expect the rate of growth in risk weighted
assets in 2008 to be slower than that of 2007.
We have increased the dividend by 10 per cent to 34p (2006: 31p), which includes
a final dividend of 22.5p (2006: 20.5p). The maintenance of our policy of
growing dividends broadly in line with the rate of underlying earnings over time
reflects the Board's confidence in the future. Our dividend remains more than
twice covered by earnings, which we believe is consistent with the funding
requirements of our organic growth plans.
We have today announced new multi-year performance goals. These are designed to
stretch us, and we see them as reflective of the potential that exists within
our businesses and our people. As in 2003, when we last set new goals, we aim to
achieve significant growth in economic profit over the next four years and
thereby to deliver top quartile Total Shareholder Return (TSR) relative to our
competitor peer group.
Over the last four years Barclays achieved a cumulative total of GBP8.3bn of
economic profit, against a target range of GBP6.5bn to GBP7.0bn. Despite
exceeding our economic profit goal by some way, we ranked in the third quartile
of our peer group in terms of TSR which was a disappointing outcome.
Our new goal is to generate a cumulative total of between GBP9.3bn and GBP10.6bn
of economic profit between 2008 and 2011. This represents an annual growth rate
in economic profit of 5 to10 per cent. We estimate that if we achieve the upper
end of the range, we will also achieve our goal of top quartile TSR relative to
our peer group.
I am pleased to report that our strategic collaboration with China Development
Bank is off to a good start. This is an important part of our long term plans to
develop a more significant presence in emerging markets, particularly Asia where
group profits more than doubled in 2007, and I look forward to reporting to
shareholders on the growing returns that we will generate from this relationship
in the coming years.
This has been a challenging year for our staff, and we have them to thank for
delivering the results we have achieved despite multiple distractions in
difficult market circumstances. I am proud of their commitment to putting our
customers first and I am confident that we enter our new goal period with a team
as good as any in the banking industry.
What is the outlook for 2008? We see another year in which global economic
growth will be 4%, or something close to that. The emerging economies account
for about a third of global GDP, but they account for two thirds of global GDP
growth and they continue to perform strongly. However, in many economies of the
developed world, there will be a slow-down, and in particular we expect economic
growth in the UK and the US to be below the trend of recent years. In an
environment such as this we will have to be disciplined in our risk management
and rigorous in our approach to lending. But our experience of 2007 gives us
confidence, and we enter 2008 with a strong capital base, a consistent strategic
direction, a well diversified set of businesses and significant opportunities
for growth in the medium term.
John Varley
Group Chief Executive
GROUP FINANCE DIRECTOR'S REVIEW
Group Performance
Barclays financial performance in 2007 demonstrated the benefits of the
successful execution of our strategic priorities in recent years. We delivered
profit before tax of GBP7,076m, broadly in line with the record results of 2006
and up 3% excluding gains from business disposals. Earnings per share were 68.9p
and we increased the full year dividend payout to 34p, a rise of 10%.
Income grew 7% to GBP23,000m, well ahead of expense growth. Growth was well
spread by business, with strong contributions from International Retail and
Commercial Banking, Barclays Global Investors and Barclays Wealth. Net income,
after impairment charges, grew 4% and included net losses of GBP1,635m relating
to credit market turbulence, net of GBP658m of gains arising from the fair
valuation of notes issued by Barclays Capital and settlements on overdraft fees
in relation to prior years of GBP116m in UK Retail Banking.
Impairment charges and other credit provisions rose 30% to GBP2,795m. Impairment
charges relating to US sub-prime mortgages and other credit market exposures
were GBP782m. Excluding these sub-prime related charges, impairment charges
improved 7% to GBP2,013m. In UK Retail Banking and Barclaycard, impairment
charges improved significantly, as a consequence of reductions in flows into
delinquency and arrears balances in UK cards and unsecured loans. UK mortgage
impairment charges remained negligible, with low levels of defaults, and the
wholesale and corporate sector remained stable. The significant increase in
impairment charges in International Retail and Commercial Banking was driven by
very strong book growth.
Operating expenses increased 4% to GBP13,199m. We invested in growing the branch
network and distribution channels in International Retail and Commercial Banking
and in infrastructure development in Barclays Global Investors. Costs were lower
in UK Banking and broadly flat in Barclays Capital. Gains from property
disposals were GBP267m (2006: GBP432m). The Group cost:income ratio improved two
percentage points to 57%.
Business Performance - Global Retail and Commercial Banking
In UK Banking we improved the cost:income ratio a further two percentage points
to 48%, excluding settlements on overdraft fees in relation to prior years. On
this basis we have delivered a cumulative eight percentage point improvement in
the past three years, well ahead of our target of six percentage points.
UK Retail Banking profit before tax grew 9% to GBP1,282m. Income grew 2%
excluding settlements on overdraft fees in relation to prior years, reflecting a
very strong performance in Personal Customer Retail Savings and good
performances in Current Accounts, Local Business and Home Finance, partially
offset by lower income from loan protection insurance. Enhancements in product
offering and continued improvements in processing capacity enabled a strong
performance in mortgage origination, with a share of net new lending of 8%.
Operating expenses were well controlled and improved 3%. Impairment charges
improved 12% reflecting lower charges in unsecured consumer lending and Local
Business. This was driven by improvements in the collection process which led to
reduced flows into delinquency, lower levels of arrears and stable charge-offs.
Mortgage impairment charges remained negligible.
Barclays Commercial Bank delivered profit before tax of GBP1,371m. Profit before
business disposals improved 5%. Income improved 7% driven by very strong growth
in fees and commissions and steady growth in net interest income. Non-interest
income increased to 32% of total income reflecting continuing focus on cross
sales and efficient balance sheet utilisation. Operating expenses rose 6%,
reflecting increased investment in product development and support, sales force
capability and operational efficiency. Impairment charges increased GBP38m as a
result of asset growth and higher charges in Larger Business.
Barclaycard profit before tax increased to GBP540m, 18% ahead of the prior year.
Steady income relative to 2006 reflected strong growth in Barclaycard
International offset by a reduction in UK card extended credit balances as we
re-positioned the UK business and reduced lower credit quality exposures
including the sale of the Monument card portfolio. As a result, impairment
charges improved 21%, reflecting more selective customer recruitment, client
management and improved collections. Operating expenses increased 12%, driven by
continued investment in Barclaycard International and the non-recurrence of a
property gain included in the 2006 results. Barclaycard US continued to make
good progress, and for the first time made a profit for the year.
International Retail and Commercial Banking profits declined 23% to GBP935m.
Results in 2006 included a GBP247m profit on disposals and GBP41m post tax
profit share from FirstCaribbean International Bank. 2007 results reflected a
12% decline in the average value of the Rand.
International Retail and Commercial Banking - excluding Absa delivered a profit
before tax of GBP246m. Income rose 28% as we significantly increased the pace of
organic growth across the business, with especially strong growth in Emerging
Markets and Spain. Operating expenses grew 32% as we expanded the distribution
footprint, opening 324 new branches and 157 new sales centres and also invested
in rolling out a common technology platform and processes across the business.
Impairment increased to GBP79m including very strong balance sheet growth and
lower releases.
International Retail and Commercial Banking - Absa Sterling profit fell GBP9m to
GBP689m after absorbing the 12% decline in the average value of the Rand. Absa
Group Limited profit before tax grew 23% in Rand terms, reflecting very strong
growth in retail banking, corporate banking and Absa Capital (reported in
Barclays Capital). Retail loans and advances grew 22% and retail deposits grew
20%. We delivered synergies of R1,428m, achieving our synergy target 18 months
ahead of schedule.
Business Performance - Investment Banking and Investment Management
Barclays Capital improved on the record performance of 2006 delivering a 5%
increase in profit before tax to GBP2,335m. Net income was ahead of last year,
reflecting very strong performances in most asset classes including interest
rates, currencies, equity products and commodities. Results also included net
losses arising from credit market turbulence of GBP1,635m net of gains from the
fair valuation of issued notes of GBP658m. All geographies outside the US
enjoyed significant growth in income and profits. Strong cost control led to
operating expenses declining slightly year on year. The cost:net income ratio
improved by 1% to 63%.
Barclays Global Investors (BGI) profit before tax increased 3% to GBP734m.
Income grew 16%, driven by very strong growth in management fees and in
securities lending revenues. Profit and income growth were both affected by the
8% depreciation in the average value of the US Dollar. BGI costs increased 25%
as we continued to build our infrastructure across multiple products and
platforms to support future growth. The cost:income ratio rose to 62%. Assets
under management grew US$265bn to US$2.1 trillion, including net new assets of
US$86bn.
Barclays Wealth profit before tax rose 25% to GBP307m. Income growth of 11% was
driven by increased client funds and greater transaction volumes. Costs were
well controlled as business volumes rose and the cost:income ratio improved
three percentage points to 76%. We continued to invest in client facing staff
and infrastructure. Redress costs declined. Total client assets increased 14% to
GBP133bn.
Head Office Functions and Other Operations
Head Office functions and other operations loss before tax increased 65% to
GBP428m reflecting higher inter-segment adjustments and lower gains from hedging
activities.
Capital Management
At 31st December 2007, our Basel I Tier 1 Capital ratio was 7.8% (2006: 7.7%).
We started managing capital ratios under Basel II from 1st January 2008. Our
Basel II Tier 1 Capital ratio was 7.6%. Our Equity Tier 1 ratio was 5.0% under
Basel I (2006: 5.3%) and 5.1% under Basel II.
We have increased the proposed dividend payable to shareholders in respect of
2007 by 10%. We maintain our progressive approach to dividends, expecting
dividend growth broadly to match earnings growth over time.
Chris Lucas
Group Finance Director
CONSOLIDATED INCOME STATEMENT
2007 2006
GBPm GBPm
--------- ---------
Interest income 25,308 21,805
Interest expense (15,698) (12,662)
--------- ---------
Net interest income 9,610 9,143
--------- ---------
Fee and commission income 8,678 8,005
Fee and commission expense (970) (828)
--------- ---------
Net fee and commission income 7,708 7,177
--------- ---------
Net trading income 3,759 3,614
Net investment income 1,216 962
--------- ---------
Principal transactions 4,975 4,576
Net premiums from insurance contracts 1,011 1,060
Other income 188 214
--------- ---------
Total income 23,492 22,170
Net claims and benefits incurred under
insurance contracts (492) (575)
--------- ---------
Total income net of insurance claims 23,000 21,595
Impairment charges and other credit
provisions (2,795) (2,154)
--------- ---------
Net income 20,205 19,441
--------- ---------
Operating expenses excluding amortisation of
intangible assets (13,013) (12,538)
Amortisation of intangible assets (186) (136)
--------- ---------
Operating expenses (13,199) (12,674)
Share of post-tax results of associates and
joint ventures 42 46
Profit on disposal of subsidiaries,
associates and joint ventures 28 323
--------- ---------
Profit before tax 7,076 7,136
Tax (1,981) (1,941)
--------- ---------
Profit after tax 5,095 5,195
--------- ---------
Profit attributable to minority interests 678 624
Profit attributable to equity holders of the
parent 4,417 4,571
--------- ---------
5,095 5,195
--------- ---------
p p
Basic earnings per ordinary share 68.9 71.9
Diluted earnings per ordinary share 66.7 69.8
Dividends per ordinary share:
Interim dividend 11.5 10.5
Final dividend proposed 22.5 20.5
--------- ---------
Total dividend 34.0 31.0
--------- ---------
GBPm GBPm
Interim dividend paid 768 666
Final dividend proposed 1,485 1,307
--------- ---------
Total dividend 2,253 1,973
--------- ---------
CONSOLIDATED BALANCE SHEET
2007 2006
GBPm GBPm
Assets
Cash and balances at central banks 5,801 7,345
Items in the course of collection from other
banks 1,836 2,408
Trading portfolio assets 193,691 177,867
Financial assets designated at fair value:
held on own account 56,629 31,799
held in respect of linked liabilities to
customers under investment contracts 90,851 82,798
Derivative financial instruments 248,088 138,353
Loans and advances to banks 40,120 30,926
Loans and advances to customers 345,398 282,300
Available for sale financial investments 43,072 51,703
Reverse repurchase agreements and cash
collateral on securities borrowed 183,075 174,090
Other assets 5,150 5,850
Current tax assets 518 557
Investments in associates and joint ventures 377 228
Goodwill 7,014 6,092
Intangible assets 1,282 1,215
Property, plant and equipment 2,996 2,492
Deferred tax assets 1,463 764
----------- ---------
Total assets 1,227,361 996,787
----------- ---------
CONSOLIDATED BALANCE SHEET
2007 2006
GBPm GBPm
Liabilities
Deposits from banks 90,546 79,562
Items in the course of collection due to other
banks 1,792 2,221
Customer accounts 294,987 256,754
Trading portfolio liabilities 65,402 71,874
Financial liabilities designated at fair value 74,489 53,987
Liabilities to customers under investment
contracts 92,639 84,637
Derivative financial instruments 248,288 140,697
Debt securities in issue 120,228 111,137
Repurchase agreements and cash collateral on
securities lent 169,429 136,956
Other liabilities 10,499 10,337
Current tax liabilities 1,311 1,020
Insurance contract liabilities, including
unit-linked liabilities 3,903 3,878
Subordinated liabilities 18,150 13,786
Deferred tax liabilities 855 282
Provisions 830 462
Retirement benefit liabilities 1,537 1,807
----------- ---------
Total liabilities 1,194,885 969,397
----------- ---------
Shareholders' equity
Called up share capital 1,651 1,634
Share premium account 56 5,818
Other reserves 874 390
Retained earnings 20,970 12,169
Less: treasury shares (260) (212)
----------- ---------
Shareholders' equity excluding minority
interests 23,291 19,799
Minority interests 9,185 7,591
----------- ---------
Total shareholders' equity 32,476 27,390
----------- ---------
Total liabilities and shareholders' equity 1,227,361 996,787
----------- ---------
RESULTS BY BUSINESS
The following section analyses the Group's performance by business. For
management and reporting purposes, Barclays is organised into the following
business groupings:
Global Retail and Commercial Banking
- UK Banking, comprising
- UK Retail Banking
- Barclays Commercial Bank (formerly UK Business Banking)
- Barclaycard
- International Retail and Commercial Banking, comprising
- International Retail and Commercial Banking - excluding Absa
- International Retail and Commercial Banking - Absa
Investment Banking and Investment Management
- Barclays Capital
- Barclays Global Investors
- Barclays Wealth
Head office functions and other operations
UK Banking
UK Banking delivers banking solutions to Barclays UK retail and business banking
customers. It offers a range of integrated products and services and access to
the expertise of other Group businesses. Customers are served through a variety
of channels comprising the branch network, automated teller machines, telephone
banking, online banking and relationship managers. UK Banking is managed through
two business areas, UK Retail Banking and Barclays Commercial Bank.
UK Retail Banking
UK Retail Banking comprises Personal Customers, Home Finance, Local Business,
Consumer Lending and Barclays Financial Planning. This cluster of businesses
aims to build broader and deeper relationships with its Personal and Local
Business customers through providing a wide range of products and financial
services. Personal Customers and Home Finance provide access to current account
and savings products, Woolwich branded mortgages and general insurance. Consumer
Lending provides unsecured loan and protection products and Barclays Financial
Planning provides investment advice and products. Local Business provides
banking services, including money transmission, to small businesses.
Barclays Commercial Bank
Barclays Commercial Bank provides banking services to organisations with an
annual turnover of more than GBP1m. Customers are served via a network of
relationship and industry sector specialists, which provides solutions
constructed from a comprehensive suite of banking products, support, expertise
and services, including specialist asset financing and leasing facilities.
Customers are also offered access to the products and expertise of other
businesses in the Barclays Group, particularly Barclays Capital, Barclaycard and
Barclays Wealth.
Barclaycard
Barclaycard is a multi-brand credit card and consumer lending business which
also processes card payments for retailers and merchants and issues credit and
charge cards to corporate customers and the UK Government. It is one of Europe's
leading credit card businesses and has an increasing presence in the United
States.
In the UK, Barclaycard comprises Barclaycard UK Cards, Barclaycard Partnerships
(SkyCard, Thomas Cook, Argos and Solution Personal Finance), Barclays Partner
Finance (formerly CFS) and FirstPlus.
Outside the UK, Barclaycard provides credit cards in the United States, Germany,
Spain, Italy and Portugal. In the Nordic region, Barclaycard operates through
Entercard, a joint venture with Swedbank.
Barclaycard works closely with other parts of the Group, including UK Retail
Banking, Barclays Commercial Bank and International Retail and Commercial
Banking, to leverage their distribution capabilities.
International Retail and Commercial Banking
International Retail and Commercial Banking provides banking services to
Barclays personal and corporate customers outside the UK. The products and
services offered to customers are tailored to meet customer needs and the
regulatory and commercial environments within each country. For reporting
purposes the operations are grouped into two components: International Retail
and Commercial Banking - excluding Absa and International Retail and Commercial
Banking - Absa. International Retail and Commercial Banking works closely with
all other parts of the Group to leverage synergies from product and service
propositions.
International Retail and Commercial Banking - excluding Absa
International Retail and Commercial Banking - excluding Absa provides a range of
banking services to retail and corporate customers in Western Europe and
Emerging Markets, including current accounts, savings, investments, mortgages
and loans. Barclays Western Europe business includes Spain, Italy, France and
Portugal. Emerging Markets includes operations in Africa, India and the Middle
East.
International Retail and Commercial Banking - Absa
International Retail and Commercial Banking - Absa represents Barclays
consolidation of Absa, excluding Absa Capital which is included as part of
Barclays Capital. Absa Group Limited is one of South Africa's largest financial
services organisations serving personal, commercial and corporate customers
predominantly in South Africa. International Retail and Commercial Banking -
Absa serves retail customers through a variety of distribution channels and
offers a full range of banking services, including current and deposit accounts,
mortgages, instalment finance, credit cards, bancassurance products and wealth
management services. It also offers customised business solutions for commercial
and large corporate customers.
Barclays Capital
Barclays Capital is a leading global investment bank which provides large
corporate, institutional and government clients with solutions to their
financing and risk management needs.
Barclays Capital services a wide variety of client needs, from capital raising
and managing foreign exchange, interest rate, equity and commodity risks,
through to providing technical advice and expertise. Activities are organised
into three principal areas: Rates, which includes fixed income, foreign
exchange, commodities, emerging markets, money markets, prime services and
equity products; Credit, which includes primary and secondary activities for
loans and bonds for investment grade, high yield and emerging market credit, as
well as hybrid capital products, asset based finance, mortgage backed
securities, credit derivatives, structured capital markets and large asset
leasing; and Private Equity. Barclays Capital includes Absa Capital, the
investment banking business of Absa. Barclays Capital works closely with all
other parts of the Group to leverage synergies from client relationships and
product capabilities.
Barclays Global Investors
Barclays Global Investors (BGI) is one of the world's largest asset managers and
a leading global provider of investment management products and services.
BGI offers structured investment strategies such as indexing, global asset
allocation and risk controlled active products including hedge funds and
provides related investment services such as securities lending, cash management
and portfolio transition services. In addition, BGI is the global leader in
assets and products in the exchange traded funds business, with over 320 funds
for institutions and individuals trading globally. BGI's investment philosophy
is founded on managing all dimensions of performance: a consistent focus on
controlling risk, return and cost. BGI collaborates with the other Barclays
businesses, particularly Barclays Capital and Barclays Wealth, to develop and
market products and leverage capabilities to better serve the client base.
Barclays Wealth
Barclays Wealth serves high net worth, affluent and intermediary clients
worldwide, providing private banking, asset management, stockbroking, offshore
banking, wealth structuring and financial planning services and manages the
closed life assurance activities of Barclays and Woolwich in the UK.
Barclays Wealth works closely with all other parts of the Group to leverage
synergies from client relationships and product capabilities.
Head office functions and other operations
Head office functions and other operations comprises:
- Head office and central support functions
- Businesses in transition
- Consolidation adjustments.
Head office and central support functions comprises the following areas:
Executive Management, Finance, Treasury, Corporate Affairs, Human Resources,
Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property,
Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are
recharged to them.
Businesses in transition principally relate to certain lending portfolios that
are centrally managed with the objective of maximising recovery from the assets.
Consolidation adjustments largely reflect the elimination of inter-segment
transactions.
UK Banking
2007 2006
Income Statement Information GBPm GBPm
Net interest income 4,596 4,467
Net fee and commission income 1,932 1,874
-------- --------
Net trading income 9 2
Net investment income 47 28
-------- --------
Principal transactions 56 30
Net premiums from insurance contracts 252 342
Other income 58 63
-------- --------
Total income 6,894 6,776
Net claims and benefits incurred under insurance
contracts (43) (35)
-------- --------
Total income net of insurance claims 6,851 6,741
Impairment charges (849) (887)
-------- --------
Net income 6,002 5,854
-------- --------
Operating expenses excluding amortisation of
intangible assets (3,358) (3,387)
Amortisation of intangible assets (12) (2)
-------- --------
Operating expenses (3,370) (3,389)
Share of post-tax results of associates and joint
ventures 7 5
Profit on disposal of subsidiaries, associates
and joint ventures 14 76
-------- --------
Profit before tax 2,653 2,546
-------- --------
Balance Sheet Information
Loans and advances to customers GBP145.3bn GBP131.0bn
Customer accounts GBP147.9bn GBP139.7bn
Total assets GBP161.8bn GBP147.6bn
Performance Ratios
Return on average economic capital(1) 29% 32%
Cost:income ratio(1) 49% 50%
Cost:net income ratio(1) 56% 58%
Other Financial Measures
Risk Tendency(1),(2) GBP775m GBP790m
Economic profit(1) GBP1,272m GBP1,327m
Risk weighted assets GBP99.8bn GBP93.0bn
Key Fact
Number of UK branches 1,733 2,014
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
UK Banking profit before tax increased 4% (GBP107m) to GBP2,653m (2006:
GBP2,546m) driven principally by solid income growth. Results included gains
from the sale and leaseback of properties and property sales of GBP232m (2006:
GBP313m).
The cost:income ratio improved one percentage point to 49%. Excluding the impact
of settlements on overdraft fees in relation to prior years, the cost:income
ratio improved two percentage points to 48%, making eight percentage points of
improvement from 2004 to 2007 compared to the target of six percentage points.
UK Retail Banking
2007 2006
Income Statement Information GBPm GBPm
Net interest income 2,858 2,765
Net fee and commission income 1,183 1,232
Net premiums from insurance contracts 252 342
Other income 47 42
-------- --------
Total income 4,340 4,381
Net claims and benefits incurred under insurance
contracts (43) (35)
-------- --------
Total income net of insurance claims 4,297 4,346
Impairment charges (559) (635)
-------- --------
Net income 3,738 3,711
-------- --------
Operating expenses excluding amortisation of
intangible assets (2,455) (2,531)
Amortisation of intangible assets (8) (1)
-------- --------
Operating expenses (2,463) (2,532)
Share of post-tax results of associates and
joint ventures 7 2
-------- --------
Profit before tax 1,282 1,181
-------- --------
Balance Sheet Information
Loans and advances to customers GBP82.0bn GBP74.7bn
Customer accounts GBP87.1bn GBP82.3bn
Total assets GBP87.8bn GBP81.7bn
Performance Ratios
Return on average economic capital(1) 28% 28%
Cost:income ratio(1) 57% 58%
Cost:net income ratio(1) 66% 68%
Other Financial Measures
Risk Tendency(1),(2) GBP470m GBP500m
Economic profit(1) GBP622m GBP589m
Risk weighted assets GBP46.0bn GBP43.0bn
Key Facts
Number of UK current accounts(3) 11.3m 11.5m
Number of UK savings accounts 11.1m 11.0m
Total UK mortgage balances GBP69.8bn GBP61.7bn
Number of Local Business customers 643,000 630,000
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
(3) Decrease reflects the consolidation of Woolwich and Barclays current
accounts.
UK Retail Banking profit before tax increased 9% (GBP101m) to GBP1,282m (2006:
GBP1,181m) due to reduced costs and a strong improvement in impairment.
Income grew 2% (GBP67m) before the impact of settlements on overdraft fees in
relation to prior years (GBP116m). This was driven by very strong growth in
Personal Customer Retail Savings and good growth in Personal Customer Current
Accounts, Home Finance and Local Business. Including the impact of settlements
on overdraft fees, income decreased GBP49m to GBP4,297m (2006: GBP4,346m).
Net interest income increased 3% (GBP93m) to GBP2,858m (2006: GBP2,765m). Growth
was driven by a higher contribution from deposits, through a combination of good
balance sheet growth and an increased liability margin. Total average customer
deposit balances increased 7% to GBP81.9bn (2006: GBP76.5bn), supported by the
launch of new products.
Mortgage volumes increased significantly, driven by an improved mix of longer
term value products for customers, higher levels of retention and continuing
improvements in processing capability. Mortgage balances were GBP69.8bn at the
end of the period (31st December 2006: GBP61.7bn), an approximate market share
of 6% (2006: 6%). Gross advances were 25% higher at GBP23.0bn (2006: GBP18.4bn).
Net lending was GBP8.0bn (2006: GBP2.4bn), representing market share of 8%
(2006: 2%). The average loan to value ratio of the residential mortgage book on
a current valuation basis was 33%. The average loan to value ratio of new
residential mortgage lending in 2007 was 54%. Consumer Lending balances
decreased 4% to GBP7.9bn (2006: GBP8.2bn), reflecting the impact of tighter
lending criteria.
Overall asset margins decreased as a result of the increased proportion of
mortgages and contraction in unsecured loans.
Net fee and commission income reduced 4% (GBP49m) to GBP1,183m (2006:
GBP1,232m). There was strong Current Account income growth in Personal Customers
and good growth within Local Business. This was more than offset by settlements
on overdraft fees.
Net premiums from insurance underwriting activities reduced 26% (GBP90m) to
GBP252m (2006: GBP342m), as there continued to be lower customer take-up of loan
protection insurance. Net claims and benefits on insurance contracts increased
to GBP43m (2006: GBP35m).
Impairment charges decreased 12% (GBP76m) to GBP559m (2006: GBP635m) reflecting
lower charges in unsecured Consumer Lending and Local Business. This was driven
by improvements in the collection process which led to reduced flows into
delinquency, lower levels of arrears and stable charge-offs. Mortgage impairment
charges remained negligible.
Operating expenses reduced 3% (GBP69m) to GBP2,463m (2006: GBP2,532m),
reflecting strong and active management of all expense lines, targeted
processing improvements and back office consolidation. Gains from the sale of
property were GBP193m (2006: GBP253m). Increased investment was focused on:
improving the overall customer experience through converting and improving the
branch network; revitalising the product offering; increasing operational and
process efficiency; and meeting regulatory requirements.
The cost:income ratio improved one percentage point to 57%. Excluding the impact
of settlements on overdraft fees, the cost:income ratio improved two percentage
points to 56%.
Barclays Commercial Bank
2007 2006
Income Statement Information GBPm GBPm
Net interest income 1,738 1,702
Net fee and commission income 749 642
--------- ---------
Net trading income 9 2
Net investment income 47 28
--------- ---------
Principal transactions 56 30
Other income 11 21
--------- ---------
Total income 2,554 2,395
Impairment charges (290) (252)
--------- ---------
Net income 2,264 2,143
--------- ---------
Operating expenses excluding amortisation of
intangible assets (903) (856)
Amortisation of intangible assets (4) (1)
--------- ---------
Operating expenses (907) (857)
Share of post-tax results of associates and
joint ventures - 3
Profit on disposal of subsidiaries, associates
and joint ventures 14 76
--------- ---------
Profit before tax 1,371 1,365
--------- ---------
Balance Sheet Information
Loans and advances to customers GBP63.3bn GBP56.3bn
Customer accounts GBP60.8bn GBP57.4bn
Total assets GBP73.9bn GBP65.9bn
Performance Ratios
Return on average economic capital(1) 30% 37%
Cost:income ratio(1) 36% 36%
Cost:net income ratio(1) 40% 40%
Other Financial Measures
Risk Tendency(1),(2) GBP305m GBP290m
Economic profit(1) GBP650m GBP738m
Risk weighted assets GBP53.8bn GBP50.0bn
Key Fact
Number of Commercial Bank customers 81,000 77,000
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
Barclays Commercial Bank profit before tax increased GBP6m to GBP1,371m (2006:
GBP1,365m) due to continued good income growth partially offset by lower gains
from business disposals. Profit before business disposals increased 5% to
GBP1,357m (2006: GBP1,289m).
Income increased 7% (GBP159m) to GBP2,554m (2006: GBP2,395m). Non-interest
income increased to 32% of total income (2006: 29%), reflecting continuing focus
on cross sales and efficient balance sheet utilisation. There was very strong
growth in net fee and commission income, which increased 17% (GBP107m) to
GBP749m (2006: GBP642m) due to very strong performance in lending fees. There
was also good growth in transaction related income, foreign exchange and
derivatives transactions undertaken on behalf of clients.
Net interest income improved 2% (GBP36m) to GBP1,738m (2006: GBP1,702m). Average
customer lendings increased 3% to GBP53.6bn (2006: GBP52.0bn) and 5%, excluding
the impact of the vehicle leasing and European vendor finance businesses sold in
2006. Average customer accounts grew 4% to GBP46.4bn (2006: GBP44.8bn). The
asset margin decreased by twelve basis points to 1.80%, reflecting an increased
focus on higher quality lending and competitive market conditions. The
liabilities margin remained broadly stable at 1.49%.
Income from principal transactions, primarily reflecting venture capital and
other equity realisations, increased 87% (GBP26m) to GBP56m (2006: GBP30m).
Impairment charges increased 15% (GBP38m) to GBP290m (2006: GBP252m), mainly due
to a higher level of impairment losses in Larger Business as impairment trended
towards risk tendency. There was a reduction in impairment levels in Medium
Business due to a tightening of the lending criteria.
Operating expenses increased 6% (GBP50m) to GBP907m (2006: GBP857m). Operating
expenses are net of gains of GBP39m (2006: GBP60m) on the sale of property.
Growth in operating expenses was focused on continuing investment in operations,
infrastructure, and new initiatives in product development and sales capability.
Barclaycard
2007 2006
Income Statement Information GBPm GBPm
Net interest income 1,394 1,383
Net fee and commission income 1,080 1,106
Net investment income 11 15
Net premiums from insurance contracts 40 18
Other income (26) -
--------- ---------
Total income 2,499 2,522
Net claims and benefits incurred under insurance
contracts (13) (8)
--------- ---------
Total income net of insurance claims 2,486 2,514
Impairment charges (838) (1,067)
--------- ---------
Net income 1,648 1,447
--------- ---------
Operating expenses excluding amortisation of
intangible assets (1,073) (964)
Amortisation of intangible assets (28) (17)
--------- ---------
Operating expenses (1,101) (981)
Share of post-tax results of associates and
joint ventures (7) (8)
--------- ---------
Profit before tax 540 458
--------- ---------
Balance Sheet Information
Loans and advances to customers GBP20.1bn GBP18.2bn
Total assets GBP22.2bn GBP20.1bn
Performance Ratios
Return on average economic capital(1) 19% 16%
Cost:income ratio(1) 44% 39%
Cost:net income ratio(1) 67% 68%
Other Financial Measures
Risk Tendency(1),(2) GBP945m GBP1,135m
Economic profit(1) GBP183m GBP137m
Risk weighted assets GBP19.9bn GBP17.0bn
Key Facts
Number of Barclaycard UK customers 10.1m 9.8m
Number of retailer relationships 93,000 93,000
UK credit cards - average outstanding balances GBP8.4bn GBP9.4bn
UK credit cards - average extended credit GBP6.9bn GBP8.0bn
balances
International - average outstanding balances GBP3.9bn GBP2.9bn
International - average extended credit balances GBP3.3bn GBP2.5bn
International cards in issue 8.8m 6.4m
Secured lending - average outstanding loans GBP4.3bn GBP3.4bn
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
Barclaycard profit before tax increased 18% (GBP82m) to GBP540m (2006: GBP458m),
driven by strong international growth coupled with a significant improvement in
UK impairment charges. Other income included a GBP27m loss on disposal of part
of the Monument card portfolio. 2006 results reflected a property gain of
GBP38m.
Income decreased 1% (GBP28m) to GBP2,486m (2006: GBP2,514m) reflecting strong
growth in Barclaycard International, offset by a decline in UK Cards revenue
resulting from a more cautious approach to lending in the UK and a GBP27m loss
on disposal of part of the Monument card portfolio.
Net interest income increased 1% (GBP11m) to GBP1,394m (2006: GBP1,383m) due to
strong organic growth in international average extended credit card balances, up
32% to GBP3.3bn and average secured consumer lending balances up 26% to
GBP4.3bn, partially offset by lower UK average extended credit card balances
which fell 14% to GBP6.9bn. Margins fell to 6.59% (2006: 7.13%) due to higher
average base rates across core operating markets and a change in the product mix
with an increased weighting to secured lending.
Net fee and commission income fell 2% (GBP26m) to GBP1,080m (2006: GBP1,106m)
with growth in Barclaycard International offset by our actions in response to
the Office of Fair Trading's findings on late and overlimit fees in the UK which
were implemented in August 2006.
Impairment charges improved 21% (GBP229m) to GBP838m (2006: GBP1,067m)
reflecting reduced flows into delinquency, lower levels of arrears and lower
charge-offs in UK Cards. We made changes to our impairment methodologies to
standardise our approach and in anticipation of Basel II. The net positive
impact of these changes in methodology was offset by an increase in impairment
charges in Barclaycard International and secured consumer lending.
Operating expenses increased 12% (GBP120m) to GBP1,101m (2006: GBP981m).
Excluding a property gain of GBP38m in 2006, operating expenses increased 8%
(GBP82m) reflecting continued investment in expanding our businesses in Europe
and the US. Costs in the UK businesses were broadly flat, with investment in new
UK product innovations such as Barclaycard OnePulse being funded out of
operating efficiencies.
Barclaycard International continued to gain momentum, delivering a profit before
tax of GBP77m against a loss before tax of GBP36m in 2006. We concluded seven
new credit card partnership deals across Western Europe. The Entercard joint
venture continued to perform ahead of plan and entered the Danish market,
extending its reach across the Scandinavian region. Barclaycard US was
profitable, with very strong average balance growth and a number of new card
partnerships including Lufthansa Airlines and Princess Cruise Lines.
International Retail and Commercial Banking
2007 2006
Income Statement Information GBPm GBPm
Net interest income 1,890 1,653
Net fee and commission income 1,210 1,221
--------- ---------
Net trading income 69 6
Net investment income 179 188
--------- ---------
Principal transactions 248 194
Net premiums from insurance contracts 372 351
Other income 87 74
--------- ---------
Total income 3,807 3,493
Net claims and benefits incurred under insurance
contracts (284) (244)
--------- ---------
Total income net of insurance claims 3,523 3,249
Impairment charges (252) (167)
--------- ---------
Net income 3,271 3,082
--------- ---------
Operating expenses excluding amortisation of
intangible assets (2,279) (2,077)
Amortisation of intangible assets (77) (85)
--------- ---------
Operating expenses (2,356) (2,162)
Share of post-tax results of associates and
joint ventures 7 49
Profit on disposal of subsidiaries, associates
and joint ventures 13 247
--------- ---------
Profit before tax 935 1,216
--------- ---------
Balance Sheet Information
Loans and advances to customers GBP70.1bn GBP53.2bn
Customer accounts GBP28.8bn GBP22.1bn
Total assets GBP89.5bn GBP68.6bn
Performance Ratios
Return on average economic capital(1) 16% 36%
Cost:income ratio(1) 67% 67%
Cost:net income ratio(1) 72% 70%
Other Financial Measures
Risk Tendency(1),(2) GBP475m GBP220m
Economic profit(1) GBP150m GBP493m
Risk weighted assets GBP53.3bn GBP40.8bn
Key Facts
Number of branches 2,014 1,653
Number of sales centres 335 52
Number of distribution points 2,349 1,705
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
International Retail and Commercial Banking profit before tax decreased GBP281m
to GBP935m (2006: GBP1,216m). International Retail and Commercial Banking -
excluding Absa profit before tax in 2006 included a GBP247m gain on the sale of
associate FirstCaribbean International Bank and a GBP41m share of its post-tax
results. Profit before tax in 2007 included gains from the sale and leaseback of
property of GBP23m (2006: GBP55m). Very strong profit growth in Rand terms in
International Retail and Commercial Banking - Absa was offset by a 12% decline
in the average value of the Rand.
A significant investment was made in infrastructure and distribution, including
the opening of 644 new branches and sales centres across Western Europe,
Emerging Markets and Absa.
International Retail and Commercial Banking - excluding Absa
2007 2006
Income Statement Information GBPm GBPm
Net interest income 753 604
Net fee and commission income 425 366
--------- ---------
Net trading income 68 17
Net investment income 109 66
--------- ---------
Principal transactions 177 83
Net premiums from insurance contracts 145 111
Other income 9 20
--------- ---------
Total income 1,509 1,184
Net claims and benefits incurred under insurance
contracts (170) (138)
--------- ---------
Total income net of insurance claims 1,339 1,046
Impairment charges (79) (41)
--------- ---------
Net income 1,260 1,005
--------- ---------
Operating expenses excluding amortisation of
intangible assets (1,007) (765)
Amortisation of intangible assets (16) (9)
--------- ---------
Operating expenses (1,023) (774)
Share of post-tax results of associates and joint
ventures 1 40
Profit on disposal of subsidiaries, associates
and joint ventures 8 247
--------- ---------
Profit before tax 246 518
--------- ---------
Balance Sheet Information
Loans and advances to customers GBP39.3bn GBP29.0bn
Customer accounts GBP15.7bn GBP11.0bn
Total assets GBP52.2bn GBP38.2bn
Performance Ratios
Return on average economic capital(1) 11% 36%
Cost:income ratio(1) 76% 74%
Cost:net income ratio(1) 81% 77%
Other Financial Measures
Risk Tendency(1),(2) GBP220m GBP75m
Economic profit(1) GBP20m GBP309m
Risk weighted assets GBP29.7bn GBP20.1bn
Key Facts
Number of branches 1,177 853
Number of sales centres 171 14
Number of distribution points 1,348 867
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
International Retail and Commercial Banking - excluding Absa profit before tax
decreased 53% (GBP272m) to GBP246m (2006: GBP518m). Profit before tax in 2006
included a GBP247m gain on the sale of associate FirstCaribbean International
Bank and a GBP41m share of its post-tax results. Profit before tax in 2007
included gains from the sale and leaseback of property in 2007 of GBP23m (2006:
GBP55m). The performance reflected very strong income growth driven by a rapid
growth in distribution points to 1,348 (2006: 867) as well as the launch of new
businesses in India and UAE and a full retail and commercial banking offering in
Italy.
Income increased 28% (GBP293m) to GBP1,339m (2006: GBP1,046) driven by excellent
performances in Western Europe and Emerging Markets.
Net interest income increased 25% (GBP149m) to GBP753m (2006: GBP604m). Total
average customer loans increased 22% (GBP6.1bn) to GBP33.3bn (2006: GBP27.2bn)
with lending margins broadly stable. Mortgage balance growth in Western Europe
was very strong, with average Euro balances up 16% (EUR4.2bn) to EUR30.1bn
(2006: EUR25.9bn). Average customer deposits increased 20% (GBP2.1bn) to
GBP12.5bn (2006: GBP10.4bn) driven by growth in Western Europe and Emerging
Markets.
Net fee and commission income grew 16% (GBP59m) to GBP425m (2006: GBP366m),
reflecting strong performances in Western Europe driven by the expansion of the
customer base.
Principal transactions increased GBP94m to GBP177m (2006: GBP83m) reflecting
gains on equity investments, and higher foreign exchange income across Emerging
Markets.
Impairment charges rose 93% (GBP38m) to GBP79m (2006: GBP41m). The increase
reflected very strong balance sheet growth in 2006 and 2007 and the impact of
lower releases in 2007.
Operating expenses grew 32% (GBP249m) to GBP1,023m (2006: GBP774m) driven by the
rapid expansion of the distribution network across all regions and investment in
people and infrastructure to support future growth across the franchise.
Operating expenses included property sales in Spain of GBP23m (2006: GBP55m).
Western Europe continued to perform strongly. Profit before tax increased 30%
(GBP56m) to GBP245m (2006: GBP189m). Barclays Spain profit before tax increased
53% (GBP72m) to GBP207m (2006: GBP135m) driven by increased customer lending,
higher service commissions and equity investment realisations. France also
performed well driven by good growth in the balance sheet, higher fees and
commissions and good cost control. Income grew very strongly in Italy as a
result of the opening of new branches and the roll-out of a complete retail and
commercial banking offering but this was more than offset by higher investment
costs. Profit before tax decreased in Portugal, with very strong income growth
offset by increased investment in the expansion of the business.
Emerging Markets profit before tax increased 25% (GBP28m) to GBP142m (2006:
GBP114m) reflecting a very strong rise in income across a broad range of
markets, with particularly strong growth in Egypt, UAE, Kenya, Ghana, Tanzania,
Uganda and India. The income growth benefited from increased investment in the
business across all geographies, including branch openings and the launch of
retail banking services in India and the UAE.
International Retail and Commercial Banking - Absa
2007 2006
Income Statement Information GBPm GBPm
Net interest income 1,137 1,049
Net fee and commission income 785 855
--------- ---------
Net trading income/(loss) 1 (11)
Net investment income 70 122
--------- ---------
Principal transactions 71 111
Net premiums from insurance contracts 227 240
Other income 78 54
--------- ---------
Total income 2,298 2,309
Net claims and benefits incurred under insurance
contracts (114) (106)
--------- ---------
Total income net of insurance claims 2,184 2,203
Impairment charges (173) (126)
--------- ---------
Net income 2,011 2,077
--------- ---------
Operating expenses excluding amortisation of
intangible assets (1,272) (1,312)
Amortisation of intangible assets (61) (76)
--------- ---------
Operating expenses (1,333) (1,388)
Share of post-tax results of associates and
joint ventures 6 9
Profit on disposal of subsidiaries, associates
and joint ventures 5 -
--------- ---------
Profit before tax 689 698
--------- ---------
Balance Sheet Information
Loans and advances to customers GBP30.8bn GBP24.2bn
Customer accounts GBP13.1bn GBP11.1bn
Total assets GBP37.3bn GBP30.4bn
Performance Ratios
Return on average economic capital(1) 23% 34%
Cost:income ratio(1) 61% 63%
Cost:net income ratio(1) 66% 67%
Other Financial Measures
Risk Tendency(1),(2) GBP255m GBP145m
Economic profit(1) GBP130m GBP184m
Risk weighted assets GBP23.6bn GBP20.7bn
Key Facts
Number of branches 837 800
Number of sales centres 164 38
Number of distribution points 1,001 838
Number of ATMs 7,884 7,411
Number of retail customers 9.7m 8.3m
Number of corporate customers 100,000 84,000
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
International Retail and Commercial Banking - Absa profit before tax decreased
to GBP689m (2006: GBP698m).
Appendix 1 on page 98 summarises the Rand results of Absa Group Limited for the
year to 31st December 2007 as reported to the JSE Limited.
Impact on Barclays results
Absa Group Limited's profit before tax of R14,067m (2006: R11,417m) is
translated into Barclays results at an average exchange rate of R14.11/GBP
(2006: R12.47/GBP), a 12% depreciation in the average value of the Rand against
Sterling. Consolidation adjustments reflected the amortisation of intangible
assets of GBP55m (2006: GBP75m) and internal funding and other adjustments of
GBP98m (2006: GBP72m). The resulting profit before tax of GBP844m (2006:
GBP769m) is represented within International Retail and Commercial Banking -
Absa GBP689m, (2006: GBP698m) and Barclays Capital, GBP155m (2006: GBP71m).
Absa Group Limited's total assets were R640,909m (2006: R495,112m), growth of
29%. This is translated into Barclays results at a period-end exchange rate of
R13.64/GBP (2006: R13.71/GBP). The capital investment was hedged against
currency movements in 2007.
Barclays Capital
2007 2006
Income Statement Information GBPm GBPm
Net interest income 1,179 1,158
Net fee and commission income 1,235 952
--------- ---------
Net trading income 3,739 3,562
Net investment income 953 573
--------- ---------
Principal transactions 4,692 4,135
Other income 13 22
--------- ---------
Total income 7,119 6,267
Impairment charges and other credit provisions (846) (42)
--------- ---------
Net income 6,273 6,225
--------- ---------
Operating expenses excluding amortisation of
intangible assets (3,919) (3,996)
Amortisation of intangible assets (54) (13)
--------- ---------
Operating expenses (3,973) (4,009)
Share of post-tax results of associates and joint
ventures 35 -
--------- ---------
Profit before tax 2,335 2,216
--------- ---------
Balance Sheet Information
Total assets GBP839.7bn GBP657.9bn
Performance Ratios
Return on average economic capital(1) 33% 41%
Cost:income ratio(1) 56% 64%
Cost:net income ratio(1) 63% 64%
Compensation:net income ratio 47% 49%
Other Financial Measures
Risk Tendency(1),(2) GBP140m GBP95m
Economic profit(1) GBP1,172m GBP1,181m
Risk weighted assets GBP169.1bn GBP137.6bn
Average DVaR(1) GBP42.0m GBP37.1m
Average net income generated per member of staff
('000)(1),(3) GBP466 GBP575
Corporate lending portfolio GBP52.3bn GBP40.6bn
Key Facts 2007 2006
League League
table Issuance table Issuance
position value position value
All international bonds
(all currencies) 2nd US$273.2bn 1st US$271.9bn
Europe overall debt 1st US$226.5bn 1st US$259.5bn
Sterling bonds 1st GBP15.5bn 1st GBP27.3bn
US investment grade
corporate bonds 10th US$4.7bn 7th US$6.0bn
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
(3) Adjusted to exclude contribution and headcount from HomEq and EquiFirst
Barclays Capital delivered profits ahead of the record results achieved in 2006
despite challenging trading conditions in the second half of the year. Profit
before tax increased 5% (GBP119m) to GBP2,335m (2006: GBP2,216m). There was
strong income growth across the Rates businesses and excellent results in
Continental Europe, Asia and Africa demonstrating the breadth of the client
franchise. Net income was slightly ahead at GBP6,273m (2006: GBP6,225m) and
costs were tightly managed, declining slightly year on year. Absa Capital
delivered very strong growth in profit before tax to GBP155m (2006: GBP71m).
The US sub-prime driven market dislocation affected performance in the second
half of 2007. Exposures relating to US sub-prime were actively managed and
declined over the period. Barclays Capital's 2007 results reflected net losses
related to the credit market turbulence of GBP1,635m, of which GBP795m was
included in income, net of GBP658m gains arising from the fair valuation of
notes issued by Barclays Capital. Impairment charges included GBP840m against
ABS CDO Super Senior exposures, other credit market exposures and drawn
leveraged finance underwriting positions. Further detail is provided in the
notes to this announcement.
Income increased 14% (GBP852m) to GBP7,119m (2006: GBP6,267m) as a result of
very strong growth in interest rate, currency, equity, commodity and emerging
market asset classes. There was excellent income growth in Continental Europe,
Asia, and Africa. Average DVaR increased 13% to GBP42.0m (2006: GBP37.1m) in
line with income.
Secondary income, comprising principal transactions (net trading income and net
investment income) and net interest income, is mainly generated from providing
client financing and risk management solutions. Secondary income increased 11%
(GBP578m) to GBP5,871m (2006: GBP5,293m).
Net trading income increased 5% (GBP177m) to GBP3,739m (2006: GBP3,562m) with
strong contributions from fixed income, commodities, equities, foreign exchange
and prime services businesses. These were largely offset by net losses in the
business affected by sub-prime mortgage related writedowns. The general widening
of credit spreads that occurred over the course of the second half of 2007 also
reduced the carrying value of the GBP57bn of issued notes held at fair value on
the balance sheet, resulting in gains of GBP658m. Net investment income
increased 66% (GBP380m) to GBP953m (2006: GBP573m) as a result of a number of
private equity realisations, investment disposals in Asia and structured capital
markets transactions. Net interest income increased 2% (GBP21m) to GBP1,179m
(2006: GBP1,158m), driven by higher contributions from money markets. The
corporate lending portfolio increased 29% to GBP52.3bn (2006: GBP40.6bn),
largely due to an increase in drawn leveraged finance positions and a rise in
drawn corporate loan balances.
Primary income, which comprises net fee and commission income from advisory and
origination activities, grew 30% (GBP283m) to GBP1,235m (2006: GBP952m), with
good contributions from bonds and loans.
Impairment charges and other credit provisions of GBP846m included GBP722m
against ABS CDO Super Senior exposures, GBP60m from other credit market
exposures and GBP58m relating to drawn leveraged finance underwriting positions.
Other impairment charges on loans and advances amounted to a release of GBP7m
(2006: GBP44m release) before impairment charges on available for sale assets of
GBP13m (2006: GBP86m).
Operating expenses decreased 1% (GBP36m) to GBP3,973m (2006: GBP4,009m). The
cost:net income ratio improved to 63% (2006: 64%) and the compensation cost:net
income ratio improved by two percentage points to 47% (2006: 49%). Performance
related pay, discretionary investment spend and short term contractor resources
represented 42% (2006: 50%) of the cost base. Amortisation of intangible assets
of GBP54m (2006: GBP13m) principally related to mortgage service rights.
Total headcount increased 3,000 during 2007 to 16,200 (2006: 13,200) including
800 from the acquisition of EquiFirst. The majority of organic growth was in
Asia Pacific.
Barclays Global Investors
2007 2006
Income Statement Information GBPm GBPm
Net interest (expense)/income (8) 10
Net fee and commission income 1,936 1,651
--------- ---------
Net trading income 5 2
Net investment (expense)/income (9) 2
--------- ---------
Principal transactions (4) 4
Other income 2 -
--------- ---------
Total income 1,926 1,665
--------- ---------
Operating expenses excluding amortisation of
intangible assets (1,184) (946)
Amortisation of intangible assets (8) (5)
--------- ---------
Operating expenses (1,192) (951)
--------- ---------
Profit before tax 734 714
--------- ---------
Balance Sheet Information
Total assets GBP89.2bn GBP80.5bn
Performance Ratios
Return on average economic capital(1) 241% 228%
Cost:income ratio(1) 62% 57%
Other Financial Measures
Economic profit(1) GBP430m GBP376m
Risk weighted assets GBP2.0bn GBP1.4bn
Average net income generated per member of staff
('000)(1) GBP631 GBP666
Key Facts
Assets under management (GBP): GBP1,044bn GBP927bn
--------- ---------
indexed GBP615bn GBP566bn
iShares GBP205bn GBP147bn
active GBP224bn GBP214bn
--------- ---------
Net new assets in period (GBP) GBP42bn GBP37bn
Assets under management (US$): US$2,079bn US$1,814bn
--------- ---------
indexed US$1,225bn US$1,108bn
iShares US$408bn US$287bn
active US$446bn US$419bn
--------- ---------
Net new assets in period (US$) US$86bn US$68bn
Number of iShares products 324 191
Number of institutional clients 3,000 2,900
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
Barclays Global Investors delivered solid growth in profit before tax, which
increased 3% (GBP20m) to GBP734m (2006: GBP714m). Very strong US Dollar income
and strong profit growth was partially offset by the 8% depreciation in the
average value of the US Dollar against Sterling.
Income grew 16% (GBP261m) to GBP1,926m (2006: GBP1,665m).
Net fee and commission income grew 17% (GBP285m) to GBP1,936m (2006: GBP1,651m).
This was primarily attributable to increased management fees and securities
lending. Incentive fees increased 6% (GBP12m) to GBP198m (2006: GBP186m). Higher
asset values, driven by higher market levels and good net new inflows,
contributed to the growth in income.
Operating expenses increased 25% (GBP241m) to GBP1,192m (2006: GBP951m) as a
result of significant investment in key product and channel growth initiatives
and in infrastructure as well as growth in the underlying business. Operating
expenses included charges of GBP80m (2006: GBPnil) related to selective support
of liquidity products managed in the US. The cost:income ratio rose five
percentage points to 62% (2006: 57%).
Headcount increased 700 to 3,400 (2006: 2,700). Headcount increased in all
geographical regions and across product groups and the support functions,
reflecting continued investment to support further growth.
Total assets under management increased 13% (GBP117bn) to GBP1,044bn (2006:
GBP927bn) comprising GBP42bn of net new assets, GBP12bn attributable to the
acquisition of Indexchange Investment AG (Indexchange), GBP66bn of favourable
market movements and GBP3bn of adverse exchange movements. In US$ terms assets
under management increased 15% (US$265bn) to US$2,079bn (2006: US$1,814bn),
comprising US$86bn of net new assets, US$23bn attributable to acquisition of
Indexchange, US$127bn of favourable market movements and US$29bn of positive
exchange rate movements.
Barclays Wealth
2007 2006
Income Statement Information GBPm GBPm
Net interest income 431 392
Net fee and commission income 739 674
--------- ---------
Net trading income 3 2
Net investment income 52 154
--------- ---------
Principal transactions 55 156
Net premium from insurance contracts 195 210
Other income 19 16
--------- ---------
Total income 1,439 1,448
Net claims and benefits incurred under insurance
contracts (152) (288)
--------- ---------
Total Income net of insurance claims 1,287 1,160
Impairment charges (7) (2)
--------- ---------
Net income 1,280 1,158
--------- ---------
Operating expenses excluding amortisation of
intangible assets (967) (909)
Amortisation of intangible assets (6) (4)
--------- ---------
Operating expenses (973) (913)
--------- ---------
Profit before tax 307 245
--------- ---------
Balance Sheet Information
Loans and advances to customers GBP9.0bn GBP6.2bn
Customer accounts GBP34.4bn GBP28.3bn
Total assets GBP18.0bn GBP15.0bn
Performance Ratios
Return on average economic capital(1) 51% 40%
Cost:income ratio(1) 76% 79%
Other Financial Measures
Risk Tendency(1),(2) GBP10m GBP10m
Economic profit(1) GBP233m GBP130m
Risk weighted assets GBP7.7bn GBP6.1bn
Average net income generated per member of staff
('000) (1) GBP188 GBP181
Key Fact
Total client assets GBP132.5bn GBP116.1bn
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
Barclays Wealth profit before tax showed very strong growth of 25% (GBP62m) to
GBP307m (2006: GBP245m). Performance was driven by broadly based income growth,
reduced redress costs and tight cost control, partially offset by additional
volume related costs and increased investment in people and infrastructure to
support future growth.
Income increased 11% (GBP127m) to GBP1,287m (2006: GBP1,160m).
Net interest income increased 10% (GBP39m) to GBP431m (2006: GBP392m) reflecting
strong growth in both customer deposits and lending. Average deposits grew 13%
to GBP31.2bn (2006: GBP27.7bn). Average lending grew 35% to GBP7.4bn (2006:
GBP5.5bn) driven by increased lending to high net worth, affluent and
intermediary clients. Assets margin increased 3 basis points to 1.11% (2006:
1.08%) reflecting changes in the product mix. The liabilities margin reduced by
7 basis points to 1.03% (2006: 1.10%) driven by competitive pricing of products.
Net fee and commission income grew 10% (GBP65m) to GBP739m (2006: GBP674m). This
reflected growth in client assets and higher transactional income from increased
sales of investment products and solutions.
Principal transactions decreased GBP101m to GBP55m (2006: GBP156m) as a result
of lower growth in the value of unit linked insurance contracts. Net premiums
from insurance contracts reduced GBP15m to GBP195m (2006: GBP210m). These
reductions were offset by a lower charge for net claims and benefits incurred
under insurance contracts of GBP152m (2006: GBP288m).
Operating expenses increased 7% to GBP973m (2006: GBP913m) with greater volume
related costs and a significant increase in investment partially offset by
efficiency gains and lower customer redress costs of GBP19m (2006: GBP67m).
Ongoing investment programmes included increased hiring of client facing staff
and improvements to infrastructure with the upgrade of technology and operations
platforms. The cost:income ratio improved three percentage points to 76% (2006:
79%).
Total client assets, comprising customer deposits and client investments,
increased 14% (GBP16.4bn) to GBP132.5bn (2006: GBP116.1bn) reflecting strong net
new asset inflows and the acquisition of Walbrook, an independent fiduciary
services company, which completed on 18th May 2007.
Head office functions and other operations
2007 2006
Income Statement Information GBPm GBPm
Net interest income 128 80
Net fee and commission expense (424) (301)
--------- ---------
Net trading (loss)/income (66) 40
Net investment (expense)/income (17) 2
--------- ---------
Principal transactions (83) 42
Net premiums from insurance contracts 152 139
Other income 35 39
--------- ---------
Total income (192) (1)
Impairment (charges)/releases (3) 11
--------- ---------
Net income (195) 10
--------- ---------
Operating expenses excluding amortisation of
intangible assets (233) (259)
Amortisation of intangible assets (1) (10)
--------- ---------
Operating expenses (234) (269)
Profit on disposal of associates and joint
ventures 1 -
--------- ---------
Loss before tax (428) (259)
--------- ---------
Balance Sheet Information
Total assets GBP7.1bn GBP7.1bn
Other Financial Measures
Risk Tendency(1),(2) GBP10m GBP10m
Risk weighted assets GBP1.6bn GBP1.9bn
(1) Defined on page iv.
(2) Further information on risk tendency is included on page 90.
Head office functions and other operations loss before tax increased GBP169m to
GBP428m (2006: GBP259m).
Group segmental reporting is performed in accordance with Group accounting
policies. This means that inter-segment transactions are recorded in each
segment as if undertaken on an arm's length basis. Adjustments necessary to
eliminate inter-segment transactions are included in Head office functions and
other operations.
The impact of such inter-segment adjustments increased GBP86m to GBP233m (2006:
GBP147m). These adjustments included internal fees for structured capital market
activities of GBP169m (2006: GBP87m) and fees paid to Barclays Capital for debt
and equity raising and risk management advice of GBP65m (2006: GBP23m), both of
which increased net fee and commission expense in head office. The impact on the
inter-segment adjustments of the timing of the recognition of insurance
commissions included in Barclaycard was a reduction in head office income of
GBP9m (2006: GBP44m). This net reduction was reflected in a decrease in net fee
and commission income of GBP162m (2006: GBP184m) and an increase in net premium
income of GBP153m (2006: GBP140m).
Principal transactions decreased to a loss of GBP83m (2006: GBP42m profit). 2006
included a GBP55m profit from a hedge of the expected Absa foreign currency
earnings. 2007 included a loss of GBP33m relating to fair valuation of call
options embedded within retail US$ preference shares arising from widening of
own credit spreads.
Operating expenses decreased GBP35m to GBP234m (2006: GBP269m). The primary
driver of this decrease was the receipt of a break fee relating to the ABN Amro
transaction which, net of transaction costs, reduced expenses by GBP58m. This
was partially offset by lower rental income and lower proceeds on property
sales.
NOTES
1. Net interest income
2007 2006
GBPm GBPm
Cash and balances with central banks 145 91
Available for sale investments 2,580 2,811
Loans and advances to banks 1,416 903
Loans and advances to customers 19,559 16,290
Other 1,608 1,710
--------- ---------
Interest income 25,308 21,805
--------- ---------
Deposits from banks (2,720) (2,819)
Customer accounts (4,110) (3,076)
Debt securities in issue (6,651) (5,282)
Subordinated liabilities (878) (777)
Other (1,339) (708)
--------- ---------
Interest expense (15,698) (12,662)
--------- ---------
Net interest income 9,610 9,143
--------- ---------
Group net interest income increased 5% (GBP467m) to GBP9,610m (2006: GBP9,143m)
reflecting balance sheet growth across a number of businesses.
Group net interest income reflects structural hedges which function to reduce
the impact of the volatility of short-term interest rate movements on equity and
customer balances that do not re-price with market rates. The contribution of
structural hedges relative to average base rates decreased to GBP351m expense
(2006: GBP26m income), largely due to the smoothing effect of the structural
hedge on changes in interest rates.
Other interest expense principally includes interest on repurchase agreements
and hedging activity.
Business Margins
2007 2006
% %
UK Retail Banking assets 1.20 1.32
UK Retail Banking liabilities 2.15 2.05
Barclays Commercial Bank assets 1.80 1.92
Barclays Commercial Bank liabilities 1.49 1.46
Barclaycard assets 6.59 7.13
International Retail and Commercial Banking - ex
Absa assets 1.32 1.29
International Retail and Commercial Banking - ex
Absa liabilities 1.91 2.06
International Retail and Commercial Banking - Absa
assets 2.86 2.95
International Retail and Commercial Banking - Absa
liabilities(1) 3.25 2.90
Barclays Wealth assets 1.11 1.08
Barclays Wealth liabilities 1.03 1.10
Average Balances
2007 2006
GBPm GBPm
UK Retail Banking assets 78,502 73,593
UK Retail Banking liabilities 81,848 76,498
Barclays Commercial Bank assets 53,600 52,018
Barclays Commercial Bank liabilities 46,367 44,839
Barclaycard assets 19,191 17,918
International Retail and Commercial Banking - ex
Absa assets 33,321 27,210
International Retail and Commercial Banking - ex
Absa liabilities 12,484 10,423
International Retail and Commercial Banking - Absa
assets 26,132 24,388
International Retail and Commercial Banking - Absa
liabilities(1) 11,659 11,071
Barclays Wealth assets 7,403 5,543
Barclays Wealth liabilities 31,151 27,744
(1) International Retail and Commercial Banking - Absa liabilities business
margins, average balances and business net interest income for 2006 have been
restated.
Business net interest income
2007 2006
GBPm GBPm
UK Retail Banking assets 939 970
UK Retail Banking liabilities 1,763 1,566
Barclays Commercial Bank assets 963 999
Barclays Commercial Bank liabilities 693 655
Barclaycard assets 1,266 1,278
International Retail and Commercial Banking - ex
Absa assets 439 349
International Retail and Commercial Banking - ex
Absa liabilities 238 216
International Retail and Commercial Banking - Absa
assets 746 719
International Retail and Commercial Banking - Absa
liabilities(1) 379 321
Barclays Wealth assets 82 60
Barclays Wealth liabilities 320 306
--------- ---------
Business net interest income 7,828 7,439
--------- ---------
Reconciliation of business interest income to Group net interest income
2007 2006
GBPm GBPm
Business net interest income 7,828 7,439
Other:
Barclays Capital 1,179 1,158
Barclays Global Investors (8) 10
Other 611 536
--------- ---------
Group net interest income 9,610 9,143
--------- ---------
Business net interest income is derived from the interest rate earned on average
assets or paid on average liabilities relative to the average Bank of England
base rate, local equivalents for international businesses or the rate managed by
the bank using derivatives. The margin is expressed as annualised business
interest income over the relevant average balance. Asset and liability margins
cannot be added together as they are relative to the average Bank of England
base rate, local equivalent for international businesses or the rate managed by
the bank using derivatives. The benefit of capital attributed to these
businesses is excluded from the calculation of business margins and business net
interest income.
Average balances are calculated on daily averages for most UK banking operations
and monthly averages elsewhere.
Within the reconciliation of Group net interest income, there is an amount
captured as Other. This relates to the benefit of capital excluded from the
business margin calculation, Head office functions and other operations and net
funding on non-customer assets and liabilities.
(1) International Retail and Commercial Banking - Absa liabilities business
margins, average balances and business net interest income for 2006 have been
restated.
UK Retail Banking assets margin decreased 12 basis points to 1.20% (2006: 1.32%)
principally due to the increased proportion of mortgages and the contraction in
unsecured loans. UK Retail Banking liabilities margin increased 10 basis points
to 2.15% (2006: 2.05%) due to pricing initiatives and changes in the product
mix.
Barclays Commercial Bank assets margin decreased by 12 basis points to 1.80%
(2006: 1.92%) due to changes in the product mix. Barclays Commercial Bank
liabilities margin remained broadly stable at 1.49% (2006: 1.46%).
Barclaycard assets margin decreased 54 basis points to 6.59% (2006: 7.13%) due
to higher average base rates across core markets and an increased weighting to
secured lending.
International Retail and Commercial Banking - excluding Absa assets margin of
1.32% (2006: 1.29%) was broadly stable. International Retail and Commercial
Banking - excluding Absa liabilities margin decreased 15 basis points to 1.91%
(2006: 2.06%) primarily driven by changes in the product and country mix.
International Retail and Commercial Banking - Absa assets margin decreased 9
basis points to 2.86% (2006: 2.95%) due to increased competition, increases in
interest rates and changes in the product mix. The liabilities margin increased
35 basis points to 3.25% (2006: 2.90%) driven by a re-pricing of customer
deposits and higher interest rates.
Barclays Wealth assets margin increased 3 basis points to 1.11% (2006: 1.08%)
due to changes in the product mix. The liabilities margin decreased 7 basis
points to 1.03% (2006: 1.10%) due to competitive pricing.
The impact of the structural hedge on customer balances has been included within
business margins and has smoothed the impact of changing interest rates before
the impact of changes in product mix or product pricing.
2. Net fee and commission income
2007 2006
GBPm GBPm
Brokerage fees 109 70
Investment management fees 1,787 1,535
Securities lending 241 185
Banking and credit related fees and commissions 6,363 6,031
Foreign exchange commission 178 184
--------- ---------
Fee and commission income 8,678 8,005
--------- ---------
Fee and commission expense (970) (828)
--------- ---------
Net fee and commission income 7,708 7,177
--------- ---------
Net fee and commission income increased 7% (GBP531m) to GBP7,708m (2006:
GBP7,177m).
Fee and commission income rose 8% (GBP673m) to GBP8,678m (2006: GBP8,005m)
reflecting increased management and securities lending fees in Barclays Global
Investors, increased client assets and higher transactional income in Barclays
Wealth and higher income generated from lending fees in Barclays Commercial
Bank. Fee income in Barclays Capital increased primarily due to the acquisition
of HomEq.
3. Principal transactions
2007 2006
GBPm GBPm
Rates related business 4,162 2,848
Credit related business (403) 766
--------- ---------
Net trading income 3,759 3,614
--------- ---------
Cumulative gain from disposal of available for
sale assets 560 307
Dividend income 26 15
Net income from financial instruments designated
at fair value 293 447
Other investment income 337 193
--------- ---------
Net investment income 1,216 962
--------- ---------
Principal transactions 4,975 4,576
--------- ---------
Principal transactions increased 9% (GBP399m) to GBP4,975m (2006: GBP4,576m).
Net trading income increased 4% (GBP145m) to GBP3,759m (2006: GBP3,614m). The
majority of the Group's net trading income arises in Barclays Capital. Growth in
the Rates related business reflects very strong performances in fixed income,
commodities, foreign exchange, equity and prime services. The Credit related
business includes net losses from credit market turbulence and the benefits of
widening credit spreads on the fair value of issued notes. Further detail on the
impact on net trading income of the changes in fair value of financial
instruments is provided in note 17.
Net investment income increased 26% (GBP254m) to GBP1,216m (2006: GBP962m). The
cumulative gain from disposal of available for sale assets increased 82%
(GBP253m) to GBP560m (2006: GBP307m) largely as a result of a number of private
equity realisations and divestments. Net income from financial instruments
designated at fair value decreased by 34% (GBP154m) largely due to lower growth
in the value of linked insurance assets within Barclays Wealth.
Fair value movements on insurance assets included within net investment income
contributed GBP113m (2006: GBP205m).
4. Net premiums from insurance contracts
2007 2006
GBPm GBPm
Gross premiums from insurance contracts 1,062 1,108
Premiums ceded to reinsurers (51) (48)
--------- ---------
Net premiums from insurance contracts 1,011 1,060
--------- ---------
Net premiums from insurance contracts decreased 5% (GBP49m) to GBP1,011m (2006:
GBP1,060m), primarily due to lower customer take up of loan protection
insurance.
5. Other income
2007 2006
GBPm GBPm
Increase in fair value of assets held in respect
of linked liabilities to customers under
investment contracts 5,592 7,417
Increase in liabilities to customers under
investment contracts (5,592) (7,417)
Property rentals 53 55
Loss on part disposal of Monument credit card
portfolio (27) -
Other 162 159
--------- ---------
Other income 188 214
--------- ---------
Certain asset management products offered to institutional clients by Barclays
Global Investors are recognised as investment contracts. Accordingly the
invested assets and the related liabilities to investors are held at fair value
and changes in those fair values are reported within Other income.
6. Net claims and benefits incurred under insurance contracts
2007 2006
GBPm GBPm
Gross claims and benefits incurred under
insurance contracts 520 588
Reinsurers' share of claims incurred (28) (13)
--------- ---------
Net claims and benefits incurred under
insurance contracts 492 575
--------- ---------
Net claims and benefits incurred under insurance contracts decreased 14%
(GBP83m) to GBP492m (2006: GBP575m).
Net claims and benefits incurred under insurance contracts excluding Absa
decreased by 19%, principally reflecting lower investment gains attributable to
customers in Barclays Wealth.
7. Impairment charges and other credit provisions
2007 2006
Impairment charges on loans and advances GBPm GBPm
New and increased impairment allowances 2,871 2,722
Releases (338) (389)
Recoveries (227) (259)
-------- ---------
Impairment charges on loans and advances (see
note 21) 2,306 2,074
Other credit provisions
Charges/(credits) in respect of undrawn
contractually committed facilities and guarantees 476 (6)
-------- ---------
Impairment charges on loans and advances and
other credit provisions 2,782 2,068
Impairment charges on available for sale assets 13 86
-------- ---------
Impairment charges and other credit provisions 2,795 2,154
-------- ---------
Impairment charges and other credit provisions on ABS CDO Super Senior and other
credit market exposures included above:
Impairment charges on loans and advances 313 -
Charges in respect of undrawn facilities 469 -
--------
Impairment charges and other credit provisions on
ABS CDO Super Senior and other credit market
positions 782 -
-------- ---------
Total impairment charges and other credit provisions increased 30% (GBP641m) to
GBP2,795m (2006: GBP2,154m).
Impairment charges on loans and advances and other credit provisions increased
35% (GBP714m) to GBP2,782m (2006: GBP2,068m) reflecting charges of GBP782m
against ABS CDO Super Senior and other credit market positions.
Impairment charges on loans and advances and other credit provisions as a
percentage of Group total loans and advances increased to 0.71% (2006: 0.65%);
total loans and advances grew 23% to GBP389,290m (2006: GBP316,561m).
Retail
Retail impairment charges on loans and advances fell 11% (GBP204m) to GBP1,605m
(2006: GBP1,809m). Retail impairment charges as a percentage of period end total
loans and advances reduced to 0.98% (2006: 1.30%); total retail loans and
advances increased 18% to GBP164,062m (2006: GBP139,350m).
Barclaycard impairment charges improved 21% (GBP229m) to GBP838m (2006:
GBP1,067m) reflecting reduced flows into delinquency, lower levels of arrears
and lower charge-offs in UK Cards. We made changes to our impairment
methodologies to standardise our approach and in anticipation of Basel II. The
net positive impact of these changes in methodology was offset by the increase
in impairment charges in Barclaycard International and secured consumer lending.
Impairment charges in UK Retail Banking decreased by GBP76m (12%) to GBP559m
(2006: GBP635m), reflecting lower charges in unsecured Consumer Lending and
Local Business driven by improved collection processes, reduced flows into
delinquency, lower arrears trends and stable charge-offs. In UK Home Finance,
asset quality remained strong and mortgage charges remained negligible. Mortgage
delinquencies as a percentage of outstandings remained stable and amounts
charged off were low.
Impairment charges in International Retail and Commercial Banking - excluding
Absa rose by GBP38m (93%) to GBP79m (2006: GBP41m) reflecting very strong
balance sheet growth in 2006 and 2007 and the impact of lower releases in 2007.
Arrears in some of International Retail and Commercial Banking - Absa's retail
portfolios deteriorated in 2007, driven by interest rate increases in 2006 and
2007 resulting in pressure on collections.
Wholesale and corporate
Wholesale and corporate impairment charges on loans and advances increased
GBP436m to GBP701m (2006: GBP265m). Wholesale and corporate impairment charges
as a percentage of period end total loans and advances increased to 0.31% (2006:
0.15%); total loans and advances grew 27% to GBP225,228m (2006: GBP177,211m).
Barclays Capital impairment charges and other credit provisions of GBP846m
included a charge of GBP782m against ABS CDO Super Senior and other credit
market exposures and GBP58m net of fees relating to drawn leveraged finance
positions.
The impairment charge in Barclays Commercial Bank increased GBP38m (15%) to
GBP290m (2006: GBP252m), primarily due to higher impairment charges in Larger
Business, partially offset by a lower charge in Medium Business due to a
tightening of the lending criteria.
8. Operating expenses
2007 2006
GBPm GBPm
Staff costs (refer to page 51) 8,405 8,169
Administrative expenses 3,978 3,980
Depreciation 467 455
Impairment loss - property and equipment and
intangible assets 16 21
Operating lease rentals 414 345
Gain on property disposals (267) (432)
Amortisation of intangible assets 186 136
-------- --------
Operating expenses 13,199 12,674
-------- --------
Operating expenses grew 4% (GBP525m) to GBP13,199m (2006: GBP12,674m). The
increase was driven by growth of 3% (GBP236m) in staff costs to GBP8,405m (2006:
GBP8,169m) and lower gains on property disposals.
Administrative expenses remained flat at GBP3,978m (2006: GBP3,980m) reflecting
good cost control across all businesses.
Operating lease rentals increased 20% (GBP69m) to GBP414m (2006: GBP345m),
primarily due to increased property held under operating leases.
Operating expenses were reduced by gains from the sale of property of GBP267m
(2006: GBP432m) as the Group continued the sale and leaseback of some of its
freehold portfolio, principally in UK Banking.
Amortisation of intangible assets increased 37% (GBP50m) to GBP186m (2006:
GBP136m) primarily reflecting the amortisation of mortgage servicing rights
relating to the acquisition of HomEq in November 2006.
The Group cost:income ratio improved two percentage points to 57% (2006: 59%).
Staff costs
2007 2006
GBPm GBPm
Salaries and accrued incentive payments 6,993 6,635
Social security costs 508 502
Pension costs
defined contribution plans 141 128
defined benefit plans 150 282
Other post retirement benefits 10 30
Other 603 592
-------- --------
Staff costs 8,405 8,169
-------- --------
Staff costs increased 3% (GBP236m) to GBP8,405m (2006: GBP8,169m).
Salaries and accrued incentive payments rose 5% (GBP358m) to GBP6,993m (2006:
GBP6,635m), reflecting increased permanent and fixed term staff worldwide.
Defined benefit plans pension costs decreased 47% (GBP132m) to GBP150m (2006:
GBP282m). This was mainly due to lower service costs.
Staff numbers
2007 2006
UK Banking 41,200 42,600
-------- --------
UK Retail Banking 32,800 34,500
Barclays Commercial Bank 8,400 8,100
-------- --------
Barclaycard 7,800 8,500
International Retail and Commercial Banking 58,300 47,800
-------- --------
International Retail and Commercial Banking-ex
Absa 22,100 13,900
International Retail and Commercial Banking-Absa 36,200 33,900
-------- --------
Barclays Capital 16,200 13,200
Barclays Global Investors 3,400 2,700
Barclays Wealth 6,900 6,600
Head office functions and other operations 1,100 1,200
-------- --------
Total Group permanent staff worldwide 134,900 122,600
-------- --------
Staff numbers are shown on a full-time equivalent basis. Total Group permanent
and fixed term contract staff comprised 61,900 (31st December 2006: 62,400) in
the UK and 73,000 (31st December 2006: 60,200) internationally.
UK Retail Banking headcount decreased 1,700 to 32,800 (31st December 2006:
34,500), due to efficiency initiatives in back office operations and the
transfer of operations personnel to Barclays Commercial Bank. Barclays
Commercial Bank headcount increased 300 to 8,400 (31st December 2006: 8,100) due
to the transfer of operations personnel from UK Retail Banking and additional
investment in front line staff to drive improved geographical coverage.
Barclaycard staff numbers decreased 700 to 7,800 (31st December 2006: 8,500),
due to efficiency initiatives implemented across the UK operation and the sale
of part of the Monument card portfolio, partially offset by an increase in the
International cards businesses.
International Retail and Commercial Banking staff numbers increased 10,500 to
58,300 (31st December 2006: 47,800). International Retail and Commercial Banking
- excluding Absa staff numbers increased 8,200 to 22,100 (31st December 2006:
13,900) due to growth in the distribution network. International Retail and
Commercial Banking - Absa staff numbers increased 2,300 to 36,200 (31st December
2006: 33,900), reflecting growth in the business and distribution network.
Barclays Capital staff numbers increased 3,000 to 16,200 (31st December 2006:
13,200) including 800 from the acquisition of EquiFirst. This reflected further
investment in the front office, systems development and control functions to
support continued business expansion. The majority of organic growth was in Asia
Pacific.
Barclays Global Investors staff numbers increased 700 to 3,400 (31st December
2006: 2,700). Headcount increased in all geographical regions and across product
groups and the support functions, reflecting continued investment to support
further growth.
Barclays Wealth staff numbers increased 300 to 6,900 (31st December 2006: 6,600)
principally due to the acquisition of Walbrook and increased client facing
professionals.
9. Share of post-tax results of associates and joint ventures
2007 2006
GBPm GBPm
Profit from associates 33 53
Profit/(loss) from joint ventures 9 (7)
-------- --------
Share of post-tax results of associates and joint
ventures 42 46
-------- --------
The overall share of post-tax results of associates and joint ventures decreased
GBP4m to GBP42m (2006: GBP46m). The share of results from associates decreased
GBP20m mainly due to the sale of FirstCaribbean International Bank (2006:
GBP41m) at the end of 2006, partially offset by an increased contribution from
private equity associates. The share of results from joint ventures increased by
GBP16m mainly due to the contribution from private equity entities.
10. Profit on disposal of subsidiaries, associates and joint ventures
2007 2006
GBPm GBPm
Profit on disposal of subsidiaries, associates and
joint ventures 28 323
-------- --------
The profit on disposal in 2007 relates mainly to the disposal of the Group's
shareholdings in Gabetti Property Solutions (GBP8m) and Intelenet Global
Services (GBP13m).
11. Tax
The tax charge for the period was based on a UK corporation tax rate of 30%
(2006: 30%). The effective rate of tax for 2007, based on profit before tax, was
28.0% (2006: 27.2%). The effective tax rate differed from 30% as it took account
of the different tax rates applied to profits earned outside the UK, non-taxable
gains and income and adjustments to prior year tax provisions. The forthcoming
change in the UK rate of corporation tax from 30% to 28% on 1st April 2008 led
to an additional tax charge in 2007 as a result of its effect on the Group's net
deferred tax asset. The tax charge for the year included GBP946m (2006:
GBP1,234m) arising in the UK and GBP1,035m (2006: GBP707m) arising overseas. The
effective tax rate for 2007 was higher than the 2006 rate, principally because
there was a higher level of profit on disposals of subsidiaries, associates and
joint ventures offset by losses or exemptions in 2006.
12. Profit attributable to minority interests
2007 2006
GBPm GBPm
Absa Group Limited 299 262
Preference shares 198 175
Reserve capital instruments 87 92
Upper tier 2 instruments 16 15
Barclays Global Investors minority interests 40 47
Other minority interests 38 33
-------- --------
Profit attributable to minority interests 678 624
-------- --------
13. Earnings per share
2007 2006
Profit attributable to equity holders of the
parent GBP4,417m GBP4,571m
Dilutive impact of convertible options (GBP25m) (GBP30m)
-------- --------
Profit attributable to equity holders of the
parent including dilutive impact of convertible
options GBP4,392m GBP4,541m
Basic weighted average number of shares in issue 6,410m 6,357m
Number of potential ordinary shares(1) 177m 150m
-------- --------
Diluted weighted average number of shares 6,587m 6,507m
-------- --------
p p
Basic earnings per ordinary share 68.9 71.9
Diluted earnings per ordinary share 66.7 69.8
The calculation of basic earnings per share is based on the profit attributable
to equity holders of the parent and the weighted average number of shares
excluding own shares held in employee benefit trusts and shares held for
trading.
The basic and diluted weighted average number of shares in issue in 2007
reflected 336.8 million shares issued on 14th August 2007, 299.5 million of
which were repurchased by 31st December 2007. The buyback programme was
subsequently completed on 31st January 2008. The weighted average number of
shares in issue in 2007 was increased by 54 million shares as a result of this
temporary increase.
When calculating the diluted earnings per share, the profit attributable to
equity holders of the parent is adjusted for the conversion of outstanding
options into shares within Absa Group Limited and Barclays Global Investors UK
Holdings Limited. The weighted average number of ordinary shares excluding own
shares held in employee benefit trusts and shares held for trading, is adjusted
for the effects of all dilutive potential ordinary shares, totalling 177 million
(2006: 150 million).
(1) Potential ordinary shares reflect the dilutive impact of share options
outstanding.
14. Dividends on ordinary shares
The Board has decided to pay, on 25th April 2008, a final dividend for the year
ended 31st December 2007 of 22.5p per ordinary share for shares registered in
the books of the Company at the close of business on 7th March 2008.
Shareholders who have their dividends paid direct to their bank or building
society account will receive a consolidated tax voucher detailing the dividends
paid in the 2008-2009 UK tax year in mid-October 2008.
The amount payable for the 2007 final dividend based on the number of shares
outstanding at 31st December 2007 would be GBP1,485m (2006: GBP1,307m). This
amount excludes GBP45m payable on own shares held by employee benefit trusts
(2006: GBP33m).
For qualifying US and Canadian resident ADR holders, the final dividend of 22.5p
per ordinary share becomes 90p per ADS (representing four shares). The ADR
depositary will mail the dividend on 25th April 2008 to ADR holders on the
record on 7th March 2008.
For qualifying Japanese shareholders, the final dividend of 22.5p per ordinary
share will be distributed in mid-May to shareholders on the record on 7th March
2008.
Shareholders may have their dividends reinvested in Barclays PLC shares by
participating in the Barclays Dividend Reinvestment Plan. The plan is available
to all shareholders, including members of Barclays Sharestore, provided that
they neither live in nor are subject to the jurisdiction of any country where
their participation in the plan would require Barclays or The Plan Administrator
to take action to comply with local government or regulatory procedures or any
similar formalities. Any shareholder wishing to obtain details and a form to
join the plan should contact The Plan Administrator by writing to: The Plan
Administrator to Barclays, Aspect House, Spencer Road, Lancing, West Sussex,
BN99 6DA; or, by telephoning 0871 384 2055 (calls to this number are charged at
8p per minute if using a BT landline. Other telephony provider costs may vary).
The completed form should be returned to The Plan Administrator on or before 4th
April 2008 for it to be effective in time for the payment of the dividend on
25th April 2008. Shareholders who are already in the plan need take no action
unless they wish to change their instructions in which case they should write to
The Plan Administrator.
15. Assets held in respect of linked liabilities to customers under
investment contracts/liabilities to customers under investment contracts
2007 2006
GBPm GBPm
Non-trading financial instruments fair valued
through profit and loss held in respect of
linked liabilities 90,851 82,798
Cash and bank balances within the funds 1,788 1,839
-------- --------
Assets held in respect of linked liabilities to
customers under investment contracts 92,639 84,637
-------- --------
Liabilities arising from investment contracts (92,639) (84,637)
-------- --------
16. Derivative financial instruments
The tables below analyse the contract or underlying principal and the fair value
of derivative financial instruments held for trading and hedging purposes.
Derivatives are measured at fair value and the resultant profits and losses from
derivatives held for trading purposes are included in net trading income. Where
derivatives are held for hedging purposes and meet the criteria specified in IAS
39, the Group applies hedge accounting as appropriate to the risks being hedged.
Contract 2007
notional Fair value
amount Assets Liabilities
Derivatives designated as held for GBPm GBPm GBPm
trading
Foreign exchange derivatives 2,208,369 30,348 (30,300)
Interest rate derivatives 23,608,949 139,940 (138,426)
Credit derivatives 2,472,249 38,696 (35,814)
Equity and stock index and commodity
derivatives 910,328 37,966 (42,838)
------------ ----------- ------------
Total derivative assets/(liabilities)
held for trading 29,199,895 246,950 (247,378)
------------ ----------- ------------
Derivatives designated in hedge
accounting relationships
Derivatives designated as cash flow
hedges 55,292 458 (437)
Derivatives designated as fair value
hedges 23,952 462 (328)
Derivatives designated as hedges of
net investments 12,620 218 (145)
------------ ----------- ------------
Total derivative assets/(liabilities)
designated in hedge accounting
relationships 91,864 1,138 (910)
------------ ----------- ------------
Total recognised derivative assets/
(liabilities) 29,291,759 248,088 (248,288)
------------ ----------- ------------
Contract 2006
notional Fairvalue
amount Assets Liabilities
Derivatives designated as held for GBPm GBPm GBPm
trading
Foreign exchange derivatives 1,500,774 22,026 (21,745)
Interest rate derivatives 17,666,353 76,010 (75,854)
Credit derivatives 1,224,548 9,275 (8,894)
Equity and stock index and commodity
derivatives 495,080 29,962 (33,253)
------------ ----------- ------------
Total derivative assets/(liabilities)
held for trading 20,886,755 137,273 (139,746)
------------ ----------- ------------
Derivatives designated in hedge
accounting relationships
Derivatives designated as cash flow
hedges 63,895 132 (401)
Derivatives designated as fair value
hedges 19,489 298 (441)
Derivatives designated as hedges of net
investments 12,050 650 (109)
------------ ----------- ------------
Total derivative assets/(liabilities)
designated in hedge accounting
relationships 95,434 1,080 (951)
------------ ----------- ------------
Total recognised derivative assets/
(liabilities) 20,982,189 138,353 (140,697)
------------ ----------- ------------
Total derivative notionals have grown over the period primarily due to increases
in the volume of fixed income derivatives, reflecting the continued growth in
client based activity and increased use of electronic trading platforms in
Europe and the US. Interest rate and credit derivative values have also
increased significantly, largely due to growth in the market for these products.
Derivative assets and liabilities subject to counterparty netting agreements
amounted to GBP199bn (31st December 2006: GBP102bn). Additionally, we held
GBP17bn (31st December 2006: GBP8bn) of collateral against the net derivative
assets exposure.
17. Fair value measurement of financial instruments
Where a financial instrument is stated at fair value, this is determined by
reference to the quoted price in an active market wherever possible. Where no
such active market exists for the particular asset or liability, the Group uses
an appropriate valuation technique to arrive at the fair value.
Fair value amounts can be analysed into the following categories:
Unadjusted quoted prices in active markets where the quoted price is readily
available and the price represents actual and regularly occurring market
transactions on an arm's length basis.
Valuation techniques based on market observable inputs. Such techniques may
include:
- using recent arm's length market transactions;
- reference to the current fair value of similar instruments;
- discounted cash flow analysis, pricing models or other techniques
commonly used by market participants.
Valuation techniques used above, but which include significant inputs that are
not observable. On initial recognition of financial instruments measured using
such techniques the transaction price is deemed to provide the best evidence of
fair value for accounting purposes.
The following tables set out the total financial instruments stated at fair
value as at 31st December 2007 and those fair values which include unobservable
inputs.
Unobservable
inputs Total
GBPm GBPm
Assets stated at fair value
Trading portfolio assets 4,457 193,691
Financial assets designated at fair value:
held on own account 16,819 56,629
held in respect of linked liabilities to - 90,851
customers under investment contracts
Derivative financial instruments 2,707 248,088
Available for sale financial investments 810 43,072
-------- --------
Total 24,793 632,331
-------- --------
Unobservable
inputs Total
GBPm GBPm
Liabilities stated at fair value
Trading portfolio liabilities 42 65,402
Financial liabilities designated at fair value 6,172 74,489
Liabilities to customers under investment
contracts - 92,639
Derivative financial instruments 4,382 248,288
-------- --------
Total 10,596 480,818
-------- --------
The amount that has yet to be recognised in income that relates to the
difference between the transaction price (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,
was as follows:
2007 2006
GBPm GBPm
At 1st January 534 260
Additions in year 134 359
Amortisation and releases in the year (514) (85)
-------- --------
At 31st December 154 534
-------- --------
18. Barclays Capital credit market positions
Barclays Capital credit market exposures resulted in net losses of GBP1,635m in
2007, due to dislocations in the credit markets. The net losses primarily
related to ABS CDO super senior exposures, with additional losses from other
credit market exposures partially offset by gains from the general widening of
credit spreads on issued notes held at fair value.
Credit market exposures in this note are stated relative to comparatives as at
30th June 2007, being the reporting date immediately prior to the credit market
dislocations.
As at
31.12.2007 30.06.2007
GBPm GBPm
ABS CDO Super Senior
High Grade 4,869 6,151
Mezzanine 1,149 1,629
--------- ---------
Exposure before hedging 6,018 7,780
Hedges (1,347) (348)
--------- ---------
Net ABS CDO Super Senior 4,671 7,432
--------- ---------
Other US sub-prime
Whole loans 3,205 2,900
Other direct and indirect exposures 1,832 3,146
--------- ---------
Other US sub-prime 5,037 6,046
--------- ---------
Alt-A 4,916 3,760
--------- ---------
Monoline insurers 1,335 140
--------- ---------
Commercial mortgages 12,399 8,282
--------- ---------
SIV-lite liquidity facilities 152 692
--------- ---------
Structured investment vehicles 590 925
--------- ---------
ABS CDO Super Senior exposure
ABS CDO Super Senior net exposure was GBP4,671m (30th June 2007: GBP7,432m).
Exposures are stated net of writedowns and charges of GBP1,412m (30th June 2007:
GBP56m) and hedges of GBP1,347m (30th June 2007: GBP348m).
The collateral for the ABS CDO Super Senior exposures primarily comprised
Residential Mortgage Backed Securities (RMBS). 79% of the RMBS sub-prime
collateral comprised 2005 or earlier vintage mortgages. On ABS CDO super senior
exposures, the combination of subordination, hedging and writedowns provide
protection against loss levels to 72% on US sub-prime collateral as at 31st
December 2007. None of the above hedges of ABS CDO Super Senior exposures as at
31st December 2007. were held with monoline insurer counterparties.
Other credit market exposures
Barclays Capital held other exposures impacted by the turbulence in credit
markets, including: whole loans and other direct and indirect exposures to US
sub-prime and Alt-A borrowers; exposures to monoline insurers; and commercial
mortgage backed securities. The net losses in 2007 from these exposures were
GBP823m.
Other US sub-prime whole loan and net trading book exposure was GBP5,037m (30th
June 2007: GBP6,046m). Whole loans included GBP2,843m (30th June 2007:
GBP1,886m) acquired since the acquisition of EquiFirst in March 2007, all of
which were subject to Barclays underwriting criteria. As at 31st December 2007
the average loan-to-value of these EquiFirst loans was 80% with less than 3% at
above 95% loan to value. 99% of the EquiFirst inventory was first lien.
Net exposure to the Alt-A market was GBP4,916m (30th June 2007: GBP3,760m),
through a combination of securities held on the balance sheet including those
held in consolidated conduits and residuals. Alt-A exposure is generally to
borrowers of a higher credit quality than sub-prime borrowers. As at 31st
December 2007, 99% of the Alt-A whole loan exposure was performing, and the
average loan to value ratio was 81%. 96% of the Alt-A securities held were rated
AAA or AA.
Barclays Capital held assets with insurance protection or other credit
enhancement from monoline insurers. The value of exposure to monoline insurers
under these contracts was GBP1,335m (30th June 2007: GBP140m). There were no
claims due under these contracts as none of the underlying assets were in
default.
Exposures in our commercial mortgage backed securities business comprised
commercial real estate loans of GBP11,103m (30th June 2007: GBP7,653m) and
commercial mortgage backed securities of GBP1,296m (30th June 2007: GBP629m).
The loan exposures were 54% US and 43% European. The US exposures had an average
loan to value of 65% and the European exposures had an average loan to value of
71%. 87% of the commercial mortgage backed securities held as at 31st December
2007 were AAA or AA rated.
Loans and advances to customers included GBP152m (30th June 2007: GBP692m) of
drawn liquidity facilities in respect of SIV-lites. Total exposure to other
structured investment vehicles, including derivatives, undrawn commercial paper
backstop facilities and bonds held in trading portfolio assets was GBP590m (30th
June 2007: GBP925m).
Leveraged Finance
At 31st December 2007, drawn leveraged finance positions were GBP7,368m (30th
June 2007: GBP7,317m). The positions were stated net of fees of GBP130m and
impairment of GBP58m driven by widening of corporate credit spreads.
Own Credit
At 31st December 2007, Barclays Capital had issued notes held at fair value of
GBP57,162m (30th June 2007: GBP44,622m). The general widening of credit spreads
affected the carrying value of these notes and as a result revaluation gains of
GBP658m were recognised in trading income.
19. Loans and advances to banks
2007 2006
By geographical area GBPm GBPm
United Kingdom 5,518 6,229
Other European Union 11,102 8,513
United States 13,443 9,056
Africa 2,581 2,219
Rest of the World 7,479 4,913
--------- ---------
40,123 30,930
Less: Allowance for impairment (3) (4)
--------- ---------
Total loans and advances to banks 40,120 30,926
--------- ---------
20. Loans and advances to customers
2007 2006
GBPm GBPm
Retail business 164,062 139,350
Wholesale and corporate business 185,105 146,281
--------- ---------
349,167 285,631
Less: Allowances for impairment (3,769) (3,331)
--------- ---------
Total loans and advances to customers 345,398 282,300
--------- ---------
By geographical area
United Kingdom 190,347 170,518
Other European Union 56,533 43,430
United States 40,300 25,677
Africa 39,167 31,691
Rest of the World 22,820 14,315
--------- ---------
349,167 285,631
Less: Allowance for impairment (3,769) (3,331)
--------- ---------
Total loans and advances to customers 345,398 282,300
--------- ---------
By industry
Financial institutions 71,160 45,954
Agriculture, forestry and fishing 3,319 3,997
Manufacturing 16,974 15,451
Construction 5,423 4,056
Property 17,018 16,528
Government 2,036 2,426
Energy and water 8,632 6,810
Wholesale and retail distribution and leisure 17,768 15,490
Transport 6,258 5,586
Postal and communication 5,404 2,180
Business and other services 30,363 26,999
Home loans 112,087 94,635
Other personal 41,535 35,377
Finance lease receivables 11,190 10,142
--------- ---------
349,167 285,631
Less: Allowance for impairment (3,769) (3,331)
--------- ---------
Total loans and advances to customers 345,398 282,300
--------- ---------
The industry classifications have been prepared at the level of the borrowing
entity. This means that a loan to the subsidiary of a major corporation is
classified by the industry in which that subsidiary operates even though the
parent's predominant business may be a different industry.
21. Allowance for impairment on loans and advances
2007 2006
GBPm GBPm
At beginning of year 3,335 3,450
Acquisitions and disposals (73) (23)
Exchange and other adjustments 53 (153)
Unwind of discount (113) (98)
Amounts written off (see below) (1,963) (2,174)
Recoveries (see below) 227 259
Amounts charged against profit (see below) 2,306 2,074
--------- ---------
At end of year 3,772 3,335
--------- ---------
Amounts written off
United Kingdom (1,530) (1,746)
Other European Union (143) (74)
United States (145) (46)
Africa (145) (264)
Rest of the World - (44)
--------- ---------
(1,963) (2,174)
--------- ---------
Recoveries
United Kingdom 154 178
Other European Union 32 18
United States 7 22
Africa 34 33
Rest of the World - 8
--------- ---------
227 259
--------- ---------
New and increased impairment allowances
United Kingdom 1,960 2,253
Other European Union 192 182
United States 431 60
Africa 268 209
Rest of the World 20 18
--------- ---------
2,871 2,722
--------- ---------
Less: Releases of impairment allowance
United Kingdom (213) (195)
Other European Union (37) (72)
United States (50) (26)
Africa (20) (33)
Rest of the World (18) (63)
--------- ---------
(338) (389)
--------- ---------
Recoveries (227) (259)
--------- ---------
Total impairment charges on loans and advances 2,306 2,074
--------- ---------
2007 2006
Allowance GBPm GBPm
United Kingdom 2,526 2,477
Other European Union 344 311
United States 356 100
Africa 514 417
Rest of the World 32 30
--------- ---------
At end of year 3,772 3,335
--------- ---------
22. Potential credit risk loans
2007 2006
GBPm GBPm
Impaired loans
- Loans and advances 5,230 4,444
- ABS CDO Super Senior 3,344 -
--------- ---------
8,574 4,444
Accruing loans which are contractually overdue
90 days or more as to principal or interest 794 598
Impaired and restructured loans 273 46
--------- ---------
Credit risk loans(1) 9,641 5,088
Potential problem loans
Loans and advances 846 761
ABS CDO Super Senior and SIV-lites 951 -
--------- ---------
1,797 761
--------- ---------
Potential credit risk loans 11,438 5,849
--------- ---------
Geographical split
Impaired loans:
United Kingdom 3,605 3,340
Other European Union 472 410
United States 3,703 129
Africa 757 535
Rest of the World 37 30
--------- ---------
Total 8,574 4,444
--------- ---------
Accruing loans which are contractually overdue
90 days or more as to principal or interest
United Kingdom 676 516
Other European Union 79 58
United States 10 3
Africa 29 21
Rest of the World - -
--------- ---------
Total 794 598
--------- ---------
(1) The term credit risk loans has replaced non-performing loans as the
collective term for impaired loans, accruing loans which are more than 90 days
past due and impaired and restructured loans. This recognises the fact that the
impaired loans category may include loans which, while impaired, are still
performing.
2007 2006
GBPm GBPm
Impaired and restructured loans
United Kingdom 179 -
Other European Union 14 10
United States 38 22
Africa 42 14
Rest of the World - -
--------- ---------
Total 273 46
--------- ---------
Credit risk loans
United Kingdom 4,460 3,856
Other European Union 565 478
United States 3,751 154
Africa 828 570
Rest of the World 37 30
--------- ---------
Total 9,641 5,088
--------- ---------
Potential problem loans
United Kingdom 419 465
Other European Union 59 32
United States 964 21
Africa 355 240
Rest of the World - 3
--------- ---------
Total 1,797 761
--------- ---------
Potential credit risk loans
United Kingdom 4,879 4,321
Other European Union 624 510
United States 4,715 175
Africa 1,183 810
Rest of the World 37 33
--------- ---------
Total 11,438 5,849
--------- ---------
2007 2006
Allowance coverage of credit risk loans % %
United Kingdom 56.6 64.2
Other European Union 60.9 65.1
United States 9.5 64.9
Africa 62.1 73.2
Rest of the World 86.5 100.0
--------- ---------
Total 39.1 65.6
--------- ---------
Allowance coverage of potential credit risk % %
loans
United Kingdom 51.8 57.3
Other European Union 55.1 61.0
United States 7.6 57.1
Africa 43.4 51.5
Rest of the World 86.5 91.0
--------- ---------
Total 33.0 57.0
--------- ---------
Allowance coverage of credit risk loans: % %
Retail 55.8 65.6
Wholesale and corporate 24.9 65.5
--------- ---------
Total 39.1 65.6
--------- ---------
Total excluding ABS CDO Super Senior exposure 55.6 65.6
Allowance coverage of potential credit risk % %
loans:
Retail 51.0 59.8
Wholesale and corporate 19.7 50.6
--------- ---------
Total 33.0 57.0
--------- ---------
Total excluding ABS CDO Super Senior exposure 49.0 57.0
Allowance coverage of credit risk loans and potential credit risk loans
excluding the drawn ABS CDO Super Senior exposure decreased to 55.6% (31st
December 2006: 65.6%) and 49.0% (31st December 2006: 57.0%), respectively. The
decrease in these ratios reflected a change in the mix of credit risk loans and
potential credit risk loans: unsecured retail exposures, where the recovery
outlook is relatively low, decreased as a proportion of the total as the
collections and underwriting processes were improved. Secured retail and
wholesale and corporate exposures, where the recovery outlook is relatively
high, increased as a proportion of credit risk loans and potential credit risk
loans.
Allowance coverage of ABS CDO Super Senior credit risk loans was low relative to
allowance coverage of other credit risk loans since substantial protection
against loss is also provided by subordination and hedges. On ABS CDO super
senior exposures, the combination of subordination, hedging and writedowns
provide protection against loss levels to 72% on US sub-prime collateral as at
31st December 2007.
23. Available for sale financial investments
2007 2006
GBPm GBPm
Debt securities 38,673 47,912
Equity securities 1,676 1,371
Treasury bills and other eligible bills 2,723 2,420
--------- ---------
43,072 51,703
--------- ---------
24. Other assets
2007 2006
GBPm GBPm
Sundry debtors 4,042 4,298
Prepayments 551 658
Accrued income 400 722
Insurance assets, including unit linked
assets 157 172
--------- ---------
5,150 5,850
--------- ---------
25. Other liabilities
2007 2006
GBPm GBPm
Obligations under finance leases payable 83 92
Sundry creditors 4,341 4,118
Accruals and deferred income 6,075 6,127
--------- ---------
10,499 10,337
--------- ---------
26. Provisions
2007 2006
GBPm GBPm
Redundancy and restructuring 82 102
Undrawn contractually committed facilities and
guarantees 475 46
Onerous contracts 64 71
Sundry provisions 209 243
--------- ---------
830 462
--------- ---------
27. Retirement benefit liabilities
The Group's IAS 19 pension surplus across all schemes as at 31st December 2007
was GBP393m (31st December 2006: deficit of GBP817m). There are net recognised
liabilities of GBP1,501m (31st December 2006: GBP1,719m) and unrecognised
actuarial gains of GBP1,894m (31st December 2006: GBP902m). The net recognised
liabilities comprised retirement benefit liabilities of GBP1,537m (31st December
2006: GBP1,807m) and assets of GBP36m (31st December 2006: GBP88m).
The Group's IAS 19 pension surplus in respect of the main UK scheme as at 31st
December 2007 was GBP668m (31st December 2006: deficit of GBP475m). Among the
reasons for the movement of GBP1,143m was the increase in AA long-term corporate
bond yields which resulted in a higher discount rate of 5.82% (31st December
2006: 5.12%), partially offset by lower than expected returns and an increase in
the inflation assumption to 3.45% (31st December 2006: 3.08%).
28. Total shareholders' equity
2007 2006
GBPm GBPm
Called up share capital 1,651 1,634
Share premium account 56 5,818
--------- ---------
Available for sale reserve 154 132
Cash flow hedging reserve 26 (230)
Capital redemption reserve 384 309
Other capital reserve 617 617
Currency translation reserve (307) (438)
--------- ---------
Other reserves 874 390
Retained earnings 20,970 12,169
Less: Treasury shares (260) (212)
--------- ---------
Shareholders' equity excluding minority
interests 23,291 19,799
--------- ---------
Preference shares 4,744 3,414
Reserve capital instruments 1,906 1,906
Upper tier 2 instruments 586 586
Absa minority interests 1,676 1,451
Other minority interests 273 234
--------- ---------
Minority interests 9,185 7,591
--------- ---------
Total shareholders' equity 32,476 27,390
--------- ---------
Total shareholders' equity increased GBP5,086m to GBP32,476m (2006: 27,390m).
Called up share capital comprises 6,600 million (2006: 6,535 million) ordinary
shares of 25p each and 1 million (2006: 1 million) staff shares of GBP1 each.
Called up share capital increased by GBP17m representing the nominal value of
shares issued to Temasek Holdings, China Development Bank (CDB) and employees
under share option plans largely offset by a reduction in nominal value arising
from share buy-backs. Share premium reduced by GBP5,762m; the reclassification
of GBP7,223m to retained earnings resulting from the High Court approved
cancellation of share premium was partly offset by additional premium arising on
the issuance to CDB and on employee options. The capital redemption reserve
increased by GBP75m representing the nominal value of the share buy-backs.
Retained earnings increased by GBP8,801m. Increases primarily arose from profit
attributable to equity holders of the parent of GBP4,417m, the reclassification
of share premium of GBP7,223m and the proceeds of the Temasek issuance in excess
of nominal value of GBP941m. Reductions primarily arose from external dividends
paid of GBP2,079m and the total cost of share repurchases of GBP1,802m.
Movements in other reserves, except the capital redemption reserve, reflect the
relevant amounts recorded in the consolidated statement of recognised income and
expense on page 82.
Minority interests increased GBP1,594m to GBP9,185m (2006: GBP7,591m). The
increase was primarily driven by a preference share issuance of GBP1,322m and an
increase in the minority interest in Absa of GBP225m.
29. Contingent liabilities and commitments
2007 2006
GBPm GBPm
Acceptances and endorsements 365 287
Guarantees and letters of credit pledged as
collateral for security 35,692 31,252
Other contingent liabilities 9,717 7,880
--------- ---------
Contingent liabilities 45,774 39,419
--------- ---------
Commitments 192,639 205,504
--------- ---------
30. Legal proceedings
Barclays has for some time been party to proceedings, including a class action,
in the United States against a number of defendants following the collapse of
Enron; the class action claim is commonly known as the Newby litigation. On 20th
July 2006 Barclays received an Order from the United States District Court for
the Southern District of Texas Houston Division which dismissed the claims
against Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. in the Newby
litigation. On 4th December 2006 the Court stayed Barclays dismissal from the
proceedings and allowed the plaintiffs to file a supplemental complaint. On 19th
March 2007 the United States Court of Appeals for the Fifth Circuit issued its
decision on an appeal by Barclays and two other financial institutions
contesting a ruling by the District Court allowing the Newby litigation to
proceed as a class action. The Court of Appeals held that because no proper
claim against Barclays and the other financial institutions had been alleged by
the plaintiffs, the case could not proceed against them. The plaintiffs applied
to the United States Supreme Court for a review of this decision. On 22 January
2008, the United States Supreme Court denied the plaintiffs' request for review.
Following the Supreme Court's decision, the District Court ordered a further
briefing concerning the status of the plaintiffs' claims. Barclays plans to seek
the dismissal of the plaintiffs' claims.
Barclays considers that the Enron related claims against it are without merit
and is defending them vigorously. It is not possible to estimate Barclays
possible loss in relation to these matters, nor the effect that they might have
upon operating results in any particular financial period.
Barclays has been in negotiations with the staff of the US Securities and
Exchange Commission with respect to a settlement of the Commission's
investigations of transactions between Barclays and Enron. Barclays does not
expect that the amount of any settlement with the Commission would have a
significant adverse effect on its financial position or operating results.
Like other UK financial services institutions, Barclays faces numerous County
Court claims and complaints by customers who allege that its unauthorised
overdraft charges either contravene the Unfair Terms in Consumer Contracts
Regulations 1999 or are unenforceable penalties or both. Pending resolution of
the test case referred to below (the "test case"), existing and new claims in
the County Courts are stayed, and there is an FSA waiver of the complaints
handling process and a standstill of Financial Ombudsman Service decisions. In
July 2007, and by agreement with all parties, the OFT launched the test case by
commencing proceedings against seven banks and one building society including
Barclays, the first stage of which seeks declarations on two issues of legal
principle. The hearing commenced on 17 January 2008. Barclays is defending the
test case vigorously. It is not practicable to estimate Barclays possible loss
in relation to these matters, nor the effect that they may have upon operating
results in any particular financial period.
Barclays is engaged in various other litigation proceedings both in the United
Kingdom and a number of overseas jurisdictions, including the United States,
involving claims by and against it which arise in the ordinary course of
business. Barclays does not expect the ultimate resolution of any of the
proceedings to which Barclays is party to have a significant adverse effect on
the financial position of the Group and Barclays has not disclosed the
contingent liabilities associated with these claims either because they cannot
reasonably be estimated or because such disclosure could be prejudicial to the
conduct of the claims.
31. Competition and regulatory matters
The scale of regulatory change remains challenging, arising in part from the
implementation of some key European Union (EU) directives. Many changes to
financial services legislation and regulation have come into force in recent
years and further changes will take place in the near future. Concurrently,
there is continuing political and regulatory scrutiny of the operation of the
retail banking and consumer credit industries in the UK and elsewhere. The
nature and impact of future changes in policies and regulatory action are not
predictable and beyond the Group's control but could have an impact on the
Group's businesses and earnings.In June 2005 an inquiry into retail banking in
all of the then 25 Member States was launched by the European Commission's
Directorate General for Competition. The inquiry looked at retail banking in
Europe generally. In January 2007 the European Commission announced that the
inquiry had identified barriers to competition in certain areas of retail
banking, payment cards and payment systems in the EU. The Commission indicated
it will use its powers to address these barriers, and will encourage national
competition authorities to enforce European and national competition laws where
appropriate. Any action taken by the Commission and national competition
authorities could have an impact on the payment cards and payment systems
businesses of Barclays and on its retail banking activities in the EU countries
in which it operates.
In September 2005 the UK Office of Fair Trading (OFT) received a super-complaint
from the Citizens Advice Bureau relating to payment protection insurance (PPI).
As a result, the OFT commenced a market study on PPI in April 2006. In October
2006, the OFT announced the outcome of the market study and, following a period
of consultation, the OFT referred the PPI market to the UK Competition
Commission for an in-depth inquiry in February 2007. This inquiry could last for
up to two years. Also in October 2006, the UK Financial Services Authority (FSA)
published the outcome of its broad industry thematic review of PPI sales
practices in which it concluded that some firms fail to treat customers fairly.
Barclays has cooperated fully with these investigations and will continue to do
so.
In April 2006, the OFT commenced a review of the undertakings given following
the conclusion of the Competition Commission inquiry in 2002 into the supply of
banking services to small and medium enterprises. Based on the OFT's report, the
Competition Commission issued its final decision on 21st December 2007 and
decided to release the UK's four largest clearing banks (including Barclays)
from most of the transitional undertakings given by them in 2002.
The OFT has carried out investigations into Visa and MasterCard credit card
interchange rates. The decision by the OFT in the MasterCard interchange case
was set aside by the Competition Appeals Tribunal in June 2006. The OFT's
investigation in the Visa interchange case is at an earlier stage and a second
MasterCard interchange case is ongoing. The outcome is not known but these
investigations may have an impact on the consumer credit industry in general and
therefore on Barclays business in this sector. In February 2007 the OFT
announced that it was expanding its investigation into interchange rates to
include debit cards.
In April 2007, the UK consumer interest association known as Which? submitted a
super-complaint to the OFT pursuant to the Enterprise Act 2002. The
super-complaint criticises the various ways in which credit card companies
calculate interest charges on credit card accounts. In June 2007, the OFT
announced a new programme of work with the credit card industry and consumer
bodies in order to make the costs of credit cards easier for consumers to
understand. This OFT decision follows the receipt by the OFT of the
super-complaint from Which? This new work will explore the issues surrounding
the costs of credit for credit cards including purchases, cash advances,
introductory offers and payment allocation. The OFT's programme of work is
expected to take six months.
The OFT announced the findings of its investigation into the level of late and
over-limit fees on credit cards in April 2006, requiring a response from credit
card companies by 31st May 2006. Barclaycard responded by confirming that it
would reduce its late and over-limit fees on credit cards from 1st August 2006.
In September 2006, the OFT announced that it had decided to undertake a fact
find on the application of its statement on credit card fees to current account
unauthorised overdraft fees. The fact find was completed in March 2007. On 29th
March 2007, the OFT announced its decision to conduct a formal investigation
into the fairness of bank current account charges. The OFT announced a market
study into personal current accounts (PCAs) in the UK on 26th April 2007. The
market study will look at: (i) whether the provision of "free if in credit" PCAs
delivers sufficiently high levels of transparency and value for customers; (ii)
the implications for competition and consumers if there were to be a shift away
from "free if in credit" PCAs; (iii) the fairness and impact on consumers
generally of the incidence, level and consequences of account charges; and (iv)
what steps could be taken to improve customers' ability to secure better value
for money, in particular to help customers make more informed current account
choices and drive competition. The study will focus on PCAs but will include an
examination of other retail banking products, in particular savings accounts,
credit cards, personal loans and mortgages in order to take into account the
competitive dynamics of UK retail banking. The OFT will publish its interim
findings after the test case (see below).
In July 2007, the OFT commenced a test case in the High Court by agreement with
Barclays and seven other financial institutions in which the parties seek
declarations on two legal issues arising from the banks' terms and conditions
relating to overdraft charges. The test case does not encompass claims from
local, medium or larger business customers. The proceedings will run in parallel
with the ongoing OFT dual inquiry into unauthorised overdraft charges and PCAs.
Please also refer to the "Legal proceedings" section on page 73.
In January 2007, the FSA issued a statement of good practice relating to
mortgage exit administration fees. Barclays agreed to charge the fee applicable
at the time the customer took out the mortgage, which was one of the options
recommended by the FSA.
US laws and regulations require compliance with US economic sanctions,
administered by the Office of Foreign Assets Control, against designated foreign
countries, nationals and others. HM Treasury regulations similarly require
compliance with sanctions adopted by the UK government. Barclays has been
conducting an internal review of its conduct with respect to US dollar payments
involving countries, persons or entities subject to these sanctions and has been
reporting to governmental agencies about the results of that review. Barclays
received inquiries relating to these sanctions and certain US dollar payments
processed by its New York branch from the New York County District Attorney's
Office and the US Department of Justice, which, along with other authorities,
has been reported to be conducting investigations of sanctions compliance by
non-US financial institutions. Barclays has responded to those inquiries and is
cooperating with regulators, the Department of Justice and the District
Attorney's Office in connection with their investigations of Barclays conduct
with respect to sanctions compliance. Barclays has also been keeping the FSA
informed of the progress of these investigations and Barclays internal review.
Barclays review is ongoing. It is currently not possible to predict the ultimate
resolution of the issues covered by Barclays review and the investigations,
including the timing and potential financial effect of any resolution, which
could be substantial. Barclays does not expect these matters to have a material
adverse effect on the financial position of the Group, but it is not possible to
estimate the effect they might have upon operating results in any particular
financial period.
32. Market Risk
Market risk is the risk that Barclays earnings, capital, or ability to meet its
business objectives, will be adversely affected by changes in the level or
volatility of market rates or prices such as interest rates, credit spreads,
commodity prices, equity prices and foreign exchange rates.
Barclays Capital's market risk exposure, as measured by average total Daily
Value at Risk (DVaR), increased by 13% to GBP42.0m (2006: GBP37.1m). Interest
rate and credit spread risks were broadly unchanged while commodity DVaR and
equity DVaR increased by GBP8.9m and GBP3.4m respectively. Diversification
across risk types remained significant, reflecting the broad product mix. Total
DVaR as at 31st December 2007 was GBP53.9m (31st December 2006: GBP41.9m),
reflecting the increased market volatility in the second half of the year.
Analysis of Barclays Capital's market risk exposures
The daily average, maximum and minimum values of DVaR were calculated as below:
DVaR
Twelve Months to
31st December 2007
-------------------------------
Average High(1) Low(1)
GBPm GBPm GBPm
Interest rate risk 20.0 33.3 12.6
Credit spread risk 24.9 43.3 14.6
Commodity risk 20.2 27.2 14.8
Equity risk 11.2 17.6 7.3
Foreign exchange risk 4.9 9.6 2.9
Diversification effect (39.2) n/a n/a
--------- --------- ---------
Total DVaR 42.0 59.3 33.1
--------- --------- ---------
Twelve Months to
31st December 2006
------------------------------
Average High(1) Low(1)
GBPm GBPm GBPm
Interest rate risk 20.1 28.8 12.3
Credit spread risk 24.3 33.1 17.9
Commodity risk 11.3 21.6 5.7
Equity risk 7.8 11.6 5.8
Foreign exchange risk 4.0 7.7 1.8
Diversification effect (30.4) n/a n/a
--------- --------- ---------
Total DVaR 37.1 43.2 31.3
--------- --------- ---------
(1) The high (and low) DVaR figures reported for each category did not
necessarily occur on the same day as the high (and low) DVaR reported as a
whole. Consequently a diversification effect number for the high (and low) DVaR
figures would not be meaningful and it is therefore omitted from the above
table.
33. Capital Ratios
Basel II Basel I Basel I
Risk weighted assets: 2007 2007 2006
Banking book GBPm GBPm GBPm
On-balance sheet 231,496 197,979
Off-balance sheet 32,620 33,821
Associated undertakings and joint
ventures(1) 1,354 2,072
--------- --------- ---------
Total banking book 244,474 265,470 233,872
--------- --------- ---------
Trading book
Market risks 39,812 36,265 30,291
Counterparty and settlement risks 41,203 51,741 33,670
--------- --------- ---------
Total trading book 81,015 88,006 63,961
Operational risk 28,389
--------- --------- ---------
Total risk weighted assets 353,878 353,476 297,833
--------- --------- ---------
Capital resources:
Tier 1
Called up share capital 1,651 1,651 1,634
Eligible reserves 22,939 22,526 19,608
Minority interests(2) 10,551 10,551 7,899
Tier 1 notes(3) 899 899 909
Less: intangible assets (8,191) (8,191) (7,045)
Less: deductions from Tier 1
capital(1) (1,106) (28) -
--------- --------- ---------
Total qualifying Tier 1 capital 26,743 27,408 23,005
--------- --------- ---------
Tier 2
Revaluation reserves 26 26 25
Available for sale-equity gains 295 295 221
Collectively assessed impairment 440 2,619 2,556
allowances
Minority Interests 442 442 451
Qualifying subordinated liabilities(4):
Undated loan capital 3,191 3,191 3,180
Dated loan capital 10,578 10,578 7,603
Less: deductions from Tier 2
capital(1) (1,106) (28) -
--------- --------- ---------
Total qualifying Tier 2 capital 13,866 17,123 14,036
--------- --------- ---------
Less: Regulatory deductions:
Investments not consolidated for (633) (633) (982)
supervisory purposes
Other deductions (193) (1,256) (1,348)
--------- --------- ---------
Total deductions (826) (1,889) (2,330)
--------- --------- ---------
Total net capital resources 39,783 42,642 34,711
--------- --------- ---------
% % %
Equity Tier 1 ratio 5.1 5.0 5.3
Tier 1 ratio 7.6 7.8 7.7
Risk asset ratio 11.2 12.1 11.7
(1) From 1st January 2007, under the FSA's Prudential Sourcebook for Banks,
Building Societies and Investment Firms, eligible associates are proportionally,
rather than fully, consolidated for regulatory purposes and certain deductions
are made directly from Tiers 1 and 2 rather than being included in regulatory
deductions.
(2) Includes reserve capital instruments of GBP3,908m (31st December 2006:
GBP2,765m). Of this amount, GBP1,118m was issued during 2007. This issue is
classified within subordinated liabilities on the consolidated balance sheet.
(3) Tier 1 notes are included in subordinated liabilities in the consolidated
balance sheet.
(4) Subordinated liabilities included in Tier 2 Capital are subject to limits
laid down in the regulatory requirements.
Basel I
At 31st December 2007, the Tier 1 capital ratio was 7.8% and the risk asset
ratio was 12.1%. From 31st December 2006, total net capital resources rose
GBP7.9bn and risk weighted assets increased GBP55.6bn.
Tier 1 capital rose GBP4.4bn, including GBP2.3bn arising from profits
attributable to equity holders net of dividends paid. Minority interests within
Tier 1 capital increased GBP2.7bn primarily due to the issuance of reserve
capital instruments and preference shares. The deduction for goodwill and
intangible assets increased by GBP1.1bn. Tier 2 capital increased GBP3.1bn
mainly as a result of an increase of GBP3.0bn of dated loan capital.
Basel II
Barclays commenced calculating its risk weighted assets under the new Basel II
Capital framework from 1st January 2008.
Risk weighted assets (RWAs) calculated on a Basel II basis are broadly in line
with RWAs calculated on a Basel I basis. A reduction in credit and counterparty
RWAs of GBP31.5bn more than offset the identification of capital equivalent RWAs
of GBP28.4bn attributable to operational risk. The reduced RWAs attributable to
credit risk were mainly driven by recognition of the low risk profile of first
charge residential mortgages in UK Retail Banking and Absa and the use of
internal models to assess exposures to counterparty risk in the trading book.
These were partially offset by higher counterparty risk weightings in emerging
markets and greater recognition of undrawn commitments.
Compared to Basel I, deductions from Tier 1 and Tier 2 capital under Basel II
include additional amounts relating to expected loss and securitisations. For
advanced portfolios, any excess of expected loss over impairment allowances is
deducted half from Tier 1 and half from Tier 2 capital. Deductions relating to
securitisation transactions, which are made from total capital under Basel I,
are deducted half from Tier 1 and half from Tier 2 capital under Basel II.
For portfolios treated under the standardised approach, the inclusion of
collectively assessed impairment allowances in Tier 2 capital remains the same
under Basel II. Collectively assessed impairment allowances against exposures
treated under Basel II advanced approaches are not eligible for direct inclusion
in Tier 2 capital.
34. Reconciliation of regulatory capital
Capital is defined differently for accounting and regulatory purposes. A
reconciliation of shareholders' equity for accounting purposes to called up
share capital and eligible reserves for regulatory purposes is set out below:
2007 2006
GBPm GBPm
Shareholders' equity excluding minority interests 23,291 19,799
Available for sale reserve (154) (132)
Cash flow hedging reserve (26) 230
Adjustments to retained earnings
Defined benefit pension scheme 1,053 1,165
Additional companies in regulatory consolidation
and non-consolidated companies (281) (498)
Foreign exchange on RCIs and upper Tier 2 loan
stock 478 504
Adjustment for own credit (461) -
Other adjustments 277 174
-------- --------
Called up share capital and eligible reserves for
regulatory purposes 24,177 21,242
-------- --------
Under Basel II, called up share capital and eligible reserves for regulatory
purposes included GBP413m of additional eligible reserves compared to Basel I.
35. Total assets and risk weighted assets
Total assets
2007 2006
GBPm GBPm
UK Banking 161,777 147,576
--------- ---------
UK Retail Banking 87,833 81,692
Barclays Commercial Bank 73,944 65,884
--------- ---------
Barclaycard 22,164 20,082
International Retail and Commercial Banking 89,457 68,588
--------- ---------
International Retail and Commercial Banking-ex
Absa 52,204 38,191
International Retail and Commercial
Banking-Absa 37,253 30,397
--------- ---------
Barclays Capital 839,662 657,922
Barclays Global Investors 89,224 80,515
Barclays Wealth 18,024 15,022
Head office functions and other operations 7,053 7,082
--------- ---------
1,227,361 996,787
--------- ---------
Risk weighted assets(1)
2007 2006
GBPm GBPm
UK Banking 99,836 92,981
--------- ---------
UK Retail Banking 45,992 43,020
Barclays Commercial Bank 53,844 49,961
--------- ---------
Barclaycard 19,929 17,035
International Retail and Commercial Banking 53,269 40,810
--------- ---------
International Retail and Commercial Banking-ex
Absa 29,667 20,082
International Retail and Commercial
Banking-Absa 23,602 20,728
--------- ---------
Barclays Capital 169,124 137,635
Barclays Global Investors 1,994 1,375
Barclays Wealth 7,692 6,077
Head office functions and other operations 1,632 1,920
--------- ---------
353,476 297,833
--------- ---------
(1) Risk weighted assets are calculated under Basel I
Total assets increased 23% to GBP1,227.4bn (2006: GBP996.8bn). Risk weighted
assets increased 19% to GBP353.5bn (31st December 2006: GBP297.8bn). Loans and
advances to customers that have been securitised increased GBP4.3bn to GBP28.7bn
(31st December 2006: GBP24.4bn). The increase in risk weighted assets since 2006
reflected a rise of GBP31.6bn in the banking book and a rise of GBP24.0bn in the
trading book.
UK Retail Banking total assets increased 7% to GBP87.8bn (31st December 2006:
GBP81.7bn). This was mainly attributable to growth in mortgage balances. Risk
weighted assets increased by 7% to GBP46.0bn (31st December 2006: GBP43.0bn)
with growth in mortgages partially offset by an increase in securitised balances
and other reductions.
Barclays Commercial Bank total assets grew 12% to GBP73.9bn (31st December 2006:
GBP65.9bn) driven by growth across lending products. Risk weighted assets
increased 8% to GBP53.8bn (31st December 2006: GBP50.0bn), reflecting asset
growth partially offset by increased regulatory netting and an increase in
securitised balances.
Barclaycard total assets increased 10% to GBP22.2bn (31st December 2006:
GBP20.1bn). Risk weighted assets increased 17% to GBP19.9bn (31st December 2006:
GBP17.0bn), primarily reflecting the increase in total assets, redemption of
securitisation transactions, partially offset by changes to the treatment of
regulatory associates and the sale of part of the Monument card portfolio.
International Retail and Commercial Banking - excluding Absa total assets grew
37% to GBP52.2bn (31st December 2006: GBP38.2bn). This growth was mainly driven
by increases in retail mortgages and unsecured lending in Western Europe and
increases in unsecured lending in Emerging Markets. Risk weighted assets
increased 48% to GBP29.7bn (31st December 2006: GBP20.1bn), reflecting asset
growth and a change in product mix.
International Retail and Commercial Banking - Absa total assets increased 23% to
GBP37.3bn (31st December 2006: GBP30.4bn), primarily driven by increases in
mortgages and commercial property finance. Risk weighted assets increased 14% to
GBP23.6bn (31st December 2006: GBP20.7bn), reflecting balance sheet growth.
Barclays Capital total assets rose 28% to GBP839.7bn (31st December 2006:
GBP657.9bn). Derivative assets increased GBP109.3bn primarily due to movements
across a range of market indices. This was accompanied by a corresponding
increase in derivative liabilities. The increase in non-derivative assets
reflects an expansion of the business across a number of asset classes, combined
with an increase in drawn leveraged loan positions and mortgage-related assets.
Risk weighted assets increased 23% to GBP169.1bn (31st December 2006:
GBP137.6bn) reflecting growth in fixed income, equities and credit derivatives.
Barclays Global Investors total assets increased 11% to GBP89.2bn (31st December
2006: GBP80.5bn), mainly attributable to growth in certain asset management
products recognised as investment contracts. The majority of total assets
relates to asset management products with equal and offsetting balances
reflected within liabilities to customers. Risk weighted assets increased 43% to
GBP2.0bn (31st December 2006: GBP1.4bn) mainly attributable to overall growth in
the balance sheet and the mix of securities lending activity.
Barclays Wealth total assets increased 20% to GBP18.0bn (31st December 2006:
GBP15.0bn) reflecting strong growth in lending to high net worth, affluent and
intermediary clients. Risk weighted assets increased 26% to GBP7.7bn (31st
December 2006: GBP6.1bn) reflecting the increase in lending.
Head office functions and other operations total assets remained flat at
GBP7.1bn (31st December 2006: GBP7.1bn). Risk weighted assets decreased 16% to
GBP1.6bn (31st December 2006: GBP1.9bn).
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
2007 2006
GBPm GBPm
Net movements in available for sale reserve 2 (140)
Net movements in cash flow hedging reserve 359 (487)
Net movements in currency translation reserve 54 (781)
Tax 54 253
Other movements 22 25
--------- ---------
Amounts included directly in equity 491 (1,130)
Profit after tax 5,095 5,195
--------- ---------
Total recognised income and expense 5,586 4,065
--------- ---------
Attributable to:
Equity holders of the parent 4,854 3,682
Minority interests 732 383
--------- ---------
5,586 4,065
--------- ---------
The consolidated statement of recognised income and expense reflects all items
of income and expense for the period, including items taken directly to equity.
Movements in individual reserves are shown including amounts which relate to
minority interests; the impact of such amounts is then reflected in the amount
attributable to such interests. Movements in individual reserves are also shown
on a pre-tax basis with any related tax recorded on the separate tax line.
The available for sale reserve reflects gains or losses arising from the change
in fair value of available for sale financial assets except for items recorded
in the income statement which are: impairment losses; gains or losses
transferred to the income statement due to fair value hedge accounting; and
foreign exchange gains or losses on monetary items such as debt securities. When
an available for sale asset is impaired or derecognised, the cumulative gain or
loss previously recognised in the available for sale reserve is transferred to
the income statement. The transfer of net gains to the income statement,
primarily on disposal of assets, was offset by the recognition of net unrealised
gains from changes in fair value.
Cash flow hedging aims to minimise exposure to variability in cash flows that is
attributable to a particular risk associated with a recognised asset or
liability or a highly probable forecast transaction that could affect profit or
loss. The portion of the gain or loss on the hedging instrument that is deemed
to be an effective hedge is recognised in the cash flow hedging reserve. The
gains and losses deferred in this reserve will be transferred to the income
statement in the same period or periods during which the hedged item is
recognised in the income statement. The movement in 2007 reflects the transfer
of net losses to the income statement and the recognition of net unrealised
gains from changes in the fair value of the hedging instruments.
Exchange differences arising on the net investments in foreign operations and
effective hedges of net investments are recognised in the currency translation
reserve and transferred to the income statement on the disposal of the net
investment. The movement in 2007 primarily reflects the impact of changes in the
value of the Euro on net investments partially offset by the impact of changes
in the value of the US Dollar on net investments and other currency movements on
net investments which are hedged on a post-tax basis. The Euro and US Dollar net
investments are economically hedged through Euro-denominated and US
Dollar-denominated preference share capital, which is not revalued for
accounting purposes.
SUMMARY CONSOLIDATED CASH FLOW STATEMENT
2007 2006
GBPm GBPm
Net cash flow from operating activities (10,747) 10,047
Net cash flow from investing activities 10,064 (1,154)
Net cash flow from financing activities 3,358 692
Effects of exchange rate on cash and cash
equivalents (550) 562
--------- ---------
Net increase in cash and cash equivalents 2,125 10,147
Cash and cash equivalents at beginning of
period 30,952 20,805
--------- ---------
Cash and cash equivalents at end of period 33,077 30,952
--------- ---------
PERFORMANCE MANAGEMENT
Economic capital
Barclays assesses capital requirements by measuring the Group risk profile using
both internally and externally developed models. The Group assigns economic
capital primarily within seven risk categories: Credit Risk, Market Risk,
Operational Risk, Business Risk, Insurance Risk, Fixed Assets and Private
Equity.
The Group regularly enhances its economic capital methodology and benchmarks
outputs to external reference points. The framework uses default probabilities
during average credit conditions, rather than those prevailing at the balance
sheet date, thus removing cyclicality from the economic capital calculation.
Economic capital for wholesale credit risk includes counterparty risk arising as
a result of credit risk on traded market exposures. The framework also adjusts
economic capital to reflect time horizon, correlation of risks and risk
concentrations.
Economic capital is allocated on a consistent basis across all of Barclays
businesses and risk activities. A single cost of equity is applied to calculate
the cost of risk. Economic capital allocations reflect varying levels of risk.
The total average economic capital required by the Group, as determined by risk
assessment models and after considering the Group's estimated portfolio effects,
is compared with the supply of economic capital to evaluate economic capital
utilisation. Supply of economic capital is calculated as the average available
shareholders' equity after adjustment (as shown under economic capital supply,
page 86) and including preference shares.
The Group's economic capital calculations now form the basis of the Group's
submissions for the Basel II Internal Capital Adequacy Assessment process.
Economic capital demand(1)
2007 2006
GBPm GBPm
UK Banking 6,600 6,000
--------- ---------
UK Retail Banking 3,400 3,300
Barclays Commercial Bank 3,200 2,700
--------- ---------
Barclaycard 2,100 1,950
International Retail and Commercial Banking 2,550 1,950
--------- ---------
International Retail and Commercial Banking-ex
Absa 1,600 1,200
International Retail and Commercial
Banking-Absa 950 750
--------- ---------
Barclays Capital 5,200 3,750
Barclays Global Investors 200 150
Barclays Wealth 500 400
Head office functions and other operations(2) 250 300
--------- ---------
Economic Capital requirement (excluding
goodwill) 17,400 14,500
Average historic goodwill and intangible assets
(3) 8,400 7,750
--------- ---------
Total economic capital requirement(4) 25,800 22,250
--------- ---------
UK Retail Banking economic capital allocation increased GBP100m to GBP3,400m
(2006: GBP3,300m), reflecting asset growth in UK mortgages offset by a reduction
in consumer lending following methodology enhancements. Barclays Commercial Bank
economic capital allocation increased GBP500m to GBP3,200m (2006: GBP2,700m) as
a consequence of asset growth and implementation of updated Credit and
Operational Risk models.
Barclaycard economic capital allocation increased GBP150m to GBP2,100m (2006:
GBP1,950m), as a consequence of asset growth, predominantly in secured lending
and in Barclaycard International, offset by a reduction in UK cards following
the sale of the Monument card portfolio.
International Retail and Commercial Banking - excluding Absa economic capital
allocation increased GBP400m to GBP1,600m (2006: GBP1,200m). This was driven by
lending growth across Western Europe and Emerging Markets and some credit
deterioration in Africa. International Retail and Commercial Banking - Absa
economic capital allocation (excluding the risk borne by the minority interest)
increased GBP200m to GBP950m (2006: GBP750m), reflecting lending growth in the
business bank portfolio.
Barclays Capital economic capital increased GBP1,450m to GBP5,200m (2006:
GBP3,750m). This was driven by growth in the investment portfolio, exposure to
drawn leveraged finance underwriting positions and deterioration in credit
quality in the US.
(1) Calculated using a five point average over the year and rounded to the
nearest GBP50m for presentation purposes.
(2) Includes Transition Businesses and capital for central functional risks.
(3) Average goodwill relates to purchased goodwill and intangible assets from
business acquisitions.
(4) Total period end economic capital requirement as at 31st December 2007 was
GBP29,650m (31st December 2006: GBP23,350m).
Economic capital supply
The capital resources to support economic capital demand comprise adjusted
shareholders' equity including preference shares but excluding other minority
interests. Preference shares have been issued to optimise the long-term capital
base of the Group.
The capital resources to support economic capital are impacted by a number of
factors arising from the application of IFRS and are modified in calculating
available funds for economic capital. This applies specifically to:
- Cash flow hedging reserve - to the extent that the Group undertakes the
hedging of future cash flows, shareholders' equity will include gains and
losses which will be offset against the gain or loss on the hedged item
when it is recognised in the income statement at the conclusion of the
future hedged transaction. Given the future offset of such gains and
losses, they are excluded from shareholders' equity when calculating
economic capital.
- Available for sale reserve - unrealised gains and losses on available for
sale financial investments are included in shareholders' equity until
disposal or impairment. Such gains and losses are excluded from
shareholders' equity for the purposes of calculating economic capital.
- Retirement benefits liability - the Group has recognised a deficit with a
consequent reduction in shareholders' equity. This represents a non-cash
reduction in shareholders' equity. For the purposes of calculating economic
capital, the Group does not reflect in the pension surplus or deficit in
shareholders' equity.
The average supply of capital to support the economic capital framework is set
out below(1):
2007 2006
GBPm GBPm
Shareholders' equity excluding minority
interests less goodwill(2) 14,150 11,400
Retirement benefits liability 1,150 1,300
Cashflow hedging reserve 250 100
Available for sale reserve (150) (50)
Preference shares 3,700 3,200
-------- --------
Available funds for economic capital excluding
goodwill 19,100 15,950
Average historic goodwill and intangible
assets(2) 8,400 7,750
-------- --------
Available funds for economic capital including
goodwill(3) 27,500 23,700
-------- --------
In addition to those capital resources included in economic capital supply the
Group held other Tier 1 instruments of GBP4,807m as at 31st December 2007 (2006:
GBP3,674m) consisting of Tier 1 notes of GBP899m and reserve capital instruments
of GBP3,908m.
These notes and instruments form part of our qualifying capital resources for
regulatory purposes and provide an additional capital buffer.
(1) Averages for the period will not correspond to period-end balances disclosed
in the balance sheet. Numbers are rounded to the nearest GBP50m for
presentational purposes only.
(2) Average goodwill relates to purchased goodwill and intangible assets from
business acquisitions.
(3) Available funds for economic capital as at 31st December 2007 stood at
GBP29,700m (31st December 2006: GBP25,150m).
Economic profit
Economic profit comprises:
- Profit after tax and minority interests; less
- Capital charge (average shareholders' equity and goodwill excluding
minority interests multiplied by the Group cost of capital).
The Group cost of capital has been applied at a uniform rate of 9.5%(1). The
costs of servicing preference shares are included in minority interests, and so
preference shares are excluded from average shareholders' equity for economic
profit purposes.
2007 2006
GBPm GBPm
Profit after tax and minority interests 4,417 4,571
Addback of amortisation charged on acquired
intangible assets(2) 137 83
-------- --------
Profit for economic profit purposes 4,554 4,654
-------- --------
Average shareholders' equity excluding minority
interests (3), (4) 14,150 11,400
Adjustment for unrealised loss on cashflow hedge
reserve(4) 250 100
Adjustment for unrealised gain on available for sale
financial investments(4) (150) (50)
Add: retirements benefits liability 1,150 1,300
Goodwill and intangible assets arising on
acquisitions(4) 8,400 7,750
-------- --------
Average shareholders' equity for economic profit
purposes(3),(4) 23,800 20,500
-------- --------
Capital charge at 9.5% (2,264) (1,950)
-------- --------
Economic profit 2,290 2,704
-------- --------
(1) The Group's cost of capital has changed from 1st January 2008 to 10.5%.
(2) Amortisation charged for purchased intangibles, adjusted for tax and
minority interests.
(3) Average ordinary shareholders' equity for Group economic profit calculation
is the sum of adjusted equity and reserves plus goodwill and intangible assets
arising on acquisition, but excludes preference shares.
(4) Averages for the period will not correspond exactly to period end balances
disclosed in the balance sheet. Numbers are rounded to the nearest GBP50m for
presentation purposes only.
Economic profit generated by business
2007 2006
GBPm GBPm
UK Banking 1,272 1,327
-------- --------
UK Retail Banking 622 589
Barclays Commercial Bank 650 738
-------- --------
Barclaycard 183 137
International Retail and Commercial Banking 150 493
-------- --------
International Retail and Commercial
Banking-ex Absa 20 309
International Retail and Commercial
Banking-Absa 130 184
-------- --------
Barclays Capital 1,172 1,181
Barclays Global Investors 430 376
Barclays Wealth 233 130
Head office functions and other operations (470) (315)
-------- --------
2,970 3,329
Historic goodwill and intangibles arising on
acquisition (800) (739)
Variance to average shareholders' funds
(excluding minority interest) 120 114
-------- --------
Economic profit 2,290 2,704
-------- --------
Economic profit for the Group decreased 15% (GBP414m) to GBP2,290m (2006:
GBP2,704m). Gains from business disposals decreased 91% (GBP295m) to GBP28m
(2006: GBP323m) and there was a 16% (GBP314m) increase in the economic capital
charge.
UK Retail Banking economic profit increased 6% (GBP33m) to GBP622m (2006:
GBP589m) due to a 9% increase in profit before tax partially offset by a 3%
increase in the economic capital charge. Barclays Commercial Bank economic
profit decreased 12% (GBP88m) to GBP650m (2006: GBP738m), due to an 18% increase
in the economic capital charge arising from the impact of lending growth and
implementation of updated credit and operational risk models.
Barclaycard economic profit increased 34% (GBP46m) to GBP183m (2006: GBP137m),
due to an 18% increase in profit before tax, partially offset by a 4% increase
in the economic capital charge.
International Retail and Commercial Banking - excluding Absa economic profit
decreased 94% (GBP289m) to GBP20m (2006: GBP309m), due to a 53% decrease in
profit before tax due to the sale of FirstCaribbean International Bank in 2006
and an increase in the economic capital charge of 33%. The increase in economic
capital charge reflected the impact of lending growth.
International Retail and Commercial Banking - Absa economic profit decreased 29%
(GBP54m) reflecting a 32% increase in the economic capital charge and broadly
stable profit before tax in Sterling.
Barclays Capital economic profit decreased to GBP1,172m (2006: GBP1,181m), due
to higher economic capital charges and minority interests.
Barclays Global Investors economic profit increased 14% (GBP54m) to GBP430m
(2006: GBP376m) due to a 3% increase in profit before tax, a lower effective tax
rate and lower minority interests.
Barclays Wealth economic profit increased 79% (GBP103m) to GBP233m (2006:
GBP130m), due to a 25% increase in profit before tax and a reduced tax charge,
partially offset by an increase in the economic capital charge of 32%,
reflecting exposure growth in the lending portfolio.
Performance relative to the 2004 to 2007 goal period
Barclays uses goals to drive performance. At the end of 2003, Barclays
established a set of four year performance goals for the period 2004 to 2007
inclusive. The primary goal was to achieve top quartile Total Shareholder Return
(TSR) relative to a peer group(1) of financial services companies. TSR is
defined as the value created for shareholders through share price appreciation,
plus reinvested dividend payments. The peer group is regularly reviewed to
ensure that it remains aligned to our business mix and the direction and scale
of our ambition.
Barclays delivered Total Shareholder Return (TSR) of 20.4% for the goal period
and was positioned 8th within its peer group (third quartile) for the goal
period commencing 1st January 2004.
At the time of setting the TSR goal, we estimated that achieving top quartile
TSR would require the achievement of compound annual growth in economic profit
in the range of 10% to 13% per annum (GBP6.5bn to GBP7.0bn of cumulative
economic profit) over the 2004 to 2007 goal period.
Economic profit for 2007 was GBP2.3bn, which, added to the GBP6.0bn generated in
2004, 2005 and 2006, delivered a cumulative total of GBP8.3bn for the goal
period. Therefore Barclays has delivered 128% of the minimum range and 119% of
the upper range of the cumulative economic profit goal in the goal period.
2008 to 2011 goal period
Barclays has established a new set of four year performance goals for the period
from 2008 to 2011 inclusive. The primary goal is to achieve compound annual
growth in economic profit in the range of 5% to 10% (GBP9.3bn to GBP10.6bn of
cumulative economic profit) over the 2008 to 2011 goal period.
We believe that if we achieve the upper end of the economic profit range, we
will also achieve our goal of top quartile TSR relative to our peer group of
financial services companies.
(1) Peer group for 2007 and 2006: Banco Santander, BBVA, BNP Paribas, Citigroup,
Deutsche Bank, HBOS, HSBC, JP Morgan Chase, Lloyds TSB, Royal Bank of Scotland
and UBS. In 2007 Banco Santander replaced ABN Amro in the peer group.
Risk Tendency
As part of its credit risk management system, the Group uses a model-based
methodology to assess the point-in-time expected loss of credit portfolios
across different customer categories. The approach is termed Risk Tendency and
applies to credit exposures not already reported as Credit Risk Loans for both
wholesale and retail sectors. Risk Tendency models provide statistical estimates
of average expected loss levels for a rolling 12-month period based on averages
in the ranges of possible losses expected from each of the current portfolios.
This contrasts with impairment charges as required under accounting standards,
which derive almost entirely from Credit Risk Loans where there is objective
evidence of actual impairment as at the balance sheet date.
Since Risk Tendency and impairment allowances are calculated for different parts
of the portfolio, for different purposes and on different bases, Risk Tendency
does not predict loan impairment. Risk Tendency is provided to present a view of
the evolution of the scale and quality of the credit portfolios.
2007 2006
GBPm GBPm
UK Banking 775 790
-------- --------
UK Retail Banking 470 500
Barclays Commercial Bank 305 290
-------- --------
Barclaycard 945 1,135
International Retail and Commercial Banking 475 220
-------- --------
International Retail and Commercial Banking-ex
Absa 220 75
International Retail and Commercial Banking-Absa 255 145
-------- --------
Barclays Capital 140 95
Barclays Wealth 10 10
Transition Businesses(1) 10 10
-------- --------
2,355 2,260
-------- --------
Risk Tendency increased 4% (GBP95m) to GBP2,355m (31st December 2006:
GBP2,260m), significantly less than the 23% growth in the Group's loans and
advances balances. This relatively small rise in Risk Tendency reflected, in
particular, the improving profile of the UK unsecured loan book. Other factors
influencing Risk Tendency included: methodology changes in Barclaycard; UK
Retail Banking and International Retail and Commercial Banking - Absa; the sale
of part of the Monument portfolio; and a maturing credit risk profile in the
international card portfolios.
UK Retail Banking Risk Tendency decreased GBP30m to GBP470m (31st December 2006:
GBP500m). This reflected an improvement in the credit risk profile in the UK
unsecured consumer lending portfolios, partially offset by the impact of
methodology changes and asset growth.
Risk Tendency in Barclays Commercial Bank increased GBP15m to GBP305m (31st
December 2006: GBP290m). This reflected some growth in loan balances offset by
improvements in the credit risk profile.
Barclaycard Risk Tendency decreased GBP190m to GBP945m (31st December 2006:
GBP1,135m). This reflected improvement in the credit risk profile of UK cards,
the sale of part of the Monument portfolio and methodology changes in UK cards,
partially offset by asset growth in the international portfolios.
Risk Tendency at International Retail and Commercial Banking - excluding Absa
increased GBP145m to GBP220m (31st December 2006: GBP75m), reflecting an
increase to the risk profile and balance sheet growth in Emerging Markets and
Western Europe.
(1) Included within Head office functions and other operations
In International Retail and Commercial Banking - Absa, the increase of GBP110m
in Risk Tendency to GBP255m (31st December 2006: GBP145m) included a change to
the methodology following the introduction of Basel compliant, Probability of
Default, Exposure at Default and Loss Given Default models. Excluding this
change, Risk Tendency increased GBP90m, reflecting a weakening of retail credit
conditions in South Africa after a series of interest rate rises in 2006 and
2007 and balance sheet growth.
Risk Tendency in Barclays Capital increased GBP45m to GBP140m (31st December
2006: GBP95m) primarily due to drawn leveraged loan positions. The drawn
liquidity facilities on ABS CDO Super Senior positions are classified as credit
risk loans and therefore no Risk Tendency is calculated on them.
ADDITIONAL INFORMATION
Group reporting changes in 2007
Barclays announced on 19th June 2007 the impact of certain changes in Group
Structure and reporting on the 2006 results. There was no impact on the Group
income statement or balance sheet.
UK Retail Banking. The unsecured lending business, previously managed and
reported within Barclaycard and the Barclays Financial Planning business,
previously managed and reported within Barclays Wealth are now managed and
reported within UK Retail Banking. The changes combine these products with
related products already offered by UK Retail Banking. In the UK certain UK
Premier customers are now managed and reported within Barclays Wealth.
Barclaycard. The unsecured lending portfolio, previously managed and reported
within Barclaycard, has been transferred and is now managed and reported within
UK Retail Banking.
International Retail and Commercial Banking - excluding Absa. A number of high
net worth customers are now managed and reported within Barclays Wealth in order
to better match client profiles to wealth services.
Barclays Wealth. In the UK and Western Europe certain Premier and high net worth
customers are now managed and reported within Barclays Wealth having been
previously reported within UK Retail Banking and International Retail and
Commercial Banking - excluding Absa.
The Barclays Financial Planning business previously managed and reported within
Barclays Wealth, has become a fully integrated part of and is managed and
reported within UK Retail Banking. Finally with effect from 1st January 2007
Barclays Wealth - closed life assurance activities continues to be managed
within Barclays Wealth and for reporting purposes has been combined rather than
being reported separately.
The structure and reporting remains unchanged for Barclays Commercial Bank,
International Retail and Commercial Banking- Absa, Barclays Capital, Barclays
Global Investors and Head Office Functions and Other Operations.
Basis of Preparation
There have been no significant changes to the accounting policies described in
the 2006 Annual report. Therefore the information in this announcement has been
prepared using the accounting policies and presentation applied in 2006. Prior
period presentation has, where appropriate, been restated to conform with
current year classification.
Future accounting developments
Consideration will be given during 2008 to the implications, if any, of the
following new and revised standards and International Financial Reporting
Interpretations Committee (IFRIC) interpretations as follows:
- IFRS 3 - Business Combinations and IAS 27 - Consolidated and Separate
Financial Statements are revised standards issued in January 2008. The
revised IFRS 3 applies prospectively to business combinations first
accounted for in accounting periods beginning on or after 1 July 2009 and
the amendments to IAS 27 apply retrospectively to periods beginning on or
after 1 July 2009. The main changes in existing practice resulting from the
revision to IFRS 3 affect acquisitions that are achieved in stages and
acquisitions where less than 100% of the equity is acquired. In addition,
acquisition-related costs - such as fees paid to advisers -must be
accounted for separately from the business combination, which means that
they will be recognised as expenses unless they are directly connected with
the issue of debt or equity securities. The revisions to IAS 27 specify
that changes in a parent's ownership interest in a subsidiary that do not
result in the loss of control must be accounted for as equity transactions.
Until future acquisitions take place that are accounted for in accordance
with the revised IFRS 3, the main impact on Barclays will be that, from
2010, gains and losses on transactions with non-controlling interests that
do not result in loss of control will no longer be recognised in the income
statement but directly in equity. In 2007, gains of GBP23m and losses of
GBP6m were recognised in income relating to such transactions.
-IFRIC 13 - Customer Loyalty Programs addresses accounting by entities that
grant loyalty award credits (such as 'points' or travel miles) to
customers who buy other goods or services. It requires entities to
allocate some of the proceeds of the initial sale to the award credits
and recognise these proceeds as revenue only when they have fulfilled
their obligations. The Group is considering the implications of this
interpretation and any resulting change in accounting policy would be
accounted for in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors in 2009.
-IFRS 8 - Operating Segments was issued in November 2006 and would first be
required to be applied to the Group accounting period beginning on 1
January 2009. The standard replaces IAS 14 - Segmental Reporting and
would align operating segmental reporting with segments reported to
senior management as well as requiring amendments and additions to the
existing segmental reporting disclosures. The standard does not change
the recognition, measurement or disclosure of specific transactions in
the consolidated financial statements. The Group is considering the
enhancements that permitted early adoption in 2008 may make to the
transparency of the segmental disclosures.
-IAS - 1 Presentation of Financial Statements is a revised standard
applicable to annual periods beginning on 1 January 2009. The
amendments affect the presentation of owner changes in equity and of
comprehensive income. They do not change the recognition, measurement
or disclosure of specific transactions and events required by other
standards.
-IAS 23 - Borrowing Costs is a revised standard applicable to annual
periods beginning on 1 January 2009. The revision does not impact
Barclays. The revision removes the option not to capitalise borrowing
costs on qualifying assets, which are assets that take a substantial
period of time to get ready for their intended use or sale.
- An amendment to IFRS 2 Share-based Payment was issued in January 2008
that clarifies that vesting conditions are service conditions and
performance conditions only. It also specifies that all cancellations,
whether by the entity or by other parties, should receive the same
accounting treatment, which results in the acceleration of charge. The
Group is considering the implications of the amendment, particularly
to the Sharesave scheme, and any resulting change in accounting policy
would be accounted for in accordance with IAS 8 Accounting policies,
changes in accounting estimates and errors in 2009.
- Amendments to IAS 32 Financial Instruments: Presentation and IAS 1
Presentation of Financial Statements were issued in February 2008 that
require some puttable financial instruments and some financial
instruments that impose on the entity an obligation to deliver to
another party a pro rata share of the net assets of the entity only on
liquidation to be classified as equity. The amendments, which are
applicable to annual periods beginning on 1 January 2009, do not
impact Barclays.
The following IFRIC interpretations issued during 2006 and 2007 which first
apply to accounting periods beginning on or after 1st January 2008 are not
expected to result in any changes to the Group's accounting policies:
-IFRIC 11 IFRS 2 - Group and Treasury Share Transactions
-IFRIC 12 - Service Concession Arrangements
-IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
Share capital
The Group manages its debt and equity capital actively. The Group's authority to
buy back ordinary shares (up to 980.8 million ordinary shares) was renewed at
the 2007 Annual General Meeting. The Group will seek to renew its authority to
buy back ordinary shares at the 2008 Annual General Meeting to provide
additional flexibility in the management of the Group's capital resources.
During 2007 Barclays repurchased in the market 299,547,510 of its ordinary
shares of 25p each at a total cost of GBP1,793,216,231 in order to minimise the
dilutive effect on its existing shareholders of the issuance of a total of
336,805,556 Barclays ordinary shares to Temasek Holdings and China Development
Bank.
Group share schemes
The independent trustees of the Group's share schemes may make purchases of
Barclays PLC ordinary shares in the market at any time or times following this
announcement of the Group's results for the purposes of those schemes' current
and future requirements. The total number of ordinary shares purchased would not
be material in relation to the issued share capital of Barclays PLC.
Filings with the SEC
The results will be furnished as a Form 6-K to the US Securities and Exchange
Commission as soon as practicable following the publication of these results.
Acquisitions
On 8th February 2007 Barclays completed the acquisition of Indexchange
Investment AG. Indexchange is based in Munich and offers exchange traded fund
products.
On 28th February 2007 Barclays completed the acquisition of Nile Bank Limited.
Nile Bank is based in Uganda with 18 branches and 228 employees.
On 30th March 2007 Barclays completed the acquisition of EquiFirst. EquiFirst is
a non-prime wholesale mortgage originator in the United States.
On 18th May 2007 Barclays completed the acquisition of Walbrook Group Limited.
Walbrook is based in Jersey, Guernsey, Isle of Man and Hong Kong where it serves
high net worth private clients and corporate customers.
Disposals
On 4th April 2007 Barclays completed the sale of part of Monument, a credit card
business.
On 24th September 2007 Barclays completed the sale of a 50% shareholding in
Intelenet Global Services Pvt Ltd.
Recent developments
On 16th April 2007 Barclays announced the sale of Barclays Global Investors
Japan Trust & Banking Co., Ltd, a Japanese trust administration and custody
operation. The sale completed on 31st January 2008.
On 5th October 2007, Barclays announced that as at 4th October 2007 not all of
the conditions relating to its offer for ABN AMRO Holding N.V. were fulfilled
and as a result Barclays was withdrawing its offer with immediate effect.
Barclays also announced that it was restarting the Barclays PLC share buyback
programme to minimise the dilutive effect of the issuance of shares to China
Development Bank and Temasek Holdings (Private) Limited on existing Barclays PLC
shareholders. This programme was subsequently extended to 31st January 2008.
On 7th February 2008, Barclays announced the purchase of Discover's UK credit
card business for a consideration of approximately GBP35m. The consideration is
subject to an adjustment mechanism based on the net asset value of the business
at completion. Completion is subject to various conditions, including
competition clearance, and is expected to occur during the first half of 2008.
Registered office
1 Churchill Place,
London,
E14 5HP,
England,
United Kingdom.
Tel: +44 (0) 20 7116 1000.
Company number: 48839.
Website
www.barclays.com
Registrar
The Registrar to Barclays PLC, Aspect House, Spencer Road, Lancing, West Sussex,
BN99 6DA, England, United Kingdom. Tel: 0871 384 2055 (calls to this number are
charged at 8p per minute if using a BT landline. Other telephony provider costs
may vary) or +44 1214 157 004 from overseas.
Listing
The principal trading market for Barclays PLC ordinary shares is the London
Stock Exchange. Ordinary shares are also listed on the Tokyo Stock Exchange.
Trading on the New York Stock Exchange is in the form of ADSs under the ticker
symbol 'BCS'. Each ADS represents four ordinary shares of 25p each and is
evidenced by an ADR. The ADR depositary is The Bank of New York whose
international telephone number is +1-212-815-3700, whose domestic telephone
number is 1-888-BNY-ADRS and whose address is The Bank of New York, Investor
Relations, PO Box 11258, Church Street Station, New York, NY 10286-1258.
Filings with the SEC
Statutory accounts for the year ended 31st December 2007, which also include
certain information required for the joint Annual Report on Form 20-F of
Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission
(SEC), can be obtained from Corporate Communications, Barclays Bank PLC, 200
Park Avenue, New York, NY 10166, United States of America or from the Director,
Investor Relations at Barclays registered office address, shown above, once they
have been published in late March. Once filed with the SEC, copies of the form
20-F will also be available from the Barclays Investor Relations website
(details below) and from the SEC's website (www.sec.gov).
Results timetable
Ex dividend Date Wednesday, 5th March 2008
Dividend Record Date Friday, 7th March 2008
2008 Annual General Meeting Date Thursday, 24th April 2008
Dividend Payment Date Friday, 25th April 2008
2008 First-half Interim Management Statement* Thursday, 15th May 2008
2008 Half-yearly Financial Report* Thursday, 7th August 2008
*Note that these announcement dates are provisional and subject to change.
Economic data
2007 2006
Period end - US$/GBP 2.00 1.96
Average - US$/GBP 2.00 1.84
Period end - EUR/GBP 1.36 1.49
Average - EUR/GBP 1.46 1.47
Period end - ZAR/GBP 13.64 13.71
Average - ZAR/GBP 14.11 12.47
For further information please contact:
Investor Relations Media Relations
Mark Merson/John McIvor Alistair Smith/Robin Tozer
+44 (0) 20 7116 5752/2929 +44 (0) 20 7116 6132/6586
More information on Barclays can be found on our website at the following
address: www.investorrelations.barclays.com
APPENDIX 1
ABSA
2007 2006
Rm Rm
---------- ----------
Interest and similar income 55,123 37,569
Interest expense and similar charges (36,233) (22,682)
---------- ----------
Net interest income 18,890 14,887
Impairment losses on loans and advances (2,433) (1,573)
---------- ----------
Fee and commission income 12,873 11,247
Fee and commission expense (1,273) (1,094)
---------- ----------
Net fee and commission income 11,600 10,153
---------- ----------
Insurance premium revenue 3,531 3,269
Premiums ceded to reinsurers (339) (275)
---------- ----------
Net insurance premium income 3,192 2,994
---------- ----------
Gross claims and benefits incurred under
insurance contracts 1,847 1,376
Reinsurance recoveries (244) (57)
---------- ----------
Net claims and benefits paid (1,603) (1,319)
Changes in insurance and investment liabilities (489) (748)
Gains and losses from banking and trading
activities 1,622 1,376
Gains and losses from investment activities 1,561 1,891
Other operating income 845 672
---------- ----------
Net operating income 33,185 28,333
Operating expenses (18,442) (16,089)
Non-credit related impairments (58) (75)
Indirect taxation (709) (865)
Share of profit of associated and joint venture
companies 91 113
---------- ----------
Operating profit before income tax 14,067 11,417
---------- ----------
This appendix summarises the Rand results of Absa Group Limited for the year to
31st December 2007 as reported to JSE Limited.
Absa Group Limited results
Absa Group Limited's operating profit before income tax increased 23% (R2,650m)
to R14,067m (2006 R11,417m) reflecting very good performances from Retail
Banking, Absa Capital and Absa Corporate and Business Bank. Absa Group Limited
delivered a return on equity of 27.2% (2006: 27.4%). Key factors impacting the
results included: very strong asset and income growth; the diversification of
earnings in favour of investment banking and commercial banking; an increased
retail credit impairment charge, and the achievement of the Absa - Barclays
synergy target 18 months ahead of schedule.
Net operating income grew 17% (R4,852m) to R33,185m (2006: R28,333m).
Net interest income grew 27% (R4,003m) to R18,890m (2006: R14,887m) driven by
growth in loans and advances and deposits at improved margins. Loans and
advances to customers increased 22% from 31st December 2006 driven by growth of
23% in mortgages and 23% in credit cards.
Non-interest income grew 11% (R1,709m) to R16,728m (2006: R15,019m) driven by
increased transaction volumes in retail banking and Absa Corporate and Business
Bank, as well as advisory fees from Absa Capital.
Impairment charges on loans and advances increased 55% (R860m) to R2,433m (2006:
R1,573m) from the cyclically low levels of recent years. Arrears in retail
portfolios increased driven by interest rate increases in 2006 and 2007.
Impairment charges as a percentage of loans and advances was 0.58%, ahead of the
0.45% charge in 2006 but within long-term industry averages.
Operating expenses increased 15% (R2,353m) to R18,442m, (2006: R16,089m)
resulting from increased investment in new distribution outlets and staff in
order to support continued growth in volumes and customers. The cost:income
ratio improved two percentage points from 54% to 52%.
Excellent progress was made with the realisation of synergy benefits of R1,428m
to date, thus achieving the synergy target of R1.4bn, 18 months ahead of
schedule.
APPENDIX 2
Profit before business disposals
2007 2006
GBPm GBPm
Profit before tax 7,076 7,136
Excluding profit on disposal of
subsidiaries,
associates and joint ventures(1) (28) (323)
-------- --------
Profit before business disposals 7,048 6,813
-------- --------
Tax on profit before business disposals (1,981) (1,941)
-------- --------
Profit after tax before business disposals 5,067 4,872
-------- --------
Profit attributable to minority interests 678 624
Profit before business disposals
attributable to equity holders of the
parent 4,389 4,248
-------- --------
Profit after tax before business disposals 5,067 4,872
-------- --------
GBPm GBPm
Economic profit 2,290 2,704
Economic profit before business disposals 2,262 2,381
p p
Earnings per share 68.9 71.9
Earnings per share before business
disposals 68.5 66.8
Diluted earnings per share 66.7 69.8
Diluted earnings per share before business
disposals 66.3 64.8
Post-tax return on average shareholder
equity 20.3% 24.7%
Post-tax return on average shareholder
equity before business disposals 20.2% 23.0%
(1) Profit on disposals of subsidiaries, associates and joint ventures was
GBP14m (2006: GBP76m) in Barclays Commercial Bank, GBP8m (2006: GBP247m) in
International Retail and Commercial Banking - excluding Absa and GBP6m (2006:
GBPnil) in other business segments.