Barclays 2009 Annual Report Download - page 33

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 31
Financial review
Income statement commentary
2009/08
Barclays delivered net profit for the year of £10,288m in 2009, an increase
of 95% on 2008. This included the BGI gain on sale of £6,331m before tax,
and was achieved after absorbing: £6,086m in writedowns on credit market
exposures (including impairment of £1,669m), other Group impairment of
£6,402m and a charge of £1,820m relating to the tightening of own credit
spreads. Profit included £1,255m of gains on debt buy-backs and
extinguishment.
Total income net of insurance claims grew 34% to £30,986m, and
income from continuing operations grew 37% to £29,123 m, with
particularly strong growth in Barclays Capital. Within Global Retail and
Commercial Banking (GRCB), Barclaycard and GRCB – Western Europe also
reported good income growth. The aggregate revenue performance of
GRCB businesses was, however, affected by the impact of margin
compression on deposit income as a result of the very low absolute levels
of interest rates. Barclays Capital income was up 122% compared to 2008.
Top-line income rose by £8,004m reflecting the successful integration of
the acquired Lehman Brothers North American businesses, buoyant market
conditions observed across most financial markets in the first half of 2009
and a good relative performance in the second half of 2009 despite weaker
markets. Income in Barclays Capital was impacted by writedowns of
£4,417m (2008: £6,290m) relating to credit market exposures held in
its trading books and by a charge of £1,820m (2008: gain of £1,663m)
relating to own credit.
Impairment charges against loans and advances, available for sale
assets and reverse repurchase agreements increased 49% to £8,071m,
reflecting deteriorating economic conditions, portfolio maturation and
currency movements. The impairment charge against credit market
exposures included within this total reduced 5% to £1,669m. Impairment
charges as a percentage of Group loans and advances as at 31st December
2009 increased to 156bps from 95bps, or 135bps on constant 2008 year
end balance sheet amounts and average foreign exchange rates.
Total operating expenses increased 24% to £17,852m, but by 10% less
than the rate of increase in Group total income. Operating expenses from
continuing operations increased 25% to £16,715m. Expenses in GRCB were
well controlled, with the cost:income ratio improving from 53% to 52%.
Operating expenses in Barclays Capital increased by £2,818m to £6,592m
reflecting the inclusion of the acquired Lehman Brothers North American
business. The Group total cost:income ratio improved from 62% to 58%
(57% on a continuing basis). At Barclays Capital the compensation:income
ratio improved from 44% to 38%.
2008/07
Net profit for the year increased 4% to £5,287m. This included gains on
acquisitions of £2,406m, including £2,262m gain on acquisition of Lehman
Brothers North American businesses; profit on disposal of Barclays Closed
UK Life assurance business of £326m; gains on Visa IPO and sales of shares
in MasterCard of £291m; and gross credit market losses and impairment
of £8,053m.
Total income net of insurance claims grew 1% to £23,115m and income
from continuing operations grew 1% to £21,199m. Income in GRCB
increased 17% and was particularly strong in businesses outside of the UK.
Income in Barclays Capital was affected by very challenging market
conditions in 2008, with income falling by £1,888m (27%) on 2007,
reflecting gross losses of £6,290m relating to credit market assets, partially
offset by gains of £1,663m on the fair valuation of notes issued due to
widening of credit spreads and £1,433m in related income and hedges.
Excluding credit market related losses, gains on own credit and related
income and hedges, income in Barclays Capital increased 6%.
Impairment charges and other credit provisions of £5,419m increased
94% on the prior year. Impairment charges included £1,763m arising from
US sub-prime mortgages and other credit market exposures. Other
wholesale impairment charges increased significantly as corporate credit
conditions turned sharply worse. Significant impairment growth in GRCB
businesses reflected book growth and deteriorating credit conditions
particularly in the US, South Africa and Spain.
Total operating expenses increased 9% to £14,366m and operating
expenses from continuing operations increased 11% to £13,391m. This
reflected continued investment in the distribution network in the GRCB
businesses. Expenses fell in Barclays Capital due to lower performance
related costs. Group gains from property disposals were £148m (2007:
£267m). Head office costs included £101m relating to the UK Financial
Services Compensation Scheme. Underlying cost growth was well
controlled. The Group cost:income ratio deteriorated by five percentage
points to 62% (63% on a continuing basis).