Barclays 2009 Annual Report Download - page 80

78 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Financial review
Analysis of results by business
continued
Head Office Functions and Other Operations
Head Office Functions and Other Operations comprises:
– Head office and central support functions
– Businesses in transition
– Inter-segment adjustments
What we do
Head Office Functions and Other Operations comprises the following areas:
Executive Management, Finance, Treasury, Corporate Affairs, Human
Resources, Strategy and Planning, Internal Audit, Legal, Corporate
Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly on
behalf of the businesses are recharged to them. Businesses in transition
principally relate to certain lending portfolios that are centrally managed
with the objective of maximising recovery from the assets.
Performance
2009/08
Head Office Functions and Other Operations loss before tax reduced
£308m to £550m (2008: loss of £858m).
Total income increased £405m to £28m (2008: loss of £377m).
Group segmental reporting is performed in accordance with Group
accounting policies. This means that inter-segment transactions are
recorded in each segment as if undertaken on an arm’s length basis.
Adjustments necessary to eliminate inter-segment transactions are
included in Head Office Functions and Other Operations.
Net interest income decreased £689m to a loss of £507m (2008: profit
of £182m) primarily due to an increase in costs in central funding activity
due to the money market dislocation, increased liquidity requirements
and lower income on shareholders’ funds due to the lower interest rate
environment. This was partially offset by a £170m gain from a
reclassification on consolidation for hedging derivatives with the
corresponding expense being recorded in principal transactions.
Net fees and commission expense decreased £68m to £418m (2008:
£486m) reflecting adjustments to eliminate inter-segmental transactions,
offset by increases in fees for structured capital market activities to £191m
(2008: £141m) and in fees paid to Barclays Capital for debt and equity
raising and risk management advice to £174m (2008: £151m).
Losses associated with principal transactions increased £107m to
£325m (2008: loss of £218m) predominantly due to a £170m increase in
the consolidation reclassification adjustment on hedging derivatives.
Other income increased £1,160m to £1,186m (2008: £26m). During
2009, certain upper Tier 2 perpetual debt was exchanged for new issuances
of lower Tier 2 dated loan stock resulting in a net gain of £1,164m.
£1,170m of this gain was reflected in other income.
Operating expenses increased £119m to £570m (2008: £451m)
reflecting a UK bank payroll tax charge of £190m (2008: £nil) in respect of
2009 cash compensation and £35m in respect of certain prior years awards
which may fall within the proposed legislation, partially offset by a reduction
of £55m in the costs relating to an internal review of Barclays compliance
with US economic sanctions to £33m (2008: £88m).
2008/07
Head Office Functions and Other Operations loss before tax increased
£430m to £858m (2007: £428m).
Total income decreased £185m to a loss of £377m (2007: loss of
£192m).
Group segmental reporting is performed in accordance with Group
accounting policies. This means that inter-segment transactions are
recorded in each segment as if undertaken on an arm’s length basis.
Adjustments necessary to eliminate inter-segment transactions are
included in Head Office Functions and Other Operations. The impact
of such inter-segment adjustments increased £32m to £265m
(2007: £233m). These adjustments included internal fees for structured
capital market activities of £141m (2007: £169m) and fees paid to Barclays
Capital for debt and equity raising and risk management advice of £151m
(2007: £65m), both of which reduce net fees and commission income.
Net interest income increased £54m to £182m (2007: £128m)
primarily due to a consolidation adjustment between net interest income
and trading income required to match the booking of certain derivative
hedging transactions between different segments in the Group. This
resulted in a £111m increase in net interest income to £143m (2007: £32m)
with an equal and opposite decrease in principal transactions. This was
partially offset by an increase in costs in central funding activity due to the
money market dislocation, in particular LIBOR resets.
Principal transactions loss increased £135m to £218m (2007: £83m)
reflecting the £111m increase in consolidation reclassification adjustment
on derivative hedging transactions.
Impairment charges increased £27m to £30m (2007: £3m) mainly
reflecting losses on Floating Rate Notes held for hedging purposes.
Operating expenses increased £217m to £451m (2007: £234m). The
main drivers of this increase were: a £101m charge for the Group’s share of
levies that will be raised by the UK Financial Services Compensation
Scheme; £64m increase in costs relating to an internal review of Barclays
compliance with US economic sanctions; the non-recurrence of a £58m
break fee relating to the ABN Amro transaction; lower rental income and
lower proceeds on property sales.