Barclays 2010 Annual Report Download - page 122

Risk management
Market risk management continued
The daily average, maximum and minimum values of DVaR,
Expected Shortfall and 3W (audited) Year ended 31st December 2010 Year ended 31st December 2009
DVaR (95%) Average
£m
Highi
£m
Lowi
£m
Average
£m
Highi
£m
Lowi
£m
Interest rate risk 33 50 21 44 83 23
Credit Spread risk 48 62 30 58 102 35
Commodity risk 16 25 9 14 20 11
Equity risk 14 29 6 13 27 5
Foreign exchange risk 6 15 2 8 15 3
Diversification effect (64) n/a n/a (60) n/a n/a
Total DVaR 53 75 36 77 119 50
Expected Shortfall 78 147 47 121 188 88
3W 144 311 72 209 301 148
Notes
a Total DVaR peaked at £119m in March 2009.
b Before trending down due to a decrease in credit spread exposure and interest rate
exposure, reaching £58m in August 2009.
c DVaR subsequently increased as markets began to recover and new traded credit
positions were added to facilitate client trades.
d DVaR decreased towards 2009 year-end, driven by a reduction in equity exposure
and an increase in diversification. Total DVaR as at 31st December 2009 was £55m.
e DVaR reduced to £38m, due to a reduction in credit and equity exposure assisted
by an increase in diversification.
f DVaR reached the 2010 peak (£75m) as market sentiment improved.
There were increased exposures for Credit Spread, Equity and Commodities.
g Total DVaR increased in August 2010 reaching £73m with increased exposure in Interest
Rates, Credit Spread and Equity.
h DVaR increased towards the end of the year, mainly due to an increase in equity. Total as
at 31st December 2010 was £48m.
i 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.
Analysis of traded market risk exposures (audited)
The trading environment in 2010 was characterised by weak underlying
economic growth as well as unclear market direction resulting in lower
client activity. In this environment, Barclays Capital’s market risk exposure,
as measured by average total DVaR, decreased by 31% to £53m (2009:
£77m). The reduction was due to a fall in exposures reflecting the lower
client activity, increased diversification, and the rolling off of the 2008
highly volatile historical data points.
The two main risk factors with material DVaR were credit spread and
interest rate. The average DVaR for each of these decreased by £10m
(17%) and £11m (25%) respectively. Total DVaR as at 31st December 2010
was £48m (2009: £55m).
Expected Shortfall and 3W in 2010 averaged £78m and £144m
respectively representing decreases of £43m (36%) and £65m (31%)
compared to 2009.
As we enter 2011, the principal uncertainties which may impact Barclays
market risk relate to volatility in interest rates, commodities, credit spreads,
equity prices and foreign exchange rates. Price instability and higher
volatility may arise as government policy targets future economic growth
against a background of fiscal pressures, accommodatory monetary policy
and exogenous economic events.
Analysis of trading revenue (audited)
The histogram below shows the distribution of daily trading revenue
for Barclays Capital in 2010 and 2009. Trading revenue reflects top-line
income, excluding income from Private Equity and Principal Investments.
The average daily trading revenue in 2010 was £52m. This is £19m
(27%) less than recorded for 2009 (£71m). There were 236 positive days,
15 negative days and two flat days in 2010 (2009: 247 positive, 5 negative,
one flat).
Barclays Capital daily trading revenue 2010 and 2009
<–20
–20 to < 0
0 to <20
20 to <40
40 to <60
60 to <80
80 to <100
100+
2
2
13
3
39
16
75
50
58 71
28 42
17 31
21 38
2010
2009
Number of days £m
Total DVaR 2009 and 2010
0
20
40
60
80
100
120
£m
09 10
2010 average total DVaR lower due to reduced client activity
,
increased diversification and the rolling off of the 2008
highly volatile historical data points
a
b
c
d
e
g
f
h
120 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10