Barclays 2010 Annual Report Download - page 244

Notes to the financial statements
For the year ended 31st December 2010 continued
38 Off-balance sheet arrangements continued
Client intermediation
The Group has structured transactions as a financial intermediary to meet investor and client needs. These transactions involve entities structured by
either the Group or the client and are used to modify cash flows of third party assets to create investments with specific risk or return profiles or to assist
clients in the efficient management of other risks. Such transactions will typically result in a derivative being shown on the balance sheet, representing
the Group’s exposure to the relevant asset. The Group also invests in lessor entities specifically to acquire assets for leasing. Client intermediation also
includes arrangements to fund the purchase or construction of specific assets (most common in the property industry).
Credit structuring
The Group structures investments to provide specific risk profiles to investors. This may involve the sale of credit exposures, often by way of derivatives, to an
entity which subsequently funds those exposures by issuing securities. These securities may initially be held by Barclays prior to sale outside of the Group.
Asset realisations
The Group establishes SPEs to facilitate the recovery of loans in circumstances where the borrower has suffered financial loss.
To the extent that there are guarantees and commitments in relation to SPEs the details are included in Note 25.
Collateralised debt obligations (CDOs)
The Group has structured and underwritten CDOs. At inception, the Group’s exposure principally takes the form of a liquidity facility provided to support
future funding difficulties or cash shortfalls in the vehicles. If required by the vehicle, the facility is drawn with the amount advanced included within
loans and advances on the balance sheet. Upon an event of default or other triggering event, the Group may acquire control of a CDO and, therefore,
be required to fully consolidate the vehicle for accounting purposes. The potential for transactions to hit default triggers before the end of 2011 has been
assessed and is included in the determination of a £137m impairment release and other credit provisions in relation to ABS CDO Super Senior and other
credit market exposures for the year ended 31st December 2010.
The Group’s exposure to ABS CDO Super Senior positions before hedging was £1,992m as at 31st December 2010, equivalent to an aggregate 50.97%
decline in value on average for all investors. This represents the Group’s exposure to High Grade CDOs, stated net of write downs and charges. These
facilities are fully drawn and included within loans and advances on the balance sheet.
Collateral
The collateral underlying unconsolidated CDOs comprised 78% residential mortgage-backed securities, 3% non-residential asset-backed securities and
19% in other categories (a proportion of which will be backed by residential mortgage collateral).
The remaining Weighted Average Life (WAL) of all collateral is 6.3 years. The combined Net Asset Value (NAV) for all of the CDOs was £1bn.
Funding
The CDOs were funded with senior unrated notes and rated notes up to AAA. The capital structure senior to the AAA notes on cash CDOs was
supported by a liquidity facility provided by the Group. The senior portion covered by liquidity facilities is on average 86% of the capital structure.
The initial WAL of the notes in issue averaged 6.7 years. The full contractual maturity is 38.2 years.
Interests in third party CDOs
The Group has purchased securities in and entered into derivative instruments with third party CDOs. These interests are held as trading assets or
liabilities on the Group’s balance sheet and measured at fair value. The Group has not provided liquidity facilities or similar agreements to third party CDOs.
Structured investment vehicles (SIVs)
The Group does not structure or manage SIVs. Group exposure to third party SIVs comprised:
– £nil (2009: £16m) of senior liquidity facilities.
– Derivative exposures included on the balance sheet at their net fair value of £46m (2009: £53m).
SIV-Lites
The Group has exposure to a SIV-Lite transaction. The Group is not involved in its ongoing management. Exposures have decreased to £345m (2009:
£461m) representing assets designated at fair value.
Commercial paper and medium-term note conduits
The Group provided £17bn in undrawn backstop liquidity facilities to its own sponsored CP conduits. The Group fully consolidates these entities such
that the underlying assets are reflected on the Group balance sheet.
These consolidated entities in turn provide facilities of £740m to third party conduits containing prime UK buy-to-let Residential Mortgage Backed
Securities (RMBS) assets. As at 31st December 2010, the entire facility had been drawn and is included in available for sale financial investments.
The Group provided backstop facilities to support the paper issued by one third party conduit. This facility totalled £129m, with underlying collateral
comprising 100% auto loans. There were no drawings on this facility as at 31st December 2010.
The Group provided backstop facilities to six third party SPEs that fund themselves with medium-term notes. These notes are sold to investors as a series
of 12-month securities and remarketed to investors annually. If investors decline to renew their holdings at a price below a pre-agreed spread, the backstop
facility requires the Group to purchase the outstanding notes at scheduled maturity. The Group has provided facilities of £1.2bn to SPEs holding prime UK
and Australian owner-occupied RMBS assets. As at the balance sheet date these facilities had been drawn and were included in loans and advances.
242 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10