Barclays 2011 Annual Report Download - page 167

Financial review
Income statement commentary
2011
Barclays delivered profit before tax of £5,879m in 2011, a decrease of 3%.
Excluding movements on own credit, gains on debt buy-backs, loss/gains
on acquisitions and disposals, impairment of investment in BlackRock Inc,
provision for PPI and goodwill impairment Group profit before tax
decreased 2% to £5,590m.
Income increased 3% to £32,292m. Income excluding own credit
and debt buy backs decreased 8% to £28,512m principally reflecting
a decrease in income at Barclays Capital. Income increased in most
other businesses despite continued low interest rates and difficult
macroeconomic conditions. The RBB, Corporate and Wealth net interest
margin remained stable at 204bps (2010: 203bps). Net interest income
from RBB, Corporate, Wealth and Barclays Capital increased 5% to
£13.2bn, of which the contribution from hedging (including £463m
of increased gains from the disposal of hedging instruments)
increased by 3%.
Credit impairment charges and other provisions decreased 33% to
£3,802m reflecting significant improvements across all businesses.
Impairment charges as a proportion of Group loans and advances as at
31 December 2011 improved to 77bps, compared to 118bps for 2010.
In addition, impairment of £1,800m was taken against the investment
in BlackRock, Inc.
As a result, net operating income for the Group after impairment charges
increased 4% to £26,690m.
Operating expenses increased 4% to £20,777m in 2011. Operating
expenses, excluding £1,000m provision for PPI redress, £597m (2010:
£243m) goodwill impairment, and the UK bank levy of £325m, were down
4% to £18,855m, which included £408m (2010: £330m) of restructuring
charges. Despite cost savings, the cost: income ratio remained stable at
64% (2010: 64%).
The effective tax rate increased to 32.8% (2010: 25.0%), principally due
to non-deductible charges arising on the impairment of BlackRock, Inc.
and goodwill, and the UK bank levy.
2010
Profit before tax increased 32% to £6,065m in 2010. Excluding
movements on own credit, gains on debt buy-backs, gains on acquisitions
and disposals and goodwill impairment Group profit before tax increased
15% to £5,707m.
Income increased 8% to £31,440m, principally reflecting a substantial
reduction in losses taken through income relating to credit market
exposures at Barclays Capital.
Credit impairment charges and other provisions improved 30% to
£5,672m. This was after an increase of £630m in impairment on the
Spanish loan book in Barclays Corporate and impairment of £532m
relating to the Protium loan in Barclays Capital. All businesses other than
Barclays Corporate reported improvements in impairment charges. Overall
impairment charges as a proportion of Group loans and advances as at
31 December 2010 was 118bps, compared to 156bps for 2009.
Net operating income for the Group after impairment charges increased
22% to £25,768m.
Operating expenses increased £3,256m to £19,971m, a 19% rise
compared to the 22% growth in net operating income. Across the Group,
restructuring charges totalled £330m (2009: £87m) focusing on
delivering future cost and business efficiencies. Goodwill of £243m was
written off to reflect impairment to the carrying value of Barclays Bank
Russia business as our activities there are refocused. As a result, the
Group’s cost: income ratio increased to 64% (2009: 57%). The cost:
net operating income ratio improved from 79% to 78%, reflecting the
reduced impairment charges compared with 2009.
Net interest income
2011
£m
2010
£m
2009
£m
RBB, Corporate and Wealth
customer interest income
– Customer assets 6,983 6,956 7,110
– Customer liabilities 2,866 2,167 1,407
9,849 9,123 8,517
RBB, Corporate and Wealth
non-customer interest income
– Product structural hedge 1,168 1,403 1,364
– Equity structural hedge 824 731 537
– Other 148 116 399
Total RBB, Corporate and Wealth
net interest income 11,989 11,373 10,817
Barclays Capital 1,177 1,121 1,598
Head Office and Investment
Management (965) 29 (497)
Group net interest income 12,201 12,523 11,918
2011
Group net interest income decreased £322m to £12,201m reflecting an
increase in customer net interest income, more than offset by a reduction
in benefits from Group hedging activities and reduced income transferred
from trading income within Head Office relating to interest rate swaps
used for hedge accounting purposes. The net interest margin for RBB,
Corporate and Wealth remained stable at 2.04% (2010: 2.03%).
Group net interest income includes the impact of economic equity
structural hedges used to manage the volatility in earnings on the Group’s
equity. Equity structural hedges generated a gain of £2,109m in 2011
(2010: gain £1,788m), of which £824m (2010: £731m) related to RBB,
Corporate and Wealth.
2010
Group net interest income increased £605m to £12,523m and included
the impact of the acquisitions of Standard Life Bank and the Portuguese
and Italian credit card businesses of Citigroup in Europe RBB, and currency
translation gains in Absa. These impacts have been partly off-set by the
continued effects of liability margin compression being felt across the
Group. Equity structural hedges generated a gain of £1,788m in 2010
(2009: gain £1,162m).
Further discussion of margins is included in the analysis of results by
business and on page 126.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 165
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