Barclays 2011 Annual Report Download - page 25

Your Finance Director’s Review
The Finance Director is responsible for monitoring the Bank’s financial
performance and position and communicating this to both internal
and external stakeholders.
Below he discusses in detail the Bank’s performance during 2011
and its year end position as at 31 December 2011.
Our universal banking model enabled us to generate adjusted
profit before tax of £5.6bn, driven by increased profits in the majority
of our businesses.
Note: The table above excludes Head Office Functions and Other Operations
Total shareholders’ equity (including non-controlling interests) was £65.2bn
(2010: £62.3bn). Excluding non-controlling interests, shareholders’ equity
increased £4.7bn to £55.6bn, driven by profit after tax of £3.0bn and
positive available for sale and cash flow hedge reserve movements offset by
negative currency translation and dividends paid.
Total assets increased to £1,564bn (2010: £1,490bn), principally due
to an increase in the fair value of gross interest rate derivative assets as
major forward curves decreased, partially offset by a decrease in reverse
repurchase agreements.
The Group’s loan to deposit ratio continued to improve to 118% (2010:
124%) and the loan to deposit and long term funding ratio was 75%
(2010: 77%). As a key measure of stability, adjusted gross leverage
remained at 20x, moving within a month end range of 20x to 23x.
Excluding the liquidity pool assets held as contingency to meet cash
outflows in the event of stressed market conditions, adjusted gross
leverage remained flat at 17x.
Capital Management
At 31 December 2011, the Group’s Core Tier 1 ratio was 11.0% (2010:
10.8%) reflecting the contribution from retained earnings and reductions
in risk weighted assets, which more than offset the impact of CRD3.
The Group continued to generate Core Tier 1 capital from retained profits
(excluding own credit, impairment of investment in BlackRock, Inc. and
goodwill impairment, which are added back for regulatory capital
purposes). This contribution of £2.6bn was largely offset by other
movements in Core Tier 1 capital, notably pension contributions and
foreign currency movements, resulting in an increase in Core Tier 1 capital
of £0.2bn to £43.1bn.
Risk weighted assets decreased slightly to £391bn (2010: £398bn) largely
reflecting foreign exchange movements and decreases in Barclays Capital
from lower levels of activity, risk reduction and sales of credit market
exposures, which more than outweighed the approximate £30bn increase
resulting from the implementation of CRD3 in December.
We expect that the strength of our Core Tier 1 ratio, our ability to generate
capital organically and our optimal use of risk weighted assets will enable
us to meet our targeted capital ratios after absorbing the impact of Basel 3.
Funding and Liquidity
The Group’s overall funding strategy is to develop a diversified funding
base and maintain access to a variety of alternate funding sources, so
minimising the cost of funding and providing protection against
unexpected fluctuations. Within this, the Group aims to align the sources
and uses of funding. Customer loans and advances are largely funded by
customer deposits, with any excess being funded by long-term wholesale
secured debt and equity. Wholesale funding is well managed with
derivative assets and liabilities largely matched.
Proportion of adjusted profit before tax by business
2011 2010
1 Retail and Business
Banking (RBB) 49 35
2 Corporate and
Investment Banking 46 62
3 Wealth and Investment
Management 5 3
2
3
1
2011 2010
%
The Group had £265bn of wholesale debt diversified across currencies,
of which just £39bn was secured. Term funding maturing in 2012 totals
£27bn. Term funding raised in 2011 amounted to £30bn (2010: £35bn)
compared to term funding maturities of £25bn. During January 2012,
£5bn of term funding was raised.
Approximately 10% of customer loans and advances at 31 December
2011 were secured against external funding, leaving significant headroom
for further secured issuance.
The liquidity pool remained resilient at £152bn and moved within a
month-end range of £140bn to £167bn, with short-term funding being
rolled over despite the stress in the wholesale funding markets. The
liquidity pool comprises high quality liquid unencumbered assets,
diversified across currencies, broadly in line with wholesale debt
requirements, with 93% (2010: 88%) of the pool comprising cash and
deposits with central banks and government bonds.
The Group monitors compliance against anticipated Basel 3 metrics,
including the Liquidity Coverage Ratio at 82% and Net Stable Funding
Ratio at 97%, and is on track to meet the 100% compliance required by
2015 and 2018 respectively.
Conclusion
To summarise, we delivered resilient adjusted profits of £5.6bn, with
adjusted net operating income growth in every business except Barclays
Capital. We delivered a 33% improvement in credit impairment, managed
adjusted costs down 4% excluding the bank levy, and we increased the
dividend by 9%. Our Core Tier 1 ratio increased to 11%, and our funding
and liquidity strength continues to give us a competitive advantage.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 23
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