Barclays 2014 Annual Report Download - page 26

24 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Market, environment and risks
To divest BNC successfully we are partly dependent on external market
factors. The income from our businesses and assets, the quantum of
associated RWAs and finally market appetite for BNC components are
all influenced by market environment. In addition, regulatory changes
in the treatment of RWAs can significantly impact our ‘stock’ of RWAs.
These factors, alongside continued regulatory change, mean the
market environment in which BNC operates can have positive or
negative consequences for our planned run-down profile.
BNC maintains a robust risk management framework to mitigate the
risks inherent in our businesses and traded assets, howeverwe may
need to take further, currently unforeseen, actions to achieve our
run-down objectives which may include incurring additional costs
of exit, or a change in direction to our planned run-down trajectory.
Although the emphasis is on bringing down RWAs, reducing costs in
BNC is also critical. We will be disciplined in ensuring we reduce both,
although this may not always happen simultaneously.
2014 performance review
Loss before tax reduced 24% to £1,180m as BNC made good progress in
exiting and running-down certain businesses and securities during 2014.
This drove a £34.6bn reduction in RWAs, making substantial progress
towards the BNC target reductions as outlined in the Strategy Update
on 8 May 2014.
Total income net of insurance claims reduced 54% to £1,050m:
Q Businesses income reduced 27% to £1,101m due to the sale and
run-down of legacy portfolio assets and the rationalisation of
product offerings within the European retail business
Q Securities and Loans income reduced 82% to £117m primarily driven
by the active run-down of securities, fair value losses on wholesale
loan portfolios
Q Derivatives income reduced £321m to an expense of £168m reflecting
the funding costs of the traded legacy derivatives portfolio and the
non-recurrence of fair value gains in the prior year
Credit impairment charges improved 81% to £168m due to the
non-recurrence of impairments on single name exposures, and
improved performance in Europe, primarily due to improved recoveries
and delinquencies in the mortgages portfolio.
Total operating expenses improved 29% to £2,011m reflecting savings
from lower headcount and the results of the previously announced
European retail restructuring.
Total assets decreased 8% to £471.5bn due to the run-down of legacy
portfolio assets, offset by an increase in derivative assets, with a
respective reduction in RWAs of £34.6bn to £75.3bn.
Our future priorities for Barclays Non-Core (BNC)
Barclays Non-Core seek to:
Q Manage BNC in accordance with Barclays’ Purpose and Values as
we exit Non-Core business and assets, particularly in relation to
our colleagues and clients
Q Optimise shareholder value of BNC traded assets and businesses,
and act decisively when exit opportunities arise
Q Maintain a robust risk management framework at all times
Q Partner with Barclays Core business to ensure strong coordination
in relation to exit plans
Q Be disciplined about costs while we run down Barclays Non-Core
and ensure costs are eliminated from the Group
How we are doing
Becoming ‘Go-To’
What we do
Barclays Non-Core (BNC) was formed to oversee the divestment of
Barclays’ non-strategic assets and businesses, releasing capital to
stimulate strategic growth in our Core business.
BNC brings together businesses and assets that do not fit our client
strategy, remain sub-scale with limited growth opportunities, or are
challenged by the regulatory capital environment. Non-Core assets
have been grouped together in BNC, comprising three main elements:
principal businesses, securities and loans, and derivatives.
Several of the businesses managed within BNC are profitable and will
be attractive to other owners.
All of BNC will be exited over time, through sale or run-off. Reducing
the capital and cost base will help improve Group returns and deliver
shareholder value.
Criteria for BNC
Two criteria were used to determine which businesses should be
placed in BNC:
Q Strategic fit: Businesses either not client-driven or operate in areas
where we do not have competitive advantage
Q Returns on both a CRD IV capital and leverage exposure: Capital
and/or leverage-intensive businesses, unlikely to meet our target
returns over the medium term
Almost 80% of BNC RWAs relate to the Non-Core Investment Bank at
the creation of BNC. It includes the majority of our commodities and
emerging markets businesses, elements of other trading businesses
including legacy derivative transactions, and non-strategic businesses. The
key Non-Core portfolios outside the Non-Core Investment Bank comprise
the whole of our European retail business, some European corporate
exposures and a small number of Barclaycard and Wealth portfolios.
BNC is run by a dedicated management team operating within a clear
governance framework to optimise shareholder value and preserve
maximum book value as businesses and assets are divested.
Barclays Non-Core
Barclays Non-Core is responsible for the divestment
of Barclays non-strategic assets and businesses.
Company
Contribution to the Group 2014
2013 as
Restated
2012 as
Restated
Income (£m) 1,050 2,293 3,207
Adjusted profit before tax (£m) (1,180) (1,562) 220
Adjusted ROE (%) (4.1) (7.2) (1.1)
Loans and advances to
customers (£bn) 63.9 81.9 99.1
Customer deposits (£bn) 21.6 29.3 31.9
Contribution to the Group’s total income
£m
£1,050m
Total income net of insurance claims
decreased 54% reflecting exiting and
running-down of certain businesses and
securities in 2014
Lorem ipsum Investment Bank