Barclays 2014 Annual Report Download - page 283

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18 Fair value of financial instruments continued
The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy)
and balance sheet classification:
Assets and liabilities held at fair value
Valuation technique using
Quoted
market
prices
(Level 1)
£m
Observable
inputs
(Level 2)
£m
Significant
unobservable
inputs
(Level 3)
£m
Total
£m
As at 31 December 2014
Trading portfolio assets 48,962 59,428 6,327 114,717
Financial assets designated at fair value 9,934 8,461 19,905 38,300
Derivative financial assets 9,863 425,301 4,745 439,909
Available for sale investments 44,234 40,519 1,313 86,066
Othera 33 198 15,550 15,781
Total assets 113,026 533,907 47,840 694,773
Trading portfolio liabilities (26,840) (17,935) (349) (45,124)
Financial liabilities designated at fair value (15) (55,141) (1,816) (56,972)
Derivative financial liabilities (10,313) (424,687) (4,320) (439,320)
Othera– – (13,115) (13,115)
Total liabilities (37,168) (497,763) (19,600) (554,531)
As at 31 December 2013
Trading portfolio assets 54,363 72,285 6,421 133,069
Financial assets designated at fair value 11,188 9,010 18,770 38,968
Derivative financial assets 4,824 340,463 5,013 350,300
Available for sale investments 36,050 53,561 2,145 91,756
Othera 134 218 594 946
Total assets 106,559 475,537 32,943 615,039
Trading portfolio liabilities (29,450) (24,014) – (53,464)
Financial liabilities designated at fair value (98) (63,058) (1,640) (64,796)
Derivative financial liabilities (5,627) (337,172) (4,319) (347,118)
Total liabilities (35,175) (424,244) (5,959) (465,378)
Included in financial assets designated at fair value is the Non-Core Education, Social Housing and Local Authority (ESHLA) loan portfolio of
£17.4bn (2013: £15.6bn). This portfolio primarily consists of long dated fixed rate loans extended to counterparties in the UK Education, Social
Housing and Local Authority sectors. The loans have been categorised as Level 3 in the fair value hierarchy since 2013 due to their illiquid nature
and the significance of unobservable loan spreads to the valuation. Valuation uncertainty arises from the long dated nature of the portfolio, the
lack of secondary market in the loans and the lack of observable loan spreads.
A revised valuation methodology was adopted as at 31 December 2014 which builds an additional component into the loan spreads used in
discounting the portfolio’s expected cash flows, incorporating information on external parties and the factors they may take into account when
valuing these assets. The prior approach was to discount cash flows using a credit-adjusted LIBOR rate. The spread component that has been
added to this discount rate incorporates funding rates, the level of comparable assets such as gilts (both current and recent historical levels) and
other factors. The change is also consistent with recent industry moves in derivative valuations away from LIBOR-based discounting. Refinements
will be made to the approach to the extent that further market evidence is obtained.
The impact of the change was an income statement charge and corresponding fair value reduction in the loan portfolio of £935m. The change has
no impact on CET 1 capital, which is based on the CRR prudent valuation and reflects a more conservative cost of funding.
Note
a Other includes assets and liabilities held for sale of £15,574m (2013: £495m) and £13,115m (2013: nil) respectively, which are measured at fair value on a non-recurring basis.
Refer to Note 45 for more information on non-current assets and liabilities held for sale. It also includes investment property of £207m (2013: £451m).
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