Barclays 2014 Annual Report Download - page 314

312 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matters continued
Claimed Amounts/Financial Impact
If the Group were to lose the pending actions the Group believes it could incur a loss of up to the outstanding amount of the RMBS at the time of
judgement (taking into account further principal payments after 31 December 2014), plus any cumulative losses on the RMBS at such time and
any interest, fees and costs, less the market value of the RMBS at such time and less any provisions taken to date.
Although the purchasers in these securities actions have generally not identified a specific amount of alleged damages, the Group has estimated
the total market value of these RMBS as at 31 December 2014 to be approximately $0.6bn. The Group may be entitled to indemnification for a
portion of such losses.
Other Mortgage-related Investigations
In addition to the RMBS Repurchase Requests and RMBS Securities Claims, numerous regulatory and governmental authorities, amongst them the
DOJ, SEC, Special Inspector General for the US Troubled Asset Relief Program and US Attorney’s Office for the District of Connecticut have been
investigating various aspects of the mortgage-related business, including issuance and underwriting practices in primary offerings of RMBS and
trading practices in the secondary market for both RMBS and CMBS. The Group is co-operating with these investigations.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect, if any, that they
might have upon the Group’s operating results, cash flows or financial position in any particular period.
Lehman Brothers
Since September 2009, the Group has been engaged in litigation with various entities that have sought to challenge certain aspects of the
transaction pursuant to which BCI and other companies in the Group acquired most of the assets of Lehman Brothers Inc. (LBI) in September
2008, as well as the court order (Order) approving the sale (Sale). The Order was upheld by the courts and is no longer being challenged. On
5 August 2014, the Second Circuit affirmed the SDNY’s rulings in favour of the Group on certain claims with respect to its rights over assets it
claims from the Sale.
Background Information
In September 2009, motions were filed in the United States Bankruptcy Court for the SDNY (Bankruptcy Court) by Lehman Brothers Holdings Inc.
(LBHI), the SIPA Trustee for Lehman Brothers Inc. (Trustee) and the Official Committee of Unsecured Creditors of Lehman Brothers Holdings Inc.
(Committee). All three motions challenged certain aspects of the Sale, as well as the Order. The claimants sought an order voiding the transfer of
certain assets to BCI, requiring BCI to return to the LBI estate any excess value BCI allegedly received, and declaring that BCI is not entitled to
certain assets that it claims pursuant to the Sale documents and the Order (Rule 60 Claims).
In January 2010, BCI filed its response to the motions and also filed a motion seeking delivery of certain assets that LBHI and LBI had failed to
deliver as required by the Sale documents and the Order (together with the Trustee’s competing claims to those assets, Contract Claims).
In 2011, the Bankruptcy Court rejected the Rule 60 Claims and decided some of the Contract Claims in the Trustee’s favour and some in favour of
the Group. The Group and the Trustee each appealed the Bankruptcy Court’s adverse rulings on the Contract Claims to the SDNY. LBHI and the
Committee did not appeal the Bankruptcy Court’s ruling on the Rule 60 Claims.
The SDNY issued an opinion in June 2012, reversing one of the Bankruptcy Court’s rulings on the Contract Claims that had been adverse to the
Group and affirming the Bankruptcy Court’s other rulings on the Contract Claims. In July 2012, the SDNY issued an agreed judgement
implementing the rulings in the opinion (Judgement). Under the Judgement, the Group is entitled to receive:
Q $1.1bn (£0.7bn) from the Trustee in respect of ‘clearance box’ assets (Clearance Box Assets); and
Q Property held at various institutions in respect of the exchange traded derivatives accounts transferred to BCI in the Sale (ETD Margin).
Recent Developments
The Trustee appealed the SDNY’s adverse rulings to the Second Circuit. On 5 August 2014, the Second Circuit issued an opinion affirming the
rulings of the SDNY that the Group is entitled to receive the Clearance Box Assets and the ETD Margin.
On 1 October 2014, the Trustee filed a motion with the SDNY to confirm the scope of the SDNY’s judgement regarding the ETD Margin the Group
is entitled to receive. With that motion, the Trustee is challenging Barclays’ entitlement to approximately $1.1bn of assets that the Trustee asserts
do not constitute ETD Margin.
On 15 December 2014, the Trustee requested that the US Supreme Court review the rulings of the SDNY and the Second Circuit regarding the
ETD margin.
Claimed Amounts/Financial Impact
Approximately $1.7bn (£1.1bn) of the assets to which the Group is entitled as part of the Sale had not been received by 31 December 2014,
approximately $0.8bn (£0.5bn) of which has been recognised as a financial asset on the balance sheet as at 31 December 2014. The unrecognised
amount, approximately $0.9bn (£0.6bn) as of 31 December 2014, effectively represents a provision against the uncertainty inherent in the
litigation and potential post-appeal proceedings and issues relating to the recovery of certain assets held by an institution outside the US. The
financial asset reflects an increase of $0.7bn (£0.5bn) recognised in profit or loss as at 30 September 2014 as a result of greater certainty
regarding the recoverability of the Clearance Box Assets and the ETD Margin from the Trustee, as well as decreases resulting from a payment of
$1.1bn (£0.7bn) made by the Trustee to the Group on 8 October 2014, fully discharging the Trustee’s obligations in respect of the Clearance Box
Assets and from a payment of approximately $1.5bn (£1bn) made by the Trustee to the Group on 10 December 2014 in respect of a portion of the
ETD Margin.
In this context, the Group is satisfied with the valuation of the asset recognised on its balance sheet and the resulting level of effective provision.
American Depositary Shares
BPLC, BBPLC and various current and former members of BPLC’s Board of Directors have been named as defendants in five proposed securities
class actions consolidated in the SDNY, alleging misstatements and omissions in registration statements for certain American Depositary Shares
offered by BBPLC.