Barclays 2003 Annual Report Download - page 196

Notes to the Accounts
For the Year Ended 31st December 2003
194
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(h) Fair value of securities (continued)
The following table shows the gross unrealised losses and fair value, aggregated by investment category and length of time that individual securities
have been in a continuous unrealised loss position at 31st December 2003.
Less than 12 months 12 months or more Total
Unrealised Unrealised Unrealised
Fair value losses Fair value losses Fair value losses
Description of securities £m £m £m £m £m £m
United Kingdom government ––––––
Other government 2,687 (15) – – 2,687 (15)
Mortgage-backed securities 5,138 (60) – – 5,138 (60)
Corporate issuers 2,256 (14) 2,065 (6) 4,321 (20)
Other issuers ––––––
Total 10,081 (89) 2,065 (6) 12,146 (95)
The Group performs a review of each individual investment security on a regular basis to determine whether any evidence of impairment exists.
This review considers factors such as the duration and amount at which fair value is below cost, the credit standing and prospects of the issuer, and
the intent and ability of the Group to hold the investment security for such sufficient time to allow for any anticipated recovery in fair value.
Under US GAAP, 87 investment debt securities had unrealised losses as at 31st December 2003. Based on the review performed at 31st December
2003, management believes that the unrealised losses as at that date are temporary in nature. The unrealised losses are due to market moves in
interest rates. The credit quality of the bond issuers remains strong with 100% rated as investment grade or higher, and these investments are also
intended to be held for the longer term such that their fair value is expected to recover.
(i) Revaluation of property
In 1990, £449m of property revaluation reserve was capitalised by the issue of bonus shares.
(j) Loan impairment and disclosure
SFAS 114 applies only to impaired loans, the measurement of which is based upon the present value of expected future cash flows discounted at the
loan’s effective interest rate, the loan’s observable market value, or the fair value of the collateral if the loan is collateral dependent. Smaller balance
homogeneous consumer loans that are collectively evaluated for impairment are outside the scope of SFAS 114, as are debt securities and leases.
At 31st December 2003, the element of impaired loans outside the scope of SFAS 114 amounted to £1,777m (2002: £1,922m).
In accordance with SFAS 114, the Group’s total impaired loans are those reported as non-performing on page 51, less impaired loans outside the
scope of SFAS 114, and amount to £2,378m at 31st December 2003 (2002: £2,604m). Credit risk provisions of £1,340m, estimated in accordance with
SFAS 114, were held against these loans (2002: £1,335m). The average level of such impaired lendings in 2003 was £2,533m (2002: £2,147m).
Where cash received represents the realisation of security, or there is doubt regarding the recovery of a loan, such receipts are treated as repayments
of the loan principal. Otherwise, cash received in respect of impaired loans is recognised as interest income. Estimated interest income which was
recognised in 2003 on impaired loans within the scope of SFAS 114 was £28m (2002: £5m).
SFAS 114 modifies the accounting for in-substance foreclosure, in that collateralised debts where the Group takes physical possession of the collateral,
regardless of formal insolvency procedures, would be reclassified as if the collateral had been acquired for cash. At 31st December 2003, under
US GAAP, the amount of collateral recorded at the lower of the book value of the debt or the fair value of the collateral that would be reclassified
as ‘other real estate owned’ was £11m (2002: £6m) and as debt and equity instruments was £48m (2002: £6m).
There are no mortgage loans included within loans and advances to customers which are held with the intention of resale (2002: £830m). During the
year £645m of loans were sold (2002: £nil) generating a net loss of £10m (2002: £nil).
(k) Business combination
In 2002, Barclays and Canadian Imperial Bank of Commerce completed the combination of their retail, corporate and offshore banking operations
and created FirstCaribbean International Bank. Under both UK and US GAAP, Barclays accounts for the resulting interest as an associate. The
transaction generated a gain of £206m under both UK and US GAAP, the gain being recorded through the Statement of Total Recognised Gains
and Losses for UK GAAP under UITF 31 but in the income statement account under US GAAP (APB 29 and EITF 01-02). The net assets of the business
transferred by Barclays to the new entity are not materially different under US GAAP.
In 2003, an adjustment of £(4)m was made to the gain of £206m, also recognised under UK GAAP in the Statement of Total Recognised Gains and Losses.
(l) Provisions for restructuring of business
During 2003, 2002 and 2001, the Group has continued its existing programmes to reduce the workforce. Costs under these programmes, in all three
years, have primarily been incurred in Personal Financial Services, Barclays Private Clients and Business Banking. In addition, significant costs were
also incurred in Other operations (during 2001) and Barclays Capital (2001). The restructuring programmes are largely focused on activities within
the UK involving a reshaping of the Group’s operations through the centralisation of core processes and the application of new technologies.
During 2003, a restructuring charge of £209m (2002: £187m, 2001: £171m) was booked under UK GAAP, reflecting severance and other termination costs
of £146m (2002: £124m, 2001: £114m), costs in connection with planned disposition of certain facilities £28m (2002: £27m, 2001: £38m) and other related
costs of £35m (2002: £36m, 2001: £19m). Of the 2003 charge, £nil has been disallowed for US GAAP purposes. Of the 2002 charge under EITF 94-3, £5m
was disallowed in 2002 and charged in 2003. Of the 2001 charge £11m was disallowed in 2001, £4m was charged in 2002 and £7m was charged in 2003.
Of the 2000 charge, £10m was disallowed in 2000, £13m was disallowed in 2001, £19m was charged in 2002 and £4m was charged in 2003.