Barclays 2004 Annual Report Download - page 123

often using credit derivative contracts. The assets are funded by
issuing securities with varying terms. In accordance with UK GAAP, the
Group does not recognise the assets and liabilities of these entities in
its balance sheet once the securities that represent substantially all the
risks and rewards associated with the SPE have been sold to third
parties. Otherwise these are recognised in full. Under UK GAAP, as at
31st December 2004, the Group had consolidated gross assets of
£2,024m (2003: £2,793m) in respect of these transactions. The
Group’s net income for 2004 included an £8m profit (2003: £38m)
generated by the relationship with these entities. Under US GAAP, as
at 31st December 2004, the Group had consolidated gross assets of
£2,343m (2003: £2,877m). The summarised results of these entities
under UK GAAP are given in Note 47 on page 187.
Asset securitisations
The Group assists companies with the formation of asset
securitisations. These entities have minimal equity and rely on funding
in the form of notes to purchase the assets for securitisation. The
Group provides financing in the form of senior notes and/or junior
notes and may also provide derivatives to the SPE. The Group has also
used SPEs to securitise part of its originated and purchased retail and
commercial lending portfolios and credit card receivables. Following the
sale of these assets to the securitisation vehicles, the Group may retain
servicing rights and an interest in the residual income of the SPEs.
Under UK GAAP, the SPEs are consolidated as quasi-subsidiaries
where the Group has the risks and rewards of the transaction.
Under UK GAAP, as at 31st December 2004, gross assets of £7,168m
(2003: £6,717m) were consolidated. Where junior notes and certain
derivative contracts are provided by the Group, the Group may be
the primary beneficiary under FIN 46-R and would be required to
consolidate these SPEs. Under US GAAP, as at 31st December 2004,
the Group had consolidated gross assets of £3,925m (2003: £7,178m)
in respect of these transactions in which the Group is determined to
be the primary beneficiary. Certain of the entities used are QSPEs in
accordance with SFAS 140 and, where this is the case, the securitised
assets are deemed to have been sold and consolidation of the QSPE is
not required. This results in the derecognition of assets of £7,660m as
at 31st December 2004 (2003: £2,350m).
Further details are included in Notes 14 and 47 on pages 147 and 187.
Asset realisations
The Group establishes SPEs to facilitate the recovery of banking
facilities in circumstances where the borrower has suffered financial
121
Barclays PLC Annual Report 2004
2004 2003
Assets Assets Assets Assets
consolidated consolidated consolidated consolidated
under UK GAAP under US GAAP under UK GAAP under US GAAP
£m £m £m £m
Commercial paper conduits 68 12,404 192 12,650
Credit structuring 2,024 2,343 2,793 2,877
Asset securitisations 7,168 3,925 6,717 7,178
Asset realisations –68 ––
Client intermediation(a) 216 216 5,740 5,740
Note
(a) Certain entities which are consolidated in accordance with FRS 2 under UK GAAP are deconsolidated under US GAAP where the Group is not the primary
beneficiary. The impact on the Group’s total assets is a reduction of £2,699m (2003: £43m).
Further disclosure of the Group’s involvement with entities of this and similar nature under US GAAP are given in Note 52 on pages 216 and 217.
loss. Under US GAAP, as at 31st December 2004, the Group had
recognised assets of £68m (2003: £nil) in respect of the transactions.
These entities are not consolidated under UK GAAP.
Client intermediation
The Group is involved in structuring transactions as a financial
intermediary to meet investor and client needs. These transactions
involve entities structured by either the Group or the client and
they are used to modify cash flows of third party assets to create
investments with specific risk or return profiles or to assist clients
in the efficient management of other risks. The Group also invests
in lessor entities specifically to acquire assets for leasing.
Client intermediation also includes arrangements to fund the purchase
or construction of specific assets (most common in the property
industry).
Where the Group has the risks and rewards, the SPEs are consolidated
either as quasi-subsidiaries under UK GAAP or as VIEs under US GAAP,
with assets of £216m as at 31st December 2004 (2003: £5,740m).
Certain entities that are consolidated in accordance with FRS 2 under
UK GAAP are deconsolidated under US GAAP where the Group is not
the primary beneficiary. The impact on the Group’s total assets is a
reduction of £2,699m (2003: £43m).
Fund management
The Group provides asset management services to a large number of
investment entities on an arm’s-length basis and at market terms and
prices. The majority of these entities are investment funds that are
owned by a large and diversified number of investors.
In addition, there are various partnerships, funds and open-ended
investment companies that are used by a limited number of
independent third parties to facilitate their tailored private equity,
debt securities or hedge fund investment strategies. These entities
have assets under management of £284m (2003: £290m). The Group
has acquired interests in these entities, which are included within debt
securities or equity shares, but the entities are not consolidated under
UK or US GAAP because the Group does not own either a significant
portion of the equity, or the risks and rewards inherent in the assets.
Some £4m (2003: £2m) of net income relates to transactions with
these entities.
The gross assets of the SPEs described above, which would require
consolidation before the impact of intercompany eliminations under
UK and US GAAP, are included in the table below.