Barclays 2004 Annual Report Download - page 223

Barclays PLC Annual Report 2004
221
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(t) Guarantees
An element of Barclays normal banking business is to issue guarantees on behalf of its customers. In almost all cases, Barclays will hold collateral
against the exposure, have a right of recourse to the customer or both. In addition, Barclays issues guarantees on its own behalf. The major
categories of these guarantees are:
Financial guarantees
These are given to banks and financial institutions on behalf of customers to secure loans, overdrafts and other banking facilities. These are
commonly called facility guarantees.
Included within this category are stock borrowing indemnities. These relate to funds managed by Barclays on behalf of clients, which participate
in stock lending programmes. Barclays indemnifies the clients against any losses incurred by the clients resulting from borrower default.
Collateral, principally cash, is maintained against all stock borrowing transactions ranging from 102% to 105% of the securities loaned with
adjustments to collateral made daily. It is possible that the exposure could exceed the collateral provided should the value of the security rise
concurrently with the default of the borrowers.
Standby letters of credit
These are irrevocable commitments to pay a third party, on behalf of our customers, the value of which on demand is subject to certain criteria
being complied with. Any amounts paid are debited to the customers accounts. These contracts are used when required in substitution of
guarantees due to a greater acceptability in the beneficiary country.
Other guarantees
This category includes the following types of contracts:
Performance guarantees – a guarantee given by the bank on behalf of a customer, undertaking to pay a certain sum if our customer has failed to
carry out the terms or certain terms of the contract.
Advance payment guarantees – enables the beneficiary to demand repayment of an advance in funds in certain circumstances.
Tender guarantees – provided during a tender process to lend support to a customer’s commitment to a tender process.
Customs and Excise – guarantees provided to HM Customs and Excise to cover a customer’s liability, most commonly for import duties.
Retention guarantees – similar to advance payments but are used to secure early release of retained contract payments.
The following table provides the maturity analysis of guarantees issued by the Group. The amounts disclosed represent the maximum potential
amount of future payments (undiscounted) the Group could be required to make under the guarantee, before any recovery through recourse or
collaterisation provisions.
2004 2003
Less than One to Four to Over
one year three years five years five years Total Total
£m £m £m £m £m £m
Financial guarantees 19,842 367 292 826 21,327 18,812
Standby letters of credit 4,772 1,721 1,452 739 8,684 5,784
Other guarantees 6,227 1,156 379 483 8,245 8,427
Credit card guarantees
Under the Consumer Credit Act of 1974, Barclays may be liable to customers to refund payments made for unsatisfactory goods or services or
unfulfilled contracts where payment was made through a credit card. The maximum liability that Barclays could have is the total credit limits
marked to customers of £42,813m (2003: £32,734m). These limits are included within commitments with a maturity of less than one year,
as the limit can be revoked at any time.
Warranties and indemnities given as part of acquisition and disposal activity
Warranties and indemnities are routinely provided to counterparties as part of the terms and conditions required in a business acquisition,
disposal or investing in joint ventures. Most commonly, these relate to indemnification against tax liabilities arising from pre-transaction activities.
Usually the total aggregate liability, in respect of warranties and indemnities for a transaction is capped and the maximum exposure under these
is £2,686m (2003: £4,000m). No collateral or recourse to third parties is generally available.
Certain derivative contracts
In addition to the contracts described above, there are certain derivative contracts to which the Group is a counterparty that meet the
characteristics of a guarantee under FIN 45. These derivatives are recorded in the Group’s balance sheet at fair value under US GAAP.
Included in other provisions for liabilities and charges is £26m (2003: £nil) in respect of guarantees. The Group considers the amounts provided
in the balance sheet represent a reasonable estimate of amounts actually anticipated to be paid under such arrangements.