Barclays 2005 Annual Report Download - page 162

14 Financial assets designated at fair value
Held on own account
2005
£m
Loans and advances designated at fair value 8,600
Other financial assets designated at fair value 4,304
Financial assets designated at fair value – held on own account 12,904
Credit risk on loans and advances designated at fair value
The maximum exposure to credit risk on loans and advances designated at fair value at 31st December 2005 was £8,600m (2004: n/a). The amount
by which related credit derivatives and similar instruments mitigate the exposure to credit risk at 31st December 2005 was £2,505m (2004: n/a).
The net gain attributable to changes in credit risk for loans and advances designated at fair value was £3m in 2005 (2004: n/a). The gains or losses
on related credit derivatives was £nil for the year (2004: n/a).
The cumulative net gain attributable to changes in credit risk for loans and advances designated at fair value since initial recognition is £3m at
31st December 2005 (2004: n/a). The cumulative change in fair value of related credit derivatives at 31st December 2005 is £nil (2004: n/a).
Securitisations of loans and advances designated at fair value
During the year, Barclays acquired and then securitised static pools of residential mortgage loans which were originated by unaffiliated mortgage
companies. The securitisations were effected through the sale of mortgage loans to trusts, which issue notes to fund the acquisition of these loans.
The notes were underwritten by Barclays and sold to third-party investors. The offering circulars for the issues of the notes stated that they were the
obligations of the respective trust only and are not guaranteed by, or the responsibility of, any other party.
Loans and advances designated at fair value include balances that have been securitised, and continue to be partially recognised to the extent of
the Group’s continuing involvement in the original asset. These retained interests are in the form of interest only strips and represent a continuing
exposure to the prepayment and credit risk of the underlying securitised assets. The total amount of loans designated at fair value which have been
securitised and derecognised on a continuing involvement basis is £6,291m (2004: n/a). The total amount of the continuing involvement asset
which has been designated at fair value that we continue to partially recognise is £175m (2004: n/a).
Held in respect of linked liabilities to customers under investment contracts/liabilities arising from investment contracts
2005
£m
Financial assets designated at fair value held in respect of linked liabilities to customers under investment contracts 83,193
Cash and bank balances within the funds 2,008
Assets held in respect of linked liabilities to customers under investment contracts 85,201
Liabilities to customers under investment contracts (85,201)
A portion of the Group’s fund management business takes the legal form of insurance policies, under which legal title to the underlying investment
is held by the Group, but the inherent risks rewards in the investments are borne by the customer. In the normal course of business, the Group’s
financial interest in such investments is restricted to fees for investment management services.
Due to the nature of these contracts, the carrying value of the assets is always the same as the value of the liabilities and any change in the value of
the assets results in an equal but opposite change in the value of the amounts due to the policyholders.
In the balance sheet, the assets are included as ‘Financial assets designated at fair value – held in respect of linked liabilities to customers under
investment contracts’. Cash balances within the portfolio have been included in the Group’s cash balances. The associated obligation to deliver the
value of the investments to customers at their fair value on balance sheet date is included as ‘Liabilities to customers under investment contracts’.
The increase/decrease in the value arising from the return on the investments and the corresponding increase/decrease in linked liabilities to
customers is included in the Other income note in Note 6.
Notes to the accounts
For the year ended 31st December 2005
Barclays PLC
Annual Report 2005
160