Barclays 2005 Annual Report Download - page 276

Barclays PLC
Annual Report 2005
274
Notes to the accounts
For the year ended 31st December 2005
63 Differences between IFRS and US GAAP accounting principles (continued)
The Group performs a review of each individual available for sale and held-to-maturity security on a regular basis to determine whether any
evidence of other-than-temporary 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 security for such sufficient time to allow for
any anticipated recovery in fair value.
Under US GAAP, 177 available for sale and held-to-maturity debt securities had unrealised losses as at 31st December 2005. Based on a review
performed at 31st December 2005, management believes that the unrealised losses are temporary in nature. The unrealised losses are due to
market movements in interest rates. The credit quality of the bond issuers remains strong with 100% rated as investment grade or higher and the
Group has the ability and intent to hold these positions until recovery.
Held-to-maturity securities
2005 2004
Unrealised Unrealised
Book value gain Fair value Book value gain Fair value
Description of securities £m £m £m £m £m £m
Mortgage-backed securities 2,099 2 2,101 1,713 1 1,714
Other issuers 3,488 1 3,489 3,757 3 3,760
Total 5,587 3 5,590 5,470 4 5,474
2005 2005
Book value Fair value
Maturing Maturing Maturing Maturing
Maturing after one after five Maturing Maturing after one after five Maturing
within but within but within after within but within but within after
one year five years ten years ten years one year five years ten years ten years
Description of securities £m £m £m £m £m £m £m £m
Mortgage-backed securities 92 1,931 76 – 93 1,932 76 –
Other issuers 1,062 2,199 53 174 1,062 2,199 53 175
Total 1,154 4,130 129 174 1,155 4,131 129 175
The gross unrecognised losses on the held to maturity securities amounted to £4m at 31st December 2005 (2004: £3m).
(g) 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 2005, the element of impaired loans outside the scope of SFAS 114 amounted to £3,336m (2004: £2,599m).
In accordance with SFAS 114, the Group’s total impaired loans being non-performing, less impaired loans outside the scope of SFAS 114, amount
to £1,874m at 31st December 2005 (2004: £1,386m). Credit risk provisions of £935m, estimated in accordance with SFAS 114, were held against
these loans (2004: £721m). The average level of such impaired lendings in 2005 was £1,661m (2004: £1,736m).
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 2005 on impaired loans within the scope of SFAS 114 was £13m (2004: £24m).
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 2005,
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 £nil (2004: £7m) and as debt and equity instruments was £57m (2004: £34m).
During 2005, there were no mortgage loans held which were held with the intention of resale. In 2004, mortgage loans of £3,482m were included
within loans and advances to customers which were held with the intention of resale. During 2004, £4,762m of loans were sold generating a net
profit of £31m.