Barclays 2006 Annual Report Download - page 273

Barclays PLC
Annual Report 2006 269
Financial statements
3
60 Differences between IFRS and US GAAP accounting principles (continued)
(m) Consolidation (continued)
Client intermediation
As a financial intermediary, the Group is involved in structuring transactions to meet investor and client needs. These transactions may involve
entities that fall within the scope of FIN 46-R structured by either Barclays or the client and that 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. These transactions may include
derivative instruments, and often contain contractual clauses to enable Barclays to terminate the transaction under certain circumstances, for
example, if the legal or accounting basis on which the transaction was completed changes. In addition, Barclays invests as a limited partner in lessor
partnerships and as a parent in wholly owned subsidiaries specifically to acquire assets for leasing. In a portion of these leasing transactions, there
may be risk mitigants in place which result in a third-party consolidating the entities as the primary beneficiary.
Credit structuring
The Group structures investments to provide specific risk profiles to investors. This may involve the sale of credit exposures, often by way of credit
derivatives, to an entity which subsequently funds the credit exposures by issuing securities. These securities may initially be held by Barclays prior
to sale outside of the Group.
Asset realisations
The Group establishes SPEs to facilitate the recovery of loans in circumstances where the borrower has suffered financial loss.
Fund management
The Group provides asset management services to a large number of investment entities on an arms-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 debt, debt securities or hedge fund investment strategies.
The Group is the primary beneficiary in the following VIEs, classified by type of activity:
2006 2005
Total assets Total assets
Activity £m £m
Asset securitisations 15,614 13,750
Multi-seller conduit programmes 15,389 17,260
Client intermediation 8,655 4,451
Credit structuring 678 641
Asset realisations 51 49
The creditors of these entities do not have recourse to the general credit of the Group in respect of the variable interest entities consolidated by
the Group.
The Group also has significant variable interests in the following VIEs, classified by type of activity, where the Group is not the primary beneficiary.
2006 2005
Total Maximum Total Maximum
assets loss(a) assets loss(a)
£m £m £m £m
Asset securitisations 3,244 62 5,746 221
Client intermediation 12,622 1,999 11,298 3,284
Credit structuring 778 577 313 8
Fund management ––6,158 3,222
Qualifying Special Purpose Entities (QSPEs)
In accordance with SFAS 140 and FIN 46-R, the Group does not consolidate QSPEs. QSPEs are passive entities used by the Group to hold financial
assets transferred to them by the Group and are commonly used in mortgage and other securitisation transactions as described in Note 60 (n)
below.
Note
(a) The maximum exposure to loss represents a ‘worst case’ scenario in the event that all such entities simultaneously fail. It does not provide an indication of ongoing
exposure which is managed within the Group’s risk management framework. Where a maximum exposure to loss is quoted, this represents the Group’s total
exposure and includes both drawn and undrawn lending facilities. The Group’s exposure is determined by changes in the value of the variable interests it holds within
these entities, which primarily comprise liquidity, credit enhancements, derivative transactions and financing arrangements.