Barclays 2006 Annual Report Download - page 97

Barclays PLC
Annual Report 2006 93
Operating review
1
The following tables analyse the overall fair value of the commodity derivative contracts by movement over time and source of fair value. As at
31st December 2006 this reflects a gross positive fair value of £17,502m (31st December 2005: £21,744m) and a gross negative value of £15,940m
(31st December 2005: £21,217m). Realised and unrealised profits relating to physical commodity and commodity derivative activities are included
within dealing profits. Physical commodity positions are held at fair value and reported under the Trading Portfolio in Note 12 on page 174.
Total Total
2006 2005
£m £m
Fair value of contracts outstanding at the beginning of the period 527 175
Contracts realised or otherwise settled during the period 379 (137)
Fair value of new contracts entered into during the period 808 156
Other changes in fair values (152) 333
Fair value of contracts outstanding at the end of the period 1,562 527
Movement in fair value of commodity derivative positions
Fair value source and maturity analysis
Fair value of contracts at 31st December 2006
Maturity Maturity Maturity in Total
less than one to excess of fair
one year five years five years value
Source of fair value £m £m £m £m
Valuation models supported by observable market data 893 322 315 1,536
Valuation models not supported by observable market data 9 6 17 26
Total 902 328 332 1,562
The following table analyses the positive fair value arising on commodity derivative contracts. As at 31st December 2006, this reflected a gross
positive fair value of £17,501m (31st December 2005: £21,744m).
Analysis of gross positive commodity derivative fair value by counterparty credit risk rating
Total Total
value value
2006 2005
S&P equivalent rating(a) £m £m
A- to AAA 14,184 12,234
BBB- to BBB+ 1,826 8,726
BB+ and below 1,491 784
Total 17,501 21,744
Credit risk exposures are actively managed by the Group. Refer to page 76 for more information on the Group’s approach to credit risk management.
At 31st December 2006, 87% of all commodities credit exposure was to counterparties with cross asset class netting agreements which allow
exposure on commodities products to be reduced by amounts owed to the same counterparties in other asset classes. 69% of commodities credit
exposure to counterparties with BBB+ and below equivalent ratings was to counterparties with cross asset class netting agreements.
Additionally, collateral agreements are held with a majority of these same counterparties that allow collateral to be called against commodity
exposures. All non-collateralised exposures are subject to credit limits, and credit or Risk Tendency reserves are created against these exposures
if appropriate.
Note
(a) Barclays assesses the credit quality and assigns an internal risk rating to all counterparties. Each internal rating corresponds to the statistical probability of a
counterparty in that rating class defaulting within the next 12-month period. The counterparty ratings shown in the table above are based on the approximate S&P
equivalent of the Barclays internal rating.