Barclays 2007 Annual Report Download - page 19

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Business review
Barclays PLC Annual Report 2007 17
Barclays Commercial Bank delivered profit before tax of £1,371m. Profit
before business disposals improved 5%. Income improved 7% driven by
very strong growth in fees and commissions and steady growth in net
interest income. Non-interest income increased to 32% of total income
reflecting continuing focus on cross sales and efficient balance sheet
utilisation. Operating expenses rose 6%, reflecting increased investment
in product development and support, sales force capability and
operational efficiency. Impairment charges increased £38m as a result
of asset growth and higher charges in Larger Business.
Barclaycard profit before tax increased to £540m, 18% ahead of the prior
year. Steady income relative to 2006 reflected strong growth in Barclaycard
International offset by a reduction in UK card extended credit balances
as we re-positioned the UK business and reduced lower credit quality
exposures including the sale of the Monument card portfolio. As a result,
impairment charges improved 21%, reflecting more selective customer
recruitment, client management and improved collections. Operating
expenses increased 12%, driven by continued investment in Barclaycard
International and the non-recurrence of a property gain included in the
2006 results. Barclaycard US continued to make good progress, and
for the first time made a profit for the year.
International Retail and Commercial Banking profits declined 23% to
£935m. Results in 2006 included a £247m profit on disposals and £41m
post tax profit share from FirstCaribbean International Bank. 2007 results
reflected a 12% decline in the average value of the Rand.
International Retail and Commercial Banking – excluding Absa
delivered a profit before tax of £246m. Income rose 28% as we
significantly increased the pace of organic growth across the business,
with especially strong growth in Emerging Markets and Spain. Operating
expenses grew 32% as we expanded the distribution footprint, opening
324 new branches and 157 new sales centres and also invested in rolling
out a common technology platform and processes across the business.
Impairment increased to £79m including very strong balance sheet
growth and lower releases.
International Retail and Commercial Banking – Absa Sterling profit fell
£9m to £689m after absorbing the 12% decline in the average value of
the Rand. Absa Group Limited profit before tax grew 23% in Rand terms,
reflecting very strong growth in retail banking, corporate banking and
Absa Capital (reported in Barclays Capital). Retail loans and advances grew
22% and retail deposits grew 20%. We delivered synergies of R1,428m,
achieving our synergy target 18 months ahead of schedule.
Business Performance – Investment Banking and
Investment Management
Barclays Capital improved on the record performance of 2006 delivering a
5% increase in profit before tax to £2,335m. Net income was ahead of last
year, reflecting very strong performances in most asset classes including
interest rates, currencies, equity products and commodities. Results also
included net losses arising from credit market turbulence of £1,635m net
of gains from the fair valuation of issued notes of £658m. All geographies
outside the US enjoyed significant growth in income and profits. Strong
cost control led to operating expenses declining slightly year on year.
The cost:net income ratio improved by 1% to 63%.
Barclays Global Investors (BGI) profit before tax increased 3% to £734m.
Income grew 16%, driven by very strong growth in management fees
and in securities lending revenues. Profit and income growth were both
affected by the 8% depreciation in the average value of the US Dollar.
BGI costs increased 25% as we continued to build our infrastructure
across multiple products and platforms to support future growth.
The cost:income ratio rose to 62%. Assets under management grew
US$265bn to US$2.1 trillion, including net new assets of US$86bn.
Barclays Wealth profit before tax rose 25% to £307m. Income growth
of 11% was driven by increased client funds and greater transaction
volumes. Costs were well controlled as business volumes rose and
the cost:income ratio improved three percentage points to 76%. We
continued to invest in client facing staff and infrastructure. Redress
costs declined. Total client assets increased 14% to £133bn.
Head office functions and other operations
Head Office functions and other operations loss before tax increased
65% to £428m reflecting higher inter-segment adjustments and lower
gains from hedging activities.
Capital management
At 31st December 2007, our Basel I Tier 1 Capital ratio was 7.8%
(2006: 7.7%). We started managing capital ratios under Basel II from
1st January 2008. Our Basel II Tier 1 Capital ratio was 7.6%. Our Equity
Tier 1 ratio was 5.0% under Basel I (2006: 5.3%) and 5.1% under Basel II.
We have increased the proposed dividend payable to shareholders in
respect of 2007 by 10%. We maintain our progressive approach to
dividends, expecting dividend growth broadly to match earnings growth
over time.
Chris Lucas
Group Finance Director