Barclays 2007 Annual Report Download - page 40

Financial review
Analysis of results by business
38 Barclays PLC Annual Report 2007
Investment Banking and
Investment Management
Barclays Capital
Who we are
Barclays Capital is a leading global investment bank
providing large corporate, institutional and government
clients with solutions to their financing and risk
management requirements.
What we do
Barclays Capital service a wide variety of client needs, from capital raising
and managing foreign exchange, interest rate, equity and commodity
risks, through to providing technical advice and expertise.
Activities are organised into three principal areas: Rates, which includes
fixed income, foreign exchange, commodities, emerging markets, money
markets, prime services and equity products; Credit, which includes
primary and secondary activities for loans and bonds for investment
grade, high yield and emerging market credit, as well as hybrid capital
products, asset based finance, mortgage backed securities, credit
derivatives, structured capital markets and large asset leasing; and Private
Equity. Barclays Capital includes Absa Capital, the investment banking
business of Absa.
Barclays Capital works closely with all other parts of the Group to leverage
synergies from client relationships and product capabilities.
2007 2006 2005
League League League
table Issuance table Issuance table Issuance
Key facts position value position value position value
All international bonds
(all currencies) (US$bn) 2nd 273.2 1st 271.9 2nd 183.6
Europe overall debt
(US$bn) 1st 226.5 1st 259.5 2nd 221.6
Sterling bonds (£bn) 1st 15.5 1st 27.3 1st 23.0
US investment grade
corporate bonds
(US$bn) 10th 4.7 7th 6.0 5th 9.9
Performance
2007/06
Barclays Capital delivered profits ahead of the record results achieved in
2006 despite challenging trading conditions in the second half of the year.
Profit before tax increased 5% (£119m) to £2,335m (2006: £2,216m).
There was strong income growth across the Rates businesses and
excellent results in Continental Europe, Asia and Africa demonstrating the
breadth of the client franchise. Net income was slightly ahead at £6,273m
(2006: £6,225m) and costs were tightly managed, declining slightly year
on year. Absa Capital delivered very strong growth in profit before tax to
£155m (2006: £71m).
The US sub-prime driven market dislocation affected performance in the
second half of 2007. Exposures relating to US sub-prime were actively
managed and declined over the period. Barclays Capital’s 2007 results
reflected net losses related to the credit market turbulence of £1,635m,
of which £795m was included in income, net of £658m gains arising from
the fair valuation of notes issued by Barclays Capital. Impairment charges
included £840m against ABS CDO Super Senior exposures, other credit
market exposures and drawn leveraged finance underwriting positions.
Income increased 14% (£852m) to £7,119m (2006: £6,267m) as a result
of very strong growth in interest rate, currency, equity, commodity and
emerging market asset classes. There was excellent income growth in
continental Europe, Asia, and Africa. Average DVaR increased 13% to
£42m (2006: £37.1m) in line with income.
Secondary income, comprising principal transactions (net trading income
and net investment income), is mainly generated from providing client
financing and risk management solutions. Secondary income increased
11% (£578m) to £5,871m (2006: £5,293m).
Net trading income increased 5% (£177m) to £3,739m (2006: £3,562m)
with strong contributions from fixed income, commodities, equities,
foreign exchange and prime services businesses. These were largely offset
by net losses in the business affected by sub-prime mortgage related write
downs. The general widening of credit spreads that occurred over the
course of the second half of 2007 also reduced the carrying value of the
£57bn of issued notes held at fair value on the balance sheet, resulting in
gains of £658m. Net investment income increased 66% (£380m) to
£953m (2006: £573m) as a result of a number of private equity realisations,
investment disposals in Asia and structured capital markets transactions.
Net interest income increased 2% (£21m) to £1,179m (2006: £1,158m),
driven by higher contributions from money markets. The corporate
lending portfolio increased 29% to £52.3bn (2006: £40.6bn), largely due
to an increase in drawn leveraged finance positions and a rise in drawn
corporate loan balances.
Primary income, which comprises net fee and commission income
from advisory and origination activities, grew 30% (£283m) to £1,235m
(2006: £952m), with good contributions from bonds and loans.
Impairment charges and other credit provisions of £846m included £722m
against ABS CDO Super Senior exposures, £60m from other credit market
exposures and £58m relating to drawn leveraged finance underwriting
positions. Other impairment charges on loans and advances amounted
to a release of £7m (2006: £44m release) before impairment charges on
available for sale assets of £13m (2006: £86m).
Highlights
£ 7,119 m£2,335m
Income Profit before tax
Performance indicators
Economic profit £m
Average net income generated
per member of staff £000
06 07
1,181
05
706
1,172
06 07
575
05
498
466