Barclays 2007 Annual Report Download - page 68

Interests in Third Party CDOs
The Group has purchased securities in and entered into derivative
instruments with third party CDOs. These interests are held as trading
assets or liabilities on the Group’s balance sheet and measured at fair
value. The Group has not provided liquidity facilities or similar agreements
to third party CDOs.
Structured Investment Vehicles (SIVs)
The Group has not structured or managed SIVs. Group exposure to third
party SIVs comprised:
– £317m of senior liquidity facilities, of which £19m was drawn and
included in loans and advances as at 31st December 2007. The Group
is one of between two and eight independent liquidity providers on
each transaction.
– Derivative exposures included on the balance sheet at their net fair value
of £264m.
– Bonds issued by the SIVs included within trading portfolio assets at their
fair value of £21m.
– £2.6bn repo funding facilities. £1.3bn has been utilised and included
within loans and advances to customers in the balance sheet.
Other than the repo facilities, which when drawn are more than 100%
collateralised by assets held by the Group with the collateral being valued
daily, the items above are included in the credit market positions discussed
on page 67.
SIV-Lites
The Group structured and helped to underwrite three SIV-Lite transactions.
The Group is not involved in their ongoing management.
The Group provided £0.55bn in liquidity facilities as partial support to the
£2.6bn of CP programmes on these transactions. These facilities have
now been fully drawn or are terminated, such that no further drawings are
possible. One of the three vehicles has been restructured into a cash
CDO. As part of this restructuring, the Group acquired the £800m senior
note in the CDO which is held at fair value within trading portfolio assets.
The credit risk on this note has been transferred to a third party investment
bank. For the remaining facilities, the amount drawn totalled £152m and
is included on the balance sheet within loans and advances to customers
and included in the credit market positions discussed on page 67.
Commercial Paper and Medium-term Note Conduits
The Group provided £19bn in undrawn backstop liquidity facilities to its
own sponsored CP conduits. The Group fully consolidates these entities
such that the underlying assets are reflected on the Group balance sheet.
The Group provided backstop facilities to support the paper issued by six
third party conduits. These facilities totalled £1bn, with underlying collateral
comprising auto loans (81%), bank-guaranteed residential mortgages
(11%), bank-guaranteed commercial and project finance loans (5%) and
UK consumer finance receivables (3%). Drawings on these facilities were
£46m as at 31st December 2007 and are included within loans and
advances to customers.
The Group provided backstop facilities to six third-party SPEs that fund
themselves with medium term notes. These notes are sold to investors
as a series of 12 month securities and remarketed to investors annually.
If investors decline to renew their holdings at a price below a pre-agreed
spread, the backstop facility requires the Group to purchase the outstanding
notes at scheduled maturity. The group has provided facilities of £2.9bn,
to SPEs holding prime UK and Australian owner-occupied Residential
Mortgage Back Securities (RMBS) assets. As at 31st December 2007,
the Group had acquired notes of £90m under these backstop facilities
(included as available for sale assets in the balance sheet) and further
acquisitions are expected through 2008 as other notes are remarketed.
The notes generally rank pari passu with the other term AAA+ rated notes
from the same issuer. The facilities have been designated at fair value and
are reflected in the balance sheet at their current fair value.
The Group’s own CP conduits provided facilities of £1.3bn to third party
conduits containing prime UK buy-to-let RMBS. As at 31st December 2007,
£290m of this facility had been drawn. The undrawn facilities are included
within the commitments disclosed in Note 34 to the accounts, while the
drawn elements are included within loans and advances to customers.
Asset securitisations
The Group has assisted companies with the formation of asset
securitisations, some of which are effected through the use of SPEs.
These entities have minimal equity and rely on funding in the form of
notes to purchase the assets for securitisation. As these SPEs are created
for other companies, the Group does not usually control these entities and
therefore does not consolidate them. The Group may provide financing
in the form of senior notes or junior notes and may also provide derivatives
to the SPE. These transactions are included on the balance sheet.
The Group has used SPEs to securitise part of its originated and purchased
retail and commercial lending portfolios and credit card receivables.
These SPEs are usually consolidated and derecognition only occurs when
the Group transfers its contractual right to receive cash flows from the
financial assets, or retains the contractual rights to receive the cash flows,
but assumes a contractual obligation to pay the cash flows to another
party without material delay or reinvestment, and also transfers
substantially all the risks and rewards of ownership, including credit risk,
prepayment risk and interest rate risk. The carrying amount of securitised
assets together with the associated liabilities are set out in Note 29.
Client intermediation
The Group has structured transactions as a financial intermediary to meet
investor and client needs. These transactions involve entities structured
by either the Group or the client and they 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.
Such transactions will typically result in a derivative being shown on the
balance sheet, representing the Group’s exposure to the relevant asset.
The Group also invests in lessor entities specifically to acquire assets
for leasing. Client intermediation also includes arrangements to fund
the purchase or construction of specific assets (most common in the
property industry).
Fund management
The Group provides asset management services to a large number of
investment entities on an arm’s-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. These funds are not
consolidated because the Group does not own either a significant portion
of the equity, or the risks and rewards inherent in the assets.
During 2007, Group operating expenses included charges of £80m
(2006: £nil) related to selective support of liquidity products managed by
Barclays Global Investors and not consolidated by the Group. The Group
has continued to provide further selective support to liquidity products
subsequent to 31st December 2007.
Financial review
Off-balance sheet arrangements
66 Barclays PLC Annual Report 2007