Barclays 2008 Annual Report Download - page 24

22 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Financial review
Income statement commentary
2007/06
Impairment charges in UK Retail Banking decreased by £76m to £559m
(2006: £635m), reflecting lower charges in unsecured Consumer Lending
and Local Business driven by improved collection processes, reduced
flows into delinquency, lower arrears trends and stable charge-offs.
In UK Home Finance, asset quality remained strong and mortgage
charges remained negligible. Mortgage delinquencies as a percentage
of outstandings remained stable and amounts charged off were low.
The impairment charge in Barclays Commercial Bank increased £39m
to £292m (2006: £253m), primarily due to higher impairment charges in
Larger Business, partially offset by a lower charge in Medium Business due
to a tightening of the lending criteria.
Impairment charges in Barclaycard decreased £226m to £827m
(2006: £1,053m), reflecting reduced flows into delinquency, lower levels
of arrears and lower charge-offs in UK Cards. Changes were made to
impairment methodologies to standardise the approach and in anticipation
of Basel II. The net positive impact of these changes in methodology was
offset by the increase in impairment charges in Barclaycard International
and secured consumer lending.
Impairment charges in GRCB – Western Europe and GRCB – Emerging
Markets rose by £47m to £115m (2006: £68m), reflecting very strong
balance sheet growth in 2006 and 2007 and the impact of lower releases
in 2007. Arrears in some of GRCB – Absa’s retail portfolios deteriorated in
2007, driven by interest rate increases in 2006 and 2007 resulting in pressure
on collections.
Barclays Capital impairment charges and other credit provisions of
£846m included a charge of £782m against ABS CDO Super Senior and
other credit market exposures and £58m net of fees relating to drawn
leveraged finance positions.
Operating expenses
2008/07
Operating expenses increased 9% (£1,167m) to £14,366m
(2007: £13,199m).
Administrative expenses grew 30% (£1,175m) to £5,153m
(2007: £3,978m), reflecting the impact of acquisitions (in particular
Lehman Brothers North American businesses and Goldfish), fees
associated with Group capital raisings, the cost of the Financial Services
Compensation Scheme as well as continued investment in the Global
Retail and Commercial Banking distribution network. In addition, Barclays
Global Investors’ selective support of liquidity products increased to
£263m in the year (2007: £80m).
Operating expenses were reduced by gains from the sale of property
of £148m (2007: £267m) as the Group continued the sale and leaseback
of some of its freehold portfolio, principally in UK Retail Banking, Barclays
Commercial Bank and GRCB – Western Europe.
Amortisation of intangible assets increased 56% (£105m) to
£291m (2007: £186m), primarily related to intangible assets arising
from the acquisition of Lehman Brothers North American businesses.
Goodwill impairment of £111m reflects the full write-down of £74m
relating to EquiFirst, a US non-prime mortgage originator and a partial
write-down of £37m relating to FirstPlus following its closure to new
business in August 2008.
2007/06
Operating expenses grew 4% (£525m) to £13,199m (2006: £12,674m).
The increase was driven by growth of 3% (£236m) in staff costs to
£8,405m (2006: £8,169m) and lower gains on property disposals.
Administrative expenses remained flat at £3,978m (2006: £3,980m),
reflecting good cost control across all businesses.
Operating lease rentals increased 20% (£69m) to £414m (2006:
£345m), primarily due to increased property held under operating leases.
Operating expenses
2008 2007 2006
£m £m £m
Staff costs 7,779 8,405 8,169
Administrative expenses 5,153 3,978 3,980
Depreciation 630 467 455
Impairment charges/(releases)
– property and equipment 33 2 14
– intangible assets (3) 14 7
– goodwill 111 ––
Operating lease rentals 520 414 345
Gain on property disposals (148) (267) (432)
Amortisation of intangible assets 291 186 136
Operating expenses 14,366 13,199 12,674