Barclays 2008 Annual Report Download - page 290

Notes to the accounts
For the year ended 31st December 2008
288 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
50 Fair value of financial instruments (continued)
Notes
a Fair value approximates carrying value due to the short-term nature of these financial assets and liabilities.
b The carrying value of financial instruments subsequently measured at fair value (including those held for trading, designated at fair value, derivatives
and available for sale) is determined in accordance with accounting policy 7 on page 194 and further description and analysis of these fair values are
set out below.
c The carrying value of financial assets subsequently measured at amortised cost (including loans and advances, and other lending such as reverse
repurchase agreements and cash collateral on securities borrowed) is determined in accordance with the accounting policy 7 on page 194. In many
cases the fair value disclosed approximates the carrying value because the instruments are short term in nature or have interest rates that reprice
frequently. In other cases, fair value is determined using discounted cash flows, applying either market derived interest rates or, where the
counterparty is a bank, rates currently offered by other financial institutions for placings with similar characteristics. Additionally, fair value can be
determined by applying an average of available regional and industry segmental credit spreads to the loan portfolio, taking the contractual maturity
of the loan facilities into consideration.
d The carrying value of financial liabilities subsequently measured at amortised cost (including customer accounts and other deposits such as
repurchase agreements and cash collateral on securities lent, debt securities in issue, subordinated liabilities) is determined in accordance with the
accounting policy 7 on page 194. In many cases, the fair value disclosed approximates the carrying value because the instruments are short term in
nature or have interest rates that reprice frequently such as customer accounts and other deposits and short term debt securities. Fair values of other
debt securities in issue are based on quoted prices where available, or where these are unavailable, are estimated using a valuation model. Fair values
for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issue concerned or similar issues with
similar terms and conditions.
Valuation methodology
The table below shows the Group’s financial assets and liabilities that are recognised and measured at fair value analysed by valuation technique.
A description of the nature of the techniques used to calculate valuations based on observable inputs and valuations based on unobservable inputs is set
out on the next page.
At 31st December 2008
Valuations Valuations based on unobservable inputs
based on
observable Vanilla Exotic
inputs products products Total Total
£m £m £m £m £m
Trading portfolio assets 174,168 11,469 – 11,469 185,637
Financial assets designated at fair value:
– held on own account 37,618 16,559 365 16,924 54,542
– held in respect of linked liabilities to customers under investment contracts 66,657 –––66,657
Derivative financial assets 970,028 12,436 2,338 14,774 984,802
Available for sale assets 63,149 1,827 – 1,827 64,976
Total assets 1,311,620 42,291 2,703 44,994 1,356,614
Trading portfolio liabilities (59,436) (38) – (38) (59,474)
Financial liabilities designated at fair value (71,044) (290) (5,558) (5,848) (76,892)
Liabilities to customers under investment contracts (69,183) –––(69,183)
Derivative financial liabilities (959,518) (6,151) (2,403) (8,554) (968,072)
Total liabilities (1,159,181) (6,479) (7,961) (14,440) (1,173,621)
At 31st December 2007
Valuations Valuations based on unobservable inputs
based on
observable Vanilla Exotic
inputs products products Total Total
£m £m £m £m £m
Trading portfolio assets 189,234 4,457 – 4,457 193,691
Financial assets designated at fair value:
– held on own account 39,810 16,819 – 16,819 56,629
– held in respect of linked liabilities to customers under investment contracts 90,851 –––90,851
Derivative financial assets 245,381 1,118 1,589 2,707 248,088
Available for sale assets 42,262 810 – 810 43,072
Total assets 607,538 23,204 1,589 24,793 632,331
Trading portfolio liabilities (65,360) (42) – (42) (65,402)
Financial liabilities designated at fair value (68,317) (951) (5,221) (6,172) (74,489)
Liabilities to customers under investment contracts (92,639) –––(92,639)
Derivative financial liabilities (243,906) (1,178) (3,204) (4,382) (248,288)
Total liabilities (470,222) (2,171) (8,425) (10,596) (480,818)
Of the total Group assets of £1,356,614m measured at fair value, £44,994m (2007: £24,793m) were valued using models with unobservable inputs.
While the derivative assets associated with our Monoline exposure accounted for a significant portion of the increase in assets valued using unobservable
inputs, further increases arose due to weakness in Sterling, as well as increased illiquidity in the market.