Barclays 2008 Annual Report Download - page 294

Notes to the accounts
For the year ended 31st December 2008
292 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
51 Reclassification of financial assets held for trading
On 16th December the Group reclassified certain financial assets originally classified as held for trading that were no longer held for the purpose of selling
or repurchasing in the near term out of fair value through profit or loss to loans and receivables. In making this reclassification, the Group identified those
trading assets, comprising portfolios of bank-issued fixed rate notes and mortgage and other asset backed securities, for which it had a clear change of
intent to hold for the foreseeable future or until maturity rather than to trade in the short term. At the time of the transfer, the Group identified rare
circumstances permitting such reclassification, being severe illiquidity in the relevant market.
The following table shows carrying values and fair values of the assets reclassified at 16th December 2008.
16th December 2008 31st December 2008
Carrying Carrying Fair
value value value
£m £m £m
Trading assets reclassified to loans and receivables 4,046 3,986 3,984
Total financial assets reclassified to loans and receivables 4,046 3,986 3,984
As at the date of reclassification, the effective interest rates on reclassified trading assets ranged from 0.18% to 9.29% with expected recoverable cash
flows of £7.4bn.
If the reclassifications had not been made, the Group’s income statement for 2008 would have included unrealised fair value losses on the reclassified
trading assets of £1.5m.
After reclassification, the reclassified financial assets contributed the following amounts to the 2008 income before income taxes.
2008
£m
Net interest income 4
Provision for credit losses –
Income before income taxes on reclassified trading assets 4
Prior to reclassification in 2008, £144m of unrealised fair value losses on the reclassified trading assets was recognised in the consolidated income statement
for 2008 (2007: £218m loss).
52 Capital Management
Barclays operates a centralised capital management model, considering both regulatory and economic capital. The capital management strategy is to
continue to maximise shareholder value through optimising both the level and mix of capital resources. Decisions on the allocation of capital resources
are conducted as part of the strategic planning review.
The Group’s capital management objectives are to:
– Maintain sufficient capital resources to meet the minimum regulatory capital requirements set by the FSA and the US Federal Reserve Bank’s
requirements that a financial holding company be well capitalised.
– Maintain sufficient capital resources to support the Group’s risk appetite and economic capital requirements.
– Support the Group’s credit rating.
– Ensure locally regulated subsidiaries can meet their minimum capital requirements.
– Allocate capital to businesses to support the Group’s strategic objectives, including optimising returns on economic and regulatory capital.
External Regulatory Capital Requirements
The Group is subject to minimum capital requirements imposed by the Financial Services Authority (FSA), following guidelines developed by the Basel
Committee on Banking Supervision (the Basel Committee) and implemented in the UK via European Union Directives.
Under Basel II, effective from 1st January 2008, the Group has approval by the FSA to use the advanced approaches to credit and operational risk
management. Pillar 1 capital requirements are generated using the Group’s risk models.
Under Pillar 2 of Basel II, the Group is subject to an overall regulatory capital requirement based on individual capital guidance (‘ICG’) received from
the FSA. The ICG imposes additional capital requirements in excess of Pillar 1 minimum capital requirements.
Outside the UK, the Group has operations (and main regulators) located in continental Europe, in particular France, Germany, Spain, Portugal and Italy
(local central banks and other regulatory authorities); Asia Pacific (various regulatory authorities including the Hong Kong Monetary Authority, the Japanese
FSA and the Monetary Authority of Singapore); Africa, where the Group’s operations are headquartered in Johannesburg, South Africa (The South African
Reserve Bank and the Financial Services Board (FSB)) and the United States of America (the Board of Governors of the Federal Reserve System (FRB) and
the Securities and Exchange Commission).
The Group manages its capital resources to ensure that those Group entities that are subject to local capital adequacy regulation in individual countries
meet their minimum capital requirements. Local management manages compliance with subsidiary entity minimum regulatory capital requirements
with reporting to local Asset and Liability Committees and to Treasury Committee, as required.