Barclays 2008 Annual Report Download - page 59

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Business review
Barclays PLC Annual Report 2008 57
Principal transactions increased £41m to £111m (2007: £70m)
reflecting gains on economic hedges relating to the commercial property
finance and liquid asset portfolios.
Other income increased £36m to £113m (2007: £77m), reflecting a
gain of £47m from the Visa IPO.
Impairment charges increased £201m to £347m (2007: £146m) as a
result of rising delinquency levels in the retail portfolios, which have been
impacted by rising interest and inflation rates and increasing consumer
indebtedness.
Operating expenses increased 3% (£38m) to £1,305m (2007:
£1,267m). The cost:income ratio improved from 63% to 59%.
2007/06
Impact of Absa Group Limited on Barclays results
Absa Group Limited’s profit before tax of R14,077m (2006: R11,417m) is
translated into Barclays results at an average exchange value of R14.11/£
(2006: R12.47/£), a 12% depreciation in the average value of the Rand
against Sterling. Consolidation adjustments reflected the amortisation of
intangible assets of £47m (2006: £69m) and internal funding and other
adjustments of £129m (2006: £97m). The resulting profit before tax of
£822m (2006: £750m) is represented within GRCB – Absa £597m (2006:
£609m), Barclays Capital £155m (2006: £71m) and Barclaycard £70m
(2006: £70m).
Absa Group Limited’s total assets were R640,909m (2006:
R495,112m), a growth of 29%. This is translated into Barclays results
at a period-end exchange rate of R13.64/£ (2006: R13.71/£). The capital
investment was hedged against currency movements in 2007.
Global Retail and Commercial Banking – Absa
GRCB – Absa profit before tax decreased 2% (£12m) to £597m (2006:
£609m) mainly owing to the weaker currency. The impact of the weaker
currency was offset by very good performances from Retail Banking and
Absa Corporate and Business Bank. Key factors impacting the results
included: very strong asset and income growth; the diversification of
earnings in favour of investment banking and commercial banking; an
increased retail credit impairment charge, and the achievement of the Absa
– Barclays synergy target 18 months ahead of schedule.
Income decreased 2% (£32m) to £1,999m (2006: £2,031m).
Net interest income increased by 7% (£72m) to £1,055m (2006: £983m),
driven by growth in loans and advances and deposits at improved
margins. Loans and advances to customers increased 27% from
31st December 2006 mainly driven by growth of 23% in mortgages.
Net fee and commission income decreased by 9% (£70m) to £684m
(2006: £754m) mainly owing to the weaker currency. The increase in local
currency reflects a growth of 3% underpinned by increased transaction
volumes in Retail Banking and Absa Corporate and Business Bank.
Principal transactions decreased £36m to £70m (2006: £106m)
reflecting losses on economic hedges relating to the commercial property
finance and liquid asset portfolios.
Other income increased £23m to £77m (2006: £54m).
Impairment charges increased £34m to £146m (2006: £112m) from
the cyclically low levels of recent years, Arrears in retail portfolios increased
driven by interest rate increases in 2006 and 2007. Impairment charges as
a percentage of loans and advances to customers was 0.49%, ahead of
the 0.48% charge in 2006 but within long-term industry averages.
Operating expenses decreased 4% (£52m) to £1,267m (2006:
£1,319m), resulting from the realisation of synergy benefits of R1,428m
(£100m) to date thus achieving the synergy target of R1.4bn 18 months
ahead of schedule. This was partially offset by the increased investment in
new distribution outlets and staff in order to support continued growth in
volumes and customers.
GRCB – Absa
2008 2007 2006
£m £m £m
Income statement information
Net interest income 1,104 1,055 983
Net fee and commission income 762 684 754
Net trading income/(expense) 6– (11)
Net investment income 105 70 117
Principal transactions 111 70 106
Net premiums from insurance contracts 234 227 240
Other income 113 77 54
Total income 2,324 2,113 2,137
Net claims and benefits incurred under insurance contracts (126) (114) (106)
Total income net of insurance claims 2,198 1,999 2,031
Impairment charges (347) (146) (112)
Net income 1,851 1,853 1,919
Operating expenses excluding amortisation of intangible assets (1,255) (1,212) (1,250)
Amortisation of intangible assets (50) (55) (69)
Operating expenses (1,305) (1,267) (1,319)
Share of post-tax results of associates and joint ventures 569
Profit on disposal of subsidiaries, associates and joint ventures 15–
Profit before tax 552 597 609
Balance sheet information
Loans and advances to customers £32.7bn £29.9bn £23.5bn
Customer accounts £17.0bn £13.0bn £10.9bn
Total assets £40.4bn £36.4bn £29.6bn
Performance ratios
Return on average economic capital 20% 20% 29%
Cost:income ratio 59% 63% 65%
Cost:net income ratio 71% 68% 69%
Other financial measures
Risk Tendency £255m £190m £130m
Economic profit £70m £98m £138m
Risk weighted assetsa£18.8bn £17.8bn £19.8bn
Note
aRisk weighted assets for 2008 and 2007 are calculated under Basel II. 2006 is calculated under Basel I.