Barclays 2008 Annual Report Download - page 60

58 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Investment Banking and
Investment Management
Barclays Capital
Barclays Capital is a leading global investment bank providing large
corporate, government and institutional clients with a full spectrum
of solutions to their strategic advisory, financing and risk
management needs.
What we do
Barclays Capital is a global investment bank, which offers clients the full
range of services covering strategic advisory and M&A; equity and fixed
income capital raising and corporate lending; and risk management across
foreign exchange, interest rates, equities and commodities.
Activities are organised into three principal areas: Global Markets,
which includes commodities, credit products, equities, foreign exchange,
interest rate products; Investment Banking, which includes corporate
advisory, Mergers and Acquisitions, equity and fixed-income capital
raising and corporate lending; and Private Equity and Principal
Investments. Barclays Capital includes Absa Capital, the investment
banking business of Absa.
Barclays Capital works closely with all other parts of the Group to
leverage synergies from client relationships and product capabilities.
Performance
2008/07
In an exceptionally challenging market environment Barclays Capital profit
before tax decreased 44% (£1,033m) to £1,302m (2007: £2,335m). Profit
before tax included a gain on the acquisition of Lehman Brothers North
American businesses of £2,262m. Absa Capital profit before tax grew 13%
to £175m (2007: £155m).
Net income included gross losses of £8,053m (2007: £2,999m) due to
continuing dislocation in the credit markets. These losses were partially offset
by income and hedges of £1,433m (2007: £706m), and gains of £1,663m
(2007: £658m) from the general widening of credit spreads on structured
notes issued by Barclays Capital. The gross losses, comprised £6,290m
(2007: £2,217m) against income and £1,763m (2007: £782m) in
impairment charges. Further detail is provided on page 107.
The integration of the Lehman Brothers North American businesses is
complete and the acquired businesses made a positive contribution, with
good results in equities, fixed income and advisory. There was a gain on
acquisition of £2,262m. Not included in this gain is expenditure relating to
integration of the acquired business.
Income was down 27% at £5,231m (2007: £7,119m) driven by the
impact of the market dislocation. Underlying income, which excludes the
gross losses, related income and hedges, and gains on the widening of credit
spreads was 6% above the prior year and included strong contributions from
interest rates, currency products, emerging markets, prime services and
commodities. There was very strong underlying growth in the US driven by
fixed income, prime services and the acquired businesses. In other regions
income fell driven by the challenging environment.
Net trading income decreased 60% (£2,233m) to £1,506m (2007:
£3,739m) reflecting losses from the credit market dislocation and weaker
performance in credit products and equities. This was partially offset by
significant growth in interest rates, foreign exchange, emerging markets
and prime services. Average DVaR at 95% increased by 64% to £53.4m
driven by higher credit spread and interest rate risk.
Net investment income decreased 41% (£394m) to £559m reflecting
the market conditions. Net interest income increased 46% (£545m) to
£1,724m (2007: £1,179m), driven by strong results in global loans and
money markets. Net fee and commission income from advisory and
origination activities increased 16% (£194m) to £1,429m. The corporate
lending portfolio, including leveraged finance, increased 46% to £76.6bn
(31st December 2007: £52.3bn) driven by the decline in the value of
Sterling relative to other currencies as well as draw downs on existing loan
facilities and the extension of new loans at current terms to financial and
manufacturing institutions.
Impairment charges and other credit provisions of £2,423m (2007:
£846m) included £1,763m (2007: £782m) due to the credit market
dislocation. Other impairment charges of £660m (2007: £64m) principally
related to private equity, prime services and the loan book.
Operating expenses fell 5% (£199m) to £3,774m (2007: £3,973m)
due to lower performance related pay, partially offset by operating costs
of the acquired businesses. The cost:net income ratio increased to 134%
(2007: 63%) and the compensation cost:net income ratio increased to
82% (2007: 47%). Amortisation of intangible assets increased £38m to
£92m (2007: £54m).
Total headcount increased 6,900 to 23,100 (31st December 2007:
16,200). Prior to the acquisition of Lehman Brothers North American
businesses, headcount during 2008 was materially unchanged except
for hiring associated with the annual global graduate programme. The
acquisition initially added 10,000 to the headcount but there were
reductions in the fourth quarter as the US businesses were integrated.
Financial review
Analysis of results by business
Highlights
£5,231m£1,302m
Income Profit before tax
Performance indicators
1,181
1,172
825
06 07
Economic profit £m
08
651
804
1,002
06 07
Number of clients generating
more than £1m income
08
Key facts
League table rankings 2008 2007 2006
Rankings:
Global All Bonds 121
US Investment Grade 310 7
US Government Securities Survey 118
Foreign Exchange Survey 354
US M&A 4––