Barclays 2008 Annual Report Download - page 66

64 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Head office functions and
other operations
Head office functions and other operations comprises:
– Head office and central support functions
– Businesses in transition
– Inter-segment adjustments
What we do
Head office and central support functions comprises the following areas:
Executive Management, Finance, Treasury, Corporate Affairs, Human
Resources, Strategy and Planning, Internal Audit, Legal, Corporate
Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly
on behalf of the businesses are recharged to them.
Businesses in transition principally relate to certain lending portfolios
that are centrally managed with the objective of maximising recovery from
the assets.
Performance
2008/07
Head office functions and other operations loss before tax increased
£430m to £858m (2007: £428m).
Total income decreased £185m to a loss of £377m (2007: loss
of £192m).
Group segmental reporting is performed in accordance with Group
accounting policies. This means that inter-segment transactions are
recorded in each segment as if undertaken on an arm’s length basis.
Adjustments necessary to eliminate inter-segment transactions are
included in Head office functions and other operations. The impact of
such inter-segment adjustments increased £32m to £265m (2007:
£233m). These adjustments included internal fees for structured capital
market activities of £141m (2007: £169m) and fees paid to Barclays
Capital for debt and equity raising and risk management advice of £151m
(2007: £65m), both of which reduce net fees and commission income.
Net interest income increased £54m to £182m (2007: £128m)
primarily due to a consolidation adjustment between net interest income
and trading income required to match the booking of certain derivative
hedging transactions between different segments in the Group. This
resulted in a £111m increase in net interest income to £143m (2007:
£32m) with an equal and opposite decrease in principal transactions.
This was partially offset by an increase in costs in central funding activity
due to the money market dislocation, in particular LIBOR resets.
Principal transactions loss increased £135m to £218m (2007: £83m)
reflecting the £111m increase in consolidation reclassification adjustment
on derivative hedging transactions.
Impairment charges increased £27m to £30m (2007: £3m) mainly
reflecting losses on Floating Rate Notes held for hedging purposes.
Operating expenses increased £217m to £451m (2007: £234m). The
main drivers of this increase were: a £101m charge for the Group’s share of
levies that will be raised by the UK Financial Services Compensation
Scheme; £64m costs relating to an internal review of Barclays compliance
with US economic sanctions; the non-recurrence of a £58m break fee
relating to the ABN Amro transaction; lower rental income and lower
proceeds on property sales.
2007/06
Head office functions and other operations loss before tax increased
£169m to £428m (2006: £259m).
Group segmental reporting is performed in accordance with Group
accounting policies. This means that inter-segment transactions are
recorded in each segment as if undertaken on an arm’s length basis.
Adjustments necessary to eliminate inter-segment transactions are
included in Head office functions and other operations.
The impact of such inter-segment adjustments increased £86m to
£233m (2006: £147m). These adjustments included internal fees for
structured capital market activities of £169m (2006: £87m) and fees
paid to Barclays Capital for debt and equity raising and risk management
advice of £65m (2006: £23m), both of which increased net fee and
commission expense in Head office. The impact on the inter-segment
adjustments of the timing of the recognition of insurance commissions
included in Barclaycard was a reduction in Head office income of £9m
(2006: £44m). This net reduction was reflected in a decrease in net fee
and commission income of £162m (2006: £184m) and an increase in
net premium income of £153m (2006: £140m).
Principal transactions decreased to a loss of £83m (2006: £42m
profit). 2006 included a £55m profit from a hedge of the expected Absa
foreign currency earnings.
Operating expenses decreased £35m to £234m (2006: £269m).
The primary driver of this decrease was the receipt of a break fee relating
to the ABN AMRO transaction which, net of transaction costs, reduced
expenses by £58m. This was partially offset by lower rental income and
lower proceeds on property sales.
Financial review
Analysis of results by business