Barclays 2008 Annual Report Download - page 72

70 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Risk management
Risk factors
The following information sets forth certain risk factors that the Group
believes could cause its actual future results to differ materially from
expected results. However, other factors could also adversely affect the
Group results and so the factors discussed in this report should not be
considered to be a complete set of all potential risks and uncertainties.
Business conditions and general economy
The profitability of Barclays businesses could be adversely affected by the
worsening of general economic conditions in the United Kingdom, globally
or in certain individual markets such as the United States, Spain or South
Africa. Factors such as interest rates, inflation, investor sentiment, the
availability and cost of credit, foreign exchange risk, creditworthiness of
counterparties, the liquidity of the global financial markets and the level
and volatility of equity prices could significantly affect the Group’s
customers’ activity levels and financial position. For example:
– the current economic downturn or significantly higher interest rates
or continued lack of credit availability to the Group’s customers could
adversely affect the credit quality of the Group’s on-balance sheet and
off-balance sheet assets by increasing the risk that a greater number
of the Group’s customers and counterparties would be unable to meet
their obligations;
– a market downturn or further worsening of the economy could cause
the Group to incur further mark to market losses in its trading
portfolios;
– a further decline in the value of Sterling relative to other currencies
could increase risk weighted assets and therefore the capital
requirements of the Group;
– a further market downturn could reduce the fees the Group earns for
managing assets. For example, a downturn in trading markets could
affect the flows of assets under management; and
– a further market downturn would be likely to lead to a decline in the
volume of transactions that the Group executes for its customers and,
therefore, lead to a decline in the income it receives from fees and
commissions and interest.
Current market volatility and recent market developments
The global financial system has been experiencing difficulties since
August 2007 and financial markets have deteriorated dramatically since
the bankruptcy filing of Lehman Brothers in September 2008. Despite
measures taken by the United Kingdom and United States governments
and the European Central Bank and other central banks to stabilise the
financial markets, the volatility and disruption of the capital and credit
markets have continued. Together with the significant declines in the
property markets in the United Kingdom, the United States, Spain and
other countries, these events over the past two years have contributed to
significant write-downs of asset values by financial institutions, including
government-sponsored entities and major retail, commercial and
investment banks. These write-downs have caused many financial
institutions to seek additional capital, to merge with larger and stronger
institutions, to be nationalised and, in some cases, to fail. Reflecting
concern about the stability of the financial markets generally and the
strength of counterparties, many lenders and institutional investors have
substantially reduced and, in some cases, stopped their funding to
borrowers, including other financial institutions.
While the capital and credit markets have been experiencing difficulties
for some time, the volatility and disruption reached unprecedented levels in
the final months of 2008 and economic activity started to contract in many
of the economies in which the Group operates. These conditions have
produced downward pressure on stock prices and credit capacity for
certain issuers. The resulting lack of credit, lack of confidence in the
financial sector, increased volatility in the financial markets and reduced
business activity could continue to materially and adversely affect the
Group’s business, financial condition and results of operations.