Barclays 2008 Annual Report Download - page 89

1
Business review
Barclays PLC Annual Report 2008 87
A further mitigant against undesirable concentration of risk is the
mandate and scale framework described on page 78. Mandate and scale
limits, which can also be set at Group level to reflect overall Risk Appetite,
can relate either to the stock of current exposures in the relevant portfolio
or to the flow of new exposures into that portfolio. Typical limits include
the caps on UK commercial investment property lending, the proportion
of lending with maturity in excess of seven years and the proportion of
new mortgage business that is buy-to-let. The mandate and scale
framework also provides protection against undue concentrations
within the collateral held.
Concentrations of credit exposure described in this credit risk
management section and the following statistical section are not
proportionally related to credit loss. Some segments of the Group’s
portfolio have and are expected to have proportionally higher credit
charges in relation to the exposure than others. Moreover, the volatility
of credit loss is different in different parts of the portfolio. Thus,
comparatively large credit impairment charges could arise in parts
of the portfolio not mentioned here.
Securitisations
In the course of its business, Barclays has traditionally undertaken
securitisations of its own originated assets as well as the securitisation of
third party assets via sponsored conduit vehicles and shelf programmes.
Barclays has securitised its own originated assets in order to manage
the Group’s credit risk position, to obtain regulatory capital relief, and to
generate term liquidity for the Group balance sheet.
For these transactions Barclays adopts the following roles in the
securitisation process:
– Originator of securitised assets
– Executor of securitisation trades including bond marketing and
syndication
– Provider of securitisation trade servicing, including data management,
investor payments and reporting.
As at the end 2008 Barclays has securitised its own originated retail
and commercial mortgages, credit cards and corporate loans across both
funded traditional and synthetic transactions.
Barclays acts as an administrator and manager of multi-seller
conduits through which interests in third-party-originated assets are
securitised and funded via the issuance of asset backed commercial
paper. From a regulatory perspective, Barclays would be defined primarily
as a sponsor of these conduits.
In relation to such conduit activity, Barclays may provide all or a portion
of the backstop liquidity to the commercial paper, programme-wide credit
enhancement and, as appropriate, interest rate and foreign currency
hedging facilities. Barclays receives fees for the provision of these services.
In addition to the above, Barclays has provided swaps to securitisation
vehicles, both those sponsored by Barclays and those sponsored by third
parties, in order to provide hedges against interest rate and/or currency
movements. This forms part of Barclays Capital’s market making activity
in interest rate and foreign exchange products.
Barclays also acts as an investor in third-party securitisations (i.e.
where Barclays would not be defined as an originator or a sponsor for
regulatory purposes). This includes positions in ABS CDO Super Senior,
other US Sub Prime & Alt A and bonds which benefit from monoline credit
protection. See ‘Barclays Capital Credit Market Exposures’ on pages 106 to
118 for further details.
Due to the market disruption experienced since August 2007, the
volume of securitisation activity in all forms that Barclays has undertaken
has been more limited than previously. In addition, the change in risk
weighting of certain assets (for example residential mortgages) and
of banks securitisations exposures as a result of the introduction of the
Basel II regime means that the extent of regulatory relief obtainable from
securitisations has changed.
As such, Barclays own asset securitisation in 2008 was limited mainly
to trades where securities have been retained on balance sheet and used
as required as in central bank liquidity schemes.
During 2008, Barclays launched Salisbury Receivables Corporations
(‘Salisbury’), a multi-seller asset-backed commercial paper conduit
modelled after Sheffield Receivables Corporation (‘Sheffield’), which was
launched in December 1991. Similar to Sheffield, Salisbury has the ability
to issue both US commercial paper (‘CP’) and Euro CP notes to finance
client asset-backed receivable transactions. Sponsored conduits primarily
fund traditional assets such as credit cards, auto loans, student loans,
prime mortgages and trade receivables.
RWAs reported for securitised assets at December 2008 are
calculated in line with FSA regulations as well as any individual guidance
received from the FSA as at the end of the period. Barclays has approval
to use the Internal Ratings Based Approach for the calculation of RWAs.
Within this, the Group uses the Internal Assessment Approach and the
Supervisory Formula Approach to calculate its regulatory capital
requirements arising from its securitisation exposures.
Further information about securitisation activities and accounting
treatment is in Note 29. The Group’s accounting policies, including those
relevant to securitisation activities are on page 193.
For certain transactions, there may be a divergence between the
accounting and regulatory treatment of Barclays exposure to
securitisations, for example in the treatment of exposure values. This will
reflect differing guidance given in the accounting and regulatory regimes
which in turn reflect the areas in which the aims of each regime differ.
Barclays employs External Credit Assessment Institutions to provide
ratings for its asset backed securities. Their use is dependent on the
transaction or asset class involved. For existing transactions, we employ
Standard & Poor’s, Moody’s and Fitch for securitisations of corporate,
residential mortgage and other retail exposures and Standard & Poor’s
and Moody’s for securitisations of small and medium-sized entity and
revolving retail exposures.