Barclays 2009 Annual Report Download - page 126

124 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Risk management
Market risk management
continued
Stress testing provides an indication of the potential size of losses that
could arise in extreme conditions. Global Asset Class stress testing has been
designed to cover major asset classes including interest rate, credit spread,
commodity, equity and foreign exchange rates. They are based on past stress
moves in respective asset class prices and rates. Global Scenario stress
testing is based on hypothetical events which could lead to extreme yet
plausible stress type moves, under which profitability is seriously challenged.
Market Risk is controlled through the use of limits where appropriate on
the above risk measures. Limits are set at the total Barclays Capital level, risk
factor level e.g. interest rate risk, and business line level e.g. Emerging
Markets. Book limits such as foreign exchange and interest rate sensitivity
limits are also in place.
Risk exposures are monitored by Barclays Capital’s risk managers with
oversight provided by Group Market Risk. The total DVaR limit is approved by
the Board. Risk Factor DVaR limits and Global Asset Class stress testing limits
are approved by Market Risk Committee.
Analysis of traded market risk exposures
Barclays Capital’s market risk exposure, as measured by average total DVaR,
increased by 45% to £77m (2008: £53m). The rise was mainly due to
volatility considerations, increased interest rate and credit spread exposure,
and the Lehman Brothers North American businesses acquisition. Volatility
impacted average DVaR because 2008’s extreme volatility impacted DVaR
throughout 2009 but only impacted 2008 DVaR in the last four months of
2008. More commentary is given under the total DVaR graph below.
Expected Shortfall and 3W averaged £121m and £209m respectively
representing increases of £51m (73%) and £93m (80%) compared to 2008.
As we enter 2010, the principal uncertainties which may impact
Barclays market risk relate to volatility in interest rates, commodities, credit
spreads, equity prices and foreign exchange rates. While these markets
exhibit improved liquidity and reduced volatility following Central Bank
support, price instability and higher volatility may still arise as government
policy seeks to target future economic growth while controlling inflation risk.
Analysis of trading revenue
The histogram below shows the distribution of daily trading revenue for
Barclays Capital in 2009 and 2008.
Trading revenue reflects top-line income
g
, excluding income from Private
Equity and Principal Investments.
The average daily revenue in 2009 was £71m, 87% more than recorded
for 2008 (£38m). There were 247 positive days, 5 negative days and one flat
day (2008: 206 positive, 47 negative, one flat).
47
71
58
50
48
16
30
3
17
2
25
42
13
31
16
38
— 2008
— 2009
Barclays Capital daily trading revenue 2009 and 2008 (£m)
Number of days
<–20
0 to <20
20 to <40 40 to <60 60 to <80
80 to <100
100+
–20 to < 0
c
Total DVaR 2008 and 2009
£m
08 09
120
100
80
60
40
20
0
b
ad
f
e
Notes
aBarclays acquires Lehman Brothers North American businesses during a period of
extreme market volatility. The Lehman positions are subsequently reduced.
bDVaR increases significantly due to the extreme market volatility impacting the DVaR
calculation. Several financial institutions fail and there is a material deterioration in the
global economic outlook.
cTotal DVaR peaked at £119m in March 2009.
dBefore trending down mainly due to a decrease in credit spread exposure and interest rate
exposure, reaching £58m in August 2009.
eDVaR subsequently increased as markets began to recover and new positions were added
to facilitate client trades.
fDVaR decreased towards year end driven by a reduction in exposure and an increase in
diversification. Total DVaR as at 31st December 2009 was £55m (31st December 2008: £87m).
gDefined on page 342.
The daily average, maximum and minimum values of DVaR,
Expected Shortfall and 3W were calculated as below: Year ended 31st December 2009 Year ended 31st December 2008
Average High Low Average High Low
DVaR (95%) £m £m £m £m £m £m
Interest rate risk 44 83 23 29 48 15
Credit Spread risk 58 102 35 31 72 15
Commodity risk 14 20 11 18 25 13
Equity risk 13 27 5 921 5
Foreign exchange risk 815 3 613 2
Diversification effect (60) (40)
Total DVaR 77 119 50 53 95 36
Expected Shortfall 121 188 88 70 146 41
3W 209 301 148 116 282 61