Barclays 2009 Annual Report Download - page 344

342 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Glossary of terms
continued
‘Securitisation’ A process by which debt instruments are aggregated into a
pool, which is used to back new securities. A company sells assets to an SPV
(special purpose vehicle) who then issues securities backed by the assets
based on their value. This allows the credit quality of the assets to be
separated from the credit rating of the original company and transfers risk
to external investors.
‘SIV Lites’ Are SPEs (Special Purpose Entities) which invest in diversified
portfolios of interest earning assets to take advantage of the spread
differentials between the assets in the SIV and the funding cost. Unlike SIVs
they are not perpetual, making them look more like CDOs, which have fixed
maturity dates. See Risk Management section – Credit Market Exposures.
‘Special Purpose Entities (SPEs)’ Entities that are created to accomplish a
narrow and well defined objective. There are often specific restrictions or
limits around their ongoing activities. Transactions with SPEs take a number
of forms, including:
– The provision of financing to fund asset purchases, or commitments
to provide finance for future purchases.
– Derivative transactions to provide investors in the SPE with a specified
exposure.
– The provision of liquidity or backstop facilities which may be drawn upon
if the SPE experiences future funding difficulties.
– Direct investment in the notes issued by SPEs.
‘Structural hedge’ An interest rate hedge which functions to reduce the
impact of the volatility of short-term interest rate movements on positions
that exist within the balance sheet that carry interest rates that do not
reprice with market rates. See also equity structural hedge and product
structural hedge.
‘Structured Investment Vehicles (SIVs)’ SPEs (Special Purpose Entities)
which invest in diversified portfolios of interest earning assets to take
advantage of the spread differentials between the assets in the SIV and the
funding cost. See Risk Management section – Credit Market Exposures.
‘Structural liquidity’ The liquidity available from current positions – principally
unpledged marketable assets and holdings of term liabilities with long
remaining lives.
‘Structured finance/notes’ A structured note is an investment tool
which pays a return linked to the value or level of a specified asset or index
and sometimes offers capital protection if the value declines. Structured
notes can be linked to equities, interest rates, funds, commodities and
foreign currency.
‘Subordination’ The state of prioritising repayments of principal and interest
on debt to a creditor lower than repayments to other creditors by the same
debtor. That is, claims of a security are settled by a debtor to a creditor only
after the claims of securities held by other creditors of the same debtor have
been settled.
‘Subordinated liabilities’ Liabilities which, in the event of insolvency or
liquidation of the issuer, are subordinated to the claims of depositors and
other creditors of the issuer.
‘Sub-Prime’ Defined as loans to borrowers typically having weakened credit
histories that include payment delinquencies and potentially more severe
problems such as court judgements and bankruptcies. They may also
display reduced repayment capacity as measured by credit scores, high
debt-to-income ratios, or other criteria indicating heightened risk of default.
See Risk Management section – Credit Market Exposures.
‘Tier 1 capital’ A measure of a bank's financial strength defined by the FSA.
It captures Core Tier 1 capital plus other Tier 1 securities in issue, but is
subject to a deduction in respect of material holdings in financial companies.
‘Tier 1 capital ratio’ The ratio expresses Tier 1 capital as a percentage of risk
weighted assets.
‘Tier 2 capital’ Defined by the FSA. Broadly, it includes qualifying subordinated
debt and other Tier 2 securities in issue, eligible collective impairment
allowances, unrealised available for sale equity gains and revaluation
reserves. It is subject to deductions relating to the excess of expected loss
over regulatory impairment allowance, securitisation positions and material
holdings in financial companies.
‘Top-line income’ Income before own credit gains/losses and credit market
write-downs.
‘Total shareholder return (TSR)’ Defined as the value created for shareholders
through share price appreciation, plus reinvested dividend payments.
‘Value at Risk (VaR)’ An estimate of the potential loss which might arise from
market movements under normal market conditions, if the current positions
were to be held unchanged for one business day, measured to a confidence
level. (Also see DVaR).
‘Whole loans’ A mortgage loan sold in its entirety when the buyer assumes
the entire loan along with its rights and responsibilities. A whole loan is
differentiated from investments in which the buyer becomes part owner of a
pool of mortgages. See Risk Management section – Credit Market Exposures.
‘Write-Down’ After an advance has been identified as impaired and is
subject to an impairment allowance, the stage may be reached whereby
it is concluded that there is no realistic prospect of further recovery.
Write-downs will occur when, and to the extent that, the whole or part
of a debt is considered irrecoverable.