Barclays 2010 Annual Report Download - page 132

Risk management
Capital risk management continued
Economic capital supply
The capital resources to support economic capital comprise adjusted
shareholders’ equity including preference shares but excluding other
non-controlling interests. Shareholders’ equity is adjusted for:
– Net retirement benefits liability – representing a non-cash reduction
in shareholders equity;
– Cash flow hedging reserve – representing amounts that will be offset
against the gains or losses on the hedged item when it is recognised
in the income statement;
– Available for sale reserve – representing unrealised gains and losses
on available for sale securities;
– Cumulative gains on own credit – representing cumulative gains arising
on the fair value of changes in own credit; and
– Preference shares – are included in funds to support economic capital
as preference shares have been issued to optimise the long term capital
base of the group, but are excluded from shareholders equity for
economic profit purposes as the cost of servicing preference shares
is included in profit attributable to non-controlling interests.
Economic Profit
Economic profit comprises profit after tax and non-controlling interests,
less a capital charge (average shareholders’ equity excluding non-
controlling interests multiplied by Barclays cost of capital). The Group cost
of capital has been applied at a uniform rate of 12.5%. From 1st January
2011 the Group’s cost of capital has changed from 12.5% to 11.5%.
Economic loss for the Group increased to £2,488m (2009: £1,890m)
reflecting an increase of £916m profit for economic purposes more than
offset by a £1,514m increase in the economic capital charge, due to a
significant rise in average shareholders’ equity.
Economic Profit 2010
£m
2009
£m
Profit after tax and non-controlling interests 3,564 2,628
Addback of amortisation charged on acquired
intangible assets 328 348
Profit for economic profit purposes 3,892 2,976
Capital charge at 12.5% of average
shareholders’ equity for economic profit
purposes (6,380) (4,866)
Economic loss (2,488) (1,890)
UK Retail Banking 239 (7)
Barclaycard 76 18
Western Europe Retail Banking (251) 13
Barclays Africa 15 (53)
Absa 19 (15)
Barclays Capital 1,729 195
Barclays Corporate (1,262) (532)
Barclays Wealth 66 46
Investment Management (367) (113)
Head Office Functions and Other Operations (493) (58)
(229) (506)
Historical goodwill and intangibles arising on
acquisition (1,277) (1,374)
Variance to average shareholders’ funds
(excluding non-controlling interest) (982) (10)
Economic loss (2,488) (1,890)
The average supply of capital to support
the economic capital frameworka
Average
2010
£m
Average
2009
£m
Shareholders’ equity excluding non-controlling
interests less goodwillb41,400 28,000
Retirement benefits liability 450 800
Cash flow hedging reserve (700) (300)
Available for sale reserve 150 600
Cumulative gains on own credit (450) (1,150)
Average shareholders’ equity for economic
purposes excluding goodwill 40,850 27,950
Average historical goodwill and intangible
assetsb10,200 11,000
Average shareholders’ equity for economic
purposes including goodwill 51,050 38,950
Preference shares 5,850 5,850
Available funds for economic capitalc56,900 44,800
Notes
a Calculated using an adjusted average over the year and rounded to the nearest £50m
for presentation purposes.
b Average goodwill relates to purchased goodwill and intangible assets from business
acquisitions.
c Available funds for economic capital as at 31st December stood at £58,950m
(2009: £54,600m).
130 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10