Barclays 2010 Annual Report Download - page 228

Notes to the financial statements
For the year ended 31st December 2010 continued
25 Contingent liabilities and commitments
The following table summarises the nominal principal amount of contingent liabilities and commitments with off-balance sheet risk:
2010
£m
2009
£m
Securities lending arrangements 27,672 27,406
Guarantees and letters of credit pledged as collateral security 13,783 15,406
Performance guarantees, acceptances and endorsements 9,175 9,962
Contingent liabilities 50,630 52,774
Documentary credits and other short-term trade related transactions 1,194 762
Standby facilities, credit lines and other commitments 222,963 206,513
In common with other banks, the Group conducts business involving acceptances, performance bonds and indemnities. The majority of these facilities
are offset by corresponding obligations of third parties.
Contingent Liabilities
Up to the disposal of Barclays Global Investors on 1st December 2009, the Group facilitated securities lending arrangements for its managed investment
funds whereby securities held by funds under management were lent to third parties. Borrowers provided cash or investment grade assets as collateral
equal to 100% of the market value of the securities lent plus a margin of 2%-10%. The Group agreed with BlackRock, Inc. to continue to provide
indemnities to support these arrangements for three years following the sale of the business. As at 31st December 2010, the fair value of the collateral
held was £28,465m (2009: £28,248m) and that of the stock lent was £27,672m (2009: £27,406m).
Guarantees and letters of credit are given as security to support the performance of a customer to third parties. As the Group will only be required to
meet these obligations in the event of the customer’s default, the cash requirements of these instruments are expected to be considerably below their
nominal amounts.
Performance guarantees are generally, short-term commitments to third parties which are not directly dependent on the customer’s creditworthiness.
An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but
reimbursement by the customer is normally immediate. Endorsements are residual liabilities of the Group in respect of bills of exchange, which have
been paid and subsequently rediscounted.
Documentary Credits and other Short-Term Trade Related Transactions
Documentary credits commit the Group to make payments to third parties, on production of documents, which are usually reimbursed immediately
by customers.
Standby Facilities, Credit Lines and Other Commitments
Commitments to lend are agreements to lend to a customer in the future, subject to certain conditions. Such commitments are either made for a fixed
period, or have no specific maturity but are cancellable by the lender subject to notice requirements.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) is the UK’s compensation fund for customers of authorised financial services firms that are unable
to pay claims. The FSCS raises levies on all UK deposit taking institutions. Previously compensation has been paid out by facilities provided by HM
Treasury to FSCS in support of FSCS’s obligations to the depositors of banks declared in default. The total of these facilities is understood to be
approximately £20bn. While it is anticipated that the substantial majority of these facilities will be repaid wholly from recoveries from the institutions
concerned, there is the risk of a shortfall, such that the FSCS may place additional levies on all FSCS participants. Barclays has included an accrual of
£63m in other liabilities as at 31st December 2010 (2009: £108m) in respect of levies raised by the FSCS.
Barclays Capital US Mortgage Activities
Barclays activities within the US mortgage sector during the period 2005 through 2008 included: sponsoring and underwriting of approximately $39bn
of private-label securitisations; underwriting of approximately $34bn of other private-label securitisations; sales of approximately $150m of loans to
government sponsored enterprises (GSEs); and sales of approximately $7bn of loans to others - including loans sold in 2009. Some of the loans sold
were originated by a Barclays subsidiary. Barclays also performed servicing activities through its US residential mortgage servicing business which
Barclays acquired in Q4 2006 and subsequently sold in Q3 2010.
In connection with certain Barclays whole loan sales and sponsored private-label securitisations, Barclays made certain loan level representations and
warranties (R&Ws) generally relating to the underlying borrower, property and/or mortgage documentation. Under certain circumstances, Barclays may
be required to repurchase the related loans or make other payments related to such loans if the R&Ws were breached. The $7bn of loans sold to others
were generally priced at significant discounts and contained more limited R&Ws than loans sold to GSEs. Third party originators provided loan level
R&Ws directly to the securitisation trusts for approximately $34bn of the $39bn in Barclays sponsored securitisations. Barclays or a subsidiary provided
loan level R&Ws to the securitisation trusts for approximately $5bn of the Barclays sponsored securitisations. Total unresolved repurchase requests
associated with all loans sold to others and private-label activities were $21m at 31st December 2010. Current provisions are adequate to cover
estimated losses associated with outstanding repurchase claims. However, based upon the large number of defaults occurring in US residential
mortgages, there is a potential for additional claims for repurchases.
Claims against Barclays as an underwriter of RMBS offerings have been brought in certain civil actions. Additionally, Barclays has received inquiries from
various regulatory and governmental authorities regarding its mortgage-related activities and is cooperating with such inquiries.
It is not possible to provide a meaningful estimate of the financial impact of the potential exposure relating to all of the foregoing matters at this time.
226 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10