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Barclays PLC
Annual Report 2011

Table of contents

  • Page 1
    Barclays PLC Annual Report 2011

  • Page 2
    ... and security. Barclays supports Cycle into Work, an initiative developed and delivered by our social enterprise partner Bikeworks, which helps disadvantaged Londoners to learn key skills and find employment in the cycling industry. The community investment programme supports Bikeworks to work in...

  • Page 3
    ... are risks associated with running our business that both shape our strategy and require careful management Board of Directors and Executive Committee An overview of the Group's leadership team Page 12 Financial review Governance How the Board and its committees support the delivery of strategic...

  • Page 4
    ... for governments and public sector entities 2,000,000 Supported over 2 million people, primarily building their enterprise, employment and money management skills, including helping 3,500 people to find employment through a range of programmes Net tangible asset value per share Adjusted profit...

  • Page 5
    ... business, and the universal banking model which we operate. Governance Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence. With over 300 years of history...

  • Page 6
    04 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Group Chairman's statement Our performance in 2011 reï¬,ected the challenging economic environment in which we operated. Marcus Agius Group Chairman

  • Page 7
    ... difficult environment to deliver excellent service to our customers and clients. It is through their efforts that Barclays will succeed in rebuilding the trust of our key stakeholders and deliver sustainable value to our shareholders. Financial review Financial statements Shareholder information

  • Page 8
    06 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Chief Executive's review When we're at our best, we serve the real economy by doing our best for all our stakeholders: our customers and clients, the communities we serve, our people and our shareholders. Bob Diamond Chief ...

  • Page 9
    ...'ve been actively investing, such as Equities and Advisory. This progress was recognized by International Financing Review (IFR) when it named Barclays Capital its "2011 Bank of the Year" for "growing market share across the board, and becoming an increasingly go-to investment bank". Citizenship We...

  • Page 10
    ... PLC Annual Report 2011 www.barclays.com/annualreport Market and operating environment 2011 saw further clarity from regulators with implementation of the third Capital Requirements Directive and the final report from the Independent Commission on Banking. The year also saw difficult conditions...

  • Page 11
    ...the major factors affecting the banking industry to help the reader understand the context of the current market and environment. Below we have set out the key market and environment issues faced by Barclays in 2011. Governance Risk management Regulatory change There has been continuing regulatory...

  • Page 12
    ... model Our purpose: To help individuals, institutions and economies progress and grow Customers Store and transfer money / payments Manage and invest money Offer financial advice and other services Provide access to loans and liquidity Manage risks and different maturities Make markets and trade...

  • Page 13
    ... despite the difficult trading conditions in 2011, and the bank is well positioned to generate the financial returns that we are targeting over time. Governance Risk management Strategy Our focus is on execution and in particular delivering our promises in four key areas. At the beginning...

  • Page 14
    ... and control framework set by the Board. For more detailed information, please see Board of Directors page 50 Key responsibilities of the Board of Directors The Board's principal duty is to promote the long-term success of Barclays by creating and delivering sustainable shareholder value. It...

  • Page 15
    ...the business is operating effectively within the strategy and risk appetite agreed by the Board. The Chief Executive is supported by the Executive Committee, which he chairs. Risk management Financial review Financial statements Shareholder information Bob Diamond Chief Executive Chris Lucas Group...

  • Page 16
    ... strategy, we need the right people. The Board Corporate Governance and Nominations Committee has a key role in reviewing new appointments and succession plans to ensure that we have a Board and an executive management team with the appropriate skills, knowledge and experience to operate effectively...

  • Page 17
    ... review Board Risk Committee David Booth Board Risk Committee 4 3 5 1 Allocation of time 1 Risk profile/Risk appetite (including capital and liquidity management) 2 Key risk issues 3 Internal control/Risk polices 4 Regulatory frameworks 2 5 Other (including Remuneration and Governance issues) 2011...

  • Page 18
    ... in relation to capital funding and liquidity are covered in the Finance Director's review on page 22. Market exposures decreased in 2011 although there was a moderate increase in daily value at risk due to higher market volatility. There have been no significant changes in our operational risk pro...

  • Page 19
    ... rates, credit spreads, commodity prices, equity prices and foreign exchange rates. The risk is reported as traded risk where Barclays supports customer activity primarily via Barclays Capital; non-traded risk to support customer products primarily in the retail bank; and pension risk in relation...

  • Page 20
    ...address. This involves listening to our customers and clients, our shareholders and employees, while working in collaboration with charities and governments. We made firm progress in 2011 but still have a long way to go. That's why in 2012 we will launch a Citizenship Plan outlining our longer term...

  • Page 21
    ...Customer Experience Award in Financial Services' in the Customer Experience Awards. Our UK retail bank improved customer satisfaction ranking to fourth amongst peers and received the Which? Award for 'Positive Change'. Our partnership with Youth Business International (YBI) helps young people start...

  • Page 22
    ...2011 Returns The Group continues to evolve and the strength of our universal banking model helped to achieve balanced profits across our retail and business banking and corporate and investment banking businesses but we recognise that our Return on Equity was below our stated goal of 13% for 2013...

  • Page 23
    ... in Absa and Barclays Capital were designed to span a two-year cycle. Taking their 2010 survey findings into account, the group-wide rate for 2011 is 82%. Measures Gross new lending to UK households and businesses Global investment in our communities Colleagues involved in volunteering, regular...

  • Page 24
    22 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Finance Director's review We have delivered resilient profits in 2011 despite the difficult trading environment in the second half of the year. Our capital, funding and liquidity positions remained strong throughout 2011 and we ...

  • Page 25
    .... Financial review Financial statements Proportion of adjusted profit before tax by business 3 2 1 Retail and Business Banking (RBB) 2 Corporate and Investment Banking 3 Wealth and Investment Management 1 2011 49 46 5 % 2010 Shareholder information 35 62 3 2011 2010 Our universal banking model...

  • Page 26
    ... property, with our new 90 per cent loan to value mortgage helping customers access the housing market. Every day, across our network, our staff help customers to achieve their aspirations, whether buying a new home, starting a business, investing for the future or simply managing their day to day...

  • Page 27
    ... 25 The strategic report Divisional review Corporate and Investment Banking Governance Against a backdrop of challenging economic and market conditions, results for Barclays Capital were resilient compared with the industry, and the business held or gained market share. The year also saw...

  • Page 28
    ... and ambitious plan to transform Barclays Wealth into a premier global wealth manager. We are well on track to deliver against our promises - a step change improvement in client experience and a significant increase in the productive capacity of the firm. The execution of this strategy delivered...

  • Page 29
    ... Capital, for instance, committed to providing £5bn to HP for its Autonomy deal, which a boutique advisor could not do." Barclays Retail and Business Banking - Pingit Europe's first person-to-person service for sending and receiving money using mobile phone numbers is launched in 2012. Barclays...

  • Page 30
    ... important steps in the right direction in 2011. Total incentive awards for Barclays Capital were down 35% on 2010 with Barclays Capital profit before tax reducing 32%. The Committee will continue to focus on reaching a sustainable balance between shareholder returns and employee remuneration. The...

  • Page 31
    ... Chris Lucas 2011 £000 2010 £000 Salary Current year cash bonus Current year share bonus Deferred cash bonus Deferred share bonus Total of salary and bonus Long term incentive award Total remuneration Non-executive Directors' fees Board Corporate Governance and Nominations Committee £000 1,350...

  • Page 32
    ... regular updates to the Committee on risk-adjusted business performance and it also provides input on the remuneration governance frameworks, bonus pool proposals and new incentive plan designs (including risk-adjusted metrics for use in long term incentive plans) from a risk management perspective...

  • Page 33
    ... Directors' report Board of Directors People Remuneration report Governance Risk management Financial review Financial statements Shareholder information Bikeworks Barclays supports Bikeworks, an award-winning social enterprise that uses the power of cycling to help participants develop skills...

  • Page 34
    ... UK banks on commitment to lending in the UK. Good corporate governance is vital in supporting the delivery of our strategic priorities. Our Board Committees play an important role in working with management to ensure our business is financially strong, that it is well-governed and that any risks...

  • Page 35
    ..., Group Governance and Control Committee, Financial Risk Committee, Operational Risk Committee, Treasury Committee) Leadership What is the role of the Board? Our principal duty, collectively, is to promote the long-term success of Barclays by creating and delivering sustainable shareholder value...

  • Page 36
    ... as market conditions, the interim and final reports of the ICB and significant Group developments, such as the court ruling on Payment Protection Insurance. In total, we met as a Board 16 times during the year. All Directors make every effort to attend each meeting, whether it is in person, by...

  • Page 37
    ... the Group's Risk Appetite for 2012. - We reviewed senior management succession plans, which identify talent in the Group at the level below the Executive Committee. - Given our significant North American operations, in 2011 we held two board meetings in New York and there are plans to hold more...

  • Page 38
    ... Barclays. Geographical mix (main experience) of non-executive Directors No. 1 1 UK 2 Continental Europe 3 3 US 6 1 2 Industry/background experiencea 8 7 6 1 1 Financial Services 2 Accountancy/financial background 3 Retail/marketing 4 Government experience 5 Business school 2 4 6 Corporate Finance...

  • Page 39
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 37 The strategic report Governance Ongoing professional development is equally important given the rapidly changing environment in which we operate and my role includes ensuring that Directors have the opportunity to update and refresh...

  • Page 40
    ... of skills and experience and to recommend to the Board the appointment of new Directors; - consider succession plans for the Group Chairman, Chief Executive and other key positions, such as roles on the Executive Committee and other senior management roles; - monitor corporate governance issues and...

  • Page 41
    ... senior positions below the Executive Committee level. We will continue to review and monitor Board and Board Committee composition against our skills and experience requirements and our aspirational diversity targets and continue to consider potential candidates. Risk management Financial review...

  • Page 42
    ... Likierman has been more closely involved in monitoring the Group's internal control framework, working with management to review control issues of Group level significance. The Committee members meet privately with me ahead of each Committee meeting, which gives me the opportunity to learn of and...

  • Page 43
    ...undertook control environment reviews of Barclaycard, Barclays Africa, Barclays Capital, Europe Retail and Business Banking, Absa, Barclays Corporate and Barclays Wealth. We reviewed carefully the control environment in Barclays Capital given the pressures on the business from both market conditions...

  • Page 44
    ...and operational excellence across the Group. Sir Michael Rake Chairman, Board Audit Committee Board Audit Committee allocation of time 1 2 6 1 Control issues 2 Financial results 3 Internal audit matters 4 External audit matters 5 Business control environment 5 4 3 6 Other (including Governance and...

  • Page 45
    ... against appetite and the Group's overall risk profile. The main issues we reviewed in 2011 were: - We received quarterly Group Risk Profile Reports, which provide an update on credit and market risk performance in our main businesses and across our key geographies of the UK, US, Spain and South...

  • Page 46
    ... Chairman, Board Risk Committee Board Risk Committee allocation of time 2011 4 3 5 1 1 Risk profile/Risk appetite (including capital and liquidity management) 2 Key risk issues 3 Internal control/Risk polices 4 Regulatory frameworks 2 5 Other (including Remuneration and Governance issues) % 2010...

  • Page 47
    ...discuss the Group's remuneration structure and policy. In addition, all Directors had the opportunity to attend an investor seminar, which was held in June 2011. During 2011, the Board received an update on the Group's Investor Relations strategy, which included an update on key market issues raised...

  • Page 48
    ... information on our community involvement can be found on pages 18 to 19. Chief Executive's review Our strategy and business model Finance Director's Review Financial review Key performance indicators Citizenship Market and operating environment People Risk management Risk factors Divisional review...

  • Page 49
    ... securities lending activities until November 2012. Research and development In the ordinary course of business the Group develops new products and services in each of its business units. Share capital Share capital structure The Company has Ordinary Shares in issue. The Company's Articles...

  • Page 50
    ..., was updated to ensure that governance of non-financial risks was expanded and aligned to the structures already in place for financial risks. Regular risk reports are made to the Board covering risks of Group significance including credit risk, market risk, funding risk, operational risk and...

  • Page 51
    ... development and performance; and its objectives and policies in managing the financial risks to which it is exposed and its capital are discussed in the Business Review and Risk Management section. The Directors have assessed, in the light of current and anticipated economic conditions, the Group...

  • Page 52
    ...various key positions within the company, including Head of Government Bond Trading, Head of Mortgage Trading, Sales and Finance and Head of Global Operations and Technology. Having retired from the Management Committee of Morgan Stanley in 1997, David now manages his own venture capital investments...

  • Page 53
    ... for a number of Group functions including Finance, Investor Relations, Treasury, Tax, Corporate Development and Corporate Secretariat. Chris joined Barclays from PricewaterhouseCoopers LLP, where he was UK Head of Financial Services and Global Head of Banking and Capital Markets. Chris has...

  • Page 54
    ... UK Commission for Employment and Skills (2007-2010); Chairman of Business in the Community (2004-2007). Committee membership: Chairman of the Board Audit Committee since March 2009 (member since January 2008); Member of the Board Risk Committee since May 2009; Member of Board Corporate Governance...

  • Page 55
    ... working closely with employee representatives. Barclays is committed to promoting a working environment where health and safety is a fundamental part of the culture. Risk management Financial review Financial statements Employees by geographic segment - full time equivalent UK Europe Africa...

  • Page 56
    ...Details relating to Barclays Remuneration Policy; - How regulatory requirements are factored into decision making; - The key elements of Barclays remuneration arrangements; and - A summary of the principal share and cash plans and long term incentive plans used for the 2011 performance year. I trust...

  • Page 57
    ... for executive Directors and Code Staff, are managed on the basis of total remuneration, comprising salaries, bonuses and long term incentive awards. Code Staff are Barclays employees whose professional activities could have a material impact on the Group's risk profile. The Committee reviews each...

  • Page 58
    ... Capital is deferred. The balance between shareholder returns and incentive awards for employees is a key consideration for the Committee. The Committee will continue to focus on reaching a sustainable balance. Table 2: Total incentive awards granted - current year and deferred Barclays Group Year...

  • Page 59
    ... executive Directors and Code Staff. The aims of the Remuneration Policy are to: 1. Attract and retain those people with the ability, experience and skill to deliver Barclays strategy; 2. Create a direct and recognisable alignment between the rewards and risk exposure of shareholders and employees...

  • Page 60
    ... regular updates to the Committee on risk adjusted business performance and it also provides input on the remuneration governance frameworks, bonus pool proposals and new incentive plan designs (including risk-adjusted metrics for use in long term incentive plans) from a risk management perspective...

  • Page 61
    ...Chris Lucas 5,745 - - - Shareholder information Table 9: Total of salary, current year bonus, cash in lieu of pension and benefits (audited) (calculated in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008) 2011 £000 2010 £000...

  • Page 62
    ...) Number of shares awarded in year (maximum) Market price on award date Weighted average exercise price Number of shares released/exercised Bob Diamond PSP 2006-2008 PSP 2008-2010 PSP 2010-2012 Incentive Share Option Plan Executive Share Award Scheme Share Value Plan 2011 Barclays LTIP 2011-2013...

  • Page 63
    .... The Barclays share price on 30 December 2011 was £1.76. Risk management Market price on release/ exercise date Number of shares lapsed in 2011 Number of shares under award/option at 31 December 2011 (maximum) Vested number of shares under option Value of release/exercise End of three-year...

  • Page 64
    ... Barclays Capital Barclays Corporate Barclays Wealth Retail & Business Banking Absa (£m) Group Functions 214 18 30 46 6 43 (£m) Table 16: Code Staff aggregate 2011 remuneration by remuneration type Senior management Other Code Staff Salary Current year cash bonus Current year share bonus...

  • Page 65
    ... provided with the use of a company vehicle and company driver when required for business purposes. The Group Chairman is not eligible to receive a bonus, nor to participate in Barclays cash, share or long term incentive plans. The Group Chairman does not participate in Barclays pension plans and he...

  • Page 66
    ... effect from 30 September 2011 and did not receive a termination payment. All current nonexecutive Directors will be standing for re-election at the 2012 Annual General Meeting. Total Shareholder Return Figure 2 shows the value, at 31 December 2011, of £100 invested in Barclays on 31 December 2006...

  • Page 67
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 65 The strategic report Governance Table 23: Reconciliation of total incentive awards granted to income statement charge (audited) Year Ended 31.12.11 £m Year Ended 31.12.10 £m Total incentive awards for 2011 Less: deferred bonuses ...

  • Page 68
    66 Barclays PLC Annual Report 2011 www.barclays.com/annualreport

  • Page 69
    ... Barclays Capital credit market exposures Group exposures to selected Eurozone countries Market risk Funding risk - Capital Funding risk - Liquidity Operational risk management Supervision and regulation Governance Risk management Financial review Financial statements Shareholder information Build...

  • Page 70
    ... key controls. Executive management responsibilities relating to this are set via the Group's Principal Risks Policy. Steps Identify Assess Control Activity - Establish the process for identifying and understanding business-level risks. - Agree and implement measurement and reporting standards...

  • Page 71
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 69 The strategic report Governance Governance structure at Group level Board oversight Board - Approves overall Group Risk Appetite. Board Corporate Governance and Nominations Committee - Reviews Board composition and recommends new ...

  • Page 72
    ... 54 to 65. The Board Corporate Governance and Nominations Committee has a key role in reviewing new appointments and succession plans to ensure that we have a Board and an executive management team with the appropriate skills, knowledge and experience to operate effectively in an ever challenging...

  • Page 73
    ... PLC Annual Report 2011 www.barclays.com/annualreport 71 The strategic report Governance Group Key Risk Owners report their assessments of the risk exposure and control effectiveness to Group-level oversight committees and their assessments form the basis of the reports that go to the Board Risk...

  • Page 74
    ...In Barclays Capital, global scenario testing is used to gauge potential losses that could arise in conditions of extreme market stress. Stress testing is also conducted on positions in particular asset classes, including interest rates, commodities, equities, credit and foreign exchange. During 2011...

  • Page 75
    ... at the appropriate technical committee. Within Barclays Capital, where models are used to value positions within the trading book, the positions are subject to regular independent price testing, which covers all trading positions. Prices are compared with direct external market data where possible...

  • Page 76
    ...number of countries. Consequently there are many ways in which changes in business conditions and the general economy can adversely impact profitability, whether at Group level, the individual business units or specific countries of operation. During 2011, the economic environment in Barclays main...

  • Page 77
    ... relate to commercial real estate and leveraged finance loans. The Group continues to actively manage down these exposures. For further information see Barclays Capital Credit Market Exposures (pages 110 to 111). Risk management Financial review Financial statements Shareholder information

  • Page 78
    ...via Barclays Capital; Non-Traded Risk to support customer products primarily in the retail bank; and Pension Risk where the investment profile is reviewed versus the defined benefit scheme. Risk management The Board approves Market Risk appetite for trading and non-trading activities, with limits...

  • Page 79
    ... risk framework enables Barclays to manage and measure its Operational risk profile and to calculate the amount of Operational risk capital that it needs to hold. The minimum mandatory requirements applicable to all Business Units are set out in the Group Operational risk policies. Group Key Risk...

  • Page 80
    ... - Lehman Brothers Holdings Inc; - American Depository Shares; - US Federal Housing Finance Agency and Other Residential MortgageBacked Securities; and - Devonshire Trust. For further information see Legal Proceedings (pages 248 to 249). Payment protection insurance (PPI) During 2011 Barclays agreed...

  • Page 81
    ... not subject to credit risk, mainly equity securities held in the trading portfolio, as available for sale or designated at fair value, and commodities. Assets designated at fair value in respect of linked liabilities to customers under investment contracts have not been included as the Group is not...

  • Page 82
    ...Total trading portfolio assets Financial assets designated at fair value: Loans and advances Debt securities Other financial assets Total financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers: Home loans Credit cards...

  • Page 83
    ...Total trading portfolio assets Financial assets designated at fair value: Loans and advances Debt securities Other financial assets Total financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers: Home loans Credit cards...

  • Page 84
    ... of the outstanding loan, they are offered to any other, lower ranked, secured lenders. Any additional funds are returned to the customer. Barclays does not, as a rule, occupy repossessed properties for its business use or use assets obtained in its operations. Risk transfer The Group in some cases...

  • Page 85
    ... from other banks Trading portfolio assets Financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers Reverse repurchase agreements and other similar secured lending Available for sale financial investments Other assets...

  • Page 86
    ... Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Credit risk concentrations by industrial sector (audited) Construction and property £m Government and central bank £m Wholesale and retail distribution and leisure £m Cards, unsecured loans and other Home personal...

  • Page 87
    ... www.barclays.com/annualreport 85 The strategic report Governance Credit risk concentrations by industrial sector (audited) Construction and property £m Government and central bank £m Wholesale and retail distribution and leisure £m Cards, unsecured loans and other Home personal loans lending...

  • Page 88
    ... Retail Credit Risk and Wholesale Credit Risk sections on pages 96 to 103. Credit impairment charges and other provisions by business (audited) Reverse Available for Loans and Sale Financial Repurchase Advances Investmentsa Agreements £m £m £m Total £m Year ended 31 December 2011 UK RBB Europe...

  • Page 89
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 87 The strategic report Governance Credit risk management overview Credit risk is the risk of suffering financial loss should any of the Group's customers, clients or market counterparties fail to fulfil their contractual obligations...

  • Page 90
    .... Business Support EWL 3, WL 3.5 - Customer's financial difficulty requires a decision on the form of future relationship. - Business support assists the client to return to in order position. Retail account status Performing (Current) Areas Status 0 - Customer misses contractual payment and...

  • Page 91
    ... small amount of wholesale impairment relates to unidentified or collective impairment; in such cases impairment is calculated using modelled PD x LGD x EAD (Exposure at default) adjusted for an emergence period. Risk management Financial review Financial statements Shareholder information

  • Page 92
    ... Home loans: 5%-20%; - Credit cards, unsecured and other personal lending products: 65%-75%; and - Corporate facilities: 30%-50%. CRL coverage ratios would therefore be expected to be at or around these levels over a defined period of time. In principle, a number of factors may affect the Group...

  • Page 93
    ... on the Group's accounting policy with respect to impairment, see pages 210 to 211. For further detail on the credit quality of loans under forbearance, see pages 104 to 105. Total write offs of impaired financial assets 5,165 4,310 3,380 2,919 1,963 Risk management Financial review £m Financial...

  • Page 94
    ... Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Loans and advances to customers and banks Total gross loans and advances to customers and banks increased 2% to £513,311m. Loans and advances at amortised cost were £489,977m and loans and advances at fair value...

  • Page 95
    ... 2011 Banks Other financial institutionsa Manufacturing Construction Property Government and central bank Energy and water Wholesale and retail distribution and leisure Business and other services Home loans Cards, unsecured loans and other personal lending Other Net loans and advances to customers...

  • Page 96
    ...commercial real estate loans in the Americas and Europe as part of the Group's strategy of winding down Barclays Capital's credit market exposures. This reduction was offset partially by an increase in the fair value of Barclays Corporate lending to UK commercial real estate, government and business...

  • Page 97
    ... www.barclays.com/annualreport 95 The strategic report Governance Potential Credit Risk Loans Potential credit risk loans and coverage ratios As at 31 December Home loans Credit cards, unsecured and other retail lending Retail Wholesale (excluding loan to Protium) Loan to Protiuma Wholesale Group...

  • Page 98
    ...Africa Home Loans. Balances in Europe RBB remained broadly stable at £44,488m as growth in Italian Home Loans was offset by lower balances in Spain as new mortgage business reduced. Retail impairment allowances decreased 22% to £5,374m principally due to changes in the write-off policy, debt sales...

  • Page 99
    ...www.barclays.com/annualreport 97 The strategic report Governance Analysis of retail gross loans and advances Credit cards, overdrafts and unsecured loans £m Other secured retail lendinga £m Secured home loans £m Business lending £m Total retail £m As at 31 December 2011 UK RBB Europe RBB...

  • Page 100
    98 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Arrears rates remained stable in the UK as targeted balance growth and better customer affordability criteria continued to be supported by the low base rate environment. Arrears rates for South...

  • Page 101
    ... through the use of forbearance programmes. However, the extent of forbearance offered by the Group to customers and clients is immaterial to the size of the loan book. Shareholder information Financial statements Forbearance on the Group's principal portfolios in US, UK and Europe are presented...

  • Page 102
    ... Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued The level of forbearance extended to customers in other retail portfolios is not material and, typically, does not currently play a significant part in the way customer relationships are managed...

  • Page 103
    ... exposure to the property and construction sector. Charges also reduced in the Barclays Corporate UK business, reï¬,ecting lower default rates and tightly controlled exposure to commercial real estate loans. However, weak credit conditions in Portugal led to a higher charge in 2011. The substantial...

  • Page 104
    102 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Analysis of Barclays Capital wholesale loans and advances at amortised cost Barclays Capital wholesale loans and advances increased 6% to £161,194m (2010: £152,711m). This was driven by an ...

  • Page 105
    ... for the performance of our customers' businesses and therefore Barclays loans and advances. Wholesale client relationships are individually managed with lending decisions made with reference to specific circumstances and on bespoke terms. As changes in original terms are made for a variety of...

  • Page 106
    ... Total £m Strong £m Satisfactory £m Higher risk £m Total £m As at 31 December Trading portfolio loans Loans and advances designated at fair value Home loans Credit cards, unsecured and other retail lending Wholesale Total % of total Strong £m Satisfactory £m Higher risk £m 74 19,484 134...

  • Page 107
    ... Annual Report 2011 www.barclays.com/annualreport 105 The strategic report Governance For the purposes of the analysis of credit quality, the following internal measures of credit quality have been used: Retail lending Wholesale lending Probability of default Default grade Financial statements...

  • Page 108
    ... Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Debt securities Credit quality of debt securities (audited) Trading portfolio assets, financial assets designated at fair value and available for sale assets are measured on a fair value basis. The fair value...

  • Page 109
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 107 The strategic report Governance Derivatives (audited) The Group's use of derivative contracts is outlined in the derivative financial instruments note on pages 220 to 223. The Group is exposed to credit risk on derivative ...

  • Page 110
    108 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued The tables below set out the fair values of the derivative assets together with the value of those assets subject to enforceable counterparty netting arrangements for which the Group holds ...

  • Page 111
    ... activities and are subject to a higher level of scrutiny in our management of credit risk. As at 31 December 2011 these items comprised: - Barclays Capital credit market exposures; and - Group exposures to selected Eurozone countries. Financial review Financial statements Shareholder information

  • Page 112
    ...- £2,141m of commercial real estate loans and properties sales and paydowns; and - £820m reduction in leveraged loans primarily relating to five counterparties. In January 2012, Barclays completed the sale of £405m ($628m) of a commercial real estate equity security at fair value representing 50...

  • Page 113
    ...represented 86% of the Helix fund, which has been consolidated by the Group. The fund's investments primarily comprise government and agency securities. As at 31 December 2011, the fair value of Barclays investment in the fund was $729m. Financial review Financial statements Shareholder information

  • Page 114
    112 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Group exposures to selected Eurozone countries (audited) Overview Credit conditions will deteriorate in a recessionary environment, such as that recently seen in the UK, US, the Eurozone and ...

  • Page 115
    ... Trading and derivatives balances relate to investment banking activities, principally as market-maker for government bond positions. Positions are held at fair value, with daily movements taken through profit and loss; - Available for sale assets are principally investments in government bonds and...

  • Page 116
    114 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Spain (audited) Fair value through profit and loss Trading portfolio assets £m Trading portfolio Trading portfolio liabilities £m Net trading portfolio £m Gross assets £m Derivatives ...

  • Page 117
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 115 The strategic report Governance Italy (audited) Fair value through profit and loss Trading portfolio assets £m Trading portfolio Trading portfolio liabilities £m Net trading portfolio £m Gross assets £m Derivatives Gross ...

  • Page 118
    116 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Portugal (audited) Fair value through profit and loss Trading portfolio assets £m Trading portfolio Trading portfolio liabilities £m Net trading portfolio £m Gross assets £m Derivatives ...

  • Page 119
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 117 The strategic report Governance Ireland (audited) Fair value through profit and loss Trading portfolio assets £m Trading portfolio Trading portfolio liabilities £m Net trading portfolio £m Gross assets £m Derivatives Gross ...

  • Page 120
    118 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Greece (audited) Fair value through profit and loss Trading portfolio assets £m Trading portfolio Trading portfolio liabilities £m Net trading portfolio £m Gross assets £m Derivatives ...

  • Page 121
    ... Financial review 2011 £m 2010 £m - 879 2 8 888 1 Financial statements Shareholder information Note a 'Cost' refers to the fair value of the asset at recognition, less any impairment booked. 'AFS reserve' is the cumulative fair value gain or loss on the assets that is held in equity. 'Total...

  • Page 122
    ... PLC Annual Report 2011 www.barclays.com/annualreport Risk management Credit risk continued Analysis of indirect exposures Indirect exposure to sovereigns can arise through a number of different sources, including credit derivatives referencing sovereign debt; guarantees to savings and investment...

  • Page 123
    ... Group Market Risk Director Financial statements Risk type Traded - Interest rate risk - Credit spread risk - Commodity risk - Equity risk - Foreign exchange risk Non-traded - Interest rate risk - Foreign exchange risk - Asset management risk Pension risk ...managed by Barclays Capital Retail...

  • Page 124
    ... Control Framework and Group Policies; reviewing current and forward issues, limits and utilisation; and proposing risk appetite levels for the Board. The Committee is chaired by the Group Market Risk Director and attendees include the Chief Risk Officer, respective business risk managers, group...

  • Page 125
    ... and monthly for business and risk managers. These are also sent to Group Market Risk for review and inclusion in the Group Daily Market Risk Report. A risk summary is presented at the Market Risk Committee and Barclays Capital Traded Positions Risk Review. Analysis of traded market risk exposures...

  • Page 126
    ...accounts and equity balances which do not have a defined maturity date and an interest rate that does not change in line with Base rate changes. The risk resides mainly in Retail and Business Banking, Barclays Corporate, and Group Treasury. Barclays objective is to minimise non-traded interest rate...

  • Page 127
    ... with Barclays policies and standards as detailed in the Barclays Market Risk Control Framework. The interest rate risk for balances with no defined maturity date and an interest rate that is not linked to the base rate is managed by Group Treasury. A series of continuous rolling hedges are used to...

  • Page 128
    ...Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Market risk continued Margins and Balances Analysis of net interest income Retail and Business Banking, Corporate and Wealth customer interest income - Customer assets - Customer liabilities Retail and Business Banking...

  • Page 129
    ... is driven by prevailing market rates including a term premium. The objective is to price internal funding for assets and liabilities in line with the cost of alternative funding, which ensures there is consistency between retail and wholesale sources. Financial statements Shareholder information

  • Page 130
    ...Dollar and Euro Preference Shares and Reserve Capital Instruments in issue that are treated as equity under IFRS, and do not qualify as hedges for accounting purposes. During the year $2bn Reserve Capital Instruments were redeemed. The impact of a change in the exchange rate between Sterling and any...

  • Page 131
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 129 The strategic report Governance Other market risks Barclays maintains a number of defined benefit pension schemes for past and current employees. The ability of the pension fund to meet the projected pension payments is ...

  • Page 132
    ... economic and commercial environment in which Barclays operates. Capital planning Capital forecasts are managed on a top-down and bottom-up analysis through both Short Term (Year 1 monthly) and Medium Term (3 year) financial planning cycles. The Group capital plan is developed with the objective of...

  • Page 133
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 131 The strategic report Governance Risk identification Capital demand is assessed and quantified for credit, market, operational, interest rate risk on the banking book, pension obligation risk and securitisation risks, in line with...

  • Page 134
    ... added back for regulatory capital purposes; - £1.1bn reduction in the value of the investment in BlackRock, Inc. prior to impairment; - £0.5bn net increase from the impact of share awards on shareholders' funds; - £1.3bn reduction reï¬,ecting contributions made to the UK Retirement Fund in 2011...

  • Page 135
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 133 The strategic report Governance Capital composition Key capital ratios Core Tier 1 Tier 1 Total capital Capital Resources Shareholders' equity (excluding non-controlling interests) per balance sheet Non-controlling interests per ...

  • Page 136
    134 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Risk management Funding risk - Capital continued Capital demand Risk weighted assets by risk Credit risk Counterparty risk - Internal model method - Non-model method Market risk - Modelled - VaR - Modelled - Charges add-on and Non...

  • Page 137
    ... targets at a segment level to manage the Barclays balance sheet and leverage ratio. Barclays Capital's adjusted tangible assets are managed and reviewed monthly by the Corporate and Investment Banking Treasury Committee which includes members of Treasury, Finance and the businesses. The Committee...

  • Page 138
    ...available for sale securities Cumulative gains arising on the fair value changes in own credit Preference shares included in economic capital supply are issued to optimise the Groups long term capital base Average shareholders' equity for economic purposes excluding goodwill Average 2011 £m Average...

  • Page 139
    ... PLC Annual Report 2011 www.barclays.com/annualreport 137 The strategic report Governance Ongoing Capital Management Risks Capital ratio sensitivity to foreign exchange rate movements The Group has capital resources and risk weighted assets (RWAs) denominated in foreign currencies. Changes in...

  • Page 140
    ... for UK banks with retail portfolios will be the proposed change in the definition of default for portfolios using advanced internal ratings based models, which could result in an increase in minimum credit risk capital requirements. Independent Commission on Banking (ICB) The ICB published its...

  • Page 141
    ... PLC Annual Report 2011 www.barclays.com/annualreport 139 The strategic report Risk management Funding risk - Liquidity All disclosures in this section (pages 139 to 150) are unaudited unless otherwise stated Governance Liquidity risk The definition of liquidity risk is the risk that the Group...

  • Page 142
    ...range of ongoing business management tools to monitor, limit and stress test the Group's balance sheet and contingent liabilities. Limit setting and transfer pricing are tools that are designed to control the level of liquidity risk taken and drive the appropriate mix of funds, which together reduce...

  • Page 143
    ... PLC Annual Report 2011 www.barclays.com/annualreport 141 The strategic report Governance Ongoing business management Liquidity limits Barclays manages to limits on a variety of on and off-balance sheet exposures a sample of which are shown in the table below. These limits serve to control the...

  • Page 144
    ... Risk Driver Net wholesale funding outï¬,ow Loss of secured financing & increased haircuts Retail & commercial bank deposit outï¬,ows Intra-day risk Barclays Specific Stress - Outï¬,ows at contractual maturity of wholesale funding and conduit commercial paper, with no rollover / new issuance...

  • Page 145
    ... a longer-term metric designed to establish a minimum acceptable amount of stable funding based on liquidity characteristics of an institution's assets and activities over a one year time horizon. Stress Test Time Horizon Calculation Barclays Liquidity Risk Appetite (LRA) 1 - 3 months Liquid assets...

  • Page 146
    ... businesses is met using asset backed securities and covered bonds secured primarily over customer loans and advances such as residential mortgages and credit card receivables. The excess of Barclays Capital loans and advances over customer deposits is funded with long-term debt and equity. Notes...

  • Page 147
    ... (mainly being available for sale investments, trading portfolio assets and loans and advances to banks) are largely matched by wholesale debt maturing over an average of 5 years and equity. Repurchase agreements and other secured funding are largely collateralised by government issued bonds and...

  • Page 148
    .... Barclays are an active participant in money markets, have direct access to US, European and Asian capital markets through our global investment banking operations and long-term investors through our global client base. As a result, wholesale funding is well diversified by product, maturity...

  • Page 149
    ...by the Group's UK residential mortgage business. The third programme is a credit card master trust securitisation and uses receivables from the Group's UK credit card business. The programmes utilise true sale mechanics to transfer the title of the mortgage loan assets or, as applicable, current and...

  • Page 150
    ...from other banks Trading portfolio assets Financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers Reverse repurchase agreements and other similar secured lending Available for sale financial investments Other financial...

  • Page 151
    ...maturity as part of the Group's trading strategies. For these instruments, which are mostly held by Barclays Capital, liquidity and repricing risk is managed through the Daily Value at Risk (DVaR) methodology; - Retail deposits, which are included within customer accounts, are repayable on demand or...

  • Page 152
    ... year £m Over five years £m Total £m As at 31 December 2011 Deposits from banks Items in the course of collection due to other banks Customer accounts Reverse repurchase agreements and other similar secured lending Trading portfolio liabilities Financial liabilities designated at fair value...

  • Page 153
    ...the business activities acquired from Lehman Brothers; and the portfolios of assets purchased from Woolworths Financial Services in South Africa, Citi Cards Portugal and Italy, Standard Life Bank, MBNA Corporate Cards, Upromise and Egg Cards. Barclays works to benchmark its internal operational risk...

  • Page 154
    ... and an event-driven basis. The reports include a profile of the material risks to their business objectives and the effectiveness of key controls, control issues of Group-level significance, operational risk events and a review of scenarios and capital. Specific reports are prepared on a regular...

  • Page 155
    .... Reports are used by the Operational Risk function and by business management to understand, monitor, manage and control operational risks and losses. Operational risk measurement The Operational Risk capital model uses the outputs of the risk management tools to measure Barclays operational risk...

  • Page 156
    ...or some of the property, rights and liabilities of the UK bank to a purchaser or Bank of England entity. A share transfer order can extend to a wide range of securities including shares and bonds issued by a UK bank (including Barclays Bank PLC) or its holding company (Barclays PLC) and warrants for...

  • Page 157
    ... time in which to restore capital levels or the management or CRA rating. If the capital level or rating is not restored, the Group may be required by the FRB to cease certain activities in the United States. Barclays US securities broker/dealer, investment advisory and Investment banking operations...

  • Page 158
    ...of the new regulatory structure, an interim Financial Policy Committee has been created and the FSA reorganised itself into separate Prudential and Consumer and Markets business units on 4 April 2011. In April 2012, the two business units will begin to shadow the forthcoming regime and operate as if...

  • Page 159
    ... to take effect in July 2012, regardless of whether the implementing rules have been finalised, and companies will have two years from that time to come into full compliance with them, subject to possible extensions. Risk management Financial review Financial statements Shareholder information

  • Page 160
    ...Report 2011 www.barclays.com/annualreport Risk management Supervision and regulation continued - Resolution plans: The DFA requires bank holding companies with total consolidated assets of US$50 billion or more to submit to the FRB and the FDIC, and regularly update, a plan for "rapid and orderly...

  • Page 161
    ...171 173 Key performance indicators Consolidated summary income statement Income statement commentary Consolidated summary balance sheet Balance sheet commentary Analysis of results by business Governance Risk management Financial review Financial statements Shareholder information Cycle into Work...

  • Page 162
    160 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Financial review Key performance indicators Capital KPIs Definition Why is it important to the business and management Core Tier 1 ratio Capital requirements are part of the regulatory framework governing how banks and ...

  • Page 163
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 161 The strategic report Governance Returns KPIs continued Definition Why is it important to the business and management Return on average risk weighted assets (RoRWA) RoRWA is calculated as profit after tax for the year divided by ...

  • Page 164
    ... Barclays PLC Annual Report 2011 www.barclays.com/annualreport Financial review Key performance indicators continued Income growth KPIs Definition Why is it important to the business and management Total income Defined as total income net of insurance claims. Total income is a key indicator...

  • Page 165
    .... Barclays community investment programme aims to engage and support colleagues around the world to get involved with our main partnerships, as well as the local causes they care about. Harnessing their energy, time and skills delivers real benefit to local communities, to their own personal...

  • Page 166
    .... b Return on average total assets represents profit attributable to the equity holders of the parent as a percentage of average total assets. c The average rates are derived from daily spot rates during the year used to convert foreign currency transactions into Sterling for accounting purposes.

  • Page 167
    ... transferred from trading income within Head Office relating to interest rate swaps used for hedge accounting purposes. The net interest margin for RBB, Corporate and Wealth remained stable at 2.04% (2010: 2.03%). Group net interest income includes the impact of economic equity structural hedges...

  • Page 168
    ... in market value previously recognised in the available for sale reserve since the Group's acquisition of its holding in BlackRock, Inc. as part of the sale of Barclays Global Investors on 1 December 2009. 2010 Loan impairment fell 24% to £5,625m, reï¬,ecting improving credit conditions in the main...

  • Page 169
    ... in salaries and a £295m increase in performance costs. These increases primarily relate to charges for prior year awards, the build-out in Equities and Investment Banking at Barclays Capital in 2010 and strategic growth initiatives at Barclays Wealth. Charges relating to prior year deferrals...

  • Page 170
    ... Life Bank PLC realising a gain on acquisition of £100m. On 31 March 2010, the Group acquired 100% of the Italian credit card business of Citibank International PLC realising a gain of £29m. Profit before tax from continuing operations Tax charge based on the standard UK corporation tax rate...

  • Page 171
    ... statements All current tax and deferred tax reconciling items are disclosed within Note 11. Other taxes borne by Barclays are included within profit before tax. Shareholder information a The UK bank levy charge for 2011 was £325m with £183m paid in 2011 and the remaining balance due in 2012...

  • Page 172
    ... and capital ratios Risk weighted assets Core Tier 1 ratio Tier 1 ratio Risk asset ratio Adjusted gross leverage Total assets to shareholders' equity Net asset value per ordinary share Number of ordinary shares of Barclays PLC (in millions) Year-end United States Dollar exchange rate Year-end Euro...

  • Page 173
    ...ï¬,ecting customer deposit growth across the Group as well as market volatility resulting in a rise in cash collateral balances. Financial liabilities designated at fair value decreased £9.7bn and debt securities in issue decreased £26.9bn due to managed changes in the funding composition. Trading...

  • Page 174
    ...ts was offset by reduction in the value of the investment in Blackrock Inc. to September 2011, contributions made to the UK Retirement fund and foreign currency movements. Total capital resources decreased by £3.4bn to £63.9bn mainly as a result of the buy back and redemption of Tier 1 instruments...

  • Page 175
    ... Financial statements Shareholder information Notes a The impact of own credit movements in the fair value of structured note issuance of £2,708m (2010: £391m; 2009: loss of £1,820m) is now included within the results of Head Office Functions and Other Operations, rather than Barclays Capital...

  • Page 176
    ...current account and savings products and Woolwich branded mortgages. UK RBB also provides unsecured loans and general insurance as well as banking and money transmission services to small and medium sized businesses. UK RBB was previously named UK Retail Banking; - Europe Retail and Business Banking...

  • Page 177
    ... 6.7 Financial review Return on Average Tangible Equity UK RBB Europe RBB Africa RBBb Barclaycard Barclays Capital Barclays Corporate Barclays Wealth Investment Management Group excluding Head Office Functions and Other Operations Head Office Functions and Other Operations impact Group 2011...

  • Page 178
    ... strong positive net lending. Mortgage balances at 31 December 2011 were £107.8bn, a share by value of 9% (2010: 8%). 2011 £m 2010 £m 2009 £m Income Statement Information Net interest income Net fee and commission income Net trading loss Net investment income Net premiums from insurance...

  • Page 179
    ... ratio Key Facts 90 day arrears rates - UK loans Number of UK current accounts Number of UK savings accountsc Number of UK mortgage accountsc Number of Barclays Business customers LTV of mortgage portfolioc LTV of new mortgage lendingc Number of branches Number of ATMs Number of employees (full time...

  • Page 180
    ... The lower impairment was the main driver for the loan loss rate decreasing to 54bps (2010: 71bps). 2011 £m 2010 £m 2009 £m Income Statement Information Net interest income Net fee and commission income Net trading income Net investment income Net premiums from insurance contracts Other (expense...

  • Page 181
    ... cards business. Risk management Financial review Adjusteda 2011 2010 2009 2011 Statutory 2010 2009 Financial statements Performance Measures Return on average equityb, c Return on average tangible equityb, c Return on average risk weighted assetsc Loan loss rate (bps) Cost: income ratio Key...

  • Page 182
    ...Barclays PLC Annual Report 2011 www.barclays.com/annualreport Financial review Analysis of results by business continued Retail and Business Banking Africa Retail and Business Banking 2011 Africa Retail and Business Banking adjusted profit before tax improved 26% to £908m reï¬,ecting business...

  • Page 183
    ... impact of exchange rate movements, enhancements to the retail model and wholesale credit remediation plan. Risk management Financial review Adjusteda 2011 2010 2009 2011 Statutory 2010 2009 Performance Measures Return on average equityb, c Return on average tangible equityb, d Return on average...

  • Page 184
    ... the Egg and MBNA acquisitions. Excluding these items, operating expenses were ï¬,at on prior year. 2011 £m 2010 £m 2009 £m Income Statement Information Net interest income Net fee and commission income Net trading loss Net investment income Net premiums from insurance contracts Other income...

  • Page 185
    ... management Financial review Financial statements Adjusteda 2011 2010 2009 2011 Statutory 2010 2009 Performance Measures Return on average equityb Return on average tangible equityb Return on average risk weighted assets Loan loss rate (bps) Cost: income ratio Key Facts 30 day arrears rates - UK...

  • Page 186
    .... Credit market exposures of £15.2bn, reduced by £8.7bn primarily driven by sale of assets formerly held as Protium collateral and commercial real estate loans and properties. 2011 £m 2010 £m 2009 £m Income Statement Information Net interest income Net fee and commission income Net trading...

  • Page 187
    ... assets supporting the loan which followed a reassessment of the expected realisation period. Non-credit market related impairment was a release of £78m (2009: charge of £922m). Operating expenses increased 26% to £8,295m which largely reï¬,ected investment in our sales, origination, trading and...

  • Page 188
    ... rates and tightly controlled exposure to commercial real estate loans. Europe reduced 33% to £716m primarily due to lower impairment charges in Spain of £480m (2010: £898m), reï¬,ecting proactive risk management action to reduce exposure to the property and construction sector. Rest of the World...

  • Page 189
    ... UK. Risk management Financial review Adjusteda 2011 2010 2009 2011 Statutory 2010 2009 Performance Measures Return on average equityb Return on average tangible equityb Return on average risk weighted assets Loan loss rate (bps) Cost: income ratio Income Statement Information UK £m 2011 Europe...

  • Page 190
    ... spend and related restructuring costs to support the strategic investment programme. Includes the cost of increase in the client facing staff and infrastructure to support the High Net Worth businesses. 2011 £m 2010 £m 2009 £m Income Statement Information Net interest income Net fee and...

  • Page 191
    ... Annual Report 2011 www.barclays.com/annualreport 189 The strategic report £1,744m total income £207m profit before tax Governance Risk weighted assets increased 6% to £13.1bn. This compares to growth in lending of 17%, with an increased level of collateral in the lending portfolio. Client...

  • Page 192
    ... 2011 www.barclays.com/annualreport Financial review Analysis of results by business continued Investment Management 2011 Investment Management profit before tax of £96m (2010: £67m), principally reï¬,ecting dividend income of £123m (2010: £100m) from the Group's available for sale holding...

  • Page 193
    ... bank levy Operating expenses Share of post-tax results of associates and joint ventures Profit on disposal of associates and joint ventures Profit/(loss) before taxa Adjusted loss before taxb Balance Sheet Information and key facts Total assets Risk weighted assets Number of employees (full time...

  • Page 194
    192 Barclays PLC Annual Report 2011 www.barclays.com/annualreport

  • Page 195
    ... disclosure matters 272 46 Related party transactions and Directors' remuneration Shareholder information Risk management Financial review Financial statements Mentoring Barclays employees volunteer as mentors to help participants improve their confidence, communication skills and job prospects.

  • Page 196
    ... employee share schemes only where material in the context of the income statement charge, dilution of capital or Executive remuneration; - included certain more detailed or static information in other published documents with clear references to where these may be found, for example risk management...

  • Page 197
    ... LLP Chartered Accountants and Statutory Auditors London, United Kingdom 7 March 2012 Risk management Financial review Financial statements Shareholder information Notes a The maintenance and integrity of Barclays website is the responsibility of the Directors; the work carried out...

  • Page 198
    ... designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies...

  • Page 199
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 197 The strategic report Consolidated financial statements Consolidated income statement Governance For the year ended 31 December Notes 2011 £m 2010 £m 2009 £m Continuing operations Interest income Interest expense Net ...

  • Page 200
    198 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Consolidated financial statements Consolidated statement of comprehensive income For the year ended 31 December 2011 £m 2010 £m 2009 £m Profit after tax Other comprehensive income from continuing operations: Currency ...

  • Page 201
    ... strategic report Consolidated financial statements Consolidated balance sheet Governance As at 31 December Notes 2011 £m 2010 £m Assets Cash and balances at central banks Items in the course of collection from other banks Trading portfolio assets Financial assets designated at fair value...

  • Page 202
    ... investments Cash ï¬,ow hedges Other Total comprehensive income for the year Issue of new ordinary shares Issue of shares under employee share schemes Net purchase of treasury shares Vesting of treasury shares Dividends paid Redemption of Reserve Capital Instruments Other reserve movements Balance...

  • Page 203
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 201 The strategic report Consolidated financial statements Consolidated cash ï¬,ow statement Governance For the year ended 31 December 2011 £m 2010 £m 2009 £m Continuing operations Reconciliation of profit before tax to net ...

  • Page 204
    202 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Financial statements of Barclays PLC Parent company accounts Income statement For the year ended 31 December 2011 £m 2010 £m 2009 £m Dividends received from subsidiary Interest income Management charge from subsidiary Pro...

  • Page 205
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 203 The strategic report Governance Statement of changes in equity Notes Called up Capital share capital and share reserves and a premium other equity £m £m Retained earnings £m Total equity £m Balance as at 1 January 2011 Pro...

  • Page 206
    ... in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. In addition, individual financial statements have been presented for the holding company, Barclays PLC (the Company). Barclays PLC is a public limited company, incorporated...

  • Page 207
    ...the period end exchange rates. Exchange gains and losses on such balances are taken to the income statement. The Group's foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may have other functional currencies than Sterling. The functional...

  • Page 208
    ... lead to significant changes in the way that the Group accounts for financial instruments. The key changes issued and proposed relate to: - Financial assets. Financial assets will bet held at either fair value or amortised cost, except for equity investments not held for trading, which may be held...

  • Page 209
    ... to selected countries; - market risk on pages 121 to 129; - funding risk - capital on pages 130 to 138; and - funding risk - liquidity on pages 139 to 150. These are covered by the Audit opinion included on page 195. Risk management Financial review Financial statements Shareholder information

  • Page 210
    ... or financial position. 2011 £m 2010 £m 2009 £m Cash and balances with central banks Available for sale investments Loans and advances to banks Loans and advances to customers Other Interest income Deposits from banks Customer accounts Debt securities in issue Subordinated liabilities Other...

  • Page 211
    ... and funding costs relating to trading activities. Income arises from the sale and purchase of trading positions, margins which are achieved through market-making and customer business, and from changes in fair value caused by movements in interest and exchange rates, equity prices and other market...

  • Page 212
    ..., which comprise all wholesale customer loans and larger retail business loans and collectively for smaller loans and for portfolio level risks, such as country or sectoral risks. For the purposes of the assessment, loans with similar credit risk characteristics are grouped together - generally on...

  • Page 213
    ...in the available for sale reserve. Critical accounting estimates and judgements The calculation of the impairment allowance involves the use of judgement, based on the Group's experience of managing credit risk. Within the retail and small businesses portfolios, which comprise large numbers of small...

  • Page 214
    ...' remuneration above are fees paid to PricewaterhouseCoopers LLP and associates relating to Barclays Global Investors, the Group's discontinued operations, of £nil (2010: £nil; 2009: £4m). Notes a Comprises the fees for the statutory audit of the subsidiaries and associated pension schemes both...

  • Page 215
    ...213 The strategic report Governance 9 UK bank levy UK legislation was enacted in July 2011 to introduce an annual bank levy, which applies to elements of the Group's consolidated liabilities and equity held as at the year end. The levy has resulted in an additional charge to the income statement of...

  • Page 216
    ....barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 11 Tax continued The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to the Group...

  • Page 217
    ...may result in a partial impairment of the deferred tax asset, depending upon the timing of the reversal of deductible temporary differences. The forecast assumptions do not include any incremental tax planning strategies. Risk management Financial review Financial statements Shareholder information

  • Page 218
    ... Available for sale investments £m Cash ï¬,ow hedges £m Retirement benefit obligations £m Loan impairment allowance £m Other provisions £m Tax losses carried forward £m Share based payments £m Other £m Total £m Assets Liabilities At 1 January 2011 Income statement Equity Other movements...

  • Page 219
    ... accounted for as an available for sale equity investment. Shareholder information The Group has provided BlackRock, Inc. with customary warranties and indemnities in connection with the sale. Barclays will also continue to indemnify securities lending arrangements until 30 November 2012 (included...

  • Page 220
    ...Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 14 Discontinued operations continued The disposed BGI business was treated as a discontinued operation. The results for the 11 month period up to the date...

  • Page 221
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 219 The strategic report Governance Assets and liabilities held at fair value This section presents information regarding assets and liabilities the Group holds and recognises at fair value. Fair value refers to the price that would be...

  • Page 222
    ... risk management strategies. Derivatives are used to hedge interest rate, exchange rate, commodity, and equity exposures and exposures to certain indices such as house price indices and retail price indices related to non-trading positions. Where derivatives are held for risk management purposes...

  • Page 223
    ... rate derivatives designated as fair value hedges primarily hedge the interest rate risk of fixed rate borrowings in issue, fixed rate loans to banks and customers and investments in fixed rate debt securities held. Credit derivatives The Group's principal credit derivative-related contracts...

  • Page 224
    222 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 17 Derivative financial instruments continued The fair value of gross derivative assets increased by 28% to £539bn (2010: £420bn) reï¬,ecting ...

  • Page 225
    ... held for risk management Notional contract amount £m 2011 Fair value Assets £m Liabilities £m Notional contract amount £m 2010 Fair value Assets £m Liabilities £m Derivatives designated as cash ï¬,ow hedges Interest rate swaps Forward foreign exchange Exchange traded interest rate swaps...

  • Page 226
    ... bills Equity securities Available for sale financial investments 63,610 4,881 68,491 59,629 5,481 65,110 Critical accounting estimates and judgements Approximately US$4.2bn (£2.7bn) of the assets acquired as part of the 2008 acquisition of the North American business of Lehman Brothers had...

  • Page 227
    ... example by reference to similar assets, similar maturities or other analytical techniques. The sensitivity of valuations used in the financial statements to reasonably possible changes in variables is shown on page 236. Risk management Financial review Financial statements Shareholder information

  • Page 228
    ... customers: - Home loans - Credit cards, unsecured and other retail lending - Wholesale Reverse repurchase agreements and other similar secured lending Financial liabilitiesb Deposits from banks Customer accounts: - Current and demand accounts - Savings accounts - Other time deposits Debt securities...

  • Page 229
    ... market prices (Level 1) £m Valuation technique using Significant Observable unobservable inputs inputs (Level 2) (Level 3) £m £m Risk management Total £m As at 31 December 2011 Trading portfolio assets Financial assets designated at fair value Derivative financial assets Available for sale...

  • Page 230
    ...Level 2) (Level 3) £m £m As at 31 December 2011 Commercial real estate loans Asset backed products Other credit products Derivative exposure to monoline insurers Non-asset backed debt instruments Equity products Private equity Funds and fund-linked products Foreign exchange products Interest rate...

  • Page 231
    ... designated at financial fair value instrumentsa £m £m Available for sale assets £m As at 31 December 2011 Commercial real estate loans Asset backed products Other credit products Derivative exposure to monoline insurers Non-asset backed debt instruments Equity products Private equity Funds...

  • Page 232
    ... derivative products; - Sales of £7.8bn including the sale of £2.8bn Protium assets post acquisition, the sale of £1.9bn of non-asset backed debt instruments, £1.0bn of asset backed products, £1.0bn of legacy commercial real estate loans and £0.3bn of private equity investments; - Settlements...

  • Page 233
    ... and Investment Banking. The Models Sub-Committee is responsible for overseeing policies and controls related to the use of valuation models. This includes but is not limited to review of global model risk reports, the trade approval process and model validation, model-related fair value adjustments...

  • Page 234
    ... used by market participants. The valuation techniques used for the main products that are not determined by reference to unadjusted quoted prices (Level 1), are described below. Commercial real estate loans This category includes lending on a range of commercial property types including retail...

  • Page 235
    ... mutual funds, hedge funds, fund indices and multi-asset portfolios. They are valued using underlying fund prices, yield curves and other available market information. Risk management Financial review Financial statements In general, fund holdings are valued based on the latest available valuation...

  • Page 236
    234 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 20 Fair value of financial instruments continued Interest rate products These are products linked to interest rates or inï¬,ation indices. This ...

  • Page 237
    ...Group uses a variety of techniques to estimate the fair value. The above note describes the more judgemental aspects of valuation in the period, including: credit valuation adjustments on monoline exposures, commercial real estate loans, private equity investments, and fair value loans to government...

  • Page 238
    ... statement £m Equity £m Product type As at 31 December 2011 Commercial real estate loans Asset backed products Other credit products Derivative exposure to monoline insurers Non-asset backed debt instruments Equity products Private equity Funds and fund-linked products Foreign exchange products...

  • Page 239
    ... position driven by average bid offer spreads observed in the market for similar bonds. Equity products Sensitivity is estimated based on the dispersion of consensus data services either directly or through proxies. Private equity The relevant valuation models are each sensitive to a number of key...

  • Page 240
    ... cost arising from the Group's retail and wholesale lending including loans and advances, finance leases, repurchase and reverse repurchase agreements and similar secured lending. For more information about the Group's funding and liquidity position, see Liquidity risk and Capital risk on pages 139...

  • Page 241
    Barclays PLC Annual Report 2011 www.barclays.com/annualreport 239 The strategic report Governance 22 Finance leases continued Finance lease liabilities The Group leases items of property, plant and equipment on terms that meet the definition of finance leases. Finance lease liabilities are ...

  • Page 242
    ...investment property at cost, and subsequently at their fair value at each balance sheet date reï¬,ecting market conditions at the reporting date. Gains and losses on remeasurement are included in the income statement. Note a Where leasehold property has a remaining useful life of less than 15 years...

  • Page 243
    ...to calculate fair value where there have been no recent transactions, using current external market inputs such as market rents and interest rates. Valuations are carried out by management with the support of appropriately qualified independent valuers. Financial statements Shareholder information

  • Page 244
    ...associates and joint ventures, and represents the excess of the fair value of the purchase consideration over the fair value of the Group's share of the assets acquired and the liabilities and contingent liabilities assumed on the date of the acquisition. Goodwill is reviewed annually for impairment...

  • Page 245
    ...243 The strategic report Governance 26 Goodwill and intangible assets continued Goodwill Goodwill is allocated to business operations according to business segments as follows: 2011 £m 2010 £m UK RBB Europe RBB Africa RBB Barclaycard Barclays Capital Barclays Corporate Barclays Wealth Total net...

  • Page 246
    244 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 27 Operating leases Accounting for operating leases The Group applies IAS 17 Leases, for operating leases. An operating lease is a lease where ...

  • Page 247
    ... impact to the income statement and equity under a reasonably possible change in the assumptions used to calculate the insurance liabilities would be £8m (2010: £12m). Financial review Accounting for insurance contracts The Group applies IFRS 4 Insurance Contracts to its insurance contracts. An...

  • Page 248
    246 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 29 Provisions Accounting for provisions The Group applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets in accounting for non-fi...

  • Page 249
    ... 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...

  • Page 250
    ...US residential mortgage servicing business which Barclays acquired in Q4 2006 and subsequently sold in Q3 2010. In connection with Barclays loan sales and some of its sponsored private-label securitisations, Barclays made certain loan level representations and warranties (R&Ws) generally relating to...

  • Page 251
    ... 2011 www.barclays.com/annualreport 249 The strategic report Governance 31 Legal Proceedings continued American Depositary Shares Barclays Bank PLC, Barclays PLC and various current and former members of Barclays PLC's Board of Directors have been named as defendants in five proposed securities...

  • Page 252
    ... to levels higher than the Basel 3 proposals. The UK Government published its response to the ICB recommendations in December 2011 and indicated that primary and secondary legislation relating to the proposed ring-fence will be completed by May 2015, with UK banks and building societies expected...

  • Page 253
    ... PLC Annual Report 2011 www.barclays.com/annualreport 251 The strategic report Governance Capital instruments, equity and reserves This section details information about the Group's loan capital and shareholders equity including issued share capital, retained earnings, other equity balances and...

  • Page 254
    ...Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 33 Subordinated liabilities continued Undated loan capital Undated loan capital is issued by the Bank and its subsidiaries for the development and expansion of their business...

  • Page 255
    ... PLC Annual Report 2011 www.barclays.com/annualreport 253 The strategic report Governance 33 Subordinated liabilities continued Dated loan capital Initial call date Maturity date Subordinated liabilities per balance sheet 2011 £m 2010 £m Regulatory capital 2011 £m 2010 £m Barclays Bank PLC...

  • Page 256
    254 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 33 Subordinated liabilities continued Dated loan capital Dated loan capital is issued by the Bank and respective subsidiaries for the development and...

  • Page 257
    ...fit trusts in relation to the Group's various share schemes. These schemes are described in Note 38. Financial review 36 Non-controlling interests Profit attributable to non-controlling interests 2011 £m 2010 £m Equity attributable to non-controlling interests 2011 £m 2010 £m Barclays Bank...

  • Page 258
    ... Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 36 Non-controlling interests continued Details of the Preference shares, Reserve Capital Instruments and Upper Tier 2 instruments are shown below: 2011...

  • Page 259
    ...PLC Annual Report 2011 www.barclays.com/annualreport 257 The strategic report Governance Employee benefits Employee benefits outlines the costs and commitments associated with employing our staff. Risk management 37 Staff costs Accounting for staff costs The Group applies IAS 19 Employee bene...

  • Page 260
    ... the cost of the employee services. The fair value of shares is the market price ruling on the grant date, in some cases adjusted to reï¬,ect restrictions on transferability. The fair value of options granted is determined using option pricing models to estimate the numbers of shares likely to vest...

  • Page 261
    ... 4.35 Certain of the Group's share option plans enable certain directors and employees the option to subscribe for new ordinary shares of Barclays PLC between 2011 and 2019. For accounting for treasury shares see Note 35 Reserves. Financial statements Shareholder information Notes a Options/award...

  • Page 262
    ... funding approach by the trustee, whereby holdings of treasury shares have been replaced with instruments that hedge the economic exposure to movements in the Barclays share price. Dividend rights have been waived on nil (2010: nil) of these shares. The total market value of the shares held in trust...

  • Page 263
    ... UKRF. Governance The UKRF operates under trust law and is managed and administered on behalf of the members in accordance with the terms of the Trust Deed and Rules and all relevant legislation. The Corporate Trustee is Barclays Pension Funds Trustees Limited, a private limited company incorporated...

  • Page 264
    ...include funded and unfunded post-retirement benefits. Income statement charge Current service cost Interest cost Expected return on scheme assets Recognised actuarial loss Past service cost Curtailment or settlements Total Balance sheet reconciliation 2011 Of which relates to UKRF £m 2011 £m 2010...

  • Page 265
    ... Report 2011 www.barclays.com/annualreport 263 The strategic report Governance 39 Pensions and post retirement benefits continued Critical accounting estimates and judgements Actuarial valuation of the schemes' obligation is dependent upon a series of assumptions. Below is a summary of the main...

  • Page 266
    ...Barclays Group, and £12m (2010: £10m) relating to property occupied by Group companies. The UKRF also invests in pooled investment vehicles which may hold shares or debt issued by the Barclays Group. The UKRF scheme assets also includes £50m (2010: £58m) relating to UK private equity investments...

  • Page 267
    ..., the Group is expected to pay contributions of approximately £1m to UK schemes and £94m to overseas schemes in 2012. Financial statements The Scheme Actuary prepares an annual update of the funding position as at 30 September. The latest annual update was carried out as at 30 September 2011 and...

  • Page 268
    ... Barclays Bank SA Barclays Capital Inc. Barclays Bank Delaware Barclays Group US Inc. Banking, holding company Banking, securities industries and trust services Stockbroking Securities dealing Secured loan provider Banking Securities dealing Banking Banking Banking Securities dealing US credit card...

  • Page 269
    ... related costs of £nil have been included in operating expenses. The aggregate net outï¬,ow of cash from acquisition during the year was £163m. During the year, Barclays acquired £2.1bn gross consumer credit card assets from Egg UK, a £130m corporate card portfolio from MBNA Europe Bank Limited...

  • Page 270
    ...) each year by the Group's share of the post acquisition profit (or loss). In some cases, investments in these entities may be held at fair value through profit or loss, for example, those held by private equity businesses. 2011 £m 2010 £m Investment in associates Investment in joint ventures...

  • Page 271
    ...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; and - direct investment in the notes issued by SPEs. Financial statements Shareholder information

  • Page 272
    ... to several commercial paper conduit programmes, primarily in the United States. These conduits provide clients access to liquidity in the commercial paper markets by allowing them to sell consumer or trade receivables to the conduit, which then issues commercial paper to investors to fund the...

  • Page 273
    ... at 31 December 2011. The Group provided backstop facilities to five third party SPEs that fund themselves with medium term notes. These notes are sold to investors as a series of 12 month securities and remarketed to investors annually. If investors decline to renew their holdings at a price below...

  • Page 274
    ... bearing deposits and current accounts to these entities as well as other services. Group companies also provide investment management and custodian services to the Group pension schemes. The Group also provides banking services for unit trusts and investment funds managed by Group companies and are...

  • Page 275
    ... Barclays. The Group provides banking services to Directors and other Key Management Personnel and persons connected to them. Transactions during the year and the balances outstanding at 31 December 2011 were as follows: 2011 £m 2010 £m Risk management Loans outstanding at 1 January Loans issued...

  • Page 276
    274 Barclays PLC Annual Report 2011 www.barclays.com/annualreport Notes to the financial statements For the year ended 31 December 2011 continued 46 Related party transactions and Directors' remuneration continued b) Disclosure required by the Companies Act 2006 The following information is ...

  • Page 277
    ... Shareholder information Index Shareholder enquiries Governance Risk management Financial review Financial statements Shareholder information Graduating from the scheme Graduates of the scheme will have benefited from the opportunity to develop their teamwork, communication and financial skills...

  • Page 278
    ...1% of either any class of the issued equity share capital or of the voting rights of that company; and (g) concerning any other arrangement for the benefit of employees of the Company (or any other member of the Group) under which the Director benefits or stands to benefit in a similar manner to...

  • Page 279
    ...Annual Report 2011 www.barclays.com/annualreport 277 The strategic report Governance (xiii) The Board may exercise all of the powers of the Company to borrow money, to mortgage or charge its undertaking, property and uncalled capital and to issue debentures and other securities. Classes of Shares...

  • Page 280
    ... may be in force from time to time) by current UK laws which relate only to non-residents of the UK and which limit the rights of such non-residents to hold or (when entitled to do so) vote the Company's Ordinary Shares. Notices A document or information may be sent by the Company in hard copy form...

  • Page 281
    ... Africa Co-Chief Executive of Barclays Capital and Co-Chief Executive of Corporate and Investment Banking Group Human Resources Director Group Financial Controller Financial review Maria Ramos Rich Ricci 2009 2009 Sally Bott John Worth 2011 2011 Financial statements Shareholder information

  • Page 282
    ...Income statement 197 242-243 124-125 268 notes to the accounts risk management consolidated Intangible assets Interest rate risk Investment in associates and joint ventures Corporate governance 32-45 corporate governance report 34 attendance at board meetings 79-120 206 205 128 Credit risk Critical...

  • Page 283
    ... risk loans Presentation of information Property, plant and equipment Provisions Related party transactions Remuneration report Reserves Financial statements Results by business Risk factors Barclays approach to risk management principal risks credit risk market risk funding risk - capital funding...

  • Page 284
    ...general, may write to the Director, Investor Relations at our Head office as follows: Director, Investor Relations Barclays PLC 1 Churchill Place London E14 5HP or, in the United States of America: The Corporate Communications Department Barclays Bank PLC 745 Seventh Avenue New York, NY 10019, USA...

  • Page 285
    ... and check share sales, purchases or transfers; - receive important shareholder information directly to your inbox; - view dividend information, including electronic tax vouchers; - change your address and bank details online; - see shareholder documents such as the Annual Review, Annual Report or...

  • Page 286
    ... mill are both credited with ISO14001 Environmental Management Systems Standard and both are FSC™ certified. Registered office: 1 Churchill Place, London E14 5HP Registered in England. Registered No: 48839 © Barclays Bank PLC 2012 9912300 Designed by Further™ furthercreative.co.uk Cover and...