Barclays 2012 Annual Report Download - page 155

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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 funds which hold sovereign risk; lending to financial institutions who themselves hold exposure to
sovereigns and guarantees, implicit or explicit, by the sovereign to the Group’s counterparties. A geographic and industrial analysis of the
Group’s loans and advances, including lending to European counterparties by type, is set out on pages 125-126.
Credit derivatives referencing sovereign debt
The Group enters into credit mitigation arrangements (principally credit default swaps and total return swaps) for which the reference asset
is government debt. For Spain, Italy and Portugal these have the net effect of reducing the Group’s exposure in the event of sovereign default.
An analysis of the Group’s credit derivatives referencing sovereign debt is presented below.
Spain
£m
Italy
£m
Portugal
£m
Ireland
£m
Cyprus
£m
Greece
£m
As at 31 December 2012
Fair value
– Bought 656 1,092 337 84 1 –
– Sold (640) (1,026) (327) (94) (1) –
Net derivative fair value 16 66 10 (10) – –
Contract notional amount
– Bought (11,840) (18,008) (3,535) (3,220) (7) –
– Sold 11,702 17,635 3,437 3,274 7 –
Net derivative notional amount (138) (373) (98) 54 – –
Net protection from credit derivatives in the event of sovereign
default (notional less fair value) (122) (307) (88) 44 – –
As at 31 December 2011
Net protection from credit derivatives in the event of sovereign default
(notional less fair value) (157) (374) (26) (49) – 19
The fair values and notional amounts of credit derivative assets and liabilities would be lower than reported under IFRS if netting was permitted for
assets and liabilities with the same counterparty or for which we hold cash collateral. An analysis of the effects of such netting is presented below.
Spain
£m
Italy
£m
Portugal
£m
Ireland
£m
Cyprus
£m
Greece
£m
As at 31 December 2012
Fair value
– Bought 165 289 119 33 1 –
– Sold (149) (223) (109) (43) (1) –
Net derivative fair value 16 66 10 (10) – –
Contract notional amount
– Bought (2,550) (3,943) (1,118) (1,006) (4)
– Sold 2,412 3,570 1,020 1,060 4
Net derivative notional amount (138) (373) (98) 54 – –
Net protection from credit derivatives in the event of sovereign
default (notional less fair value) (122) (307) (88) 44 – –
As at 31 December 2011
Net protection from credit derivatives in the event of sovereign default
(notional less fair value) (157) (374) (26) (49) – 19
Credit derivatives are contracts whereby the default risk of an asset (reference asset) is transferred from the buyer to the seller of the credit
derivative contract. Credit derivatives referencing sovereign assets are bought and sold to support client transactions and for risk management
purposes. The contract notional amount represents the size of the credit derivative contracts that have been bought or sold, while the fair value
represents the change in the value of the reference asset. The net protection or exposure from credit derivatives in the event of sovereign default
amount represents a net purchase or sale of insurance by the Group. This insurance reduces or increases the Group’s total exposure and should
be considered alongside the direct exposures disclosed in the preceding pages.
In addition, the Group has indirect sovereign exposure through the guarantee of certain savings and investment funds, which hold a proportion
of their assets in sovereign debt. As at 31 December 2012, the net liability in respect of these guarantees was £33m (2011: £41m).
barclays.com/annualreport Barclays PLC Annual Report 2012 I 153