Barclays 2012 Annual Report Download - page 183

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
Encumbrance of loans and advances
Barclays issues ABS, covered bonds and other similar secured instruments that are secured primarily over customer loans and advances. Notes
issued from these programmes are also used in repurchase agreements with market counterparts and in central bank facilities. Barclays also
utilises loan collateral in central bank facilities in non-securitised form.
The Group currently manages four primary on balance sheet asset-backed funding programmes to obtain term financing for mortgage and credit
card lending. The UK regulated covered bond and the residential mortgage master trust securitisation programmes both utilise assets originated
by the Group’s UK residential mortgage business. The other programmes are credit card master trust securitisations and use receivables from the
Group’s UK and US credit card businesses. The programmes utilise true sale mechanics to transfer the title of the loan assets from Barclays Bank
PLC (BBPLC) to insolvency remote special purpose vehicles. These programmes initially transfer the respective assets by way of a beneficial
transfer of the assets. However, should there be a ‘perfection’ event (including, amongst other things, the insolvency of BBPLC or BBPLC not
maintaining the appropriate credit rating required by the relevant rating agency), then legal transfer of the assets would occur.
As at 31 December 2012, £98bn of customer loans and advances were transferred to these and other asset backed funding programmes or
utilised to secure funding from central bank facilities. These assets were used to support £27bn of externally issued notes and a further £31bn of
retained notes and non-securitised loan collateral used in repurchase agreements with market counterparts and at central bank facilities. Inclusive
of required over-collateralisation of £15bn, a total of 17% of total loans and advances to customers were used to secure external funding via these
programmes.
In addition, as at 31 December 2012 the Group had £15bn of excess collateral within its asset backed funding programmes that can readily be
used to raise additional secured funding and support future issuance. A portion of retained notes are also available to raise secured funding.
Encumbrance of customer loans and advances
Notes issued
As at 31 December 2012 Assetsa £bn
Externally
issued notes
£bn
Other
secured
fundingb
£bn
Retained
£bn
Mortgages (residential mortgage backed securities) 34.1 5.1 19.6 3.8
Mortgages (covered bonds) 29.9 16.2 1.9 –
Mortgages (loans)c 14.2 – 7.3 –
Credit cards 12.9 5.5 – 1.0
Corporate loans 2.5 0.2 1.1 3.1
Otherd 4.8 – 1.2 3.1
Total 98.4 27.0 31.1 11.0
Repurchase agreements and reverse repurchase agreements
Barclays enters into repurchase and other similar secured borrowing agreements to finance its trading portfolio assets. The majority of reverse
repurchase agreements are matched by offsetting repurchase agreements entered into to facilitate client activity. The remainder are used to settle
trading portfolio liabilities.
Due to the high quality of collateral provided against secured financing transactions, the liquidity risk associated with this activity is significantly
lower than unsecured financing transactions. Nonetheless, Barclays manages to gross and net secured mismatch limits to limit refinancing risk
under a severe stress scenario and a portion of the Group’s liquidity pool is held against stress outflows on these positions. The Group secured
mismatch limits are calibrated based on market capacity, liquidity characteristics of the collateral and risk appetite of the Group.
The cash value of repurchase and reverse repurchase transactions will typically differ from the market value of the collateral against which these
transactions are secured by an amount referred to as a haircut (or overcollateralisation). Typical haircut levels vary depending on the quality of the
collateral that underlies these transactions. For transactions secured against highly liquid collaterale, lenders demand relatively small haircuts
(typically ranging from 0-2%). For transactions secured against less liquid collateral, haircuts vary by asset class (typically ranging from 5-10% for
corporate bonds and other less liquid collateral).
As at 31 December 2012, the significant majority of repurchase activity related to matched-book activity. The Group may face refinancing risk on
the net maturity mismatch for matched-book activity. However, 75% of matched-book activity is against highly liquid collateral and where against
less liquid collateral net repurchase maturities are managed to longer-tenors.
Notes
a Includes £3bn of cash reserves supporting secured funding vehicles.
b Comprised of bilateral repurchase agreements, collateral swaps and participation in central bank facilities.
c For mortgage loan collateral, assets reflects the value of collateral pledged and other secured funding reflects the liquidity value obtained.
d Primarily comprised of local authority covered bonds and export credit agency guaranteed loan collateral.
e Highly liquid assets include government bonds, agency securities and mortgage backed securities. Less liquid assets include asset backed securities, corporate
bonds, equities and other.
barclays.com/annualreport Barclays PLC Annual Report 2012 I 181