Barclays 2012 Annual Report Download - page 283

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
28 Contingent liabilities and commitments continued
Securities Lending Arrangements
Up to the disposal of Barclays Global Investors on 1 December 2009, the Group facilitated securities lending arrangements for its managed
investment funds whereby securities held by funds under management were lent to third parties. Borrowers provided cash or investment grade
assets as collateral equal to 100% of the market value of the securities lent plus a margin of 2% –10%. The Group agreed with BlackRock, Inc. to
continue to provide indemnities to support these arrangements until 30 November 2012.
The Financial Services Compensation Scheme
The Financial Services Compensation Scheme (the FSCS) is the UK’s compensation scheme for customers of authorised institutions that are
unable to pay claims. It provides compensation to depositors in the event that UK licensed deposit taking institutions are unable to meet their
claims. The FSCS raises levies on UK licensed deposit taking institutions to meet such claims based on their share of UK deposits on 31 December
of the year preceding the scheme year (which runs from 1 April to 31 March).
Compensation has previously been paid out by the FSCS funded by loan facilities totalling approximately £18bn provided by HM Treasury to FSCS
in support of FSCS’s obligations to the depositors of banks declared in default. In April 2012, the FSCS agreed revised terms on the loan facilities
including a 70bps increase in the interest rate payable to 12 month LIBOR plus 100 bps. This rate will be subject to a floor equal to the HM
Treasury’s own cost of borrowing. The facilities are expected to be repaid wholly from recoveries from the failed deposit takers, except for an
estimated shortfall of £0.8bn. The FSCS has announced it intends to recover this shortfall by levying the industry in instalments across 2013, 2014
and 2015, in addition to the ongoing interest charges on the outstanding loans. Barclays has included an accrual of £156m in other liabilities as at
31 December 2012 (2011: £58m) in respect of the Barclays portion of the total levies raised by the FSCS.
US Mortgage Activities
Barclays activities within the US residential mortgage sector during the period of 2005 through 2008 included: sponsoring and underwriting of
approximately $39bn of private-label securitisations; underwriting of approximately $34bn of other private-label securitisations; sales of
approximately $0.2bn of loans to government sponsored enterprises (GSEs) and sales of approximately $3bn of loans to others. Some of the loans
sold by Barclays were originated by a Barclays subsidiary. Barclays also performed servicing activities through its US residential mortgage servicing
business which Barclays acquired in Q4 2006 and subsequently sold in Q3 2010.
In connection with Barclays loan sales and sponsored private-label securitisations, Barclays provided certain loan level representations and
warranties (R&Ws) generally relating to the underlying borrower, the property, mortgage documentation and/or compliance with law. Under
certain circumstances, Barclays may be required to repurchase the related loans or make other payments related to such loans if the R&Ws are
breached. Barclays was the sole provider of R&Ws with respect to approximately $5bn of Barclays sponsored securitisations, approximately $0.2bn
of sales of loans to GSEs and approximately $3bn of loans sold to others. Other than approximately $1bn of loans sold to others for which R&Ws
expired prior to 2012, there are no expiration provisions applicable to the R&Ws made by Barclays. Barclays R&Ws with respect to loans sold to
others are related to loans that were generally sold at significant discounts and contained more limited R&Ws than loans sold to GSEs and in
respect of the approximately $5bn of Barclays sponsored securitisations discussed above. R&Ws on the remaining approximately $34bn of
Barclays sponsored securitisations were primarily provided by third party originators directly to the securitisation trusts with Barclays, as depositor
to the securitisation trusts, providing more limited R&Ws. Total unresolved repurchase requests associated with all R&Ws made by Barclays on
loans sold to GSEs and others and private-label activities were $0.4bn at 31 December 2012. Barclays currently has no provisions with respect to
such repurchase requests, given Barclays analysis of such requests and Barclays belief as to applicable defences with respect thereto. Based upon
a large number of defaults occurring in US residential mortgages, there is a potential for additional requests for repurchases.
Claims against Barclays as an underwriter of RMBS offerings have been brought in certain civil actions. Additionally, Barclays has received inquiries
from various regulatory and governmental authorities regarding its mortgage-related activities and is cooperating with such inquiries.
It is not practicable to provide an estimate of the financial impact of the potential exposure in relation to Barclays US Mortgage activities.
Further details on contingent liabilities relating to Legal Proceedings and Competition and Regulatory Matters are held in Note 29 and 30
respectively.
29 Legal Proceedings
Lehman Brothers
On 15 September 2009, motions were filed in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) by
Lehman Brothers Holdings Inc. (LBHI), the SIPA Trustee for Lehman Brothers Inc. (the Trustee) and the Official Committee of Unsecured Creditors
of Lehman Brothers Holdings Inc. (the Committee). All three motions challenged certain aspects of the transaction pursuant to which BCI and
other companies in the Group acquired most of the assets of Lehman Brothers Inc. (LBI) in September 2008 and the Court Order approving such
sale (the Sale). The claimants were seeking an order voiding the transfer of certain assets to BCI; requiring BCI to return to the LBI estate alleged
excess value BCI received; and declaring that BCI is not entitled to certain assets that it claims pursuant to the sale documents and Order
approving the Sale (the Rule 60 Claims). On 16 November 2009, LBHI, the Trustee and the Committee filed separate complaints in the Bankruptcy
Court asserting claims against BCI based on the same underlying allegations as the pending motions and seeking relief similar to that which is
requested in the motions. On 29 January 2010, BCI filed its response to the motions and also filed a motion seeking delivery of certain assets that
LBHI and LBI have failed to deliver as required by the sale documents and the Court Order approving the Sale (together with the Trustee’s
competing claims to those assets, the Contract Claims). Approximately $4.5bn (£2.8bn) of the assets acquired as part of the acquisition had not
been received by 31 December 2012, approximately $3.0bn (£1.9bn) of which were recognised as part of the accounting for the acquisition and
are included in the balance sheet as at 31 December 2012. This results in an effective provision of $1.5bn (£0.9bn) against the uncertainty inherent
in the litigation and issues relating to the recovery of certain assets held by institutions outside the United States.
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