Barclays 2013 Annual Report Download - page 15

What are the main financial issues in the year, and implications for the business?
What happened:
On 20 June 2013 the PRA announced the results of its review of capital
adequacy of major UK banks and building societies. As part of its
review, the PRA introduced a 3% Leverage Ratio target to be achieved
by 30 June 2014. As at 30 June 2013, Barclays’ PRA Leverage Ratio was
2.2%, representing a capital gap of £12.8bn.
Actions taken:
In order to achieve the PRA’s 3% Leverage Ratio target by June 2014,
we announced a series of actions including an underwritten rights
issue, measures to reduce Barclays’ CRD IV leverage exposure, and the
continued execution of Barclays’ capital plan with the issuance of CRD
IV and PRA qualifying AT1 securities. In the second half of 2013, we
increased our PRA Leverage Ratio from 2.2% to just shy of the 3.0%
requirement through these actions.
A significant proportion of the capital gap was reduced through
completion of a one for four rights issue which raised £5.8bn of capital
for the Group. The rights issue completed on 4 October 2013 and, with
a 94.63% acceptance rate of shareholder rights, we welcome the
strong support shown by shareholders during what was a challenging
period.
Through management actions we were also able to reduce the Group’s
CRD IV leverage exposure by nearly £200bn to £1,363bn. This was
achieved through de-risking the business via actions such as improving
legal netting agreements on derivatives and reducing low returning Exit
Quadrant assets.
A highlight of 2013 was Barclays’ issuance of £2.1bn equivalent of
benchmark Euro and US Dollar AT1 securities. This represented the
targeted issuance for the PRA leverage plan, and constitutes a key step
in transitioning our capital base towards future regulatory capital
requirements.
Outlook:
As a result of these actions, Barclays is now in a much stronger capital
position and this has allowed us to increase the dividend payout ratio
target from 30% to 40-50%, with a 40% payout ratio expected in 2014
to allow focus on capital accretion.
We remain committed to structurally reducing the cost base of the
Group and we have reaffirmed our £16.8bn cost target with a mid-50s
cost: income ratio for full year 2015. We will also continue to closely
manage RWAs through rundown of the low returning Exit Quadrant
and other balance sheet optimisation, and we target Group RWAs of
£440bn by year-end 2015.
Regulation remains a key variable and, while we have gained clarity in
certain areas, there remain a number of outstanding items which we
will continue to anticipate as best we can. In particular, the Transform
targets will allow us to achieve a fully loaded CRD IV Common Equity
Tier (CET) 1 ratio of greater than 10.5% in 2015 with a fully loaded CRD
IV leverage ratio of 3.5% by year-end 2015 with 3.5-4% targeted
thereafter.
2014 will likely be another year of transition, with greater focus on
balance sheet optimisation, particularly in the Investment Bank,
combined with strict cost control in order to generate higher and more
sustainable returns in the future. Ultimately, increasing the Group’s RoE
will help to reduce the market valuation discount and increase total
shareholder returns.
Group overview 02
Chief Executive’s strategic review 04
Strategy and operating environment 06
Business model/Value creation 08
Balanced Scorecard 10
Group Finance Director’s review 12
Strategic Risk overview 14
Performance review by division 18
Chairman’s governance overview 46
Summary remuneration report 48
The Group Finance Director is
responsible for monitoring the Bank’s
financial performance and position and
communicating this to both internal and
external stakeholders. Below he
discusses the Bank’s performance
during 2013 and its year end position
as at 31 December 2013.
Revised Transform financial commitments
Original 2015 Targets Revised Targets Dates
Return on equity > CoE >CoE in 2016 2016
Operating Expenses £16.8bn £16.8bn 2015
Cost: Income Ratio mid-50s mid-50s 2015
CRD IV RWAs £440bn £440bn 2015
FL CET1 Ratio Transitional >10.5% Fully loaded >10.5% 2015
Dividend Payout Ratio 30% 40-50% 40% from 2014
barclays.com/annualreport Barclays PLC Annual Report 2013 13
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