Barclays 2013 Annual Report Download - page 336

Note 29: Contingent liabilities and commitments
Accounting for contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where
the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet
but are disclosed unless the outflow of economic resources is remote.
The following table summarises the nominal principal amount of contingent liabilities and commitments which are not recorded on balance sheet:
2013
£m
2012
£m
Guarantees and letters of credit pledged as collateral security 15,226 15,855
Performance guarantees, acceptances and endorsements 5,958 6,406
Contingent liabilities 21,184 22,261
Documentary credits and other short-term trade related transactions 780 1,027
Forward starting reverse repurchase agreementsa 19,936 23,549
Standby facilities, credit lines and other commitments 254,855 247,816
The Financial Services Compensation Scheme
The Financial Services Compensation Scheme (the FSCS) is the UK’s Government backed 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. The interest rate chargeable on the loan and levied to the industry
is subject to a floor equal to the HM Treasury’s own cost of borrowing, based on the relevant gilt rate (FSCS advises financial institutions to apply
the 2024 UK Gilt rate published by the Debt Management Office to the Bradford & Bingley portion of the loan). The majority of the facility is
expected to be recovered, with the exception of an estimated shortfall of £1bn which the FSCS intends to recover by levying the industry in three
instalments across 2013, 2014 and 2015. In November 2013, HM Treasury communicated via the FSCS an additional expected shortfall in
recoveries from Dunfermline Building Society, to be collected starting with an interim levy of £100m in 2014. Barclays has included an accrual
of £148m in other liabilities (2012: £156m) in respect of the Barclays’ portion of the total levies raised by the FSCS.
Further details on contingent liabilities relating to legal and competition and regulatory matters can be found in Note 30.
Note 30: Legal, competition and regulatory matters
Barclays PLC (BPLC), Barclays Bank PLC (BBPLC) and the Group face legal, competition and regulatory challenges, many of which are beyond our
control. The extent of the impact on BPLC, BBPLC and the Group of the legal, competition and regulatory matters in which BPLC, BBPLC and the
Group are or may in the future become involved, cannot always be predicted but may materially impact our operations, financial results and
condition and prospects.
Lehman Brothers
Background Information
In September 2009, motions were filed in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court) by Lehman
Brothers Holdings Inc. (LBHI), the SIPA Trustee for Lehman Brothers Inc. (Trustee) and the Official Committee of Unsecured Creditors of Lehman
Brothers Holdings Inc. (Committee). All three motions challenged certain aspects of the transaction pursuant to which Barclays Capital Inc. (BCI)
and other companies in the Group acquired most of the assets of Lehman Brothers Inc. (LBI) in September 2008, as well as the court order
approving the sale (Sale). The claimants sought an order voiding the transfer of certain assets to BCI, requiring BCI to return to the LBI estate any
excess value BCI allegedly received, and declaring that BCI is not entitled to certain assets that it claims pursuant to the Sale documents and order
approving the Sale (Rule 60 Claims). In January 2010, BCI filed its response to the motions and also filed a motion seeking delivery of certain assets
that LBHI and LBI had 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, Contract Claims).
Status
In February 2011, the Bankruptcy Court issued an Opinion rejecting the Rule 60 Claims and deciding some of the Contract Claims in the Trustee’s
favour and some in favour of the Group. In July 2011, the Bankruptcy Court entered final Orders implementing its Opinion. The Group and the
Trustee each appealed the Bankruptcy Court’s adverse rulings on the Contract Claims to the US District Court for the Southern District of New
York (SDNY). LBHI and the Committee did not appeal the Bankruptcy Court’s ruling on the Rule 60 Claims. After briefing and argument, the SDNY
issued an Opinion in June 2012, reversing one of the Bankruptcy Court’s rulings on the Contract Claims that had been adverse to the Group and
affirming the Bankruptcy Court’s other rulings on the Contract Claims. In July 2012, the SDNY issued an amended Opinion, correcting certain
errors but not otherwise modifying the rulings, along with an agreed judgement implementing the rulings in the Opinion (Judgement). Under the
Judgement, the Group is entitled to receive: (i) $1.1bn (£0.7bn) from the Trustee in respect of ‘clearance box’ assets (Clearance Box Assets); and
(ii) property held at various institutions in respect of the exchange traded derivatives accounts transferred to BCI in the Sale (ETD Margin). The
Trustee has appealed the SDNY’s adverse rulings to the US Court of Appeals for the Second Circuit (Second Circuit). The current Judgement is
stayed pending resolution of the Trustee’s appeal.
Note
a Loan commitments have been revised to incorporate forward starting reverse repurchase agreements.
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334 Barclays PLC Annual Report 2013
Notes to the financial statements
For the year ended 31 December 2013 continued