Barclays 2013 Annual Report Download - page 337

Note 30: Legal, competition and regulatory matters continued
Approximately $4.3bn (£2.6bn) of the assets to which the Group is entitled as part of the acquisition had not been received by 31 December 2013,
approximately $2.7bn (£1.6bn) of which have been recognised as a receivable on the balance sheet as at that date. The unrecognised amount,
approximately $1.6bn (£1.0bn) as of 31 December 2013 effectively represents a provision against the uncertainty inherent in the litigation and
potential post-appeal proceedings and issues relating to the recovery of certain assets held by an institution outside the US. To the extent the
Group ultimately receives in the future assets with a value in excess of the approximately $2.7bn (£1.6bn) recognised on the balance sheet as of
31 December 2013, it would result in a gain in income equal to such excess. It appears that the Trustee may dispute the Group’s entitlement to
certain of the ETD Margin even in the event the Group prevails in the pending Second Circuit appeal proceedings. Moreover, there is uncertainty
regarding recoverability of a portion of the ETD Margin not yet delivered to the Group that is held by an institution outside the US. Thus, the Group
cannot reliably estimate how much of the ETD Margin the Group is ultimately likely to receive. Nonetheless, if the SDNY’s rulings are unaffected
by future proceedings, but conservatively assuming the Group does not receive any ETD Margin that the Group believes may be subject to a
post-appeal challenge by the Trustee or to uncertainty regarding recoverability, the Group will receive assets in excess of the $2.7bn (£1.6bn)
recognised as a receivable on the Group’s balance sheet as at 31 December 2013. In a worst case scenario in which the Second Circuit reverses
the SDNY’s rulings and determines that the Group is not entitled to any of the Clearance Box Assets or ETD Margin, the Group estimates that, after
taking into account its effective provision, its total losses would be approximately $6bn (£3.6bn). Approximately $3.3bn (£2bn) of that loss would
relate to Clearance Box Assets and ETD Margin previously received by the Group and prejudgement and post-judgement interest on such
Clearance Box Assets and ETD Margin that would have to be returned or paid to the Trustee. In this context, the Group is satisfied with the
valuation of the asset recognised on its balance sheet and the resulting level of effective provision.
Other
In May 2013 Citibank N.A. (Citi) filed an action against BBPLC in the SDNY alleging breach of an indemnity contract. In November 2008, BBPLC
provided an indemnity to Citi in respect of losses incurred by Citi between 17 and 19 September 2008 in performing foreign exchange settlement
services for LBI as LBI’s designated settlement member with CLS Bank International. Citi did not make a demand for payment under this indemnity
until 1 February 2013 when it submitted a demand that included amounts which Barclays concluded it was not obligated to pay. Citi proceeded to
file the action in May 2013, in which it claimed that Barclays was responsible for a ‘principal loss’ of $90.7m, but also claimed that BBPLC was
obligated to pay Citi for certain alleged ‘funding losses’ from September 2008 to December 2012. In a June 2013 filing with the Court, Citi claimed
that, in addition to the $90.7m principal loss claim, it was also claiming funding losses in an amount of at least $93.5m, consisting of alleged
interest losses of over $55m and alleged capital charges of $38.5m. Both parties filed motions for partial summary judgement, and in November
2013 the SDNY ruled that: (i) Citi may only claim statutory prejudgment interest from 1 February 2013, the date upon which it made its
indemnification demand on BBPLC; (ii) to the extent that Citi can prove it incurred actual funding losses in the form of interest and capital charges
between September 2008 and December 2012, it is entitled to recover these losses under the indemnity provided by BBPLC; and (iii) BBPLC is
entitled under the contract to demonstrate, as a defence to the funding loss claim, that Citi had no funding losses between September 2008 and
December 2012 due to the fact that it held LBI deposits during that period in an amount greater than the principal amount Citi claims it lost in
performing CLS services for LBI between 17 and 19 September 2008. Citi and BBPLC have reached an agreement in principle to settle this action
(subject to negotiation and execution of definitive documentation).
American Depositary Shares
Background Information
BPLC, BBPLC and various current and former members of BPLC’s Board of Directors have been named as defendants in five proposed securities
class actions consolidated in the SDNY. The consolidated amended complaint, filed in February 2010, asserted claims under Sections 11, 12(a)(2)
and 15 of the Securities Act of 1933, alleging that registration statements relating to American Depositary Shares representing preferred stock,
series 2, 3, 4 and 5 (Preferred Stock ADS) offered by BBPLC at various times between 2006 and 2008 contained misstatements and omissions
concerning (amongst other things) BBPLC’s portfolio of mortgage-related (including US subprime-related) securities, BBPLC’s exposure to
mortgage and credit market risk, and BBPLC’s financial condition.
Status
In January 2011, the SDNY granted the defendants’ motion to dismiss the complaint in its entirety, closing the case. In February 2011, the plaintiffs
filed a motion asking the SDNY to reconsider in part its dismissal order, and, in May 2011, the SDNY denied in full the plaintiffs’ motion for
reconsideration. The plaintiffs appealed both the dismissal and the denial of the motion for reconsideration to the Second Circuit.
In August 2013, the Second Circuit upheld the dismissal of the plaintiffs’ claims related to the series 2, 3 and 4 offerings, finding that they were
time barred. However, the Second Circuit ruled that the plaintiffs should have been permitted to file a second amended complaint in relation to the
series 5 offering claims, and remanded the action to the SDNY for further proceedings consistent with the Second Circuit’s decision. In September
2013, the plaintiffs filed a second amended complaint, which purports to assert claims concerning the series 5 offering as well as dismissed claims
concerning the series 2, 3 and 4 offerings, and the defendants have moved to dismiss.
BBPLC considers that these Preferred Stock ADS-related claims against it are without merit and is defending them vigorously.
Mortgage-Related Activity and Litigation
The Group’s activities within the US residential mortgage sector during the period of 2005 through 2008 included sponsoring and underwriting
approximately $39bn of private-label securitisations; economic underwriting exposure of approximately $34bn for 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. In addition, during this time period, approximately $19.4bn of loans (net of approximately $500m of loans sold during this period and
subsequently repurchased) were also originated and sold to third parties by mortgage originator affiliates of an entity that the Group acquired
in 2007 (Acquired Subsidiary).
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