Barclays 2013 Annual Report Download - page 361

Note 39: Structured Entities continued
Secured financing
The Group routinely enters into reverse repurchase contracts, stock borrowing and similar arrangements on normal commercial terms where the
counterparty to the arrangement is a structured entity. Due to the nature of these arrangements, especially the transfer of collateral and on-going
margining, the Group is minimally exposed to the performance of the structured entity counterparty. A description of these transactions is
included in Note 23.
Short term traded interests
The Group buys and sells interests in structured entities as part of its trading activities, for example, retail mortgage backed securities,
collateralised debt obligations and similar interests. Such interests are typically held individually or as part of a larger portfolio for no more than 90
days. In such cases, the Group typically has no other involvement with the structured entity other than the securities it holds as part of trading
activities and its maximum exposure to loss is restricted to the carrying value of the asset. Description of these transactions is included in Note 13.
As at 31 December 2013, the fair value of the Group’s interests in structured entities in the trading portfolio, included in trading portfolio assets in
the Group balance sheet, were as follows:
Type of security and nature of entity
Asset
securitisations
£m
Other
£m
Total
£m
Debt securities 10,177 345 10,522
Equity securities 5 87 92
Traded loans – 538 538
Other assets – 120 120
Total 10,182 1,090 11,272
Traded derivatives
The Group enters into a variety of derivative contracts with structured entities which reference market risk variables such as interest rates, foreign
exchange rates and credit indices amongst other things. Description of the type of derivatives and the risk management practices are detailed in
Note 15. The risk of loss may be mitigated through on-going margining requirements as well as a right to cash flows from entity which are senior
in the payment waterfall. Such margining requirements are consistent with market practice for many derivative arrangements and in line with the
Group’s normal credit policies.
The main derivative types which are considered interests in structured entities are as follows. Notional amounts of the derivative arrangements
have been provided as a better indication of the risks associated with these instruments rather than the size of the structured entities to which the
Group has exposure:
Fair value and notional amount
Type of derivative
and nature of entity
Asset management Asset securitisations Others Total
Notional
contract
amount
£m
Assets
£m
Liabilities
£m
Notional
contract
amount
£m
Assets
£m
Liabilities
£m
Notional
contract
amount
£m
Assets
£m
Liabilities
£m
Notional
contract
amount
£m
Assets
£m
Liabilities
£m
Credit default swaps
Index based 54,519 1,075 (1,353) 1,286 160 (328) – – – 55,805 1,235 (1,681)
Entity specific 18,448 408 (203) 11 18 (28) – – – 18,459 426 (231)
Total 72,967 1,483 (1,556) 1,297 178 (356) – – – 74,264 1,661 (1,912)
Balance guaranteed swaps – – – 38,349 231 (493) – – – 38,349 231 (493)
Total return swaps 8,044 241 (470) – – – 2 – – 8,046 241 (470)
Commodity 10,341 518 (892) – – – 3,698 47 (335) 14,039 565 (1,227)
Equity swaps 28,523 962 (792) – – – – 98 – 28,523 1,060 (792)
Other derivative products – – – 606 – (1) – – – 606 – (1)
Total 119,875 3,204 (3,710) 40,252 409 (850) 3,700 145 (335) 163,827 3,758 (4,895)
Derivative transactions require the counterparty to provide cash or other collateral under margining agreements to mitigate counterparty credit
risk. Included above are, £752m derivative assets and £(1,271)m derivative liability with a notional value of £41,716m which are ‘cleared derivative’
type arrangements. These are transactions where the Group enters into a contract with an exchange on behalf of a structured entity client and
holds an opposite position with it. The Group is exposed to settlement risk only on these derivatives which is mitigated through daily margining.
Except for credit default swaps where the maximum exposure to loss is the swap notional amount, it is not possible to estimate the maximum
exposure to loss in respect of derivative positions as the fair value of derivatives is subject to changes in market rates of interest, exchange rates
and credit indices which by their nature are uncertain. In addition, the Group’s losses would be subject to mitigating action under its traded market
risk and credit risk policies that require the counterparty provide collateral in cash or other assets on a daily basis in most cases.
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