Barclays 2014 Annual Report Download - page 179

barclays.com/annualreport Barclays PLC Annual Report 2014 I 177
The daily average, maximum and minimum values of management VaR (audited)
For the year ended 31 December 2014 2013
Management VaR (95%) Average
£m
Higha
£m
Lowa
£m
Average
£m
Higha
£m
Lowa
£m
Credit risk 11 15 9 18 25 12
Interest rate risk 11 17 6 13 24 6
Equity risk 10 16 6 11 21 5
Basis risk 4 8 2 11 17 7
Spread risk 4 8 3 11 21 5
Foreign exchange risk 4 23 1 4 7 2
Commodity risk 2 8 1 5 8 2
Inflation risk 2 4 2 3 8 2
Diversification effecta(26) n/a n/a (47) n/a n/a
Total management VaR 22 36 17 29 39 21
Average management VaR for the Group fell by 24% to £22m, with all individual risk type components reducing, particularly credit, spread and
basis risks. The three main contributors to average management VaR were credit, interest rate and equity risk.
Average credit risk VaR decreased 39% to £11m reflecting lower volatility driven by low credit spreads. Spread risk and Basis risk VaR decreased in
part due to lower interest rates environment. Average commodities VaR declined 60% to £2m primarily as a result of risk reduction in Non-Core
businesses. Average Equity VaR was broadly stable compared to the previous year and also saw an environment of low volatility for most of the
year. Average Foreign Exchange VaR was broadly stable over the year, but saw a peak of £23m in late December 2014 due to an increase in
positions that were held for a brief period of time. Foreign Exchange VaR fell back before the year-end when the positions were closed out. See
also the Group management VaR graph below.
The business remained within the management VaR limits that were reported to the Board Financial Risk Committee (BFRC) throughout 2014 for
both asset class VaR and total VaR.
2013 2014 2015
60
40
20
0
Group management VaR
2014
2013
–
2
5
5
59
52
120
87
53
71
10
28
4
4
2
11
<(£20m)
(£20m) to <£0m
£0m to <£20m
£20m to <£40m
£40m to <£60m
£60m to <£80m
£80m to <£100m
>£100m
G
roup
d
ai
l
y tra
d
ing revenue
The chart above shows the distribution of daily revenue in 2014 and 2013. For 2014, this includes daily trading revenue generated in the
Investment Bank (except for Private Equity and Principal Investments), Treasury, Africa Banking and Non-Core. The BNC business does not
undertake trading activities other than strategic disposals. Please see page 241 for a discussion of BNC financial performance in 2014.
Daily trading revenue includes realised and unrealised mark to market gains and losses from intraday market moves, commission and advisory
fees. The VaR measure above is not designed to be reconciled to the full revenue measure from the trading business. VaR shows the volatility of a
hypothetical measure that reflects unrealised mark to market changes in positions under the assumption that they are held over a one-day period.
VaR informs risk managers on the risk implications of current portfolio decisions.
The average daily revenue decreased 22% to £32m; however, there were more positive trading revenue days in 2014 than in 2013, with 98% (2013:
97%) of days generating positive trading revenue. The chart shows lower variability in daily income levels, which appears consistent with the
decrease in average management VaR and lower market volatility.
The daily VaR chart illustrates a declining trend in 2014. The rise in late December 2014 was associated with an increase in positions in a specific
market that were held for a brief period of time. VaR fell back when the positions were closed out. See the discussion of VaR by asset class on the
previous page.
Note
a Diversification effects recognise that forecast losses from different assets or businesses are unlikely to occur concurrently, hence the expected aggregate loss is lower than the
sum of the expected losses from each area. Historic correlations between losses are taken into account in making these assessments. The high and low VaR figures reported for
each category did not necessarily occur on the same day as the high and low VaR reported as a whole. Consequently a diversification effect balance for the high and low VaR
figures would not be meaningful and is therefore omitted from the above table.
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