Barclays 2014 Annual Report Download - page 25

barclays.com/annualreport Barclays PLC Annual Report 2014 I 23
How we are doing
Becoming ‘Go-To’
2014 performance review
Profit before tax decreased 32% to £1,377m. The Investment Bank
continues to make progress on its origination-led strategy, building on
leading positions in its home markets of the UK and US, whilst driving
cost savings and RWA efficiencies. The business is focused on a simpler
product set in Markets, which will enable it to build on existing
strengths and adapt to regulatory developments. The business
continued to execute this strategy despite difficult market-making
conditions and continued low levels of activity. This has particularly
impacted credit and interest rate products, resulting in an income
decline across the Markets businesses. This decline was partially offset
by improved banking performance and significant cost reductions as
a result of savings from Transform.
Total income decreased 12% to £7,588m, including the impact
of depreciation of average USD against GBP.
Q Banking income increased 2% to £2,528m as lower fair value losses
on hedges and higher interest offset lower fee income
Q Markets income decreased 18% to £5,040m as:
Credit decreased 17% driven by reduced volatility and client activity
Equities decreased 11% due to lower client volumes
Macro decreased 24% reflecting subdued client activity and lower
volatility in currency markets in the first half of the year
Total operating expenses decreased 6% to £6,225m reflecting a 9%
reduction in compensation costs, business restructuring, continued
rationalisation of the technology platform and real estate infrastructure,
and depreciation of average USD against GBP. This was partially offset
by increased cost to achieve Transform and litigation and conduct
charges.
Total assets increased 4% to £455.7bn due to an increase in derivatives
due to forward interest rates and a strengthening of USD against major
currencies. RWAs reduced 2% to £122.4bn primarily driven by risk
reductions in the trading book.
Our future priorities for Investment Banking
We seek to:
Q Invest in key growth areas, with a particular focus on origination
Q Simplify and standardise the macro business, while retaining
the flexibility to create bespoke solutions for core clients
Q Consolidate and optimise client balance sheet usage through
the centralised Client Capital Management team
Q Significantly simplify and reduce the cost of our infrastructure,
standardising technology and processes across asset classes
Q Continue to strengthen our control environment and approach
to conduct risk
The Investment Bank is a leading provider of advice,
financing and risk management solutions to companies,
governments and institutions worldwide.
What we do
We enable the movement of capital between those who need it, for
example to grow their company or build new infrastructure, and those
looking to generate a return on investment. In doing so we fund and
facilitate global economic growth, helping millions of people to achieve
their ambitions. Our business is split into three core areas:
Q Markets: Provides execution, prime brokerage and risk management
services across the full range of asset classes including equity and
fixed income, currency and select commodity products
Q Banking: Provides long-term strategic advice on mergers and
acquisitions, corporate finance and strategic risk management solutions
Q Research: Provides multi-asset class and macro-economic research
delivering practical ideas to help our clients make informed
investment decisions
Through this range of business activities we can provide Barclays with
a diversity of income and risk, and deliver market execution services for
customers and clients within other parts of the Group.
Market environment and risks
The changes made following the Strategy Update rebalance our
business mix to improve returns, while ensuring that we continue
to provide a holistic service to our target clients.
The portfolios in the Investment Bank now represent a lower market
risk and we will continue to closely manage our market and credit risk
appetite as the market environment evolves.
The environment is still challenging with low interest rates and reduced
volatility impacting the Investment Bank. Alongside more structural
regulatory change, including new capital and leverage requirements,
this has put increasing pressure on the Investment Bank’s ability to
deliver returns.
Changes resulting from new and impending regulation will continue
to impact our business model. In particular, adapting our business
framework in response to structural reform will be a key focus over the
coming years as we seek to comply with both UK ring-fence and US
Intermediate Holding Company legislation.
In addition the business continues to face conduct and litigation risk
and we are further strengthening our control environment, evolving
our culture and simplifying our products in order to minimise
associated risks.
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