Barclays 2014 Annual Report Download - page 334

332 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Notes to the financial statements
Scope of consolidation
37 Structured entities continued
As at 31 December 2014, the Group’s funded exposures comprised £3,591m (2013: £4,945m) debt securities at fair value and £3,390m (2013:
£3,115m) amortised cost loans and advances. Of the £6,981m (2013: £8,060m), £4,822m (2013: £6,576m) is investment grade, with the
remainder either non-investment graded or not rated. The Group also had £1,078m (2013: £1,411m) of unfunded exposures in the form of
undrawn liquidity commitments. Of the £8,059m (2013: £9,471m) of funded and unfunded exposures, £7,897m (2013: £9,082m) is senior in the
capital structure of the entity.
Though the Group’s funded exposures are primarily investment grade and senior in the capital structure, there are cases where the interests that
are subordinate to the Group’s senior and mezzanine interests have minimal or no value, due to decreases in the fair value of the underlying
collateral held by the entity.
The Group’s income from these entities comprises trading income (largely gains and losses on changes in the fair value and interest earned on
bonds) on items classified as held for trading and interest income on interests classified as loans and receivables.
During 2014, the Group recorded a fair value loss of £91m (2013: £639m gain) on debt securities. Impairment losses recorded on loans and
advances were immaterial in both the current and prior year.
The fair value of the Group’s interests in certain CLOs and CDOs is influenced by the protection directly provided to the structured entities by
monoline insurers in addition to the value of the collateral held by the entities. The protection provided to the entities by the monoline insurers is
in the form of a CDS. However, the ability of the monolines to make payments is uncertain, which is reflected in the valuation of the Group’s
interests in the monoline wrapped CLOs and CDOs.
Multi-seller conduit programmes
The conduits engage in providing financing to various clients and hold whole or partial interests in pools of receivables or similar obligations.
These instruments are protected from loss through over-collateralisation, seller guarantees, or other credit enhancements provided to the
conduits. The Group’s off balance sheet exposure included in the table above represents liquidity facilities that are provided to the conduits for the
benefit of the holders of the commercial paper issued by the conduits and will only be drawn where the conduits are unable to access the
commercial paper market. If these facilities are drawn, the Group is protected from loss through over-collateralisation, seller guarantees, or other
credit enhancements provided to the conduits. The Group earns income from fees received on the liquidity facility and the letter of credit provided
to the conduits. There were no impairment losses on this lending in either of the current year or the prior year.
Lending
The portfolio includes lending provided by the Group to unconsolidated structured entities in the normal course of its lending business to earn
income in the form of interest and lending fees and includes loans to structured entities that are generally collateralised by property, equipment or
other assets. All loans are subject to the Group’s credit sanctioning process. Collateral arrangements are specific to the circumstances of each loan
with additional guarantees and collateral sought from the sponsor of the structured entity for certain arrangements. During the period the Group
incurred an impairment of £31m (2013: £20m) against such facilities. The main types of lending are £4bn (2013: £4bn) of funding loans to
bankruptcy remote structured entities to either invest or develop properties, £5bn (2013: £2bn) of loans to structured entities which have been
created by an individual to hold one or more assets, £2bn (2013: £2bn) to entities whose operations are limited to financing or funding the
acquisition of specific assets such as schools, hospitals, roads and renewable energy projects under the Private Finance Initiative (PFI), and £1bn
(2013: £1bn) of funding loans to bankruptcy remote structured entities to enable them to purchase capital equipment for parent companies and
are supported by government export guarantees.
Mortgage-backed securities
This represents a portfolio of floating rate notes, mainly mortgage-backed security positions, used as an accounting hedge of interest rate risk
under the Group’s structural hedging programme. All notes are investment grade. The portfolio has decreased owing to a reduced requirement for
hedge accounting capacity in sterling.
Investment funds and trusts
In the course of its fund management activities, the Group establishes pooled investment funds that comprise investments of various kinds,
tailored to meet certain investors’ requirements. The Group’s interest in funds is generally restricted to a fund management fee, the value of which
is typically based on the performance of the fund.
The Group acts as trustee to a number of trusts established by or on behalf of its clients. The purpose of the trusts, which meet the definition of
structured entities, is to hold assets on behalf of beneficiaries. The Group’s interest in trusts is generally restricted to unpaid fees which, depending
on the trust, may be fixed or based on the value of the trust assets. Barclays has no other risk exposure to the trusts.
Other
This includes £1,514m (2013: £1,457m) of derivative transactions with structured entities where the market risk is materially hedged with
corresponding derivative contracts.
Assets transferred to sponsored unconsolidated structured entities
Assets transferred to sponsored unconsolidated structured entities were immaterial.