Barclays 2015 Annual Report Download - page 47

home.barclays/annualreport Barclays PLC Annual Report 2015 I 45
Area of focus Reporting issue Role of the Committee Conclusion/action taken
Legal, competition
and regulatory
provisions
(see Notes 27 to 29
to the financial
statements).
Barclays makes judgements in
respect of provisions for legal,
competition and regulatory
matters.
 Evaluated advice on the status of current
legal, competition and regulatory matters.
 Assessed management’s judgements
and estimates of the levels of provisions
to be taken and the adequacy of those
provisions, based on available information
and evidence.
The Committee discussed provisions
and utilisation for Foreign Exchange and
ISDAFix litigation and agreed that any
residual provision should be retained
and not released in the first half.
Having reviewed the information
available to determine what could be
reliably estimated, the Committee
agreed that the provision at the full year
should be set at £1,237m for ongoing
investigations and litigation including
Foreign Exchange.
Further information may be found on
pages 303 to 313.
Valuations
(see Notes 14 to 18
to the financial
statements).
Barclays exercises judgement in
the valuation and disclosure of
financial instruments, derivative
assets and certain portfolios,
particularly where quoted market
prices are not available, in
particular the Group’s Education,
Social Housing and Local
Authority (ESHLA) portfolio,
which during 2015 represented
the most material judgement in
view of widening credit spreads
on social housing bonds and
budget changes impacting social
housing portfolios.
 Debated fair value balance sheet items.
This included evaluating a report from the
Valuations Committee, analysing social
housing bonds credit spread performance
and debating the appropriateness of the
valuation model.
 Assessed how the ESHLA portfolio might
be accounted for under IFRS 9.
 Debated uncollateralised derivatives and
differences in pricing ranges and the
potential impact on the Group’s financial
statements.
 Examined the significant valuation
disparity between the Group and a
counterparty in relation to a specific
long-dated derivative portfolio.
The Committee concluded that there
should be no change to the fair value
approach. It also agreed with
management’s recommendation that
an additional prudential valuation
adjustment of £300m should be made
in respect of the ESHLA portfolio,
reflecting an increase in credit
uncertainty for social housing sector
loans arising from some widening of
social housing bond credit spreads.
The Committee noted that despite
attempts by the front office trading
team, the Group Finance Director and
the Chairman of the Committee, it had
not proved possible to gain a complete
understanding of the causes of the
valuation disparity from the relevant
counterparty. Nonetheless, a significant
element was understandable in light of
the different underlying positions held
and the Committee took further
comfort from a third party valuation
provided in relation to ongoing
consideration of restructuring the
trades. The Committee concluded that
the Group’s valuation methodology was
appropriate and also noted that the
Group was protected against
counterparty credit risk through a
collateral escrow arrangement.
Impairment
(see Note 7 to the
financial statements).
Where appropriate, Barclays
models potential impairment
performance, allowing for certain
assumptions and sensitivities, to
agree allowances for credit
impairment, including agreeing
the timing of the recognition of
any impairment and estimating
the size, particularly where
forbearance has been granted.
 Assessed impairment experience against
forecast and whether impairment
provisions were appropriate.
 Evaluated the results of the review and
stress tests conducted by management
of the Group’s exposures to the oil and
gas sector in light of the reduction in oil
prices.
 Debated management’s analysis of the
emergence and outturn periods for the
Barclaycard portfolios.
The Committee agreed with the
proposed adjustments to emergence
and outcome periods and determined
that the allowances for credit
impairment on loans and advances
were appropriate and adequately
supported by model outputs.
In relation to the oil and gas sector, the
Committee determined that the
proposed provisions were appropriate
but noted that further stress was
possible in the event of a prolonged
period of lower oil prices.
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