20-F 1 d20f.htm FORM 20-F Form 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

(Mark One)

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                             

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                             

 

Commission file numbers   Barclays PLC   1-09246  
  Barclays Bank PLC   1-10257  

BARCLAYS PLC

BARCLAYS BANK PLC

(Exact Names of Registrants as Specified in their Charter[s])

ENGLAND

(Jurisdiction of Incorporation or Organization)

1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND

(Address of Principal Executive Offices)

PATRICK GONSALVES, +44 (0)20 7116 2901, PATRICK.GONSALVES@BARCLAYS.COM

1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND

*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Barclays PLC

 

Title of Each Class

 

Name of Each Exchange

On Which Registered

    

25p ordinary shares

 

New York Stock Exchange*

 

American Depository Shares, each representing four 25p

 

New York Stock Exchange

 


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ordinary shares

   

 

* Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements of the Securities and Exchange Commission.

Barclays Bank PLC

 

Title of Each Class

  

Name of Each Exchange

On Which Registered

Callable Floating Rate Notes 2035

   New York Stock Exchange

Non-Cumulative Callable Dollar Preference Shares, Series 2

   New York Stock Exchange*

American Depository Shares, Series 2, each representing one Non-Cumulative Callable Dollar Preference Share, Series 2

   New York Stock Exchange

Non-Cumulative Callable Dollar Preference Shares, Series 3

   New York Stock Exchange*

American Depository Shares, Series 3, each representing one Non-Cumulative Callable Dollar Preference Share, Series 3

   New York Stock Exchange

Non-Cumulative Callable Dollar Preference Shares, Series 4

   New York Stock Exchange*

American Depository Shares, Series 4, each representing one Non-Cumulative Callable Dollar Preference Share, Series 4

   New York Stock Exchange

Non-Cumulative Callable Dollar Preference Shares, Series 5

   New York Stock Exchange*

American Depository Shares, Series 5, each representing one Non-Cumulative Callable Dollar Preference Share, Series 5

   New York Stock Exchange

5.140% Lower Tier 2 Notes due October 2020

   New York Stock Exchange

iPath® Dow Jones – UBS Commodity Index Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Agriculture Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Aluminum Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Cocoa Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Coffee Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Copper Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Cotton Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Energy Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Grains Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Industrial Metals Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Lead Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Livestock Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Natural Gas Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones – UBS Nickel Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Platinum Subindex Total ReturnSM

   NYSE Arca


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ETN

  

iPath® Dow Jones-UBS Precious Metals Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Softs Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Sugar Subindex Total ReturnSM ETN

   NYSE Arca

iPath® Dow Jones-UBS Tin Subindex Total ReturnSM ETN

   NYSE Arca

iPath® S&P GSCI® Total Return Index ETN

   NYSE Arca

iPath® S&P GSCI® Crude Oil Total Return Index ETN

   NYSE Arca

iPath® CBOE S&P 500 BuyWrite IndexSM ETN

   NYSE Arca

iPath® MSCI India IndexSM ETN

   NYSE Arca

iPath® EUR/USD Exchange Rate ETN

   NYSE Arca

iPath® GBP/USD Exchange Rate ETN

   NYSE Arca

iPath® JPY/USD Exchange Rate ETN

   NYSE Arca

iPath® S&P 500 VIX Short-Term FuturesTM ETN

   NYSE Arca

iPath® S&P 500 VIX Mid-Term FuturesTM ETN

   NYSE Arca

iPath® Inverse S&P 500 VIX Short-Term FuturesTM ETN

   NYSE Arca

iPath® Inverse January 2021 S&P 500 VIX Short-Term FuturesTM ETN

   NYSE Arca

iPath® Long Enhanced S&P 500 VIX Mid-Term FuturesSM ETN

   NYSE Arca

iPath® Long Extended Russell 1000® TR Index ETN

   NYSE Arca

iPath® Short Extended Russell 1000® TR Index ETN

   NYSE Arca

iPath® Long Extended Russell 2000® TR Index ETN

   NYSE Arca

iPath® Short Extended Russell 2000® TR Index ETN

   NYSE Arca

iPath® Long Enhanced MSCI EAFE® TR Index ETN

   NYSE Arca

iPath® Short Enhanced MSCI EAFE® TR Index ETN

   NYSE Arca

iPath® Long Enhanced MSCI Emerging Markets Index ETN

   NYSE Arca

iPath® Short Enhanced MSCI Emerging Markets Index ETN

   NYSE Arca

iPath® Long Extended S&P 500® TR Index ETN

   NYSE Arca

iPath® Short Extended S&P 500® TR Index ETN

   NYSE Arca

iPath® Global Carbon ETN

   NYSE Arca

iPath® Optimized Currency Carry ETN

   NYSE Arca

iPath® US Treasury Steepener ETN

   NYSE Arca

iPath® US Treasury Flattener ETN

   NYSE Arca

iPath® US Treasury 2-year Bull ETN

   NYSE Arca

iPath® US Treasury 2-year Bear ETN

   NYSE Arca

iPath® US Treasury 10-year Bull ETN

   NYSE Arca

iPath® US Treasury 10-year Bear ETN

   NYSE Arca


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iPath® US Treasury Long Bond Bull ETN

   NYSE Arca

iPath® US Treasury Long Bond Bear ETN

   NYSE Arca

Barclays GEMS IndexTM ETN

   NYSE Arca

Barclays GEMS Asia 8 ETN

   NYSE Arca

Barclays Asian and Gulf Currency Revaluation ETN

   NYSE Arca

Barclays ETN+ S&P 500® Dynamic VEQTOR™ ETN

   NYSE Arca

Barclays ETN + Short C Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM

   NYSE Arca

Barclays ETN + Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM

   NYSE Arca

Barclays ETN + Long B Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM

   NYSE Arca

Barclays ETN + Short B Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return IndexSM

   NYSE Arca

Barclays ETN + Long C Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return IndexSM

   NYSE Arca

 

* Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of the close of the period covered by the annual report.

 

Barclays PLC

   25p ordinary shares      12,181,940,871   

Barclays Bank PLC

   £1 ordinary shares      2,342,558,515   
   £1 preference shares      1,000   
   £100 preference shares      75,000   
   100 preference shares      240,000   
   $0.25 preference shares      237,000,000   
   $100 preference shares      100,000   

Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ    No ¨

If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.

Yes ¨    No þ

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes þ    No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405


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of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*

Yes ¨    No ¨

*This requirement does not apply to the registrants until their fiscal year ending December 31, 2011.

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Barclays PLC

 

Large Accelerated Filer þ   Accelerated Filer ¨   Non-Accelerated Filer ¨

Barclays Bank PLC

 

Large Accelerated Filer ¨   Accelerated Filer ¨   Non-Accelerated Filer þ

*Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨

International Financial Reporting Standards as issued by the International Accounting Standards Board  þ

Other ¨

*If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ¨

Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ¨    No ¨


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Certain non-IFRS measures

In this document certain non-IFRS (International Financial Reporting Standards) measures are reported. Barclays management believes that these non-IFRS measures provide valuable information to readers of its financial statements because they enable the reader to focus more directly on the underlying day-to-day performance of its businesses and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays management. However, any non-IFRS measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well.

Market and other data

This document contains information, including statistical data, about certain of Barclays markets and its competitive position. Except as otherwise indicated, this information is taken or derived from Datastream and other external sources. Barclays cannot guarantee the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as Barclays.

Forward-looking statements

This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to certain Group’s plans and its current goals and expectations relating to its future financial conditions and performance. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate to only to historical or current facts. Forward-looking statements sometimes use words such as “may”, “will”, “seek”, “continue”, “aim”, “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding Group’s future financial position, income growth, assets, impairments, charges, business strategy, capital ratios, leverage, payment of dividends, projected levels of growth in the banking and finance markets, projected costs, estimates of capital expenditure, and plans and objectives for future operations and other statements that are not historical by fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, UK domestic and global economic and business conditions, the effect of continued volatility in credit markets, market related risks such as changes in interest rates and exchange rates, effects of changes in valuation of credit market exposures, changed in valuation of issued notes, the policies and actions of governmental and regulatory authorities, including capital requirements and changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards (IFRS) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of completion – a number of such factors being beyond the Group’s control. As a result, the Group’s actual results may differ materially from plans, goals, and expectations set forth in the Group’s forward-looking statement.

Any forward-looking statements made herein speak only as of the date they are made. Except as required by the U.K. Financial Services Authority (FSA), the London Stock Exchange or applicable laws, Barclays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this report to reflect any change in Barclays’ expectations with regard thereto or any change in events, conditions or circumstance on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the U.S. Securities and Exchange Commission.

Certain terms

The term ‘Barclays PLC Group’ means Barclays PLC together with its subsidiaries and the term ‘Barclays Bank PLC Group’ means Barclays Bank PLC together with its subsidiaries. ‘Barclays’ and ‘Group’ are terms which are used to refer to either of the preceding groups when the subject matter is identical. The term ‘Company’, ‘Parent Company’ or ‘Parent’ refers to Barclays PLC, and the term ‘Bank’ refers to Barclays Bank PLC. The term ‘Absa Group Limited’ is used to refer to Absa Group Limited and its subsidiaries, and the term ‘Absa’ is used to refer to the component of the Global Retail Banking segment represented by this business. In this report, the abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively; the abbreviations ‘US$m’ and ‘US$bn’ represent millions and thousands of millions of US dollars, respectively, and ‘m’ and ‘bn’ represent millions and thousands of millions of euros, respectively.

Unless otherwise stated, the income statement analyses compare the twelve months to 31st December 2010 to the corresponding twelve months of 2009 or the twelve months of 2009 to the corresponding twelve months of 2008, as applicable, and balance sheet comparisons relate to the corresponding position at 31st December 2009. Unless otherwise stated, all disclosed figures relate to continuing operations. Relevant terms that are used in this document but are not defined under applicable regulatory guidance or International Financial Reporting Standards (IFRS) are explained in the glossary on pages 300 to 306.


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SEC Form 20-F Cross reference information

 

Form 20-F item number   

Page and caption references

in this document*

1    Identity of Directors, Senior Management and Advisers   

Not applicable

2    Offer Statistics and Expected Timetable   

Not applicable

3    Key Information   
  

A.      Selected financial data

  

7, 15, 287-289

  

B.      Capitalization and indebtedness

  

Not applicable

  

C.      Reason for the offer and use of proceeds

  

Not applicable

  

D.     Risk factors

  

164-166

4    Information on the Company   
  

A.      History and development of the company

  

127, 184, 234 (Note 32) - 237 (Note 35), 269 (Note 46), 271, 297

  

B.      Business overview

  

i, 6, 115-119, 212-215 (Note 14), 227 (Note 27), 263-267 (Note 43)

  

C.      Organizational structure

  

234-235 (Note 32)

  

D.     Property, plants and equipment

  

219 (Note 20), 239 (Note 37)

4A    Unresolved staff comments   

Not applicable

5    Operating and Financial Review and Prospects   
  

A.      Operating results

  

6-38, 100, 115-119, 193-204 (Note 1), 212-215 (Note 14), 227 (Note 27), 267-269 (Note 45)

  

B.      Liquidity and capital resources

  

18, 86-87, 102-112, 192, 212-215 (Note 14), 221-224 (Note 23), 225-226 (Note 25), 233 (Note 29), 238 (Note 36)

  

C.      Research and development, patents and licenses, etc.

  

Not applicable

  

D.     Trend information

  

  

E.      Off-balance sheet arrangements

  

240-241 (Note 38)

  

F.      Tabular disclosure of contractual obligations

  

168

  

G.     Safe harbor

  

i (Forward-looking statements)

6    Directors, Senior Management and Employees   
  

A.      Directors and senior management

  

120-123

  

B.      Compensation

  

147-163, 227-232 (Note 28), 246-248 (Note 40)

  

C.      Board practices

  

120-146, 157-158

  

D.     Employees

  

12, 41

  

E.      Share ownership

  

147-163, 246-248 (Note 40)

7    Major Shareholders and Related Party Transactions   
  

A.      Major shareholders

  

125, 271

  

B.      Related party transactions

C.      Interests of experts and counsel

  

183, 246-248 (Note 40), 284 (Note p)

Not applicable

8    Financial Information   
  

A.      Consolidated statements and other financial information

  

124, 185-285, 287-291

  

B.      Significant changes

  

127, 269 (Note 46)

9    The Offer and Listing   
  

A.      Offer and listing details

  

287

  

B.      Plan of distribution

  

Not applicable

  

C.      Markets

  

287-288

  

D.     Selling shareholders

  

Not applicable

  

E.      Dilution

  

Not applicable

  

F.      Expenses of the issue

  

Not applicable

10    Additional Information   
  

A.      Share capital

  

Not applicable

  

B.      Memorandum and Articles of Association

  

290-292

  

C.      Material contracts

  

127, 157, 159, 233 (Note 29)

  

D.     Exchange controls

  

295

  

E.      Taxation

  

293-294

  

F.      Dividends and paying assets

  

Not applicable

  

G.     Statement by experts

  

Not applicable

  

H.     Documents on display

  

295

  

I.       Subsidiary information

  

234-235 (Note 32)

11    Quantitative and Qualitative Disclosure about Market Risk   

42-114

12    Description of Securities Other than Equity Securities   
  

A.      Debt Securities

   Not applicable


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Form 20-F item number   

Page and caption references

in this document*

  

B.      Warrants and Rights

   Not applicable
  

C.      Other Securities

   Not applicable
  

D.     American Depositary Shares

  

296

13    Defaults, Dividends Arrearages and Delinquencies    Not applicable
14    Material Modifications to the Rights of Security Holders and Use of Proceeds    Not applicable
15    Controls and Procedures   
  

A.      Disclosure controls and procedures

   129
  

B.      Management’s annual report on internal control over financial reporting

   128-129
  

C.      Attestation report of the registered public accounting firm

   185
  

D.     Changes in internal control over financial reporting

   129
16A    Audit Committee Financial Expert    141
16B    Code of Ethics    146
16C    Principal Accountant Fees and Services   

127, 143 (External auditor objectivity and independence: Non-Audit Services), 207 (Note 8)

16D    Exemptions from the Listing Standards for Audit Committees   

Not applicable

16E    Purchases of Equity Securities by the Issuer and Affiliated Purchasers   

233 (Share Repurchase)

16F    Change in Registrant’s Certifying Accountant    Not applicable
16G    Corporate Governance   

131, 146

17    Financial Statements   

Not applicable (See Item 8)

18    Financial Statements   

Not applicable (See Item 8)

19    Exhibits    Exhibit Index

 

  *

Captions have been included only in respect of pages with multiple sections on the same page in order to identify the relevant caption on that page covered by the corresponding Form 20-F item number.


Table of Contents

Contents

 

 

 

 

 

  

Business Review

2

  

Key performance indicators

7

  

Financial review

39

  

Citizenship

  

Risk management and governance

42

  

Risk management

124

  

Directors’ report

130

  

Corporate governance report

147

  

Remuneration report

  

Additional financial information

164

  

Risk factors

167

  

Additional financial disclosure

  

Financial statements

184

  

Presentation of information

185

  

Independent Registered Public Accounting Firm’s report for Barclays PLC

186

  

Consolidated Financial Statements Barclays PLC

270

  

Independent Registered Public Accounting Firm’s report for Barclays Bank PLC

271

  

Barclays Bank PLC data

  

Shareholder information

287

  

Shareholder information

297

  

Shareholder enquiries

298

  

Index

300

  

Glossary of terms

 

 

  

 

 


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02                   

Key performance indicators

 

 

 

 

Capital KPIs          
Definition    Why it’s important to the business and management     

 

Core Tier 1 ratio

     
Capital requirements are part of the regulatory framework governing how banks and depository institutions are managed. Capital ratios express a bank’s capital as a percentage of its risk weighted assets. Both Core Tier 1 and Tier 1 capital resources are defined by the UK FSA. Core Tier 1 is broadly tangible shareholders’ funds less certain capital deductions from Tier 1.    The Group’s capital management activities seek to maximise shareholders’ value by prudently optimising the level and mix of its capital resources. The Group’s capital management objectives are to maintain sufficient capital resources to: ensure the financial holding company is well capitalised relative to the minimum regulatory capital requirements set by the UK FSA and US Federal Reserve; ensure locally regulated subsidiaries can meet their minimum regulatory capital requirements; support the Group’s risk appetite and economic capital requirements; and support the Group’s credit rating.   

10 – 10.8%

09 – 10.0%

08 – 5.6%

     During 2010, the Group’s Core Tier 1 ratio improved 0.8% to 10.8%, largely through £3.6bn of attributable profits, demonstrating the Group’s ability to generate capital organically.     

 

Adjusted gross leverage

     
Adjusted gross leverage is defined as the multiple of adjusted total tangible assets over total qualifying Tier 1 capital. Adjusted total tangible assets are total assets less derivative counterparty netting, assets under management on the balance sheet, settlement balances, goodwill and intangible assets. Tier 1 capital is defined by the UK FSA.    Barclays believes that there will be more capital and less leverage in the banking system and that lower levels of leverage are regarded as a key measure of stability going forward. This is consistent with the views of our regulators and investors.   

10 – 20x

09 – 20x

08 – 28x

Adjusted gross leverage is a non-IFRS measure. More information on the ratio of total assets to total shareholders information is provided on page 104. The ratio of total assets to total shareholders equity as at 31st December 2010, 2009 and 2008 was 24x, 24x and 43x, respectively.    In 2010, adjusted gross leverage remained stable at 20 times principally as a result of a £3.9 billion increase in Tier 1 Capital to £53.5 billion offset by the impact of a £84.6 billion increase in adjusted total tangible assets.     
     

 

Returns KPIs

         
Definition    Why it’s important to the business and management   

 

Return on average shareholders’ equity (RoE) is calculated as profit after tax attributable to equity holders of the parent divided by the average shareholders’ equity for the year. Shareholders’ equity is made up of share capital, retained earnings and other reserves.

  

 

These measures indicate the returns generated by the management of business based on the allocation of shareholders’ equity to each component business. Achieving target returns demonstrates the organisation’s ability to execute its strategy and align interests of management and shareholders. We allocate capital to business units based on an assumed Core Tier 1 ratio of 9% and we retain excess capital at Group Centre as a buffer.

  

 

RoE

10 – 7.2%

09 – 6.7%

08 – 14.3%

Return on average tangible equity (RoTE) is calculated as profit after tax attributable to equity holders of the parent divided by average shareholders’ equity for the year, excluding non-controlling interests, goodwill and intangible assets.    Returns lie at the heart of our capital allocation. All of our businesses except Western Europe Retail Banking and Barclays Corporate had returns on tangible equity in excess of the 2010 cost of equity of 12.5%.   

RoTE

10 – 8.7%

09 – 9.0%

08 – 21.3%

 


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03

 

  

 

 

 

 

 

 

 

Returns KPIs continued

         
Definition    Why it’s important to the business and management   
 

Profit before tax

     
Profit before tax is the primary profitability measure used to assess performance. Profit before tax represents total income less impairment charges and operating expenses.   

Profit before tax is a key indicator of financial performance to many of our stakeholders.

 

  

Profit before tax

10 – £6,065m

09 – £4,585m

08 – £5,136m

 

Cost: income ratio

     
Group cost: income ratio is defined as operating expenses compared to total income net of insurance claims.    This is a measure management uses to assess the productivity of the business operations. Restructuring the cost base is a key execution priority for management and includes a review of all categories of discretionary spending and an analysis of how we can run the business to ensure that costs increase at a slower rate than income.   

10 – 64%

09 – 57%

08 – 63%

 

Loan loss rate

     
The loan loss rate represents the impairment charge on loans and advances as a proportion of the period end balances.   

The granting of credit is one of Barclays major sources of income and its most significant risk. The loan loss rate is an indicator of the cost of granting credit.

 

During 2010 impairment continued to improve across all our businesses with one exception, the corporate portfolio in Spain, resulting in a loan loss rate of 118bps compared to 156bps reported in 2009.

  

10 – 118 bps

09 – 156 bps

08 – 95 bps

 

Dividend

     
It is the Group’s policy to declare and pay dividends on a quarterly basis. In a normal year there will be three equal payments in June, September and December and a final variable payment in March.    The ability to pay dividends demonstrates the financial strength of the Group. Whilst recoginising the market’s desire for us to maintain strong capital ratios, in light of the regulatory and economic uncertainty, we have taken a prudent approach of prioritising capital retention and significantly reducing the distribution through dividends from historical levels of 50% whilst seeking to ensure that pay-outs also increase progressively from their low point in 2009.   

10 – 5.5p

09 – 2.5p

08 – 11.5p


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04                   

Key performance indicators

continued

 

 

 

 

Income growth KPIs     
Definition      Why it’s important to the business and management
        

 

Total income

       
Defined as total income net of insurance claims.     

Total income is a key indicator of financial performance to many of our stakeholders and income growth a key execution priority for Barclays management.

 

Group total income increased 8% to £31.4 billion.

 

  

10 – £31,440m

09 – £29,123m

08 – £21,199m

 

Income by geography

           
Defined as total income net of insurance claims generated in distinct geographic segments. Geographic segmental analysis is based on customer location and the definition of the countries within each region are provided in the glossary.      The goal of increasing the international diversification of our income helps to reduce risk by providing exposure to different economic cycles and is demonstrated by our ratio of non-UK to UK business income.   

 

Geographic split of income                        
    
 
2010
%
  
  
    
 
2009
%
  
  
    
 
2008
%
  
  
UK & Ireland      40         45         57   
European Region      15         15         19   
Americas      25         22         0   
Africa      15         14         17   
Asia      5         4         7   
        

 

 

Citizenship KPIs      

 

Definition

  

 

Why it’s important to the business and management

      

 

Gross new lending to UK households and businesses

     
Defined as lending to UK households and those businesses with UK-based activities.   

We have remained ‘open for business’ during the economic downturn, and are focused on lending responsibly to our customers and clients around the world. In 2009, we committed to make an additional £11 billion of credit available to the UK economy, and by the end of 2009, we had lent an additional £35 billion to UK households and businesses. Supporting customers in difficulty has never been more critical, but providing access to credit must be based on the ability to repay. We increased our lending across the UK to £43 billion in 2010, including £7.5 billion arising from the acquisition of Standard Life Bank.

 

We see this as an important performance metric and have formally measured UK gross lending since 2009.

 

  

10 – £43bn

09 – £35bn

08 – n/a

 

Global investment in our communities

     
Defined as Barclays total contribution to supporting the communities where we operate.   

The success and competitiveness of a business and the extent to which it contributes to and is integrated in the communities in which it operates are closely related. We are committed to maintaining investment in our communities for the long-term both in good times and in bad. This performance metric demonstrates the consistency of our commitment over time.

 

  

10 – £55.3m

09 – £54.9m

08 – £52.2m

 

Colleagues involved in volunteering, regular giving and fundraising initiatives

     
Defined as the total number of Barclays employees taking part in volunteering, giving or fundraising activities.   

Barclays community investment programme aims to engage and support colleagues around the world to get involved with our main partnerships, as well as the local causes they care about. Harnessing their energy, time and skills delivers real benefit to local communities, to their own personal development and to their engagement with Barclays.

 

  

10 –62,000

09 –58,000

08  –57,000

 


Table of Contents
        

 

 

 

05

 

  

 

 

 

 

Citizenship KPIs continued

         
Definition    Why it’s important to the business and management   

Group Employee Opinion Survey (EOS) – Proud to be Barclays

         
Employee opinions surveys are used across the organisation to understand our employees’ views and prioritise management actions in order to meet employee needs. This KPI is a calibration of different survey scores across Barclays for a question measuring sense of pride in being associated with or working for Barclays. The average scores for each year are given.    Understanding levels of employee engagement and sense of commitment to Barclays is important as there is a strong correlation between these factors and our employees’ commitment to serving the needs of our customers and clients.   

10 – 83%

09 – 81%

08 – 81%

Percentage of senior managers who are female

     
The number of female colleagues who are working across all Barclays businesses at the senior management level as a percentage of the total senior manager population.    Diversity is important to Barclays as we believe that only through access to the most diverse pool of talent will we recruit and retain the most talented individuals to serve our customers and clients.   

10 – 24%

09 – 24%

08 – 25%

     The number of females at the senior management level has remained flat demonstrating that there is still work to be done to increase the number of women reaching and retaining roles at this level of management.     

 

 


Table of Contents

 

06                   

 

About Barclays

We are a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking, and wealth management with an extensive international presence.

 

  

Group total income

£31,440m

 

LOGO

LOGO

Listed in London and New York, Barclays is a major global and financial service provider engaged in retail and commercial banking, credit cards, investment banking, wealth management presence in Europe, United States, Africa and Asia. The following section analyses the Group’s performance by business. For management reporting purposes during 2010, Barclays was organised into the following business groupings.

UK Retail Banking – £4,518m total income

UK Retail Banking is a leading UK high street bank providing current account and savings products and Woolwich branded mortgages. UK Retail Banking also provides unsecured loans, protection products and general insurance as well as banking and money transmission services to small and medium enterprises.

Barclaycard – £4,024m total income

Barclaycard is an international payments business which manages about £200bn in annual payment value and offers a broad range of payment solutions to consumer and business customers in 22 countries throughout the world.

Western Europe Retail Banking – £1,164m total income

Western Europe Retail Banking provides retail banking and credit card services in Spain, Italy, Portugal and France. The business is building a differentiated proposition providing banking services to retail and mass affluent customers through a variety of distribution channels.

Barclays Africa – £801m total income

Barclays Africa provides retail, corporate and credit card services across Africa and the Indian Ocean. It provides tailored banking (including mobile banking and Sharia-compliant products) to over 2.7m customers and has a top 3 position in 8 of the 10 countries in which we operate.

Absa – £2,899m total income

Absa provides a full range of retail banking services and insurance products through a variety of distribution channels. It also offers customised business solutions for commercial and large corporate customers. It is part of one of South Africa’s largest financial services organisations.

Barclays Capital – £13,600m total income

Barclays Capital is the investment banking division of Barclays. It provides large corporate, government and institutional clients with a full spectrum of solutions to meet their strategic advisory, financing and risk management needs. These include the following products and services: Fixed income, currency and commodities, which includes interest rate, foreign exchange, commodities, emerging markets, money markets, and credit; Equities, which include cash and equity derivatives and prime services; Investment Banking, which includes financial advisory, equity and debt underwriting; and Principal Investments. Barclays Capital has a global presence providing advisory services and distribution power to meet the needs of issuers and investors worldwide.

Barclays Corporate – £2,974m total income

Barclays Corporate provides integrated banking solutions to large corporates, financial institutions and multinationals in the UK & Ireland, Continental Europe and New Markets.

Barclays Wealth – £1,560m total income

Barclays Wealth is the wealth management division of Barclays. It focuses on private and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services and brokerage. It has offices in Europe, North America, Asia and Africa.

Investment Management – £78m total income

Investment Management manages the Group’s 19.9% economic interest in BlackRock, Inc. and the residual elements relating to Barclays Global Investors, which was sold on 1st December 2009.

Head Office and Other Operations – £178m total loss

Head Office Functions and Other Operations comprise head office and central support functions, businesses in transition and consolidation adjustments. Head office and central support functions include the following areas: Executive Management, Finance, Property, Treasury, Corporate Secretariat and Corporate Development, Tax, Investor Relations, Risk, Human Resources, Legal Corporate Affairs.

 

 

 


Table of Contents
        

 

 

 

07

 

  

Financial review

Consolidated summary income statement

 

 

 

For the year ended 31st December   

2010

£m

   

2009

£m

   

2008

£m

   

2007

£m

   

2006

£m

 

Continuing operations

          

Net interest income

     12,523        11,918        11,469        9,598        9,133   

Non-interest income

     19,681        18,036        9,967        11,938        11,372   

Net claims and benefits incurred on insurance contracts

     (764     (831     (237     (492     (575

Total income net of insurance claims

     31,440        29,123        21,199        21,044        19,930   

Impairment charges and other credit provisions

     (5,672     (8,071     (5,419     (2,795     (2,154

Operating expenses

     (19,971     (16,715     (13,391     (12,096     (11,723

Share of post-tax results of associates and joint ventures

     58        34        14        42        46   

Profit on disposals and gain on acquisitions

     210        214        2,733        28        323   

Profit before tax

     6,065        4,585        5,136        6,223        6,422   

Tax

     (1,516     (1,074     (453     (1,699     (1,611

Profit after tax from continuing operations

     4,549        3,511        4,683        4,524        4,811   

Profit for the year from discontinued operations, including gain on disposal

            6,777        604        571        384   

Net profit for the year

     4,549        10,288        5,287        5,095        5,195   

Profit attributable to equity holders of the Parent

     3,564        9,393        4,382        4,417        4,571   

Profit attributable to non-controlling interests

     985        895        905        678        624   
       4,549        10,288        5,287        5,095        5,195   

Selected financial statistics

                                        

Basic earnings per share

     30.4p        86.2p        59.3p        68.9p        71.9p   

Basic earnings per share from continuing operations

     30.4p        24.1p        51.4p        60.6p        66.6p   

Diluted earnings per share

     28.5p        81.6p        57.5p        66.9p        69.8p   

Dividends per ordinary share

     5.5p        2.5p        11.5p        34.0p        31.0p   

Dividend payout ratio

     18.1%        2.9%        19.4%        49.3%        43.1%   

Profit attributable to the equity holders of the Parent as a percentage of:

          

– average shareholders’ equity

     7.2%        23.8%        16.5%        20.3%        24.7%   

– average total assets

     0.2%        0.5%        0.2%        0.3%        0.4%   

Average United States Dollar exchange ratea

     1.55        1.57        1.86        2.00        1.84   

Average Euro exchange ratea

     1.17        1.12        1.26        1.46        1.47   

Average Rand exchange ratea

     11.31        13.14        15.17        14.11        12.47   

The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying consolidated financial statements.

Note

a The average rates are derived from daily spot rates during the year used to convert foreign
   currency transactions into Sterling for accounting purposes.
 


Table of Contents
08                   

Financial review

Income statement commentary

 

 

 

2010

Barclays delivered profit before tax of £6,065m in 2010, an increase of 32% (2009: £4,585m). Excluding movements on own credit, gains on debt buy-backs and gains on acquisitions and disposals, Group profit before tax increased 11% to £5,464m (2009: £4,942m).

Total income net of insurance claims increased 8% to £31,440m (2009: £29,123m). Barclays Capital reported a 17% increase in total income to £13,600m (2009: £11,625m). This reflected a substantial reduction in losses taken through income relating to credit market exposures which fell to £124m (2009: £4,417m) and a gain relating to own credit of £391m (2009: loss of £1,820m). Top-line incomea at Barclays Capital, which excludes these items, declined 25% to £13,333m relative to the exceptionally strong levels seen in 2009. There was good growth in UK Retail Banking and Barclays Africa, with income flat in Barclaycard, and a decline in Western Europe Retail Banking. Income was up 14% in Absa. Barclays Corporate reported a decrease in income of 7% and income was up 18% in Barclays Wealth.

Impairment charges and other credit provisions improved 30% to £5,672m (2009: £8,071m). This was after an increase of £630m in impairment on the Spanish loan book in Barclays Corporate – Continental Europe and impairment of £532m relating to the Protium loan in Barclays Capital. All businesses other than Barclays Corporate reported improvements in impairment charges. Overall impairment charges as a proportion of Group loans and advances as at 31st December 2010 was 118bps, compared to 156bps for 2009.

As a result, net operating income for the Group after impairment charges increased 22% to £25,768m (2009: £21,052m).

Operating expenses increased £3,256m to £19,971m, a 19% rise compared to the 22% growth in net operating income. Costs at Barclays Capital increased £1,703m, largely reflecting investment in the business across sales, origination, trading and research functions, investment in technology and infrastructure and increased charges relating to prior year deferrals. Across the Group, restructuring charges totalled £330m (2009: £87m) particularly in Barclays Corporate (£119m) and Barclays Capital (£90m) focusing on delivering future cost and business efficiencies. Goodwill of £243m was written off in Barclays Corporate – New Markets to reflect impairment to the carrying value of Barclays Bank Russia business as our activities there are refocused. As a result, the Group’s cost: income ratio increased to 64% (2009: 57%). The cost: net income ratio improved from 79% to 78%, reflecting the reduced impairment charges compared with 2009.

Staff costs increased 20% to £11.9bn (2009: £9.9bn), of which performance costs amounted to £3.5bn (2009: £2.8bn). Within this total, 2010 charges relating to prior year deferrals increased by £0.7bn relative to 2009. The Group 2010 performance awards (which exclude charges relating to prior year deferrals but include current year awards vesting in future years) were down 7% on 2009 at £3.4bn. Within this, the Barclays Capital 2010 performance awards were down 12% at £2.6bn, compared to an increase in headcount of 7%.

2009

Barclays delivered profit before tax of £4,585m in 2009 (2008: £5,136m), a decrease of 11% on 2008, after absorbing £6,086m in write downs on credit market exposures (including impairment of £1,669m), other Group impairment of £6,402m and a charge of £1,820m relating to the tightening of own credit spreads. Profit also included £1,249m of gains on debt buy-backs and extinguishment.

Total income net of insurance claims grew 37% to £29,123m, with particularly strong growth in Barclays Capital. Barclaycard and Western Europe Retail Banking also reported good income growth. The aggregate revenue performance of the Global Retail Banking businesses (which comprises our UK Retail Banking, Barclaycard, Western Europe Retail Banking and Barclays Africa businesses) was, however, affected by the impact of margin compression on deposit income as a result of the very low absolute levels of interest rates. Barclays Capital income was up 122% compared to 2008. Top-line incomea rose by £8,004m reflecting the successful integration of the acquired Lehman Brothers North American businesses, buoyant market conditions observed across most financial markets in the first half of 2009 and a good relative performance in the second half of 2009 despite weaker markets. Income in Barclays Capital was impacted by write downs of £4,417m (2008: £6,290m) relating to credit market exposures held in its trading books and by a charge of £1,820m (2008: gain of £1,663m) relating to own credit.

Impairment charges against loans and advances, available for sale assets and reverse repurchase agreements increased 49% to £8,071m, reflecting deteriorating economic conditions in 2009, portfolio maturation and currency movements. The impairment charge against credit market exposures included within this total reduced 5% to £1,669m. Impairment charges as a percentage of Group loans and advances as at 31st December 2009 increased to 156bps from 95bps, or 135bps on constant 2008 year end balance sheet amounts and average foreign exchange rates.

Total operating expenses increased 25% to £16,715m, but by 12% less than the rate of increase in Group total income. Operating expenses in Barclays Capital increased by £2,818m to £6,592m reflecting the inclusion of the acquired Lehman Brothers North American business. The Group total cost:income ratio improved from 63% to 57%. At Barclays Capital the compensation:income ratio improved from 44% to 38%.

 

 

Note

a Top-line income is a non-IFRS measure that represents income before own credit gain/losses and credit market losses/income. This measure has been presented as it provides a consistent basis for comparing the business’ performance between financial periods. Credit market losses included within income at Barclays Capital for the year ended 31st December 2010 amounted to £124m (2009: £4,417m; 2008: £6,290m), and own credit gain for the year ended 31st December 2010 amounted to £391m (2009: loss of £1,820m; 2008: gain of £1,663m). Total income at Barclays Capital for the year ended 31st December 2010 was £13,600m (2009: £11,625m; 2008: £5,231m). For a reconciliation of top-line income to total income for Barclays Capital, see the “Analysis of Total income” table on page 32. For more information on credit market losses see page 88 and for more information on own credit gains / losses see Note 4 to the financial statements.  


Table of Contents
        

 

 

 

09

 

  

Financial review

Income statement commentary continued

 

 

 

Net interest income

2010

Group net interest income increased £605m to £12,523m (2009: £11,918m) and includes the impact of the acquisitions of Standard Life Bank and the Portuguese and Italian credit card businesses of Citigroup in Western Europe Retail Banking, and currency translation gains in Absa. These impacts have been partly off-set by the continued effects of liability margin compression being felt across the Group.

Group net interest income includes the impact of economic equity structural hedges used to manage the volatility in earnings on the Group’s equity. The impact is allocated to the businesses as part of the share of the interest income benefit on Group equity through net interest income. Equity structural hedges generated a gain of £1,788m in 2010 (2009: gain £1,162m) including net gains on disposal of gilts of approximately £500m.

2009

Group net interest income increased £449m to £11,918m (2008: £11,469m) reflecting growth in average customer balances primarily in Barclaycard and Western Europe Retail Banking, and net funding costs and hedging recognised in Head Office Functions and Other Operations.

Group net interest income includes the impact of structural hedges which function to reduce the impact of the volatility of short-term interest rate movements on equity and customer balances that do not re-price with market rates. In total, equity structural hedges generated a gain of £1,162m (2008: £21m gain).

Further discussion of margins is included in the analysis of results by business.

 

Net interest income

 

   2010
£m
    2009
£m
   

2008

£m

 

Cash and balances with central banks

     271        131        174   

Available for sale investments

     1,483        1,937        2,355   

Loans and advances to banks

     440        513        1,267   

Loans and advances to customers

     17,677        18,456        23,754   

Other interest income

     164        199        460   

Interest income

     20,035        21,236        28,010   

Deposits from banks

     (370     (634     (2,189

Customer accounts

     (1,410     (2,716     (6,697

Debt securities in issue

     (3,632     (3,889     (5,910

Subordinated liabilities

     (1,778     (1,718     (1,349

Other interest expense

     (322     (361     (396

Interest expense

     (7,512     (9,318     (16,541

Net interest income

     12,523        11,918        11,469   

Non-interest income

2010

Net fee and commission income increased £453m to £8,871m (2009: £8,418m). Banking and credit related fees and commissions increased £485m to £10,063m (2009: £9,578m), primarily due to Barclays Capital performance across Investment Banking and Equities.

Net trading income increased £1,077m to £8,078m (2009: £7,001m). The majority of the Group’s trading income arises in Barclays Capital. Trading income decreased 14% to £7,017m (2009: £8,139m) reflecting a more challenging market environment compared with the very strong prior year performance. The impact from difficult trading conditions was more than offset by a £4,293m reduction in credit market fair value losses to £124m (2009: £4,417m) and a gain on own credit of £391m (2009: £1,820m loss).

Net investment income increased £1,421m to £1,477m (2009: £56m) driven by the disposal of Gilts held as part of the economic structural hedge portfolio together with realised gains on principal investments, the disposal of available for sale assets and a reduction in fair value losses held at fair value within Barclays Capital.

Net premiums from insurance contracts remained stable at £1,137m (2009: £1,172m).

Gains on debt buy-backs and extinguishments were £nil (2009: £1,249m).

 

 

 

 

 

Non-interest income

 

   2010
£m
    2009
£m
    2008
£m
 

Net fee and commission income

     8,871        8,418        6,491   

Net trading income

     8,078        7,001        1,339   

Net investment income

     1,477        56        680   

Net premiums from insurance contracts

     1,137        1,172        1,090   

Gains on debt buy-backs and extinguishments

            1,249        24   

Other income

     118        140        343   

Non-interest income

     19,681        18,036        9,967   
      

Net fee and commission income

 

   2010
£m
    2009
£m
    2008
£m
 
Banking and credit related fees and commissions      10,063        9,578        7,208   

Brokerage fees

     77        88        56   

Investment management fees

     79        133        120   

Foreign exchange commission

     149        147        189   

Fee and commission income

     10,368        9,946        7,573   

Fee and commission expense

     (1,497     (1,528     (1,082

Net fee and commission income

     8,871        8,418        6,491   
 


Table of Contents
10                   

 

 

 

2009

Net fee and commission income increased £1,927m to £8,418m (2008: £6,491m). Banking and credit related fees and commissions increased £2,370m to £9,578m (2008: £7,208m), primarily due to Barclays Capital strong performance in Equities and Investment Banking.

Net trading income increased £5,662m to £7,001m (2008: £1,339m). The majority of the Group’s trading income arises in Barclays Capital. Fixed Income, Currency and Commodities drove the very strong increase in trading income as the expansion of the business and client flows more than absorbed gross credit market losses of £4,417m (2008: £6,290m) and losses relating to own credit of £1,820m (2008: £1,663m gain).

Net investment income decreased £624m to £56m (2008: £680m) driven by realised losses in commercial real estate equity investments and losses in the principal investments business, partially offset by gains on disposal of available for sale investments within Barclays Capital.

Net premiums from insurance contracts increased £82m to £1,172m (2008: £1,090m) primarily reflecting expansion in Western Europe Retail Banking and Absa, partially offset by the impact of the sale of the closed life assurance business in the second half of 2008.

Gains on debt buy-backs and extinguishments includes £1,170m gains relating to Upper Tier 2 perpetual debt and its corresponding hedge and £85m (2008: £24m) from the repurchase of securitised debt issued by Barclays Corporate.

 

Net Trading Income

 

  

2010

£m

    

2009

£m

   

2008

£m

 

Trading income/(loss)

     7,017         8,139        (1,596

Gain on foreign exchange dealings

     670         682        1,272   

Own Credit gain/(charge)

     391         (1,820     1,663   

Net trading income

     8,078         7,001        1,339   
       

Net investment income

 

   2010
£m
     2009
£m
    2008
£m
 
Net gain from disposal of available for sale assets      1,027         349        212   

Dividend income

     116         6        196   
Net gain/(loss) from financial instruments designated at fair value      274         (208     33   

Other net investment income/ (losses)

     60         (91     239   

Net investment income

     1,477         56        680   

Impairment charges and other credit provisions

2010

Impairment charges on loans and advances fell 24% to £5,625m (2009: £7,358m), reflecting improving credit conditions in the main sectors and geographies in which Barclays lends, which led to lower charges across the majority of businesses. The largest reduction was in the wholesale portfolios, due to lower charges against credit market exposures and fewer large single name charges. This reduction was partially offset by the impact of deteriorating credit conditions in the Spanish property and construction sectors which resulted in an increase of £630m in impairment against the Barclays Corporate loan book in Spain, and £532m impairment relating to the Protium loan in Barclays Capital. In the retail portfolios, impairment performance improved as delinquency rates fell across Barclays businesses, most notably the UK, US, Spanish, Indian and African portfolios.

As a result of this fall in impairment and the 1% rise in loans and advances, the loan loss rate decreased to 118bps (2009: 156bps).

The impairment charges against available for sale assets and reverse repurchase agreements fell by 93% to £47m (2009: £713m), principally driven by lower impairment against credit market exposures.

2009

Impairment charges on loans and advances and other credit provisions increased £2,445m to £7,358m (2008: £4,913m). The increase was primarily due to economic deterioration and portfolio maturation, currency movements and methodology enhancements, partially offset by a contraction in loan balances.

 

Impairment charges and other credit
provisions
  

2010

£m

    2009
£m
    2008
£m
 

Impairment charges on loans and advances

      

– New and increased impairment allowances

     6,939        8,111        5,116   

– Releases

     (1,189     (631     (358

– Recoveries

     (201     (150     (174

Impairment charges on loans and advances

     5,549        7,330        4,584   
Charge in respect of provision for undrawn contractually committed facilities and guarantees provided      76        28        329   
Impairment charges on loans and advances and other credit provisions      5,625        7,358        4,913   
Impairment charges/(writebacks) on reverse repurchase agreements      (4     43        124   

Impairment charges on available for sale assets

     51        670        382   
Impairment charges and other credit provisions      5,672        8,071        5,419   
 


Table of Contents

 

           11   

Financial review

Income statement commentary continued

 

 

 

As a result of this increase in impairment and the fall in loans and advances, the impairment charges as a percentage of period end Group total loans and advances increased to 156bps (2008: 95bps).

The impairment charges against available for sale assets and reverse repurchase agreements increased £207m to £713m (2008: £506m), driven by impairment against credit market exposures.

Operating expenses

2010

Operating expenses increased 19% to £19,971m (2009: £16,715m) driven by increases in staff costs, administration and general expenses and impairment of goodwill.

The impairment of goodwill reflects the write off of the goodwill relating to Barclays Bank Russia of £243m as our activities there are refocused.

2009

Operating expenses increased 25% to £16,715m (2008: £13,391m). The increase was driven by a 38% increase in staff costs to £9,948m (2008: £7,204m).

Amortisation of intangibles increased £171m to £447m (2008: £276m) primarily related to the intangible assets arising from the acquisition of the Lehman Brothers North American businesses.

 

Operating expenses    2010
£m
     2009
£m
     2008
£m
 

Staff costs

     11,916         9,948         7,204   

Administration and general expenses

     6,585         5,560         5,193   

Depreciation

     790         759         606   

Amortisation of intangible assets

     437         447         276   

Impairment of goodwill

     243         1         112   

Operating expenses

     19,971         16,715         13,391   

Staff costs

2010

Staff costs increased 20% to £11,916m (2009: £9,948m). This was driven by a 13% increase in salaries and accrued performance costs and a £574m increase in share based payments. These increases are primarily due to increased charges relating to prior year awards, the continued build-out in Equities and Investment Banking at Barclays Capital and strategic growth initiatives at Barclays Wealth.

The UK Government applied a bank payroll tax of 50% to all discretionary bonuses over £25,000 awarded to UK bank employees between 9th December 2009 and 5th April 2010. The total bank payroll tax paid was £437m, of which £225m was recognised in 2009 in respect of 2009 cash awards and certain prior year deferrals distributed during the taxable period. For 2010 a charge of £96m has been recognised in relation to prior year deferrals, with the remaining £116m recognised over the period 2011 to 2013.

The defined benefit post retirement charge increased by £246m reflecting the non-recurrence of the benefit of the £371m one-off credit arising on closure of the final salary scheme in 2009 offset by the credit of £250m resulting from amendments to the treatment of minimum defined benefits and £54m relating to the Group’s recognition of a surplus in Absa, as well as favourable investment returns over the period.

 

 

Staff costs   

2010

£m

    

2009

£m

   

2008

£m

 

Salaries and accrued performance costs

     8,809         7,795        5,562   

Share based payments

     860         286        225   

Social security costs

     719         606        444   

Bank payroll tax

     96         225          

Post-retirement benefits

       

– defined contribution plans

     297         224        221   

– defined benefit plans

     213         (33     89   

– other post-retirement benefits

     18         16        1   

Other

     904         829        662   

Staff costs

     11,916         9,948        7,204   

 

 


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12        

        

 

 

 

2009

Staff costs increased 38% to £9,948m (2008: £7,204m) driven by a 40% increase in salaries and accrued performance costs, primarily in Barclays Capital, reflecting the inclusion of the acquired Lehman Brothers North American businesses and associated net increase of 7,000 employees in September 2008.

For 2009, £190m of bank payroll tax costs were included within Other Staff Costs in respect of 2009 cash awards. A further provision of £35m was also included in Other Staff Costs in respect of certain prior year awards being distributed during the tax window.

Defined benefit plan pension costs decreased £122m to £33m credit (2008: cost of £89m) primarily due to the UK Retirement Fund whose charges decreased as a result of a one-off credit of £371m from the closure of the final salary scheme to existing members.

Staff numbers

2010

Total Group permanent and fixed term contract staff comprised 58,100 (2009: 55,700) in the UK and 89,400 (2009: 88,500) internationally.

Staff numbers have increased by 1,900 to 67,900 (2009: 66,000) for Global Retail Banking largely due to the acquisition of Standard Life Bank, the build-out of Barclays Shared Services in India, the insourcing of operations and the further international development of technology infrastructure.

 

Staff numbers

(full time equivalent)

As at 31st December

   2010      2009      2008  

UK Retail Banking

     34,700         31,900         33,800   

Barclaycard

     9,900         10,100         10,300   

Western Europe Retail Banking

     9,400         9,600         9,300   

Barclays Africa

     13,900         14,400         16,500   

Barclays Capital

     24,800         23,200         23,100   

Barclays Corporate

     11,900         12,900         14,800   

Barclays Wealth

     7,700         7,400         7,900   

Absa

     33,700         33,200         35,700   
Head Office Functions and Other Operations      1,500         1,500         1,400   
Total Group permanent and fixed-term contract staff worldwidea      147,500         144,200         152,800   

Note

a Excludes 2,400 employees (2009: 2,500; 2008: Nil) of consolidated entities engaged in activities that are not closely related to our principal businesses.

Barclays Capital staff numbers increased 1,600 to 24,800 (2009: 23,200) as a result of investment in sales, origination, trading and research activities. Barclays Corporate staff numbers decreased 1,000 to 11,900 (2009: 12,900) primarily reflecting restructuring in New Markets.

2009

Total Group permanent and fixed-term contract staff comprised 55,700 (2008: 59,600) in the UK and 88,500 (2008: 93,200) internationally.

Global Retail Banking number of employees decreased by 3,900 to 66,000 (2008: 69,900), reflecting active cost management and restructuring in Spain and Africa, partially offset by increases in Portugal and Italy to support the expansion of the network in these countries. Absa number of employees decreased 2,500 to 33,200 (2008: 35,700), reflecting restructuring and a freeze on recruitment.

Barclays Capital number of employees increased 100 to 23,200 (2008: 23,100) as a net reduction in the first half of the year was offset by strategic growth in the business and the annual graduate intake. Barclays Corporate number of employees decreased 1,900 to 12,900 (2008: 14,800) reflecting tightly managed costs, partly offset by the expansion of risk and offshore support operations. Barclays Wealth number of employees decreased 500 to 7,400 (2008: 7,900) reflecting active cost management, including efficiency savings in non-client facing areas.

 

 


Table of Contents
        

 

 

 

13

 

  

Financial review

Income statement commentary continued

 

 

 

Administration and general expenses

2010

Administration and general expenses increased £1,025m to £6,585m (2009: £5,560m). The increase is principally due to greater regulatory-related costs across the Group (including a settlement in resolution of the investigation into Barclays compliance with US economic sanctions), investment in technology and infrastructure, the acquisitions of Standard Life Bank within UK Retail Banking and the Portuguese and Italian credit card businesses of Citigroup within Western Europe Retail Banking and adverse impacts of foreign currency movements. Impairment charges on property, equipment and intangible assets of £125m (2009: £61m) were principally driven by restructuring in Barclays Corporate – New Markets and Barclays Capital.

In June 2010, the UK Government announced its intention to introduce a bank levy, which will apply to elements of the Group’s consolidated liabilities and equity held as at 31st December 2011. The draft legislation is expected to be enacted by the UK Parliament later this year. Based on the 31st December 2010 balance sheet position and the draft requirements, we estimate that the bank levy would result in an annual charge to the income statement of approximately £400m from 2011 onwards.

2009

Administration and general expenses grew £367m to £5,560m (2008: £5,193m) reflecting the impact of acquisitions made during 2008, the costs of servicing an expanded distribution network across Global Retail Banking, and expenses relating to the Financial Services Compensation Scheme. There were also decreases of £119m in gains from sale of property (included in other administration and general expenses) as the Group wound down its sale and leaseback programme.

 

Administration and general

expenses

  

2010

£m

    

2009

£m

    

2008

£m

 
Property and equipment      1,813         1,641         1,356   
Outsourcing and professional services      1,705         1,496         1,472   
Operating lease rentals      637         639         520   
Marketing, advertising and sponsorship      631         492         591   
Subscriptions, publications and stationery      584         519         458   
Travel and accommodation      358         273         275   
Other administration and general expenses      732         439         491   
Impairment of property, equipment and intangible assets      125         61         30   
Administration and general expenses      6,585         5,560         5,193   

Share of post-tax results of associates and joint ventures

2010

The share of post-tax results of associates and joint ventures increased £24m to £58m (2009: £34m), reflecting a £24m increase in results from joint ventures largely from Barclaycard and Absa. Results from associates remained constant at £19m (2009: £19m) since the prior year.

2009

The share of post-tax results of associates and joint ventures increased £20m to £34m (2008: £14m), reflecting a £23m increase in results from joint ventures largely from Barclaycard and Barclays Capital, and a £3m decrease in results from associates, mainly due to reduced contributions from private equity instruments.

Profit on disposals and gain on acquisitions

2010

The profit on disposal of £81m (2009: £188m) is largely attributable to the £77m profit arising from sale of Barclays Africa custody business to Standard Chartered Bank.

On 1st January 2010, the Group acquired 100% ownership of Standard Life Bank PLC realising a gain on acquisition of £100m. On 31st March 2010, the Group acquired 100% of the Italian credit card business of Citibank International PLC realising a gain on acquisition of £29m. On 26th July 2010 the Group acquired 86% of Tricorona recognising goodwill of £13m.

2009

The profit on disposal of £188m (2008: £327m) is largely attributable to the sale of 50% of Barclays Vida y Pensiones Compañía de Seguros (£157m), and the 7% sale of Barclays Africa Botswana business (£24m).

 

Share of post-tax results of

associates and joint ventures

  

2010

£m

    

2009

£m

    

2008

£m

 
Profit from associates      19         19         22   
Profit/(loss) from joint ventures      39         15         (8
Share of post-tax results of associates and joint ventures      58         34         14   
        

Profit on disposals and gain on

acquisitions

  

2010

£m

    

2009

£m

    

2008

£m

 
Profit on disposal of subsidiaries, associates and joint ventures      81         188         327   
Gain on acquisitions      129         26         2,406   

 

 


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14        

        

 

 

 

Gains of £26m for the year relate to the acquisition of the Portuguese credit card business of Citibank International PLC in December 2009. A gain on acquisition of the North American businesses of Lehman Brothers of £2,262m was recorded in 2008. Details of current litigation relating to the acquisition are disclosed on page 227.

Tax

2010

The tax charge for continuing operations for 2010 was £1,516m (2009: £1,074m) representing an effective tax rate of 25% (2009: 23.4%). The effective tax rate differs from the UK tax rate of 28% (2009: 28%) because of non-taxable gains and income, different tax rates that are applied to the profits and losses outside of the UK, and deferred tax assets previously not recognised.

2009

The effective tax rate for 2009, based on profit before tax on continuing operations, was 23.4% (2008: 8.8%). The effective tax rate differs from the UK tax rate of 28% (2008: 28.5%) because of non-taxable gains and income, different tax rates applied to taxable profits and losses outside the UK, disallowable expenditure and adjustments in respect of prior years. The low effective tax rate of 8.8% on continuing operations in 2008 mainly resulted from the Lehman Brothers North American businesses acquisition.

Profit for the year from discontinued operations

2010

There were no discontinued operations in 2010.

2009

The profit after tax from discontinued operations increased £6,173m to £6,777m, reflecting the gain on sale of Barclays Global Investors (BGI) of £6,331m (2008: £nil) and other profit before tax from BGI of £726m (2008: £941m). The results for 2009 included 11 months of operations compared to 12 months for 2008.

 


Table of Contents
        

 

 

 

15

 

  

Financial review

Consolidated summary balance sheet

 

 

 

As at 31st December   

2010

£m

    

2009

£m

    

2008

£m

    

2007

£m

    

2006

£m

 

Assets

              

Cash, balances at central banks and items in the course of collection

     99,014         83,076         31,714         7,637         9,753   

Trading portfolio assets

     168,867         151,344         185,637         193,691         177,867   

Financial assets designated at fair value

     41,485         42,568         121,199         147,480         114,597   

Derivative financial instruments

     420,319         416,815         984,802         248,088         138,353   

Loans and advances to banks

     37,799         41,135         47,707         40,120         30,926   

Loans and advances to customers

     427,942         420,224         461,815         345,398         282,300   

Reverse repurchase agreements and other similar secured lending

     205,772         143,431         130,354         183,075         174,090   

Available for sale financial investments

     65,110         56,483         64,976         43,072         51,703   

Other assets

     23,337         23,853         24,776         18,800         17,198   

Total assets

     1,489,645         1,378,929         2,052,980         1,227,361         996,787   

Liabilities

              

Deposits and items in the course of collection due to banks

     79,296         77,912         116,545         92,338         81,783   

Customer accounts

     345,788         322,429         335,505         294,987         256,754   

Repurchase agreements and other similar secured borrowing

     225,534         198,781         182,285         169,429         136,956   

Trading portfolio liabilities

     72,693         51,252         59,474         65,402         71,874   

Financial liabilities designated at fair value

     97,729         87,881         146,075         167,128         138,624   

Derivative financial instruments

     405,516         403,416         968,072         248,288         140,697   

Debt securities in issue

     156,623         135,902         149,567         120,228         111,137   

Subordinated liabilities

     28,499         25,816         29,842         18,150         13,786   

Other liabilities

     15,705         17,062         18,204         18,935         17,786   

Total liabilities

     1,427,383         1,320,451         2,005,569         1,194,885         969,397   

Shareholders’ equity

              

Shareholders’ equity excluding non-controlling interests

     50,858         47,277         36,618         23,291         19,799   

Non-controlling interests

     11,404         11,201         10,793         9,185         7,591   

Total shareholders’ equity

     62,262         58,478         47,411         32,476         27,390   

Total liabilities and shareholders’ equity

     1,489,645         1,378,929         2,052,980         1,227,361         996,787   

Risk weighted assets and capital ratiosa

                                            

Risk weighted assets

     398,031         382,653         433,302         353,878         297,833   

Core Tier 1 ratio

     10.8%         10.0%         5.6%         4.7%         n/a   

Tier 1 ratio

     13.5%         13.0%         8.6%         7.6%         7.7%   

Risk asset ratio

     16.9%         16.6%         13.6%         11.2%         11.7%   

Selected financial statistics

                                            

Net asset value per ordinary share

     417p         414p         437p         353p         303p   

Number of ordinary shares of Barclays PLC (in millions)

     12,182         11,412         8,372         6,601         6,535   

Year-end United States Dollar exchange rate

     1.55         1.62         1.46         2.00         1.96   

Year-end Euro exchange rate

     1.16         1.12         1.04         1.36         1.49   

Year-end Rand exchange rate

     10.26         11.97         13.74         13.64         13.71   

The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying consolidated financial statements.

Note

a Risk weighted assets and capital ratios for 2006 are calculated on a Basel I basis.
   Risk weighted assets and capital ratios for 2010, 2009, 2008 and 2007 are calculated on a Basel II basis.
 


Table of Contents

 

16        

        

Financial review

Balance sheet commentary

 

 

 

Total assets

Total assets increased £111bn to £1,490bn.

Cash, balances at central banks and items in the course of collection have increased £15.9bn contributing to the increase in the Group liquidity pool. Trading portfolio assets increased £17.5bn and reverse repurchase and other similar secured lending increased £62.3bn reflecting business growth. Financial assets designated at fair value have decreased by £1.1bn primarily due to a decrease in debt securities.

Derivative financial assets increased £3.5bn reflecting increases in the mark to market positions in interest rate and foreign exchange derivatives due to movements in forward interest rate curves and volatility in the foreign exchange market. This was partially offset by decreases in credit, equity and commodities derivatives due to reduced volatility.

Loans and advances to banks and customers increased £4.4bn due to an increase in lending to retail customers, including the effect of the acquisition of Standard Life Bank, offset by a reduction in borrowings by wholesale customers and banks.

Available for sale financial investments increased £8.6bn primarily driven by purchase of government bonds increasing the Group’s liquid assets and the transfer from loans and advances to available for sale assets of the receivables arising as part of the acquisition of the North American business of Lehman Brothers. This was partially offset by a £0.8bn reduction in the fair value of the Group’s investment in BlackRock, Inc.

Total liabilities

Total liabilities increased £107bn to £1,427bn.

Deposits and items in the course of collection from banks and customer accounts increased £24.7bn reflecting the acquisition of Standard Life Bank and customer deposit growth across the Group. Financial liabilities designated at fair value increased £9.8bn primarily due to increased debt securities and debt issuances strengthening the Group’s liquidity position. Debt securities in issue increased £20.7bn primarily due to increases in bonds, medium term notes, certificates of deposit and commercial paper. This growth was primarily to fund the increased liquidity pool and business growth.

Trading portfolio liabilities increased £21.4bn and repurchase agreements and other similar secured borrowing increased £26.8bn reflecting business growth. Derivative financial liabilities increased £2.1bn broadly in line with the increase in gross derivative assets.

Subordinated liabilities increased £2.7bn primarily reflecting issuances and acquisitions partially offset by redemptions. Other liabilities decreased £1.4bn reflecting reduced retirement benefit liabilities, current tax liabilities and other creditors.

 


Table of Contents
        

 

 

 

17

 

  

Financial review

Balance sheet commentary continued

 

 

 

Shareholders’ equity

Total shareholders’ equity increased £3.8bn to £62.3bn (2009: £58.5bn), with share capital and share premium increasing £1.5bn to £12.3bn as a result of the issue of new ordinary shares. Retained earnings increased £2.9bn to £36.8bn (2009: £33.8bn). Profit attributable to the equity holders of the Parent of £3.6bn were partially offset by dividends paid to shareholders of £0.5bn.

Significant movements in other reserves comprise: available for sale reserve movement of £1.2bn, primarily due to the decrease in the fair value of the Group’s investment in BlackRock Inc. of £0.8bn and a decrease of £0.3bn of hedged foreign exchange movements related to this investment that have been transferred to the income statement. Currency translation reserve movement of £0.7bn is largely due to the appreciation in the Rand and US Dollar, offset by the depreciation in the Euro.

Non-controlling interests increased £0.2bn to £11.4bn (2009: £11.2bn). The increase primarily reflects profit for the year attributable to non-controlling interests of £1.0bn and currency translation differences of £0.4bn, offset by distributions of £0.8bn and the redemption of £0.5bn reserve capital instruments.

Adjusted gross leverage

Barclays continues to operate within limits and targets for balance sheet usage as part of its balance sheet management activities.

Adjusted gross leverage is a non-IFRS measure representing the multiple of adjusted total tangible assets over total qualifying Tier 1 capital. Adjusted total tangible assets are total assets adjusted to allow for derivative counterparty netting where the Group has a legally enforceable master netting agreement, assets under management on the balance sheet, settlement balances and cash collateral on derivative liabilities, goodwill and intangible assets. This measure has been presented as it provides for a metric used by management in assessing balance sheet leverage. Barclays management believes that this measure provides useful information to readers of Barclays financial statements as a key measure of stability, which is consistent with the views of regulators and investors. However, this measure is not a substitute for IFRS measures and readers should consider IFRS measures as well, such as the ratio of total assets to total shareholders equity as disclosed on page 104.

The adjusted gross leverage was 20x as at 31st December 2010 (2009: 20x) principally as a result of a £3.9bn increase in Tier 1 Capital to £53.5bn offset by the impact of a £84.6bn increase in adjusted total tangible assets. At month ends during 2010 the ratio moved in a range from 20x to 24x, with fluctuations arising as a result of normal trading activities, primarily due to increases in reverse repurchase trading and changes in holdings of trading portfolio assets.

The ratio of total assets to total shareholders equity was 24x as at 31st December 2010 (2009: 24x). The ratio moved within a month end range of 24x to 29x, driven by trading activity fluctuations noted above, as well as changes in gross interest rate derivatives and settlement balances.

The Basel Committee of Banking Supervisors (BCBS) issued final guidelines for ‘Basel III: a global regulatory framework for more resilient banks and banking systems’ in December 2010. The guidelines include a proposed leverage metric, to be implemented by national supervisors in parallel run from 1st January 2013 (migrating to a Pillar 1 measure by 2018). The metric is the ratio of exposure to Tier 1 capital calculated on a Basel III basis, with exposure representing total assets and certain off balance sheet items, the potential future exposure on derivative contracts, less netting permitted under applicable UK regulatory rules and those assets deducted from Tier 1 capital. The final implementation of Basel III may result in the future calculation of this ratio being on a different basis. Based on our interpretation of the current BCBS proposals the Group’s Basel III leverage ratio as at 31st December 2010 would be within the proposed limit of 33x.

Further details on leverage and the reasons for monthly fluctuations are provided on page 104.

 


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18        

        

 

 

 

Capital management

At 31st December 2010, on a Basel II basis, the Group’s Core Tier 1 ratio was 10.8% (2009: 10.0%) and the Tier 1 ratio was 13.5% (2009: 13.0%), representing a strengthening of our capital ratios ahead of the effects of expected regulatory capital changes.

Risk weighted assets increased 4% from £383bn to £398bn in 2010. Year on year there was a £22bn reduction in underlying risk weighted assets (predominantly in Barclays Capital) as a result of capital management efficiencies and reduced levels of risk and inventory. This was offset by both methodology and model changes, which increased risk weighted assets by approximately £28bn. Foreign exchange and other movements accounted for a further increase of £9bn.

Retained profit contributed approximately 70bps increase to Core Tier 1 ratio from 10.0% to 10.8%. Other movements in Core Tier 1 included the exercise of warrants in February and October 2010, which generated shareholders’ equity of £1.5bn, contributing approximately 40bps to the Core Tier 1 ratio. The movement in the fair value of the Group’s holding in BlackRock, Inc. resulted in an adverse impact of approximately 20bps on the Core Tier 1 ratio over the year.

The Basel Committee of Banking Supervisors issued final Basel III guidelines in December 2010 and January 2011. The new standards include changes to risk weights applied to our assets and to the definition of capital resources and are applicable from 1st January 2013 with some transitional rules to 2018. The Basel III guidelines have yet to be implemented into European and UK law and therefore remain subject to refinement and change. Recognising the new rules are not complete, based on our current assessment of the guidelines, we expect that we will continue to have a strong capital position post implementation.

Liquidity and Funding

The liquidity pool held by the Group increased £27bn to £154bn at 31st December 2010 (2009: £127bn), of which £140bn was in FSA-eligible pool assets.

The Basel III guidelines propose two new liquidity metrics: the Liquidity Coverage Ratio, which measures short-term liquidity stress and is broadly consistent with the FSA framework, and the Net Stable Funding Ratio, which measures the stability of long-term structural funding. Applying the metrics to the Group balance sheet as at 31st December 2010, the Liquidity Coverage Ratio was estimated at 80% and the Net Stable Funding Ratio was estimated at 94%. For details of the definition of Net Stable Funding Ratio and Liquidity Coverage Ratio see the glossary on page 300.

The Group continues to attract deposits in unsecured money markets and to raise additional secured and unsecured term funding in a variety of markets. As at 31st December 2009, the Group had £15bn of publicly issued term debt maturing during 2010. The corresponding figure for 2011 is £25bn. During 2010 the Group issued approximately £35bn of term funding, which refinanced the 2010 requirement, comprising both maturities and early repayments, as well as pre-financed some of the 2011 and 2012 maturities. Additional term funding raised in 2011 will support balance sheet growth, further extension of liability maturities and strengthening of our liquidity position.

In addition to monitoring and managing key metrics related to the financial strength of Barclays, we also subscribe to independent credit rating agency reviews by Standard & Poor’s, Moody’s Fitch and DBRS. These ratings assess the credit worthiness of Barclays and are based on reviews of a broad range of business and financial attributes including; risk management processes and procedures; capital strength, earnings, funding, liquidity, accounting, and governance.

 

 As at 31.12.10

   Barclays PLC    Barclays Bank PLC

 Standard & Poor’s

     

 

 Long Term

   A+    AA-

 Short Term

   A- 1    A- 1+

 Moody’s

     

 

 Long Term

   A1    Aa3

 Short Term

   P-1    P-1

 BFSR

   n/a    C(Stable)

 Fitch

     

 

 Long Term

   AA-    AA-

 Short Term

   F1+    F1+

 DBRS

     

 

 Long Term

      AA (High)

 Short Term

      R-1 (High)

For further information on liquidity and funding see “Risk Management—Liquidity Risk Management”.

 


Table of Contents
        

 

 

 

19

 

  

Financial review

Analysis of results by business

 

 

 

Business performance

UK Retail Banking

UK Retail Banking (UKRB) profit before tax increased 39% to £989m (2009: £710m), including a £100m gain on the acquisition of Standard Life Bank, with good income growth and lower impairment charges more than offsetting an increase in operating expenses. Income increased 6% to £4,518m (2009: £4,276m). Impairment charges decreased 21% to £819m (2009: £1,031m), reflecting good risk management and improving economic conditions. As a result, net operating income grew 14% to £3,699m (2009: £3,245m). Operating expenses increased 11% to £2,809m (2009: £2,538m), reflecting higher pension costs, the impact of the acquisition of Standard Life Bank and increased regulatory-related costs. Excluding these items, operating expenses were in line with prior year.

 

 

Analysis of results by
business
   UK
Retail
Banking
£m
    Barclaycard
£m
    Western
Europe
Retail
Banking
£m
    Barclays
Africa
£m
    Absa
£m
    Barclays
Capital
£m
    Barclays
Corporate
£m
    Barclays
Wealth
£m
   

Investment
Manage-
ment

£m

    Head Office
Functions
and Other
Operations
£m
 
As at 31st December 2010                     
Total income net of insurance claims      4,518        4,024        1,164        801        2,899        13,600        2,974        1,560        78        (178
Impairment charges and other credit provisions      (819     (1,688     (314     (82     (480     (543     (1,696     (48            (2

Net operating income

     3,699        2,336        850        719        2,419        13,057        1,278        1,512        78        (180

Operating expenses

     (2,809     (1,570     (1,033     (608     (1,810     (8,295     (1,907     (1,349     (11     (579
Share of post–tax results of associates and joint ventures      (1     25        15               3        18        (2                     
Profit on disposal of subsidiaries, associates and joint ventures                           77        4                                      
Gain on acquisitions      100               29                                                    
Profit /(loss) before tax from continuing operations      989        791        (139     188        616        4,780        (631     163        67        (759

Total assets (£bn)

     121.6        30.3        53.6        7.9        52.4        1,094.8        85.7        17.8        4.6        20.9   
Risk Weighted Assets (£bn)      35.3        31.9        17.3        8.0        30.4        191.3        70.8        12.4        0.1        0.6   

As at 31st December 2009

                    
Total income net of insurance claims      4,276        4,041        1,318        739        2,553        11,625        3,181        1,322        40        28   
Impairment charges and other credit provisions      (1,031     (1,798     (338     (121     (567     (2,591     (1,558     (51            (16

Net operating income

     3,245        2,243        980        618        1,986        9,034        1,623        1,271        40        12   

Operating expenses

     (2,538     (1,527     (887     (538     (1,451     (6,592     (1,466     (1,129     (17     (570
Share of post–tax results of associates and joint ventures      3        8        4               (4     22                             1   
Profit/(loss) on disposal of subsidiaries, associates and joint ventures             3        157        24        (3                   1        (1     7   

Gain on acquisitions

                   26                                                    
Profit/(loss) before tax from continuing operations      710        727        280        104        528        2,464        157        143        22        (550

Total assets (£bn)

     109.3        30.3        51.0        7.9        45.8        1,019.1        88.8        14.9        5.4        6.4   
Risk Weighted Assets (£bn)      35.9        30.6        16.8        7.6        21.4        181.1        76.9        11.4        0.1        0.9   
 


Table of Contents
20                  

 

 

 

 

 

Barclaycard

Barclaycard profit before tax increased 9% to £791m (2009: £727m) largely as a result of lower impairment charges. Income was £4,024m (2009: £4,041 m) with the impact of regulation offset by business growth. Impairment charges reduced 6% to £1,688m (2009: £1,798m) as a result of focused risk management and improving economic conditions. Delinquency trends were lower in all major areas of the Barclaycard business. Operating expenses increased 3% to £1,570m (2009: £1,527m).

Western Europe Retail Banking

Western Europe Retail Banking incurred a loss before tax of £139m (2009: profit of £280m). The deterioration was driven by the challenging economic environment, continued investment in the franchise and £157m of profit on disposal recognised in 2009. Income fell 12% to £1,164m (2009: £1,318m) principally due to margin compression and the decline in the average value of the Euro against Sterling, partially offset by higher fees and commissions and the growth in credit cards. Impairment charges improved by 7% to £314m (2009: £338m). Operating expenses increased 16% to £1,033m (2009: £887m) mainly due to continued investment in developing the franchise in Portugal and Italy, notably the expansion of the credit card businesses in these countries.

Barclays Africa

Barclays Africa profit before tax increased 81% to £188m (2009: £104m). 2010 included a one-off gain of £77m from the sale of the custody business to Standard Chartered Bank which was partially offset by £40m of restructuring costs. 2009 included a one-off gain of £24m from the sale of shares in Barclays Bank of Botswana Limited. Income grew 8% to £801m (2009: £739m) as a result of improved net interest margins and income from treasury management. Impairment charges decreased 32% to £82m (2009: £121m) as a result of a better economic environment and improved collections. Operating expenses increased 13% to £608m (2009: £538m) reflecting £40m of restructuring costs, investment in infrastructure and an increase in staff-related costs.

Absa

Absa Group Limited reported profit before tax of R11,851m (2009: R9,842m), an increase of 20%. In Barclays segmental reporting, the results of the Absa credit card business are included in Barclaycard, the investment banking operations in Barclays Capital and wealth operations in Barclays Wealth. The other operations of Absa Group Limited are reported in the Absa segment. Absa profit before tax increased 17% to £616m (2009: £528m), driven by the appreciation in the average value of the Rand against Sterling. The impact of exchange rate movements also impacted income, which increased 14%, operating expenses, which increased 25%, and impairment charges, which decreased 15%. Impairment charges in Rand terms improved 26% reflecting an improvement in economic conditions.

Barclays Capital

Barclays Capital profit before tax increased to £4,780m (2009: £2,464m). Excluding own credit, profit before tax grew 2% to £4,389m (2009: £4,284m). Total income increased 17% to £13,600m (2009: £11,625m). This reflected a significant reduction in losses taken through income relating to credit market exposures which fell to £124m (2009: £4,417m) and a gain relating to own credit of £391m (2009: loss of £1,820m). Top-line incomea, which excludes these items, was £13,333m, down 25% on the very strong prior year performance. Fixed Income, Currency and Commodities (FICC) top-line incomea of £8,811m declined 35%, reflecting lower contributions from Rates and Commodities. Equities and Prime Services top-line incomea of £2,040m declined 6%, as growth in cash equities and equity financing was more than offset by subdued market activity in European equity derivatives. Investment Banking top-line incomea of £2,243m increased 3%.

Impairment charges, including impairment of £532m relating to the Protium loan which follows a reassessment of the expected realisation period, improved significantly to £543m (2009: £2,591m), resulting in a 45% increase in net operating income to £13,057m. Operating expenses increased 26% which largely reflected the continuing investment in our sales, origination, trading and research activities, increased charges relating to prior year deferrals and restructuring costs. The cost: net income ratio was 64% (2009: 73%) and compensation costs represented 42% of income (2009: 38%). Excluding the impact of own credit, the cost: net income ratio was 65% (2009: 61%) and compensation costs represented 43% of income (2009: 33%)b.

Barclays Corporate

Barclays Corporate recorded a loss before tax of £631m (2009: profit of £157m). An improvement in the results of the profitable UK & Ireland business was more than offset by increased losses in New Markets and Continental Europe, notably Spain. Total income decreased 7% to £2,974m (2009: £3,181), reflecting lower treasury management income and reduced risk appetite outside the UK. Impairment charges increased £138m to £1,696m, with significant improvements in UK & Ireland and New Markets more than offset by an increase of £630m in Spain to £898m due to depressed market conditions in the property and construction sector. Operating expenses increased to £1,907m, principally reflecting the write down of the £243m of goodwill relating to Barclays Bank Russia and associated restructuring costs of £25m, as well as previously announced restructuring costs of £94m in other geographies within New Markets (predominantly relating to Indonesia).

Barclays Wealth

Barclays Wealth profit before tax increased 14% to £163m (2009: £143m) as very strong growth in income was partially offset by costs of the strategic investment in growing the business. Income increased 18% to £1,560m principally from strong growth in the High Net Worth businesses and higher attributable net interest income from the revised internal funds pricing mechanism. Impairment charges reduced slightly to £48m (2009: £51m). Operating expenses increased 19% to £1,349m (2009: £1,129m), principally due to the start of Barclays Wealth’s strategic investment programme which accounted for £112m of additional costs, as well as the impact of growth in High Net Worth business revenues on staff and infrastructure costs.

Investment Management

Investment Management profit before tax of £67m (2009: £22m) principally reflected dividend income from the 19.9% holding in BlackRock, Inc. Total assets decreased to £4.6bn (2009: £5.4bn) reflecting the fair value of the 37.567m shares held in BlackRock, Inc.

Head Office Functions and Other Operations

Head Office Functions and Other Operations loss before tax increased by £209m to £759m (2009: loss of £550m). The results for 2009 reflected a net gain on debt buy-backs of £1,164m, while 2010 benefited from a significant decrease in the costs of the central funding activity as money market dislocations eased and a reclassification of profit from the currency translation reserve to the income statement.

 

 
Note
a   Top-line income is a non-IFRS measure that represents income before own credit gain/losses and credit market losses/income. This measure has been presented as it provides a consistent basis for comparing the business’ performance between financial periods. Credit market losses included within income at Barclays Capital for the year ended 31st December 2010 amounted to £124m (2009: £4,417m), and own credit gain for the year ended 31st December 2010 amounted to £391m (2009: loss of £1,820m). Total income at Barclays Capital for the year ended 31st December 2010 was £13,600m (2009: £11,625m). For a reconciliation of top-line income to total income for Barclays Capital, see the “Analysis of Total income” table on page 32. For more information on credit market losses see page 88 and for more information on own credit gains / losses see Note 4 to the financial statements.
b   Cost: net income ratio (excluding own credit) and compensation: income ratio (excluding own credit) are non-IFRS measures as they exclude own credit. Own credit gain for the year ended 31st December 2010 amounted to £391m (2009: loss of £1,820m). These measures have been presented as they provide a consistent basis for comparing the business’ performance between financial periods. For more information on own credit gains / losses see Note 4 to the financial statements.
 


Table of Contents
           21   

Financial review

Analysis of results by business continued

 

 

 

UK Retail Banking

UK Retail Banking is a leading UK high street bank providing current account and savings products and Woolwich branded mortgages. UK Retail Banking also provides unsecured loans, protection products and general insurance as well as banking and money transmission services to small and medium enterprises.

Performance

2010

UK Retail Banking profit before tax increased 39% to £989m (2009: £710m), driven by good income growth and lower impairment charges, more than offsetting an increase in operating expenses. The 2010 results also reflected a gain of £100m on the acquisition of Standard Life Bank.

Income increased 6% to £4,518m (2009: £4,276m) reflecting strong balance sheet growth.

Net interest income increased 11% to £3,165m (2009: £2,842m) reflecting business growth. The net interest margin for UK Retail Banking remained stable. Total average customer deposit balances increased 12% to £104.5bn (2009: £93.6bn), reflecting good growth in personal customer balances and the impact of Standard Life Bank. The liability margin increased reflecting the impact of the revised internal funds pricing mechanism. Total customer account balances increased to £108.4bn (2009: £96.8bn).

Total average customer asset balances increased 11% to £113.7bn (2009: £102.0bn), reflecting good growth in Home Finance mortgage balances and the acquisition of Standard Life Bank. The average asset margin decreased reflecting the impact of the revised internal funds pricing mechanism. Total loans and advances to customers increased to £115.6bn (2009: £103.0bn).

Average mortgage balances grew 16%, reflecting strongly positive net lending and the acquisition of Standard Life Bank. As at 31st December 2010 mortgage balances were £101.2bn (2009: £87.9bn), a share by value of 8% (2009: 7%). Gross new mortgage lending increased to £16.9bn (2009: £14.2bn), a share by value of 13% (2009: 10%). Mortgage redemptions increased to £11.0bn (2009: £8.5bn), resulting in net new mortgage lending of £5.9bn (2009: £5.7bn). The average loan to value ratio of the mortgage portfolio (including buy-to-let) on a current valuation basis was 43% (2009: 43%). The average loan to value ratio of new mortgage lending was 52% (2009: 48%).

Barclays Business had good income growth driven by an increase in net interest income with customer numbers increasing to 760,000 (2009: 742,000).

Net fee and commission income decreased 3% to £1,255m (2009: £1,299m) reflecting reduced income from Current Accounts and Barclays Financial Planning.

Total impairment charges represented 70bps (2009: 98bps) of total gross loans and advances to customers and banks. This translates to a reduction in impairment charges of 21% to £819m (2009: £1,031m), reflecting focused risk management and improved economic conditions. Impairment charges within Consumer Lending and Current Accounts decreased 29% to £418m (2009: £592m), and 27% to £134m (2009: £183m) respectively. Home Finance impairment charges remained low at £29m (2009: £26m). As a percentage of the portfolio, three-month arrears rates for the UK loans improved to 2.6% (2009: 3.8%).

Operating expenses increased 11% to £2,809m (2009: £2,538m), reflecting higher pension costs, increased regulatory-related costs and the impact of the acquisition of Standard Life Bank. Excluding these items operating expenses were in line with prior year.

Total assets increased 11% to £121.6bn (2009: £109.3bn) driven by growth in Home Finance. Risk weighted assets remained broadly flat at £35.3bn (2009: £35.9bn) with growth in Home Finance offset by a decline in Consumer Lending balances and improvements in operational risk weighted assets.

 

 

    

2010

£m

   

2009

£m

   

2008

£m

 

Income statement information

      

Net interest income

     3,165        2,842        3,245   

Net fee and commission income

     1,255        1,299        1,384   

Net trading (loss)

     (2              

Net premiums from insurance contracts

     130        198        205   

Other income

     1        5        21   

Total income

     4,549        4,344        4,855   

Net claims and benefits incurred under insurance contracts

     (31     (68     (35

Total income net of insurance claims

     4,518        4,276        4,820   

Impairment charges and other credit provisions

     (819     (1,031     (642

Net operating income

     3,699        3,245        4,178   

Operating expenses excluding amortisation of intangible assets

     (2,779     (2,496     (2,606

Amortisation of intangible assets

     (30     (42     (22

Operating expenses

     (2,809     (2,538     (2,628

Share of post-tax results of associates and joint ventures

     (1     3        8   

Gains on acquisition

     100                 

Profit before tax

     989        710        1,558   

Balance sheet information

      

Loans and advances to customers at amortised cost a

     £115.6bn        £103.0bn        £98.8bn   

Customer accounts a

     £108.4bn        £96.8bn        £93.8bn   

Total assets

     £121.6bn        £109.3bn        £105.9bn   

Risk weighted assets

     £35.3bn        £35.9bn        £34.3bn   

Note

a In 2010 the acquisition of Standard Life Bank contributed £5.9bn loans and advances and £5.2bn customer accounts.

 


Table of Contents
22                  

 

 

 

 

 

2009

In the challenging economic environment of 2009, UK Retail Banking profit before tax decreased 54% to £710m (2008: £1,558m), impacted by low interest rates resulting in margin compression on the deposit book and increased impairment charges which together more than offset well-controlled costs and an improved assets margin.

Income decreased 11% to £4,276m (2008: £4,820m) reflecting the impact of margin compression, which more than offset good income growth in Home Finance.

Net interest income decreased 12% to £2,842m (2008: £3,245m) driven by margin compression on liabilities, partially offset by increases in asset driven net interest income. Total average customer deposit balances increased 3% to £93.6bn (2008: £90.5bn), reflecting good growth in Personal Customer Current Account balances. The average liabilities margin declined reflecting reductions in UK base rates.

Average mortgage balances grew 10%, reflecting strongly positive net lending. Mortgage balances were £87.9bn at the end of the period (31st December 2008: £82.3bn), a share by value of 7% (2008: 7%). Gross advances reduced to £14.2bn (2008: £22.9bn) reflecting a continued conservative approach to lending, with redemptions of £8.5bn (2008: £10.4bn). Net new mortgage lending was £5.7bn (2008: £12.5bn). The average loan to value ratio of the mortgage book (including buy-to-let) on a current valuation basis was 43% (2008: 40%). The average loan to value ratio of new mortgage lending was 48% (2008: 47%) and the assets margin increased reflecting increased returns from mortgages and consumer loans.

Net fee and commission income decreased 6% to £1,299m (2008: £1,384m) reflecting changing customer usage together with lower mortgage application and redemption fees. Overall sales productivity resulted in fee income growth in investments.

Total impairment charges represented 0.98% of total gross loans and advances to customers and banks. Impairment charges increased 61% to £1,031m (2008: £642m), reflecting lower expectations for recoveries in line with the economic environment in 2009. Impairment charges within Consumer Lending increased 56% to £592m (2008: £380m) with impairment charges increasing 75% to £183m (2008: £105m) in retail current accounts. Home finance impairment charges remained low at £26m (2008: £24m).

Operating expenses remained well-controlled and decreased 3% to £2,538m (2008: £2,628m). This reflected the receipt of a one-off credit of £189m resulting from the closure of the UK final salary pension scheme to existing members, offset by a year on year increase in pension costs of £105m and the non-recurrence of gains of £75m from the sale of property.

Total assets increased 3% to £109.3bn (31st December 2008: £105.9bn) driven by growth in mortgage balances. Risk weighted assets increased 5% to £35.9bn (31st December 2008: £34.3bn), a significant contributor being the growth in the mortgage book.

 

 

    

2010

 

    

2009

 

    

2008

 

 

Performance Measures

        

Loan loss rate (bps)

     70         98         n/a   

3 month arrears rates – UK loans

     2.6%         3.8%         n/a   

Cost: income ratio

     62%         59%         55%   

Cost: net income ratio

 

    

 

76%

 

  

 

    

 

78%

 

  

 

    

 

63%

 

  

 

 


Table of Contents
           23   

Financial review

Analysis of results by business continued

 

 

 

Barclaycard

Barclaycard is an international payments business which manages about £200bn in annual payment value and offers a broad range of payment solutions to consumer and business customers in 22 countries throughout the world.

Performance

2010

Barclaycard profit before tax increased 9% to £791m (2009: £727m).

Barclaycard’s international businesses reported strong growth in profit before tax, particularly in Absa Card and the US. Absa Card increased 85% to £176m (2009: £95m) primarily through lower underlying impairment. The US business was profitable following adoption of the requirements of the Credit Card Accountability, Responsibility and Disclosure Act in the US (US Credit Card Act).

Income was £4,024m (2009: £4,041m) with the impact of the US Credit Card Act broadly offset by balanced growth across the business. Over 20% of income was generated from products other than consumer credit cards. Barclaycard’s UK businesses reported income at £2,453m (2009: £2,493m) reflecting the continued run-off of the FirstPlus secured lending portfolio and lower insurance-related income. International income increased 1% to £1,571m (2009: £1,548m) despite the impact of the US Credit Card Act.

Net interest income increased 3% to £2,814m (2009: £2,723m) reflecting growth in UK consumer card extended credit balances, up 4% to £8.8bn (2009: £8.5bn), and the appreciation of the average value of the Rand against Sterling, partially offset by lower net interest income due to the impact of the US Credit Card Act and the continued run-off of the FirstPlus

portfolio. Both the asset margin and the net interest margin improved during the year.

Net fee and commission income decreased 11% to £1,136m (2009: £1,271m) primarily due to the impact of the US Credit Card Act.

Investment income of £39m included a gain of £38m from the sale of Visa shares and MasterCard shares (2009: £20m).

Impairment charges reduced 6% to £1,688m (2009: £1,798m) reflecting focused risk management and improving economic conditions. As a result, loan loss rates improved to 570bps (2009: 604bps). In addition, the 30-day delinquency rates for consumer card portfolios in the UK of 3.4% (2009: 4.2%), in the US of 4.6% (2009: 6.1%) and in Absa of 4.9% (2009: 6.7%) all reduced compared to 2009.

Operating expenses increased 3% to £1,570m (2009: £1,527m). Excluding increased pension costs and the appreciation of the average value of the Rand against Sterling, operating expenses decreased compared to the prior year.

Total assets were flat at £30.3bn (2009: £30.3bn) reflecting the appreciation of the US Dollar and the Rand against Sterling offset by the continued run-off of the First Plus portfolio.

Risk weighted assets increased 4% to £31.9bn (2009: £30.6bn), reflecting securitisation redemptions and the appreciation of the US Dollar and the Rand against Sterling.

 

 

    

2010

£m

   

2009

£m

   

2008

£m

 

Income statement information

      

Net interest income

     2,814        2,723        1,786   

Net fee and commission income

     1,136        1,271        1,299   

Net trading (loss)/income

     (8     (1     2   

Net investment income

     39        23        80   

Net premiums from insurance contracts

     50        44        44   

Other income

     1        1        21   

Total income

     4,032        4,061        3,232   

Net claims and benefits incurred under insurance contracts

     (8     (20     (11

Total income net of insurance claims

     4,024        4,041        3,221   

Impairment charges and other credit provisions

     (1,688     (1,798     (1,097

Net operating income

     2,336        2,243        2,124   

Operating expenses excluding amortisation of intangible assets

     (1,481     (1,445     (1,386

Amortisation of intangible assets

     (89     (82     (61

Operating expenses

     (1,570     (1,527     (1,447

Share of post-tax results of associates and joint ventures

     25        8        (3

Profit on disposal of subsidiaries, associates and joint ventures

            3          

Gain on acquisition

                   92   

Profit before tax

     791        727        766   

Balance sheet information

      

Loans and advances to customers at amortised cost

   £ 26.6bn      £ 26.5bn      £ 27.4bn   

Total assets

   £ 30.3bn      £ 30.3bn      £ 31.0bn   

Risk weighted assets

   £ 31.9bn      £ 30.6bn      £ 27.3bn   
 


Table of Contents
24                  

 

 

 

 

 

2009

Barclaycard profit before tax decreased 5% to £727m (2008: £766m). Strong income growth across the portfolio driven by increased lending, improved margins and foreign exchange gains, was offset by higher impairment charges, driven by the deterioration in the global economy in 2009.

International businesses’ profit before tax decreased 59% to £107m (2008: £261m) driven by the US business. Strong income growth driven by higher average extended credit balances was more than offset by impairment growth, especially in the US and South African businesses, and increased operating expenses. In the UK our businesses benefited from an improvement in margins and growth in average extended balances leading to income increasing 18% to £2,493m (2008: £2,114m). Income growth was partially offset by the growth in impairment as worsening economic conditions impacted delinquencies.

Income increased 25% to £4,041m (2008: £3,221m) reflecting strong growth across the portfolio, especially in the international businesses through higher extended credit balances, lower funding rates and the appreciation of the average values of the US Dollar and the Euro against Sterling.

Net interest income increased 52% to £2,723m (2008: £1,786m) driven by strong growth in international average extended credit card balances, up 52% to £7.9bn (2008: £5.2bn), and lower funding rates as margins improved.

Net fee and commission income decreased 2% to £1,271m (2008: £1,299m) through lower volumes in FirstPlus due to the decision taken to stop writing new business in 2008 and lower volumes in the UK card portfolios partially offset by growth in the international businesses.

Investment income of £23m (2008: £80m) included a £20m gain from the sale of MasterCard shares (2008: £16m). Investment income in 2008 included a £64m gain from the Visa IPO.

Other income in 2008 included an £18m gain on the sale of a portfolio in the US.

Impairment charges increased 64% to £1,798m (2008: £1,097m). The rate of growth in the second half of 2009 was lower than that in the first half. Impairment charges in the international businesses increased £444m, driven by higher delinquencies due to deteriorating economic conditions growth in average receivables and the appreciation of the average values of the US Dollar and the Euro against Sterling. UK portfolio charges were higher as a result of rising delinquencies due to the economic deterioration, especially in the loan portfolios, and the inclusion of Goldfish in UK Cards.

Operating expenses increased 6% to £1,527m (2008: £1,447m), due to the appreciation in the average value of the US Dollar and the Euro against Sterling and growth in the portfolios including the acquisitions made in the UK, US and South Africa in 2008.

The purchase of Goldfish resulted in a gain on acquisition of £92m in 2008.

Total assets decreased 2% to £30.3bn (31st December 2008: £31.0bn) reflecting the depreciation in the US Dollar and Euro against Sterling, the decision to stop writing new business in FirstPlus and tighter lending criteria. Risk weighted assets increased 12% to £30.6bn (31st December 2008: £27.3bn) due to higher volumes and the impact of moving toward an advanced risk measurement methodology offset by favourable foreign exchange and lower secured lending balances in FirstPlus.

 

 

    

2010

 

    

2009

 

    

2008

 

 

Performance Measures

        

Loan loss rate (bps)

     570         604         n/a   

1 month arrears rates – UK cards

     3.4%         4.2%         n/a   

1 month arrears rates – US cards

     4.6%         6.1%         n/a   

1 month arrears rates – Absa cards

     4.9%         6.7%         n/a   

Cost: income ratio

     39%         38%         45%   

Cost: net income ratio

     67%         68%         68%   
 


Table of Contents

 

           25   

Financial review

Analysis of results by business continued

 

 

 

 

Western Europe Retail Banking

Western Europe Retail Banking provides retail banking and credit card services in Spain, Italy, Portugal and France. The business is building a differentiated proposition providing banking services to retail and mass affluent customers through a variety of distribution channels.

Performance

2010

Western Europe Retail Banking incurred a loss before tax of £139m (2009: profit of £280m). The deterioration in performance was largely driven by the challenging economic environment and continued investment in the franchise. In addition, the 2009 result benefited notably from a £157m gain on the sale of 50% of Barclays Iberian life insurance and pensions business.

Income fell 12% to £1,164m (2009: £1,318m), due to lower net interest income and the 3% decline in the average value of the Euro against Sterling, partially offset by higher net fee and commission income.

Net interest income fell 22% to £679m (2009: £868m), mainly reflecting a decline in treasury interest income and continued underlying liability margin compression due to the highly competitive market, partially offset by the benefit from growth in credit cards resulting in a reduction in the net interest margin.

Net fee and commission income increased 20% to £421m (2009: £352m). The growth reflects the investment in the network in previous years and the growth in the credit card business.

Net premiums from insurance contracts decreased 12% to £479m (2009: £544m) and net claims and benefits fell correspondingly 11% to £511m (2009: £572m).

Despite the challenging economic conditions, impairment charges improved 7% to £314m (2009: £338m) reflecting focused credit risk management. Delinquency trends improved with the overall 30-day delinquency rate falling to 1.8% (2009: 2.1%).

Operating expenses increased 16% to £1,033m (2009: £887m) due to investment in developing the franchise, in Portugal and Italy in particular, with a net increase of 101 distribution points in 2010, and costs associated with the expansion of the credit card businesses in these countries.

The £29m gain on acquisition was generated on the purchase of Citigroup’s Italian card business in March 2010. This resulted in the addition of approximately 200,000 customers and loans and advances to customers of £0.2bn. The £26m gain in 2009 arose on the acquisition of Citigroup’s Portuguese card business.

Loans and advances to customers increased 6% to £43.4bn (2009: £41.1bn) and customer accounts increased 7% to £18.9bn (2009: £17.6bn) due to continued growth in the businesses more than offsetting the negative impact of the value of the Euro against Sterling. Risk weighted assets increased 3% to £17.3bn (2009: £16.8bn) in line with the growth in loans and advances to customers.

Customer numbers increased 13% to 2.7 million (2009: 2.4 million) reflecting the growth in the underlying business and the benefit of the purchase of Citigroup’s Italian cards business.

 

 

    

2010

£m

   

2009

£m

   

2008

£m

 

Income statement information

      

Net interest income

     679        868        642   

Net fee and commission income

     421        352        327   

Net trading income

     20        14        4   

Net investment income

     67        118        161   

Net premiums from insurance contracts

     479        544        352   

Other income/(loss)

     9        (6     38   

Total income

     1,675        1,890        1,524   

Net claims and benefits incurred under insurance contracts

     (511     (572     (365

Total income net of insurance claims

     1,164        1,318        1,159   

Impairment charges and other credit provisions

     (314     (338     (172

Net operating income

     850        980        987   

Operating expenses excluding amortisation of intangible assets

     (1,001     (865     (794

Amortisation of intangible assets

     (32     (22     (13

Operating expenses

     (1,033     (887     (807

Share of post-tax results of associates and joint ventures

     15        4          

Profit on disposal of subsidiaries, associates and joint ventures

            157          

Gains on acquisition

     29        26        52   

(Loss)/profit before tax

     (139     280        232   

Balance sheet information

      

Loans and advances to customers at amortised cost

   £ 43.4bn      £ 41.1bn      £ 42.1bn   

Customer accounts

   £ 18.9bn      £ 17.6bn      £ 13.2bn   

Total assets

   £ 53.6bn      £ 51.0bn      £ 52.0bn   

Risk weighted assets

   £ 17.3bn      £ 16.8bn      £ 19.3bn   
 


Table of Contents
26                  

 

 

 

 

2009

Western Europe Retail Banking profit before tax increased 21% to £280m (2008: £232m) despite a very challenging macroeconomic environment across all geographies, particularly Spain. The results included a gain of £157m on the sale of 50% of Barclays Vida y Pensiones Compañía de Seguros, Barclays Iberian life insurance and pensions business and a restructuring charge of £24m largely concentrated in Spain. All businesses traded profitably. Profit before tax was favourably impacted by the 13% appreciation in the average value of the Euro against Sterling.

Income increased across all countries, improving 14% to £1,318m (2008: £1,159m) driven by the appreciation of the Euro and the significant expansion in the distribution network in 2007 and 2008. The number of distribution points increased to 1,262 (31st December 2008: 1,140) reflecting further selected organic growth and development of the franchise.

Net interest income increased 35% to £868m (2008: £642m). The increase was principally driven by strong growth in customer deposits of 33% to £17.6bn (2008: £13.2bn), an improvement in the customer assets margin and an increase in treasury interest income. This was partially offset by competitive pressures on liability margin compression.

Net fee and commission income increased 8% to £352m (2008: £327m), generated from asset management and insurance product lines.

Net Investment income fell 27% to £118m (2008: £161m), mainly due to the non-recurrence of the gains from both the Visa IPO (2008: £65m) and the sale of shares in MasterCard (2008: £17m), partially offset by profit on the sale of Government backed bonds.

Net premiums from insurance contracts increased to £544m (2008: £352m) reflecting growth in the life assurance business. Net claims and benefits incurred increased correspondingly to £572m (2008: £365m).

Impairment charges increased to £338m (2008: £172m), principally due to higher impairment in Spain.

Operating expenses increased 10% to £887m (2008: £807m) due to the continued expansion of the Italian and Portuguese networks and restructuring charges of £24m. Underlying costs were tightly controlled.

In September 2009, Barclays established a long-term life insurance joint venture in Spain, Portugal and Italy with CNP Assurances SA (CNP). As part of this transaction Barclays sold a 50% stake in Barclays Vida y Pensiones Compañía de Seguros to CNP. The transaction gave rise to a gain of £157 m. Barclays share of the results of the joint venture with CNP are reported within share of post-tax results of associates and joint ventures.

Barclays acquired the Citigroup cards business in Portugal in December 2009. This resulted in the acquisition of approximately 400,000 customers and loans and advances to customers of £550m. The transaction generated a gain on acquisition of £26m.

Total assets remained stable at £51.0bn (2008: £52.0bn), as underlying asset growth was offset by depreciation in the period end value of the Euro against Sterling. Risk weighted assets decreased 13% to £16.8bn (2008: £19.3bn) driven by active management and the migration of certain retail portfolios onto the advanced credit risk approach.

 

 

    

2010

 

    

2009

 

    

2008

 

 

Performance Measures

        

Loan loss rate (bps)

     71         80         n/a   

Cost: income ratio

     89%         67%         70%   

Cost: net income ratio

     122%         91%         82%   
 


Table of Contents
           27   

Financial review

Analysis of results by business continued

 

 

 

 

Barclays Africa

Barclays Africa provides retail, corporate and credit card services across Africa and the Indian Ocean. It provides tailored banking (including mobile banking and Sharia- compliant products) to over 2.7m customers.

Performance

2010

Barclays Africa profit before tax increased 81% to £188m (2009: £104m). 2010 included a gain of £77m from the sale of the custody business to Standard Chartered Bank which was partially offset by £40m of restructuring costs. Prior year results included a gain of £24m from the sale of shares in Barclays Bank of Botswana Limited. Excluding these 2010 and 2009 gains, profit before tax increased 89% to £151m (2009: £80m).

Income increased 8% to £801m (2009: £739m) as a result of improvement across major income categories.

Net interest income increased 7% to £533m (2009: £498m) with an increase in the net interest margin. The asset margin improved primarily driven by a reduction in

funding costs and changes in business mix. The liability margin decreased due to margin compression.

Net fee and commission income increased 10% to £195m (2009: £178m) primarily driven by growth in retail fee income.

Net trading income increased 24% to £67m (2009: £54m) driven by treasury securities sales in Ghana, Kenya and Zambia.

Impairment charges decreased 32% to £82m (2009: £121m) with impairment charges on the retail portfolio decreasing 39% to £54m (2009: £88m) as a result of a better economic environment and improved collections. The retail portfolio 30-day delinquency rate decreased to 2.2% (2009: 2.7%).

Operating expenses increased 13% to £608m (2009: £538m) reflecting £40m of restructuring costs to facilitate the consolidation of operations and infrastructure, and an increase in staff-related costs.

Customer deposits increased 9% to £7.0bn (2009: £6.4bn). Total assets remained flat at £7.9bn (2009: £7.9bn) and risk weighted assets increased 5% to £8.0bn (2009: £7.6bn) reflecting changes in the business mix.

 

 

 

    

2010

£m

   

2009

£m

   

2008

£m

 

Income statement information

      

Net interest income

     533        498        405   

Net fee and commission income

     195        178        162   

Net trading income

     67        54        70   

Net investment (loss)/income

     (1     7        87   

Other income

     7        2        2   

Total income

     801        739        726   

Impairment charges and other credit provisions

     (82     (121     (71

Net operating income

     719        618        655   

Operating expenses excluding amortisation of intangible assets

     (600     (533     (472

Amortisation of intangible assets

     (8     (5     (3

Operating expenses

     (608     (538     (475

Profit on disposal of subsidiaries, associates and joint ventures

     77        24          

Profit before tax

     188        104        180   

Balance sheet information

      

Loans and advances to customers at amortised cost

   £ 3.6bn      £ 3.9bn      £ 5.0bn   

Customer accounts

   £ 7.0bn      £ 6.4bn      £ 7.3bn   

Total assets

   £ 7.9bn      £ 7.9bn      £ 8.5bn   

Risk weighted assets

   £ 8.0bn      £ 7.6bn      £ 8.7bn   
 


Table of Contents
28                  

 

 

 

 

 

2009

Profit before tax for Barclays Africa decreased 42% to £104m (2008: £180m) primarily due to the allocation of gains from the Visa IPO and sale of shares in MasterCard during 2008.

Income increased 2% to £739m (2008: £726m). After adjusting for one-off gain of £65m from the Visa IPO and sale of shares in MasterCard during 2008, underlying income increased 12% due to strong business growth in Egypt, Botswana and Zambia.

Net interest income increased 23% to £498m (2008: £405m) driven by the increase in interest margins. The assets margin increased mainly due to lower funding costs. The liabilities margin increased mainly driven by customer pricing.

Net fee and commission income increased 10% to £178m (2008: £162m) primarily driven by growth in retail fee income.

Net Investment income decreased £80m to £7m (2008: £87m). 2008 included a gain of £65m from the sale of shares in MasterCard and Visa.

Impairment charges increased to £121m (2008: £71m) reflecting the impact of the economic recession across the business with continued pressure on default rates.

Operating expenses increased 13% to £538m (2008: £475m) reflecting continued investment in infrastructure across markets.

Profit on disposal of subsidiaries, associates and joint ventures of £24m represented the sale of a 7% stake in the Barclays Africa Botswana business. The residual holding of Barclays in Barclays Bank of Botswana Limited following the sale is 68%.

Total assets decreased 7% to £7.9bn (2008: £8.5bn), and risk weighted assets decreased 13% to £7.6bn (2008: £8.7bn) due to the business pro-actively managing down portfolio exposures driven by a realignment of lending strategy in light of the economic downturn and the impact of exchange rate movements.

 

 

 

 

    

2010

 

    

2009

 

    

2008

 

 

Performance Measures

        

Loan loss rate (bps)

     186         252         n/a   

Cost: income ratio

     76%         73%         65%   

Cost: net income ratio

     85%         87%         73%   
 


Table of Contents
           29   

Financial review

Analysis of results by business continued

 

 

 

Absa

Absa provides a full range of retail banking services and insurance products through a variety of distribution channels. It also offers customised business solutions for commercial and large corporate customers. It is part of one of South Africa’s largest financial services organisations.

Performance

2010

Absa profit before tax increased 17% to £616m (2009: £528m) mainly as a result of the 16% appreciation in the average value of the Rand against Sterling. In Rand terms, income declined 1% with 10% cost growth, offset by 26% lower impairments.

Income increased 14% to £2,899m (2009: £2,553m) primarily reflecting the impact of exchange rate movements.

Net interest income improved 15% to £1,500m (2009: £1,300m) reflecting the appreciation in the average value of the Rand against Sterling. Average customer assets increased 15% to £37.4bn (2009: £32.5bn) driven by the

appreciation of the Rand. In Rand terms, retail loans and commercial mortgages remained stable as personal loans increased while cheque, instalment finance and commercial property finance balances showed a decline as a result of a slower take up of new loans by customers. The asset margin increased as a result of the pricing of new loans and a change in the product mix as higher margin products grew faster than low margin products. Average customer liabilities increased 21% to £21.1bn (2009: £17.4bn), primarily driven by the appreciation of the Rand. In Rand terms, retail and commercial deposits increased by 4.1% and 7.4% respectively. The liability margin decreased as a result of significant competition for deposits. Absa’s hedging programme partly offset the impact of lower interest rates.

Net fee and commission income increased 19% to £1,123m (2009: £943m), mainly reflecting the impact of exchange rate movements and volume growth.

Net investment income decreased to £59m (2009: £128m) reflecting prior year gains of £17m from the sale of shares in MasterCard and an adverse impact of the mark to market adjustment on Visa of £12m (2009: gain of £19m). Net premiums from insurance contracts increased 36% to £399m (2009: £294m) reflecting good growth in new business in life and short-term insurance in addition to the impact of exchange rate movements. Other income decreased to £47m (2009: £64m) reflecting lower profits on the sale of repossessed properties and lower mark to market adjustments on investment property portfolios.

Impairment charges decreased by 15% to £480m (2009: £567m) mainly as a result of the 26% lower impairments in Rand terms, particularly in retail, due to an improving economy.

Operating expenses increased 25% to £1,810m (2009: £1,451m) due to exchange rate movements and continued investment in growth initiatives, partially offset by a one-off credit of £54m relating to the Group’s recognition of a pension fund surplus. The cost: income ratio deteriorated to 62% from 57%.

Total assets increased 14% to £52.4bn (2009: £45.8bn) mostly due to the impact of exchange rate movements. Risk weighted assets increased 42%

 

 

    

2010

£m

   

2009

£m

   

2008

£m

 

Income statement information

      

Net interest income

     1,500        1,300        1,104   

Net fee and commission income

     1,123        943        762   

Net trading (loss)/income

     (14     (5     6   

Net investment income

     59        128        105   

Net premiums from insurance contracts

     399        294        234   

Other income

     47        64        102   

Total income

     3,114        2,724        2,313   

Net claims and benefits incurred under insurance contracts

     (215     (171     (126

Total income net of insurance claims

     2,899        2,553        2,187   

Impairment charges and other credit provisions

     (480     (567     (347

Net operating income

     2,419        1,986