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Barclays PLC (BARC)

  Print      Mail a friend       Annual reports

Tuesday 10 November, 2009

Barclays PLC

Interim Management Statement

RNS Number : 2348C
Barclays PLC
10 November 2009
 





10th November 2009


Barclays PLC

Interim Management Statement


"We have maintained strong income momentum in the third quarter, particularly in Barclays Capital and across the international activities of GRCB, enabling us to achieve consistent profitability across the first three quarters of 2009. This performance shows the resilience and diversification of our portfolio of businesses."


John Varley, Group Chief Executive

 
 
 
 
 
Group Unaudited Results
 
Nine Months Ended
Nine Months Ended
 
30.09.091
30.09.081
 
 
£m
£m
% Change
Total income net of insurance claims
 
23,786
18,830
26
Impairment charges and other credit provisions
 
   (6,214)
(3,762)
65
Operating expenses
 
(13,226)
(11,091)
19
 
 
 
 
 
Profit before tax, own credit, gains on acquisitions and disposals and gains on debt buy-backs
 
4,413
   2,046
116
Own credit (charge)/gain
 
(1,298)
1,951
nm
Gains on acquisitions and disposals
 
178
1,5892
nm
Gains on debt buy-backs
 
1,249
9
nm
Profit before tax
 
4,542
5,595
(19)
 
 
 
 
 
Profit after tax
 
3,413
4,463
(24)
Profit attributable to equity holders of the parent
 
2,730
3,825
(29)
 
 
 
 
 
Profit Before Tax
 
 
 
 
Global Retail and Commercial Banking
 
2,181
3,108
(30)
Investment Banking and Investment Management1,2
 
1,966
3,151
(38)
Head Office Functions and Other Operations
 
395
(664)
nm
 
 
 
 
 
Basic earnings per share
 
25.3p
56.4p
(55)
Diluted earnings per share
 
23.9p
54.7p
(56)
Dividend per share
 
1.0p3
22.5p
nm
Cost:income ratio
 
56%
59%
 
  • Both periods include the results of Barclays Global Investors ('BGI'), which is being sold to BlackRock with completion anticipated during December 2009. Profit before tax attributable to the relevant discontinued operations for the 9 months ended 30th September 2009 was £435m (2008: £673m). The equivalent profit after tax was £252m (2008: £471m).

  • Includes gains on acquisition of Lehman Brothers North America of £1,500m, being the preliminary estimate reflected in the October 2008 Interim Management Statement. 

  • Interim dividend in respect of thsecond half of 2009Q3 2009 basic earnings per share were 7.8p.

  Q309 Interim Management Statement

Performance Summary
      Profit before tax for the nine months ended 30th September 2009 of £4,542m
      Excluding movement on own credit, gains on acquisitions and disposals and gains on debt buy-backs, profit before tax increased 116% from £2,046m to £4,413m
      Income for the nine months up 26% year on year
      Positive cost:income jaws of 7%
      Annualised loan loss rate of 136 basis points on a constant balance sheet and foreign exchange basis, compared to 144 basis points for the first half; impairment for the full year currently expected to be around the bottom end of the previously referenced 2009 consensus range of £9.0bn to £9.6bn

      Continued strengthening of capital and liquidity positions

      Interim dividend of 1p per share

Group Performance

Group profit before tax for the nine months ended 30th September 2009 was £4,542m (2008: £5,595m), a decrease year on year of 19% (£1,053m). Excluding a charge on own credit of £1,298m (2008: gain of £1,951m), gains on acquisitions and disposals of £178m (2008: £1,589m), and gains on debt buy-backs of £1,249m (2008: £9m), profit before tax increased 116% to £4,413m (2008: £2,046m). 

Income increased 26% (£4,956m) to £23,786m (2008: £18,830m) driven by very strong income growth in Barclays Capital and the international businesses within Global Retail and Commercial Banking Income growth was partially offset by significantly increased impairment charges of £6,214m (2008: £3,762m).  The annualised loan loss rate was 136 basis points (six months ended 30th June 2009: 144 basis points) when measured against constant year-end loans and advances balances and constant foreign exchange rates. 

Operating expenses increased 19(£2,135m) to £13,226m (2008: £11,091m). This increase reflects the impact of acquisitions during 2008, partially offset by a one-off credit of £371m resulting from the closure of the UK final salary pension scheme to existing members. Profit before tax also reflected credit market writedowns taken through income of £4,251m (2008: £3,221m). Total credit market writedowns were £5,675m (2008: £4,781m)Performance for the third quarter is summarised in the table in Appendix I.

 

Capital, Leverage and Liquidity

As at 30th June 2009, the Group reported a Core Tier 1 ratio of 8.8% and a Tier 1 ratio of 11.7% on a pro forma basis to reflect the impact of the sale of Barclays Global Investors to BlackRock, Inc. On 20th October 2009 warrants were exercised resulting in the issue of 379m new shares in Barclays PLC for a consideration of £750m. This would have the impact of adding an estimated 19bps to the pro forma Core Tier 1 and Tier 1 ratios as at 30th June 2009, giving pro forma ratios of 8.9% and 11.8% respectively.

Adjusted gross leverage and risk weighted assets as at 30th September 2009 are broadly consistent with the position as at 30th June 2009.

During the third quarter, the Group continued to build liquidity in anticipation of the future introduction of new FSA rules, with Group surplus liquidity of £110bn as at 30th September 2009 (30th June 2009: £88bn). 

 

Business Commentary

Global Retail and Commercial Banking

 

Global Retail and Commercial Banking income grew by 11% in the nine months ended 30th September 2009, primarily driven by the international businesses following rapid expansion in prior years. This was well ahead of cost growth of 4%. Impairment for the nine months was significantly above the prior year periodAs a result profit before tax declined to £2,181m for the nine months ended 30th September 2009 (2008: £3,108m).

Profit before tax at UK Retail Banking for the nine months decreased significantly, impacted by the current economic conditions. Income decreased reflecting the impact of liability margin compression, which more than offset higher income from Home Finance. Impairment charges for the nine months were higher than for the previous year; mortgage impairment charges remained lowCosts were managed lower through continued tight control of discretionary spending.

Profit before tax at Barclays Commercial Bank for the nine months decreased, primarily driven by higher impairment charges over the period, reflecting higher default rates and declines in asset values. There was solid income growth, with the impact of margin compression on deposit products offset by growth in debt net interest income, net fee and commission income, and a gain from the repurchase of securitised debt. 

Profit before tax at Barclaycard for the nine months was ahead of the prior year. Income grew very strongly year on year with improved margins, and with the international businesses in particular benefiting from higher customer balances. This was largely offset by higher impairment charge compared to the corresponding period last yearreflecting growth in portfolio balances and continued economic deterioration in key markets. 

Profit before tax for Global Retail and Commercial Banking - Western Europe for the nine months was ahead of the prior year and benefited significantly from the gain of £153m on the sale of the 50 per cent stake in Barclays Vida y Pensiones Compania de Seguros to CNP Assurances SA. Income growth was very strong across all markets, as was the growth in customer deposits, following the expansion of the distribution network in 2007 and 2008. Impairment charges for the nine months increased significantly year on year, particularly in Spain, as economic conditions remained difficult.

Global Retail and Commercial Banking - Emerging Markets posted a loss before tax for the nine months compared to a profit in the same period last year. Very strong income growth was driven by prior year investment in new markets, particularly in UAE, and continued growth in the established markets in Africa and the Indian OceanImpairment continued to increase with higher retail charges in UAE and India as a result of the difficult economic environment.

Profit before tax at Global Retail and Commercial Banking - Absa decreased for the nine months. In Rand terms, income was slightly ahead of the prior year. Coupled with a reduction in costs, reflecting tight cost management, this led to an improvement in the cost:income ratio. 

Investment Banking and Investment Management

Income at Investment Banking and Investment Management for the nine months ended 30th September 2009 increased 32% largely driven by the performance of Barclays Capital.

Barclays Capital profit before tax for the nine months was £1,416m (or £2,714m excluding a charge on own credit of £1,298m). Top-line income (income prior to credit market writedowns taken through income and own credit charges/gains) was £14.2bn for the nine months, almost double the prior year, driven by excellent growth in the US and Europe and strong performances in the Fixed Income, Commodities and Currency (FICC), Equities and Prime Services businesses. Third quarter top-line income of £3.7bn was up on the third quarter of 2008 but down on the second quarter of 2009, reflecting the normal seasonal slowdown in the third quarter and tighter spreads. 

Year to date credit market writedowns taken through income increased 32% to £4,251m. Impairment charges for the nine months of £2,220m included £1,424m relating to credit market writedowns in impairment. Costs for the nine months increased year on year with the inclusion of the acquired Lehman business.

Strong growth in profit before tax at Barclays Global Investors for the nine months was driven by a significant reduction in liquidity support costs and appreciation in the average value of the US Dollar against Sterling. There were net asset inflows of £87bn in the nine month period.

In difficult market conditions, Barclays Wealth underlying income for the nine months was broadly in line with 2008 when adjusted for the impact of the sale of the closed life business in 2008 and the acquired Lehman North American businesses. Profit before tax decreased significantly due to the impact of these transactions. Total client assets were in line with 31st December 2008.

Head Office Functions and Other Operations

The increase in profit before tax in Head Office Functions and Other Operations for the nine months was driven by gains on debt extinguishment of £1,164m partially offset by increased costs in central funding activity due to money market dislocation in the early months of the year.

Impairment

 


Nine Months Ended

Nine Months Ended


30.09.09

30.09.08


£m

£m

Impairment charges on loans and advances 

5,537

3,263

Charges in respect of undrawn facilities and guarantees

26

246

Impairment charges on loans and advances and other credit provisions

5,563

3,509

Impairment charges on AFS and reverse repurchase agreements

651

253

Impairment charges and other credit provisions

6,214

3,762


Impairment charges increased by 65% (£2,452m) to £6,214m for the nine months (2008: £3,762m). Approximately a quarter of this increase was attributable to foreign exchange movements with the majority of the balance being driven by economic deterioration and portfolio maturation. These charges represented an annualised loan loss rate on loans and advances and other credit provisions of 151 basis points (six months ended 30th June 2009: 165 basis points). The loan loss rate was 136 basis points (six months ended 30th June 2009: 144 basis points) when measured against constant year-end loans and advances balances and constant foreign exchange rates. We currently expect impairment for the full year to be around the bottom end of the previously referenced 2009 consensus range of £9.0bn to £9.6bn.

 

Barclays Capital Credit Market Exposures

During the nine months ended 30th September 2009, credit market exposures have been reduced by £14,442m, including net sales and paydowns of £6,892m, gross writedowns of £5,675m and a decrease of £1,875m due to other movements and currency depreciation over the nine month period of the US Dollar and the Euro relative to Sterling of 9% and 5% respectively. In addition to this reduction, on 16th September 2009 £5,087m credit market exposures and £2,367m other assets were sold to Protium Finance LP, funded by a £7.7bn loan extended by Barclays (see Appendix II Note D).

Detailed information relating to credit market exposures is set out in the Appendix II to this statement. 

 

October Trading, Recent Developments and Outlook

October trading was generally consistent with the overall trend for the first nine months of the year.

On 6th August 2009 shareholders approved BlackRock's offer to purchase the Barclays Global Investors business. We expect to complete this transaction in December 2009.

On 26th October 2009 the Group announced an agreement to acquire Standard Life Bank Plc from Standard Life Plc for a consideration of £226m, payable in cash upon completion. 

On 3rd November 2009 the Group announced the broadening of its Executive Committee and changes to its structure and senior management responsibilities. These changes will be reflected in our financial reporting from 2010.

Dividends
As previously announced, it will be our policy to declare and pay dividends on a quarterly basis. In respect of the second half of 2009, we will pay an interim cash dividend of 1p per share on 11th December 2009. A final cash dividend for the half year will be declared at the time of the Preliminary Results Announcement on 16th February 2010 and paid in March. We are committed to maintaining strong capital ratios. We therefore expect that the proportion of profits after tax distributed through dividends will be significantly lower than the 50% level which was maintained in recent years.

Notes

  • Key trends in the income statement set out above, unless stated otherwise, relate to the nine months to 30th September 2009, and are compared to the corresponding nine months of 2008.

  • Trends in income, unless stated otherwise, are expressed after the deduction of 'net claims and benefits on insurance contracts'.

  • The financial information on which this interim management statement is based, and the credit market exposures and other data set out in the appendices to this statement, are unaudited and have been prepared in accordance with Barclays previously stated accounting policies described in the 2008 Annual Report.

     

      4.   For qualifying US and Canadian resident ADR holders, the interim dividend of 1p per ordinary share becomes 4p per ADS (representing four shares). The ADR depositary will mail the interim dividend on 11th December 2009 to ADR holders on the record on 20th November 2009. 

Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan (DRIP). The DRIP is available to all shareholders, including members of Barclays Sharestore, provided that they neither live in nor are subject to the jurisdiction of any country where their participation in the DRIP would require Barclays or The Plan Administrator to Barclays DRIP to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details and a form to join the DRIP should contact The Plan Administrator to Barclays DRIP by writing to: The Plan Administrator to Barclays DRIP, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom, or, by telephoning 0871 384 2055 (calls to this number are charged at 8p per minute if using a BT landline. Other telephony provider costs may vary). The completed form should be returned to The Plan Administrator to Barclays DRIP on or before 20th November 2009 for it to be effective in time for the payment of the dividend on 11th December 2009. Shareholders who are already in the DRIP need take no action unless they wish to change their instructions in which case they should write to The Plan Administrator to Barclays DRIP.

 

Timetable

Event

Date

Ex Dividend Date

Wednesday, 18th November 2009

Dividend Record Date

Friday, 20th November 2009

Dividend Payment Date 

Friday, 11th December 2009

2009 Preliminary Results Announcement 

Tuesday, 16th February 2010


For Further Information Please Contact

Investor Relations

Media Relations

Stephen Jones/James Johnson

Alistair Smith

+44 (0) 20 7116 5752/7233

+44 (0) 20 7116 6132


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 of the Group's plans and its current goals and expectations relating to its future financial condition 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 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 the Group's future financial position, income growth, assets, impairment charges, business strategy, capital ratios, leverage, payment of dividends, projected levels of growth in the banking and financial markets, projected costs, estimates of capital expenditures, and plans and objectives for future operations and other statements that are not historical 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 effects 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, changes in valuation of issued notes, the policies and actions of governmental and regulatory authorities, 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 integration of the Lehman Brothers North American businesses into the Group's business and the quantification of the benefits resulting from such acquisition, the proposed disposal of Barclays Global Investors and the impact on the Group, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of competition - a number of which factors are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements.

Any forward-looking statements made herein speak only as of the date they are made. Except as required by the UK Financial Services Authority (FSA), the London Stock Exchange or applicable law, Barclays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in Barclays expectations with regard thereto or any change in events, conditions or circumstances 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 SEC.

  Q309 IMS Appendix I - Quarterly Results Summary


Quarterly Results Summary

Set out below is a summary of the Group's results by quarter since the start of 2008:


Group Unaudited Results

Q309

Q209

Q109

Q408

Q308

Q208

Q108


£m

£m

£m

£m

£m

£m

£m

Top line income

8,682

10,923

9,730

7,642

6,884

6,815

6,401

Credit market writedowns

(744)

(1,648)

(1,859)

(3,069)

(996)

(844)

(1,381)

Own credit

(405)

(1,172)

279

(288)

1,099

149

703

Total income net of insurance claims

7,533

8,103

8,150

4,285

6,987

6,120

5,723

Impairment charges and other credit provisions

(1,404)

(1,831)

(1,555)

(1,454)

(862)

(648)

(692)

Impairment charges - credit market writedowns

(254)

(416)

(754)

(203)

(452)

(510)

(598)

Operating expenses

(4,479)

(4,286)

(4,461)

(3,275)

(4,338)

(3,506)

(3,247)

Share of results of associates & JVs

5

24

(11)

(15)

6

15

8

Profit on disposal of subsidiaries, associates & JVs

157

19

2

327

-

-

-

Gains on acquisitions

-

(1)

1

817

1,500

89

-

Profit before tax

1,558

1,612

1,372

482

2,841

1,560

1,194









Profit after tax

1,075

1,282

1,056

824

2,329

1,209

925









Cost:income ratio

59%

53%

55%

76%

62%

57%

57%

Basic earnings per share (p)

7.8

9.8

7.7

2.9

29.4

15.5

11.5


  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


Barclays Capital Credit Market Exposures

Barclays Capital's credit market exposures primarily relate to commercial real estate and leveraged financeThe exposures include both positions subject to fair value movements in the profit and loss account and positions that are classified as loans and advances and as available for sale.

The exposures and gross writedowns to 30th September 2009 are set out by asset class below: 











Nine Months Ended 30.09.09 



As at 30.09.09

As at 30.06.09

As at 31.12.08


As at 30.09.09

As at 30.06.09

As at 31.12.08


Fair Value Losses

Impair-ment Charge

Gross Losses

US Residential Mortgages

Notes

$m1

$m1

$m1


£m1

£m1

£m1


£m

£m

£m

ABS CDO Super Senior

A1

3,539

3,709

4,526


2,216

2,255

3,104


-

499

499

Other US sub-prime and Alt-A

A2

2,295

6,618

11,269


1,437

4,024

7,729


525

549

1,074

Monoline wrapped US RMBS

A3

11

2,092

2,389


7

1,272

1,639


288

-

288














Commercial Mortgages












Commercial real estate

B1

13,173

14,354

16,882


8,246

8,728

11,578


2,238

-

2,238

Commercial mortgage-backed securities

B1

987

954

1,072


618

580

735


32

-

32

Monoline wrapped CMBS

B2

61

2,577

2,703


38

1,567

1,854


479

-

479














Other Credit Market 













Leveraged Finance

C1

11,434

11,394

15,152


7,158

6,928

10,391


-

341

341

SIVsSIV -Lites and CDPCs

C2

944

1,100

1,622


591

669

1,113


73

35

108

Monoline wrapped CLO and other

C3

5,179

7,396

7,202


3,242

4,497

4,939


616

-

616














Total gross writedowns

 

 

 

 


 

 

 


4,251

1,424

5,675














Loan to Protium

D

12,657

-

-


7,923

-

-


-

-

-


During the nine months ended 30th September 2009, credit market exposures have been reduced by £14,442m, including net sales and paydowns of £6,892m, gross writedowns of £5,675m and a decrease of £1,875m due to other movements and currency depreciation over the nine month period of the US Dollar and the Euro relative to Sterling of 9% and 5% respectively. In addition to this reduction, on 16th September 2009 £5,087m credit market exposures and £2,367m other assets were sold to Protium Finance LP, funded by a £7.7bn loan extended by Barclays.

Net sales and paydowns also included a £3,056m leveraged finance exposure which was repaid at par, £1,628m Alt-A, £987m US sub-prime assets and £811m commercial mortgages.

In the nine months ended 30th September 2009, there were gross writedowns of £5,675m (2008: £4,781m), before related income and hedges of £506m (2008: £721m) and own credit losses of £1,298m (2008: gain £1,951m). The gross writedowns, which included £1,424m (2008: £1,560m) in impairment charges, comprised: £1,861m (2008: £3,982m) against US residential mortgage exposures; £2,749m (2008: £396m) against commercial mortgage exposures; and £1,065m (2008: £402m) against other credit market exposures.




1    As the majority of exposure is held in US Dollars, the exposures above are shown in both US Dollars and Sterling

  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


A.    US Residential Mortgages

A1.    ABS CDO Super Senior 


As at 30.09.09

As at 30.06.09

As at 31.12.08


As at 30.09.09

As at 30.06.09

As at 31.12.08


Total

Total

Total


Marks1

Marks1

Marks1


£m

£m

£m


%

%

%

2005 and earlier

1,071

1,052

1,226


77%

81%

90%

2006

428

418

471


16%

16%

37%

2007 and 2008

23

22

25


47%

48%

69%

Sub-prime 

1,522

1,492

1,722


59%

62%

75%









2005 and earlier

781

768

891


48%

51%

77%

2006

237

245

269


64%

62%

75%

2007 and 2008

56

55

62


22%

23%

37%

Alt-A

1,074

1,068

1,222


50%

52%

74%









Prime

442

445

520


100%

100%

100%

RMBS CDO

358

351

402


0%

0%

0%

Sub-prime second lien

111

108

127


0%

0%

0%

Total US RMBS

3,507

3,464

3,993


54%

56%

68%









CMBS

38

37

44


100%

100%

100%

Non-RMBS CDO

407

397

453


55%

56%

56%

CLOs

32

31

35


100%

100%

100%

Other ABS

37

36

51


100%

100%

100%

Total Other ABS

514

501

583


65%

65%

66%









Total notional collateral

4,021

3,965

4,576


55%

57%

68%

Subordination

(394)

(400)

(459)





Gross exposure pre-impairment

3,627

3,565

4,117





Impairment allowances

(1,411)

(1,310)

(1,013)





Net exposure

2,216

2,255

3,104






ABS CDO Super Senior exposure at 30th September 2009 comprised five high grade liquidity facilities which were fully drawn and classified within loans and receivables. 

During the nine months ended 30th September 2009, ABS CDO Super Senior exposures reduced by £888m to £2,216(31st December 2008: £3,104m). Net exposures are stated after writedowns and charges of £499m incurred in 2009 (2008: £1,345m). There was a decline of £257resulting from stronger Sterling and net amortisation of £132m in the period. 




1    Marks above reflect the gross exposure after impairment and subordination.

  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures 


A2.    Other US Sub-Prime and Alt-A


 
 
As at 30.09.09
As at 30.06.09
As at 31.12.08
 
Marks at 30.09.09
Marks at 30.06.09
Marks at 31.12.08
Other US Sub-Prime
£m
£m
£m
 
%
%
%
Whole loans
-
714
1,565
 
-
48%
72%
 
 
 
 
 
 
 
 
Sub-prime securities (net of hedges)
182
490
929
 
39%
14%
25%
Other exposures with underlying sub-prime collateral:
 
 
 
 
 
 
 
Derivatives
288
370
643
 
96%
95%
87%
Loans
60
123
195
 
29%
55%
70%
Real Estate
-
50
109
 
-
32%
46%
Total other direct and indirect exposure
530
1,033
1,876
 
 
 
 
 
 
 
 
 
 
 
 
Total Other US Sub-Prime
530
1,747
3,441
 
 
 
 
Alt-A
 
 
 
 
 
 
 
Whole Loans
-
495
776
 
-
55%
67%
Alt-A Securities
652
1,522
3,112
 
37%
13%
16%
Residuals
-
-
2
 
-
-
6%
Derivative exposure with underlying Alt-A collateral
255
260
398
 
100%
99%
100%
Total Alt-A
907
2,277
4,288
 
 
 
 
 
 
 
 
 
 
 
 
Total Other US Sub-Prime and Alt-A
1,437
4,024
7,729
 
 
 
 
 



The majority of Other US Sub-Prime exposures are measured at fair value through profit and loss. Exposure reduced by £2,911m to £530(31st December 2008£3,441m), driven by the Protium sale of £993m, other net sales, paydowns and other movements of £922m and gross losses of £765m. Stronger Sterling resulted in a decline in exposure of £231m.

Counterparty derivative exposure to vehicles which hold sub-prime collateral was £288m (31st December 2008: £643m). The majority of this exposure was the most senior obligation of the vehicles. 

The majority of Alt-A exposures are measured at fair value through profit and loss. Net exposure to the Alt-A market reduced by £3,381m to £907(31st December 2008: £4,288m), driven by the Protium sale of £1,326m, other net sales, paydowns and other movements of £1,462m and gross losses of £309m in the period. Stronger Sterling resulted in a decline in exposure of £284m.

Counterparty derivative exposure to vehicles which hold Alt-A collateral was £255m (31st December 2008: £398m). The majority of this exposure was the most senior obligation of the vehicles. 

  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures 


A3.    US Residential Mortgage Backed Securities Exposure Wrapped by Monoline Insurers

The table below shows RMBS assets where Barclays Capital held protection from monoline insurers at 30th September 2009. These are measured at fair value through profit and loss. 


By Rating of the Monoline

Notional

Fair Value of Underlying Asset

Fair Value Exposure

Credit
Valuation Adjustment

Net
Exposure

As at 30.09.09

£m

£m

£m

£m

£m

Non-investment grade

60

2

58

(51)

7

Total

60

2

58

(51)

7







As at 30.06.09






Non-investment grade

2,281

348

1,933

(661)

1,272

Total

2,281

348

1,933

(661)

1,272







As at 31.12.08






A/BBB

2,567

492

2,075

(473)

1,602

Non-investment grade

74

8

66

(29)

37

Total

2,641

500

2,141

(502)

1,639


Net exposure reduced by £1,632m to £7m (31st December 2008: £1,639m), of which £1,164m relates to the Protium sale.

Claims become due in the event of default of the underlying assets. At 30th September 2009, 100% of the underlying assets were rated investment grade.

There is uncertainty as to whether all of the monoline insurers will be able to meet liabilities if such claims were to arise. Certain monoline insurers have been subject to downgrades in 2009. A fair value loss of £288m was recognised in 2009 (2008: £194m). There have been no claims due under these contracts as none of the underlying assets defaulted in the period.

The notional value of the assets split by the rating of the underlying asset is shown below.



As at 30.09.09


As at 30.06.09


As at 31.12.08


A/BBB

Non-Invest-ment Grade

Total


A/BBB

Non-Invest-ment Grade

Total


AAA/AA

A/BBB

Non-Invest-ment Grade

Total


£m

£m

£m


£m

£m

£m


£m

£m

£m

£m

2005 and earlier

-

-

-


-

117

117


143

-

-

143

2006

-

-

-


-

1,086

1,086


-

-

1,240

1,240

2007 and 2008

-

-

-


-

452

452


-

-

510

510

High Grade

-

-

-


-

1,655

1,655


143

-

1,750

1,893

Mezzanine - 2005 and earlier

60

-

60


301

284

585


31

330

338

699

CDO2 - 2005 and earlier

-

-

-


-

41

41


-

-

49

49

US RMBS

60

-

60


301

1,980

2,281


174

330

2,137

2,641


  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures 


B.    Commercial Mortgages

B1.    Commercial Real Estate and Mortgage-Backed Securities

Commercial mortgages held at fair value include commercial real estate loan exposure of £8,246m (31st December 2008: £11,578m) and commercial mortgage-backed securities of £618m (31st December 2008: £735m). In the period there were gross losses of £2,270m, of which £1,481m relates to the US and £729m relates to Europe; Sterling movement decreased exposure by £857m. There were gross sales and paydowns of £460m in the US and £348m in the UK and Continental Europe.

The commercial real estate loan exposure comprised 51% US, 45% UK and Europe and 4% Asia.

Two large transactions comprised 42% of the total US exposure. The remaining 58% of the US exposure comprised 68 transactions. The remaining weighted average number of years to initial maturity of the US portfolio is 1 year (31st December 2008: 1.4 years).

The UK and Europe portfolio is well diversified with 61 transactions as at 30th September 2009. In Europe protection is provided by loan covenants and periodic LTV retests, which cover 83% of the portfolio. 47% of the German exposure relates to one transaction secured on residential assets.

 

Commercial Real Estate
Loan Exposure by Region

As at 30.09.09

As at 30.06.09

As at 31.12.08


Marks at 30.09.09

Marks at 30.06.09

Marks at 31.12.08


£m

£m

£m


%

%

%

US

4,245

4,703

6,329

 

67%

77%

88%

Germany

2,075

2,004

2,467


85%

88%

95%

France

215

216

270


78%

84%

94%

Sweden

215

210

265


84%

89%

96%

Switzerland

148

140

176


88%

89%

97%

Spain

73

73

106


55%

71%

92%

Other Continental Europe

385

425

677


59%

63%

90%

UK

534

597

831


65%

69%

89%

Asia

356

360

457


82%

91%

97%

Total

8,246

8,728

11,578







As at
30.09.09


As at 30.06.09

As at 31.12.08

Commercial Real Estate
Loan Exposure by Industry

US 

Germany

Other Europe

UK

Asia 

Total


Total

Total


£m

£m

£m

£m

£m

£m


£m

£m

Residential

1,371

1,114

-

162

113

2,760


2,803

3,582

Office

1,297

262

609

122

103

2,393


2,818

3,656

Hotels

786

-

224

7

1

1,018


1,048

1,633

Retail

58

540

74

50

96

818


734

957

Industrial 

433

112

111

31

10

697


726

887

Mixed/Others

174

47

18

-

33

272


298

375

Leisure

-

-

-

162

-

162


168

233

Land

130

-

-

-

-

130


135

232

Hedges

(4)

-

-

-

-

(4)


(2)

23

Total

4,245

2,075

1,036

534

356

8,246


8,728

11,578



Commercial Mortgage Backed Securities
(Net of Hedges)

As at 30.09.09

As at 30.06.09

As at 31.12.08


Marks1 at 30.09.09

Marks1 at 30.06.09

Marks1 at 31.12.08


£m

£m

£m


%

%

%

AAA securities 

447

417

588


49%

46%

42%

Other securities

171

163

147


36%

35%

8%

Total 

618

580

735







1    Marks are based on gross collateral.

  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


B2.    CMBS Exposure Wrapped by Monoline Insurers

The table below shows commercial mortgage backed security assets where Barclays Capital held protection from monoline insurers at 30th September 2009. These are measured at fair value through profit and loss. 

By Rating of the Monoline

Notional

Fair Value of Underlying Asset

Fair Value Exposure

Credit Valuation Adjustment

Net Exposure

As at 30.09.09

£m

£m

£m

£m

£m

AAA/AA

55

13

42

(4)

38

Non-investment grade

388

181

207

(207)

-

Total

443

194

249

(211)

38







As at 30.06.09






AAA/AA

57

13

44

(5)

39

Non-investment grade

3,263

920

2,343

(815)

1,528

Total

3,320

933

2,387

(820)

1,567







As at 31.12.08






AAA/AA

69

27

42

(4)

38

A/BBB

3,258

1,301

1,957

(320)

1,637

Non-investment grade

425

181

244

(65)

179

Total

3,752

1,509

2,243

(389)

1,854


Net exposure reduced by £1,816m to £38m (31st December 2008: £1,854m), driven by the Protium sale of £1,208m

Claims would become due in the event of default of the underlying assets. At 30th September 2009, 100% of the underlying assets were rated AAA/AA.

There is uncertainty as to whether all of the monoline insurers will be able to meet liabilities if such claims were to arise. Certain monoline insurers have been subject to downgrades in 2009. A fair value loss of £479m was recognised in 2009 (2008: £115m). There have been no claims due under these contracts as none of the underlying assets defaulted in the period.

The notional value of the assets split by the current rating of the underlying asset is shown below.



As at 30.09.09


As at 30.06.09


As at 31.12.08


AAA/AA

A/BBB

Total


AAA/AA

A/BBB

Total


AAA/AA

Total


£m

£m

£m


£m

£m

£m


£m

£m

2005 and earlier

-

-

-

 

-

385

385

 

437

437

2006

55

-

55


333

206

539


613

613

2007 and 2008

388

-

388


2,396

-

2,396


2,702

2,702

CMBS

443

-

443

 

2,729

591

3,320

 

3,752

3,752




  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


C.    Other Credit Market Exposures 

C1.    Leveraged Finance

Leveraged Finance Exposure by Region

As at 30.09.09

As at 30.06.09

As at 31.12.08


£m

£m

£m

UK

4,887

4,813

4,810

US

872

727

3,830

Europe

1,425

1,422

1,640

Asia

219

195

226

Total lending and commitments

7,403

7,157

10,506

Impairment 

(245)

(229)

(115)

Net lending and commitments at period end

7,158

6,928

10,391


Leveraged loans are classified within loans and advances and are stated at amortised cost less impairment. The overall credit performance of the assets remains satisfactory with the majority of the portfolio performing to plan or in line with original stress tolerances. There is however a small number of deteriorating positions and as a result the impairment has increased.

At 30th September 2009, the gross exposure relating to leveraged finance loans was £7,403m (31st December 2008: £10,506m) following a repayment of £3,056m at par in January 2009.

C2.    SIVs, SIV-Lites and CDPCs

SIV and SIV-lite exposure comprises liquidity facilities and derivatives. At 30th September 2009 exposure reduced by £393m to £570m (31st December 2008: £963m) and there were £107m of writedowns in the period.

Credit Derivative Product Companies (CDPCs) exposure at 30th September 2009 reduced by £129m to £21m (31st December 2008: £150m) driven by the termination of one facility rated A/BBB. At 30th September 2009 the remaining exposure is with counterparties rated AAA/AA.

  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


C3.    CLO and Other Exposure Wrapped by Monoline Insurers

The table below shows Collateralised Loan Obligations (CLOs) and other assets where we held protection from monoline insurers at 30th September 2009.


By Rating of the Monoline

Notional

Fair Value of Underlying Asset

Fair Value Exposure

Credit Valuation Adjustment

Net
Exposure

As at 30.09.09

£m

£m

£m

£m

£m

AAA/AA

7,556

5,362

2,194

(98)

2,096

Non-investment grade

10,322

8,317

2,005

(859)

1,146

Total

17,878

13,679

4,199

(957)

3,242







As at 30.06.09






AAA/AA

7,319

4,893

2,426

(86)

2,340

Non-investment grade

11,268

7,968

3,300

(1,143)

2,157

Total

18,587

12,861

5,726

(1,229)

4,497







As at 31.12.08






AAA/AA

8,281

5,854

2,427

(55)

2,372

A/BBB

6,446

4,808

1,638

(204)

1,434

Non-investment grade

6,148

4,441

1,707

(574)

1,133

Total

20,875

15,103

5,772

(833)

4,939


Net exposure reduced by £1,697to £3,242m (31st December 2008: £4,939m), of which £396m related to the Protium sale. 

Claims would become due in the event of default of the underlying assets. At 30th September 2009, 95% of the underlying assets have investment grade ratings and 42were wrapped by monolines rated AAA/AA. 91% of the underlying assets were CLOs, 90% of which were rated AAA/AA. 

There is uncertainty whether all of the monoline insurers would be able to meet all liabilities if such claims were to arise. Certain monoline insurers have been subject to downgrades in 2009. Consequently, a fair value loss of £616was recognised in 2009 (2008: £175m). There have been no claims due under these contracts as none of the underlying assets defaulted in the period

The notional value of the assets split by the current rating of the underlying asset is shown below.



As at 30.09.09



As at 30.06.09



As at 31.12.08


AAA/AA

A/BBB

Non- invest-ment Grade

Total


AAA/AA

A/BBB

Non- invest-ment Grade

Total


AAA/AA

A/BBB

Total


£m

£m

£m

£m


£m

£m

£m

£m


£m

£m

£m

2005 and earlier

4,265

696

-

4,961


4,752

237

313

5,302


6,037

-

6,037

2006

4,974

467

-

5,441


5,052

214

-

5,266


5,894

-

5,894

2007 and 2008

5,369

469

-

5,838


5,384

239

-

5,623


6,295

-

6,295

CLOs

14,608

1,632

-

16,240


15,188

690

313

16,191


18,226

-

18,226















2005 and earlier

-

57

57

114


-

629

139

768


862

-

862

2006

119

91

127

337


116

153

207

476


535

-

535

2007 and 2008

436

-

751

1,187


437

-

715

1,152


785

467

1,252

Other

555

148

935

1,638


553

782

1,061

2,396


2,182

467

2,649















Total

15,163

1,780

935

17,878


15,741

1,472

1,374

18,587


20,408

467

20,875


Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


D.    Protium 

On 16th September 2009, Barclays Capital sold £7.5bn ($12.3bn) assets, including £5.1bn ($8.4bn) relating to exposures itemised in sections A to C to Protium Finance LP, a newly established fund. The assets were sold at fair values and there was no gain or loss on sale. 

As part of the transaction, Barclays extended a £7.7bn ($12.6bn) 10 year loan to Protium Finance LP. The loan is classified within loans and receivables. It will be assessed for impairment over the term in accordance with the Group's accounting polices. The difference between the size of the loan and assets sold relates to cash and US treasuries held by Protium. The cash will be deployed at the discretion of Protium in third party credit assets.

The impact on each class of credit market exposure is detailed in each relevant category in sections A to C above.

There have been no material changes in the performance of the underlying cashflows. Fair value movements of the underlying assets are offset by the corresponding decrease in the monoline exposure from the date of completion to 30th September 2009. 

For information purposes, the fair value of assets sold to Protium, including cash realised from sales and paydowns, is set out below:



As at 30.09.09

As at 16.09.09

As at 30.06.09


As at 30.09.09

As at 16.09.09

As at 30.06.09

US Residential Mortgages

$m

$m

$m


£m

£m

£m

Other US sub-prime whole loans and real estate 

1,104

1,124

1,256


691

682

764

Other US sub-prime securities

527

513

508


330

311

309

Total other US sub-prime

1,631

1,637

1,764


1,021

993

1,073




 




 

Alt-A

2,141

2,185

2,342


1,340

1,326

1,424




 




 

Monoline wrapped US RMBS

1,842

1,919

2,081


1,153

1,164

1,266









Commercial Mortgages



 




 

Monoline wrapped CMBS

1,334

1,991

2,450


835

1,208

1,490









Other Credit Market 



 




 

Monoline wrapped CLO and other

654

652

752


410

396

457









Credit market related exposure

7,602

8,384

9,389


4,759

5,087

5,710









Fair value of underlying assets wrapped by monoline insurers

4,266

3,592

2,728


2,671

2,179

1,659

Other Assets

475

309

285


297

188

173

Total

12,343

12,285

12,402


7,727

7,454

7,542


  Q309 IMS Appendix II - Barclays Capital Credit Market Exposures


E.    Own Credit

The carrying amount of issued notes that are designated under the IAS 39 fair value option is adjusted to reflect the effect of changes in own credit spreads. The resulting gain or loss is recognised in the income statement.

From 30th September 2007 to 30th June 2009, Barclays credit default swap spreads were used to calculate the carrying amount of issued notes, since there were insufficient observable own credit spreads through secondary trading in Barclays issued bonds. From 1st July 2009, the carrying amount of issued notes has been calculated using credit spreads derived from secondary trading in Barclays issued bonds.

At 30th September 2009, the own credit adjustment arose from the fair market valuation of £50.0bn of Barclays Capital structured notes (31st December 2008: £54.5bn). The current period effect on fair value of changes in own credit was a loss of £1,298m.  

Barclays Capital uses credit default swap spreads to determine the impact of Barclays own credit quality on the fair value of derivative liabilities. At 30th September 2009, cumulative adjustment gains of £341m (31st December 2008: £1,176m) were netted against derivative liabilities. The impact of these adjustments in both periods was more than offset by the impact of the credit valuation adjustments to reflect counterparty creditworthiness that were netted against derivative assets.


-ENDS-


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