Interim Results - Part 4
BARCLAYS PLC
5 August 1999
PART 4
ADDITIONAL INFORMATION (CONTINUED)
CHANGES IN REPORTING OF GROUP STRUCTURE IN 1999
Since 1st January 1999, a number of changes have been made to the Group's
reporting structure. Major changes, for which comparative figures have been
restated, as appropriate, are:
Retail Financial Services has re-organised the management of its business
around customer segments to deliver services and products. For reporting
purposes it is organised into Retail Customers, Wealth Management and
Barclaycard. Retail Customers and Wealth Management have absorbed the
relevant customer segments from the previous business groupings of UK Retail
Banking, International Premier, Private, Savings and Investment and Africa
and Caribbean, with Barclaycard remaining unaffected.
Retail Customers comprises UK Retail Banking (excluding UK Premier), the
African business, UK retail mutual funds and Barclays Life. Wealth
Management comprises the former International Premier, Private, Savings and
Investment business (excluding UK retail mutual funds and Barclays Life), UK
Premier and the Caribbean business.
The Structured Export Finance business and a number of large corporate
assets have been transferred from Barclays Capital to Corporate Banking.
Certain internal charges have been re-allocated between Retail Financial
Services and Corporate Banking. In addition, Retail Financial Services has
revised its presentation of income and costs within its profit and loss
account. There is no effect on total Group revenue or costs as a result of
these changes.
RECENT DEVELOPMENTS
On 27th July 1999, Barclays announced the appointment of Matthew Barrett as
Group Chief Executive and as a director of Barclays PLC and Barclays Bank
PLC with effect from 1st October 1999, when Sir Peter Middleton will step
down as Group Chief Executive, continuing in his role as Group Chairman.
On 2nd July 1999, the Group announced the appointment of David Allvey as
Finance Director of Barclays PLC and Barclays Bank PLC. He will join the
boards of both companies as a director on 1st September 1999 and succeed
Oliver Stocken as Finance Director on 20th September 1999. Oliver Stocken
will retire as a director of Barclays PLC and Barclays Bank PLC on 30th
September 1999.
ACQUISITIONS AND DISPOSALS
In June 1999 the Group increased its holding in Banque du Caire Barclays
International (subsequently renamed Cairo Barclays SAE) from 49% to 60%.
This entity is now accounted for as a subsidiary.
Details of significant disposals in the period are set out under exceptional
items on page 17.
ACCOUNTING POLICIES
A change in policy has arisen from the adoption in 1999 of Financial
Reporting Standard 12 'Provisions, Liabilities and Assets' (FRS 12). The
Group has a number of vacant leasehold properties where unavoidable costs
exceed anticipated income for which a provision is now required under
FRS 12. Previously costs and income in relation to these properties were
only recognised as they arose.
The change in policy has resulted in a prior year adjustment and the profit
and loss accounts and balance sheets for previous years have been restated.
This has resulted in a net charge to shareholders' funds of £81m as at 1st
January 1999 comprising the cumulative impact of prior year reductions in
net interest income, net provisions for property costs and associated tax
credits. Comparative figures have been restated with the effect that
shareholders' funds have been reduced by £63m at 1st January 1998. Profit
before tax for the six months to 31st December 1998 and 30th June 1998 has
been reduced by £22m and £1m respectively.
There have been no other significant changes to the accounting policies as
described in the 1998 Annual report.
CHANGES IN ACCOUNTING PRESENTATION
The classification of certain items of income and costs have been reviewed
and £25m has been offset between costs and income to more appropriately
reflect the nature of the transactions involved. In view of the amounts
involved no restatements have been made.
There have been no other changes in accounting presentation from that
reflected in the 1998 Annual report.
REVIEW OF FINANCIAL INFORMATION BY AUDITORS
The unaudited financial information for Barclays PLC comprising pages 7 and
9, 39 to 49 and 52 to 56 have been reviewed by PricewaterhouseCoopers and
their report relating to it is included on page 58.
GROUP SHARE SCHEMES
The trustees of the Group's share schemes may make purchases of Barclays PLC
ordinary shares in the market following the announcement of the Group's
results in August 1999 for the purposes of those schemes' current and future
requirements. The total number of ordinary shares purchased would not be
material in relation to the issued share capital of Barclays PLC.
FILINGS WITH THE SEC
This report is being furnished as a Form 6-K with the Securities and
Exchange Commission in the United States of America.
NOTES (UNAUDITED)
Half-year ended
1. Loans and advances to banks 30.6.99 31.12.98 30.6.98
£m £m £m
Banking business
Loans and advances to banks 14,239 20,357 19,749
Less - provisions (25) (41) (24)
14,214 20,316 19,725
Trading business 25,805 16,296 18,109
Total loans and advances to 40,019 36,612 37,834
banks
Of the total loans and advances to banks, placings with banks were
£35.2bn at 30th June 1999 (31st December 1998: £32.8bn, 30th June: 1998
£31.7bn). The majority of placings have a residual maturity of less
than one year.
Half-year ended
2. Loans and advances to 30.6.99 31.12.98 30.6.98
customers
£m £m £m
Banking business
Loans subject to non-recourse
finance arrangements 255 278 304
Less: non returnable finance (245) (269) (294)
10 9 10
Loans and advances to 85,306 77,663 72,519
customers
Finance lease receivables 5,700 5,776 5,875
91,016 83,448 78,404
Less - provisions (1,982) (1,902) (1,833)
- interest in suspense (82) (77) (88)
88,952 81,469 76,483
Trading business 17,094 14,641 31,670
Total loans and advances to 106,046 96,110 108,153
customers
3. Provisions for bad and doubtful debts
Half-year ended
30.6.99 31.12.98 30.6.98
Credit risk provisions £m £m £m
Provisions at beginning of 1,862 1,781 1,761
period
Exchange and other adjustments (23) 12 (7)
Amounts written off
United Kingdom (240) (318) (188)
Other European Union (21) (30) (13)
United States - (5) (2)
Rest of the World (13) (6) (3)
(274) (359) (206)
Recoveries (analysed below) 40 81 95
Sub-total 1,605 1,515 1,643
Provisions charged against profit:
New and increased specific
provisions
United Kingdom 372 489 262
Other European Union 13 20 11
United States 12 7 4
Rest of the World 27 10 13
424 526 290
Less: Releases of specific
provisions
United Kingdom (49) (43) (38)
Other European Union (10) (20) (11)
United States (6) (3) (5)
Rest of the World (5) (9) (6)
(70) (75) (60)
Less: Recoveries
United Kingdom (35) (77) (79)
Other European Union (2) (2) (2)
United States (2) (1) (12)
Rest of the World (1) (1) (2)
(40) (81) (95)
Net specific provisions charge 314 370 135
General provision - 8 (23) 3
charge/(release)
Net credit risk charge to 322 347 138
profit
Provisions at end of period 1,927 1,862 1,781
Country risk provisions
Provisions at beginning of period 81 76 89
Exchange and other adjustments - - 1
Amounts written off (net of 1 (11) (5)
recoveries)
Net specific provision releases (2) (4) (9)
General provision charge - 20 -
Provisions at end of period 80 81 76
Total provisions at end of period 2,007 1,943 1,857
The United Kingdom charge against profit in the second half of 1998
included £153m in respect of exposure to Russian counterparties.
Total provisions for bad and doubtful debts at end of period comprise:
Half-year ended
30.6.99 31.12.98 30.6.98
Specific - credit risk £m £m £m
United Kingdom 1,007 928 801
Other European Union 153 213 225
United States 30 23 24
Rest of the World 75 35 45
1,265 1,199 1,095
Specific - country risk 15 16 31
Total specific provisions 1,280 1,215 1,126
General provisions
- credit risk 662 663 686
- country risk 65 65 45
2,007 1,943 1,857
The geographic analysis of provisions shown above is based on location
of office.
Half-year ended
4. Other assets 30.6.99 31.12.98 30.6.98
£m £m £m
Own shares 48 43 43
Balances arising from off-
balance sheet financial 12,110 13,725 14,908
instruments
Shareholders' interest in long-
term assurance fund 539 530 488
London Metal Exchange warrants
and other metals trading 385 457 535
positions
Sundry debtors 1,680 1,862 2,345
Prepayments and accrued income 2,130 2,552 2,763
16,892 19,169 21,082
'Own shares' represent Barclays PLC shares held in employee benefit trusts
that have not yet vested unconditionally with the eligible employees.
Half-year ended
5. Other liabilities 30.6.99 31.12.98 30.6.98
£m £m £m
Obligations under finance 145 141 146
leases payable
Balances arising from
off-balance sheet financial 13,267 15,849 15,744
instruments
Short positions in securities 19,786 13,682 15,013
Current tax 537 479 670
Sundry creditors 2,379 3,199 3,116
Accruals and deferred income 2,894 3,074 2,672
Provisions for liabilities and 1,492 1,353 1,398
charges
Dividend 263 414 232
40,763 38,191 38,991
6. Potential credit risk lendings
The following table presents an analysis of potential credit risk
lendings in accordance with the US Securities and Exchange Commission
guidelines. Additional categories of disclosure are included, however,
to record lendings where interest continues to be accrued and where
either interest is being suspended or specific provisions have been
raised. Normal US banking practice would be to place such lendings on
non-accrual status.
The amounts, the geographical presentation of which is based on the
location of the office recording the transaction, are stated before
deduction of the value of security held, specific provisions carried or
interest suspended.
Non-performing lendings 30.6.99 31.12.98 30.6.98
£m £m £m
Non-accrual lendings:
United Kingdom 1,004 985 824
Foreign 268 282 283
Accruing lendings where
interest is being suspended:
United Kingdom 308 266 245
Foreign 131 118 125
Other accruing lendings
against which provisions have
been made:
United Kingdom 444 457 370
Foreign 124 134 123
Sub-totals:
United Kingdom 1,756 1,708 1,439
Foreign 523 534 531
Accruing lendings 90 days
overdue, against which no
provisions have been made:
United Kingdom 276 309 382
Foreign 19 19 13
Reduced rate lendings:
United Kingdom 6 7 9
Foreign - - -
Total non-performing lendings
United Kingdom 2,038 2,024 1,830
Foreign 542 553 544
2,580 2,577 2,374
UK non-performing lendings were broadly unchanged. Increases in credit card
and other consumer non-performing lendings were offset by write-offs.
Potential problem lendings: In addition to the above, the following
table shows lendings which are current as to payment of principal and
interest, but where serious doubt exists as to the ability of the
borrower to comply with repayment terms in the near future.
30.6.99 31.12.98 30.6.98
£bn £bn £bn
United Kingdom 0.6 0.6 0.7
Foreign 0.1 0.1 0.1
0.7 0.7 0.8
30.6.99 31.12.98 30.6.98
Credit risk provision coverage % % %
of:
- credit risk non-performing 77.9 75.2 78.7
lendings
- total potential credit risk 60.7 59.4 59.4
lendings
Half-year ended
30.6.99 31.12.98 30.6.98
Interest forgone on non- £m £m £m
performing lendings:
Interest income that would
have been recognised under 84 74 108
original contractual terms
Interest income included in (27) (32) (31)
profit
Interest forgone 57 42 77
7. Exposure to countries subject to International Monetary Fund liquidity
support programmes
Amounts outstanding, net of provisions, and commitments to
counterparties in countries which are subject to International Monetary
Fund liquidity support programmes were as follows:
30.6.99 31.12.98 30.6.98
Asia £bn £bn £bn
Indonesia 0.1 0.1 0.2
South Korea 0.4 0.5 0.5
Thailand 0.1 0.1 0.2
0.6 0.7 0.9
Latin America
Brazil 0.9 0.9 0.8
Eastern Europe
Russia - - 0.5
1.5 1.6 2.2
Of the total of £1.5bn, £1.0bn (31st December 1998: £1.0bn, 30th June
1998: £1.1bn) was related to banks, £0.3bn (31st December 1998: £0.4bn,
30th June 1998: £0.8bn) to governments and £0.2bn (31st December 1998:
£0.2bn, 30th June 1998: £0.3bn) to other corporate bodies, including
project finance companies, and was mainly in respect of loans, off-
balance sheet financial instruments and debt securities. Off-balance
sheet financial instruments and debt securities are marked to market.
The Group has a Brazilian associate, Banco Barclays e Galicia SA, which
is equity accounted. At 30th June 1999 the 50% holding was included in
the balance sheet at a value of £48m (31st December 1998: £47m, 30th
June 1998: £43m), which is included in the figures above.
Of the above exposures £22m (31st December 1998: £35m, 30th June 1998:
£12m) were non-performing (interest not being accrued) as at 30th June
1999. In the second half of 1998 the Group raised a general provision
of £20m in respect of country transfer risk arising from its business
world wide, including exposure in these countries. The balance of such
provisions at 30th June 1999 is £65m, this being in addition to £662m of
general provision held against credit risk.
8. Cross-border outstandings
At 30th June 1999, countries where Barclays cross-border outstandings
exceeded 1% of assets were the United States, Germany and France. In
this context, assets comprise total assets as presented in the
consolidated balance sheet and include acceptances. On this basis total
assets amounted to £242,583m at 30th June 1999 (31st December 1998:
£220,564m).
Cross-border outstandings As % Total
exceeding 1% of assets of assets £m
At 30th June 1999
United States 2.2 5,401
Germany 2.0 4,746
France 1.3 3,184
At 31st December 1998
United States 3.3 7,211
Germany 1.4 3,142
France 1.4 3,094
Netherlands 1.3 2,772
Japan 1.1 2,420
As at 30th June 1999, the countries with aggregate cross-border
outstandings between 0.75% and 1% of total Group assets were Japan at
£1,908m and the Netherlands at £1,892m. At 31st December 1998, Barclays
had no countries in this category.
9. European Economic and Monetary Union
The Group's implementation of the euro in the first week of January 1999
was very successful. Barclays believes it is competitively placed to
meet the needs of its customers for the euro.
Some planning for the possibility of UK entry has taken place and
Barclays is participating in follow-up work identified by the Government
in its National Changeover Plan. The Group's current policy is not to
incur significant expenditure until there is more certainty about a
decision to enter. It is too early to give any meaningful estimate of
the cost of preparing for UK entry.
10. Year 2000 Readiness Disclosure
Barclays has confidence in its readiness for the Year 2000.
The Barclays Group Year 2000 Programme, initiated in 1996, is
responsible for Year 2000 projects across the Group world wide. A
Programme Board of executives representing all Group businesses is
chaired by the Director, Planning, Operations and Technology, who
reports directly to the Chairman and Chief Executive.
During the first half of 1999 Barclays has continued working to ensure
that its mission critical systems (those which could have an immediate
and observable impact on the Group's customers and therefore its ability
to continue to operate effectively) can deal satisfactorily with the
Year 2000. All mission critical IT systems, including embedded systems,
have now been tested and are Year 2000 ready.
Together with other banks and external network providers Barclays has
taken part in successful testing of the key industry infrastructure in
the United Kingdom including the cheque clearing and electronic payment
systems, credit cards and ATMs. Barclays will continue to participate
in industry-wide testing throughout the remainder of 1999. Where
appropriate, similar joint testing is undertaken in other countries in
which it operates.
As a result of working closely with key suppliers the Group has been
able to satisfy itself as to their current, or planned, state of
readiness and the support arrangements required for the cutover to the
new year. The Year 2000 readiness of approximately 1,500 of Barclays
most critical counterparties is being assessed centrally and procedures
are in place to ensure that credit exposure to those, and other banks
with whom the Group has a relationship, is managed with Year 2000
readiness in mind.
The Group collates and analyses information on specific aspects of the
preparedness of countries in which it operates using data from a variety
of sources. Barclays continues to evaluate significant potential Year
2000 impacts on its funding capability and incorporates such risks into
the capital and liquidity plans.
Awareness campaigns have been undertaken for corporate, small business
and personal customers in the United Kingdom and some overseas areas.
Information gathered from these campaigns, the results of surveys and
other internal initiatives have allowed the Group to continue to
evaluate the preparedness of the corporate and small business customer
base and this information has been used to inform the Group's risk
management activities.
In the United Kingdom Barclays has co-operated with other major
financial institutions in order to support public confidence concerning
the Year 2000 by working closely with the British Bankers Association in
the production of an information leaflet 'Your Money and the Millennium'
and with Action 2000 on 'Facts Not Fiction'. In June Barclays issued
its own leaflet, 'The Millennium Bug - It's business as usual with
Barclays into 2000' and launched in the United Kingdom a telephone
helpline to address specific Year 2000 questions from staff and
customers. A Year 2000 Website (www.y2000.barclays.com) gives further
information on the Programme.
Despite all these actions Barclays is not taking its progress for
granted. All systems changes are now subject to 'Clean Management'
processes in order to prevent the Year 2000 problem being reintroduced.
In order to further mitigate the risk associated with the introduction
of new systems a 'Change Freeze' regime has been implemented across the
Barclays Group the first element of which commenced in July.
It is a prudent planning scenario that there could be some disruption
caused directly or indirectly by the Year 2000 issue. Contingency plans
across the Group are therefore being reviewed and updated, and are being
augmented with continuity plans to mitigate the possible effects of the
Year 2000. At the end of July Barclays had completed an initial cutover
plan which defines how the Group will operate across the change from
1999 into 2000. This includes the establishment and testing of a
network of command centres, internal and external communications and
participation in industry testing during the non-business days. This
work will continue to be refined during the remainder of 1999
incorporating market requirements.
The total cost of the Year 2000 Programme is estimated not to exceed
£250m (including £20m of capitalised costs) for the four year period
ending December 2000. The total amount spent on the Year 2000 Programme
to the end of June was about £180m (including £15m of capitalised costs)
of which £35m was incurred in the half year to June 1999. Year 2000
costs include correction, testing, third party assurance and contingency
planning.
Cautionary statement
Certain of the statements contained in the foregoing Year 2000 Readiness
Disclosure are forward looking statements within the meaning of the
United States Private Securities Litigation Reform Act 1995. Barclays
expectations about the anticipated business, operational and financial
risks to it from Year 2000 problems are subject to a number of
uncertainties. The foregoing Readiness Disclosure of Year 2000,
therefore, should be read in conjunction with the cautionary statements
contained in Barclays Annual Report on Form 20-F for 1998.
11. Legal proceedings
Barclays is party to various legal proceedings, the ultimate resolution
of which is not expected to have a material adverse effect on the
financial position of the Group.
12. Geographical analysis
Half-year ended
30.6.99 31.12.98 30.6.98
Profit before tax £m £m £m
United Kingdom 622 437 1,046
Other European Union 177 130 111
United States 103 2 65
Rest of the World 68 38 66
970 607 1,288
30.6.99 31.12.98 30.6.98
Total assets £m £m £m
United Kingdom 170,607 154,446 183,371
Other European Union 18,288 18,490 20,231
United States 35,407 24,886 23,720
Rest of the World 16,963 21,672 21,634
241,265 219,494 248,956
13. Contingent liabilities and commitments
Half-year ended
30.6.99 31.12.98 30.6.98
Contingent liabilities £m £m £m
Acceptances and endorsements 1,331 1,384 1,531
Guarantees and assets
pledged as collateral security 11,011 8,784 6,861
Other contingent liabilities 5,359 5,069 5,181
17,701 15,237 13,573
Commitments
Standby facilities, credit
lines and other commitments 73,376 68,191 63,545
14. Off-balance sheet financial instruments, including derivatives
The tables set out below analyse the contract or underlying principal
amounts of derivative financial instruments held for trading purposes
and for the purposes of managing the Group's structural exposures.
Foreign exchange derivatives 30.6.99 31.12.98 30.6.98
£m £m £m
Contract or underlying
principal amount
Forward foreign exchange 233,836 263,958 323,816
Currency swaps 81,025 79,447 65,537
Other exchange rate related 65,460 101,310 183,648
contracts
380,321 444,715 573,001
Interest rate derivatives
Contract or underlying
principal amount
Interest rate swaps 900,052 787,486 690,780
Forward rate agreements 69,513 99,960 164,726
OTC options bought and sold 232,236 222,589 189,712
Other interest rate related 124,381 104,003 222,366
contracts
1,326,182 1,214,038 1,267,584
Equity, stock index and
commodity derivatives
Contract or underlying 55,961 51,347 57,865
principal amount
Other exchange rate related contracts are primarily OTC options. Other
interest rate related contracts are primarily exchange traded options
and futures.
Derivatives entered into as trading transactions, together with any
associated hedging thereof, are measured at fair value and the resultant
profits and losses are included in dealing profits. The tables below
summarise the positive and negative fair values of such derivatives,
including an adjustment for netting where the Group has the ability to
insist on net settlement which is assured beyond doubt, based on a legal
right that would survive the insolvency of the counterparty.
Positive fair values 30.6.99 31.12.98 30.6.98
£m £m £m
Foreign exchange derivatives 6,090 9,913 9,222
Interest rate derivatives 16,573 20,083 13,062
Equity, stock index and 2,289 2,240 2,939
commodity derivatives
Effect of netting (12,842) (18,511) (10,315)
12,110 13,725 14,908
Negative fair values
Foreign exchange derivatives 6,836 12,062 9,012
Interest rate derivatives 16,517 19,603 13,446
Equity, stock index and 2,756 2,695 3,601
commodity derivatives
Effect of netting (12,842) (18,511) (10,315)
13,267 15,849 15,744
Deferred profits and losses on hedging activities
Derivative instruments used to manage risk on transactions which are
superseded, cease to be effective or are terminated early are measured
at fair value. Any profits or losses arising are deferred and amortised
into interest income or expense over the remaining life of the asset,
liability, position or cashflow previously being hedged.
The table below summarises the deferred profits and losses at 30th June
1999, all of which are in respect of interest rate derivatives:
Under One to Over five Total
one year five years years
£m £m £m £m
Deferred profits
being amortised 5 5 1 11
Deferred losses
being amortised 2 2 - 4
15. Market risk
Market risk is the risk of loss arising from adverse movements in the
level or volatility of market prices, which can occur in the interest
rate, foreign exchange, equity and commodity markets. It is incurred as
a result of both trading and asset/liability management activities.
The market risk management policies of the Group are determined by the
Group Risk Management Committee, which also determines overall market
risk appetite. The Group's policy is that exposure to market risk
arising from trading activities is concentrated in Barclays Capital.
The Group's banking businesses are also subject to market risk, which
arises in relation to non-trading positions, such as capital balances,
demand deposits and customer originated transactions and flows.
The Group uses a 'value at risk' measure as the primary mechanism for
controlling market risk. Daily Value at Risk (DVAR) is an estimate,
with a confidence level of 98%, of the potential loss which might arise
if the current positions were to be held unchanged for one business day.
Daily losses exceeding the DVAR figure are likely to occur, on average,
only twice in every one hundred business days. Actual outcomes are
monitored regularly to test the validity of the assumptions made in the
calculation of DVAR.
Barclays Capital Trading activities
In Barclays Capital, the formal process for the management of risk is
through the Barclays Capital Risk Management Committee. Day-to-day
responsibility for market risk lies with the Chief Executive of Barclays
Capital, supported by a dedicated global market risk management unit
that operates independently of the business areas.
In the fourth quarter of 1998, Barclays Capital closed its non-customer
related proprietary trading businesses and its secondary market
corporate bond inventory was substantially reduced. This reduction in
risk contributed to a decrease in DVAR from £22.8m at 30th June 1998 to
£12.2m at 31st December 1998. The lower risk profile was maintained in
the first half of 1999, with a DVAR of £14.5m being recorded on 30th
June 1999. The average, maximum and minimum daily values of DVAR were
estimated as follows:
DVAR Half-year ended
30th June 1999
Average High Low
£m £m £m
Interest rate risk 10.1 13.1 6.2
Foreign exchange risk 3.7 11.7 1.0
Equities risk 1.8 3.7 0.6
Commodities risk 0.8 1.5 0.5
Diversification effect (3.4)
Total DVAR 13.0 20.4 7.7
Half-year ended Half-year ended
31st December 1998 30th June 1998
Average High Low Average High Low
£m £m £m £m £m £m
Interest Rate Risk 16.2 36.6 9.6 13.9 24.2 9.5
Foreign Exchange 5.3 13.2 1.2 6.4 13.9 3.7
Risk
Equities Risk 3.3 7.9 1.3 2.6 3.5 1.7
Commodities Risk 0.8 1.5 0.6 1.6 2.9 0.8
Diversification (3.9) (4.4)
Effect
Total 21.7 43.3 12.2 20.1 31.6 15.9
In February 1999, Barclays Capital implemented historical simulation as
the standard method for calculating DVAR, having previously used mainly
a variance/covariance calculation. Compared with the previous approach,
historical simulation is considered to give better risk aggregation, a
more accurate estimate of options risk and a more realistic assessment
of the statistical distribution of low probability extreme losses. The
new method, currently based on a one-year historical sample, is now used
for the majority of the Barclays Capital businesses, the main exception
being that a historical simulation method is still being developed for
the Commodities business. The new approach has been approved by the
Financial Services Authority for calculating regulatory capital for
general market risk.
All 1999 figures reported in the above table are based on the new
method, while the 1998 figures use the old approach. The Group estimate
that the change to the new methodology increased the reported average
DVAR for the first half of 1999 by around 10% to 15%. This increase is
due to the new methodology placing equal weighting on all data points in
the sample, whereas the old methodology placed greater weighting on more
recent data points. As a result, the new method places more emphasis on
the higher levels of market volatility during the second half of 1998.
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