Final Results - Part 2

Barclays PLC 19 February 2008 PART TWO 14. Dividends on ordinary shares The Board has decided to pay, on 25th April 2008, a final dividend for the year ended 31st December 2007 of 22.5p per ordinary share for shares registered in the books of the Company at the close of business on 7th March 2008. Shareholders who have their dividends paid direct to their bank or building society account will receive a consolidated tax voucher detailing the dividends paid in the 2008-2009 UK tax year in mid-October 2008. The amount payable for the 2007 final dividend based on the number of shares outstanding at 31st December 2007 would be Â£1,485m (2006: Â£1,307m). This amount excludes Â£45m payable on own shares held by employee benefit trusts (2006: Â£33m). For qualifying US and Canadian resident ADR holders, the final dividend of 22.5p per ordinary share becomes 90p per ADS (representing four shares). The ADR depositary will mail the dividend on 25th April 2008 to ADR holders on the record on 7th March 2008. For qualifying Japanese shareholders, the final dividend of 22.5p per ordinary share will be distributed in mid-May to shareholders on the record on 7th March 2008. Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan. The plan 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 plan would require Barclays or The Plan Administrator 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 plan should contact The Plan Administrator by writing to: The Plan Administrator to Barclays, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA; 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 on or before 4th April 2008 for it to be effective in time for the payment of the dividend on 25th April 2008. Shareholders who are already in the plan need take no action unless they wish to change their instructions in which case they should write to The Plan Administrator. 15. Assets held in respect of linked liabilities to customers under investment contracts/liabilities to customers under investment contracts 2007 2006 Â£m Â£m Non-trading financial instruments fair valued through profit and loss held in respect of linked liabilities 90,851 82,798 Cash and bank balances within the funds 1,788 1,839 -------- -------- Assets held in respect of linked liabilities to customers under investment contracts 92,639 84,637 -------- -------- Liabilities arising from investment contracts (92,639) (84,637) -------- -------- 16. Derivative financial instruments The tables below analyse the contract or underlying principal and the fair value of derivative financial instruments held for trading and hedging purposes. Derivatives are measured at fair value and the resultant profits and losses from derivatives held for trading purposes are included in net trading income. Where derivatives are held for hedging purposes and meet the criteria specified in IAS 39, the Group applies hedge accounting as appropriate to the risks being hedged. Contract 2007 notional Fair value amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 2,208,369 30,348 (30,300) Interest rate derivatives 23,608,949 139,940 (138,426) Credit derivatives 2,472,249 38,696 (35,814) Equity and stock index and commodity derivatives 910,328 37,966 (42,838) ------------ ----------- ------------ Total derivative assets/(liabilities) held for trading 29,199,895 246,950 (247,378) ------------ ----------- ------------ Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 55,292 458 (437) Derivatives designated as fair value hedges 23,952 462 (328) Derivatives designated as hedges of net investments 12,620 218 (145) ------------ ----------- ------------ Total derivative assets/(liabilities) designated in hedge accounting relationships 91,864 1,138 (910) ------------ ----------- ------------ Total recognised derivative assets/ (liabilities) 29,291,759 248,088 (248,288) ------------ ----------- ------------ Contract 2006 notional Fairvalue amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 1,500,774 22,026 (21,745) Interest rate derivatives 17,666,353 76,010 (75,854) Credit derivatives 1,224,548 9,275 (8,894) Equity and stock index and commodity derivatives 495,080 29,962 (33,253) ------------ ----------- ------------ Total derivative assets/(liabilities) held for trading 20,886,755 137,273 (139,746) ------------ ----------- ------------ Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 63,895 132 (401) Derivatives designated as fair value hedges 19,489 298 (441) Derivatives designated as hedges of net investments 12,050 650 (109) ------------ ----------- ------------ Total derivative assets/(liabilities) designated in hedge accounting relationships 95,434 1,080 (951) ------------ ----------- ------------ Total recognised derivative assets/ (liabilities) 20,982,189 138,353 (140,697) ------------ ----------- ------------ Total derivative notionals have grown over the period primarily due to increases in the volume of fixed income derivatives, reflecting the continued growth in client based activity and increased use of electronic trading platforms in Europe and the US. Interest rate and credit derivative values have also increased significantly, largely due to growth in the market for these products. Derivative assets and liabilities subject to counterparty netting agreements amounted to Â£199bn (31st December 2006: Â£102bn). Additionally, we held Â£17bn (31st December 2006: Â£8bn) of collateral against the net derivative assets exposure. 17. Fair value measurement of financial instruments Where a financial instrument is stated at fair value, this is determined by reference to the quoted price in an active market wherever possible. Where no such active market exists for the particular asset or liability, the Group uses an appropriate valuation technique to arrive at the fair value. Fair value amounts can be analysed into the following categories: Unadjusted quoted prices in active markets where the quoted price is readily available and the price represents actual and regularly occurring market transactions on an arm's length basis. Valuation techniques based on market observable inputs. Such techniques may include: - using recent arm's length market transactions; - reference to the current fair value of similar instruments; - discounted cash flow analysis, pricing models or other techniques commonly used by market participants. Valuation techniques used above, but which include significant inputs that are not observable. On initial recognition of financial instruments measured using such techniques the transaction price is deemed to provide the best evidence of fair value for accounting purposes. The following tables set out the total financial instruments stated at fair value as at 31st December 2007 and those fair values which include unobservable inputs. Unobservable inputs Total Â£m Â£m Assets stated at fair value Trading portfolio assets 4,457 193,691 Financial assets designated at fair value: held on own account 16,819 56,629 held in respect of linked liabilities to - 90,851 customers under investment contracts Derivative financial instruments 2,707 248,088 Available for sale financial investments 810 43,072 -------- -------- Total 24,793 632,331 -------- -------- Unobservable inputs Total Â£m Â£m Liabilities stated at fair value Trading portfolio liabilities 42 65,402 Financial liabilities designated at fair value 6,172 74,489 Liabilities to customers under investment contracts - 92,639 Derivative financial instruments 4,382 248,288 -------- -------- Total 10,596 480,818 -------- -------- The amount that has yet to be recognised in income that relates to the difference between the transaction price (the fair value at initial recognition) and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition, less amounts subsequently recognised, was as follows: 2007 2006 Â£m Â£m At 1st January 534 260 Additions in year 134 359 Amortisation and releases in the year (514) (85) -------- -------- At 31st December 154 534 -------- -------- 18. Barclays Capital credit market positions Barclays Capital credit market exposures resulted in net losses of Â£1,635m in 2007, due to dislocations in the credit markets. The net losses primarily related to ABS CDO super senior exposures, with additional losses from other credit market exposures partially offset by gains from the general widening of credit spreads on issued notes held at fair value. Credit market exposures in this note are stated relative to comparatives as at 30th June 2007, being the reporting date immediately prior to the credit market dislocations. As at 31.12.2007 30.06.2007 Â£m Â£m ABS CDO Super Senior High Grade 4,869 6,151 Mezzanine 1,149 1,629 --------- --------- Exposure before hedging 6,018 7,780 Hedges (1,347) (348) --------- --------- Net ABS CDO Super Senior 4,671 7,432 --------- --------- Other US sub-prime Whole loans 3,205 2,900 Other direct and indirect exposures 1,832 3,146 --------- --------- Other US sub-prime 5,037 6,046 --------- --------- Alt-A 4,916 3,760 --------- --------- Monoline insurers 1,335 140 --------- --------- Commercial mortgages 12,399 8,282 --------- --------- SIV-lite liquidity facilities 152 692 --------- --------- Structured investment vehicles 590 925 --------- --------- ABS CDO Super Senior exposure ABS CDO Super Senior net exposure was Â£4,671m (30th June 2007: Â£7,432m). Exposures are stated net of writedowns and charges of Â£1,412m (30th June 2007: Â£56m) and hedges of Â£1,347m (30th June 2007: Â£348m). The collateral for the ABS CDO Super Senior exposures primarily comprised Residential Mortgage Backed Securities (RMBS). 79% of the RMBS sub-prime collateral comprised 2005 or earlier vintage mortgages. On ABS CDO super senior exposures, the combination of subordination, hedging and writedowns provide protection against loss levels to 72% on US sub-prime collateral as at 31st December 2007. None of the above hedges of ABS CDO Super Senior exposures as at 31st December 2007. were held with monoline insurer counterparties. Other credit market exposures Barclays Capital held other exposures impacted by the turbulence in credit markets, including: whole loans and other direct and indirect exposures to US sub-prime and Alt-A borrowers; exposures to monoline insurers; and commercial mortgage backed securities. The net losses in 2007 from these exposures were Â£823m. Other US sub-prime whole loan and net trading book exposure was Â£5,037m (30th June 2007: Â£6,046m). Whole loans included Â£2,843m (30th June 2007: Â£1,886m) acquired since the acquisition of EquiFirst in March 2007, all of which were subject to Barclays underwriting criteria. As at 31st December 2007 the average loan-to-value of these EquiFirst loans was 80% with less than 3% at above 95% loan to value. 99% of the EquiFirst inventory was first lien. Net exposure to the Alt-A market was Â£4,916m (30th June 2007: Â£3,760m), through a combination of securities held on the balance sheet including those held in consolidated conduits and residuals. Alt-A exposure is generally to borrowers of a higher credit quality than sub-prime borrowers. As at 31st December 2007, 99% of the Alt-A whole loan exposure was performing, and the average loan to value ratio was 81%. 96% of the Alt-A securities held were rated AAA or AA. Barclays Capital held assets with insurance protection or other credit enhancement from monoline insurers. The value of exposure to monoline insurers under these contracts was Â£1,335m (30th June 2007: Â£140m). There were no claims due under these contracts as none of the underlying assets were in default. Exposures in our commercial mortgage backed securities business comprised commercial real estate loans of Â£11,103m (30th June 2007: Â£7,653m) and commercial mortgage backed securities of Â£1,296m (30th June 2007: Â£629m). The loan exposures were 54% US and 43% European. The US exposures had an average loan to value of 65% and the European exposures had an average loan to value of 71%. 87% of the commercial mortgage backed securities held as at 31st December 2007 were AAA or AA rated. Loans and advances to customers included Â£152m (30th June 2007: Â£692m) of drawn liquidity facilities in respect of SIV-lites. Total exposure to other structured investment vehicles, including derivatives, undrawn commercial paper backstop facilities and bonds held in trading portfolio assets was Â£590m (30th June 2007: Â£925m). Leveraged Finance At 31st December 2007, drawn leveraged finance positions were Â£7,368m (30th June 2007: Â£7,317m). The positions were stated net of fees of Â£130m and impairment of Â£58m driven by widening of corporate credit spreads. Own Credit At 31st December 2007, Barclays Capital had issued notes held at fair value of Â£57,162m (30th June 2007: Â£44,622m). The general widening of credit spreads affected the carrying value of these notes and as a result revaluation gains of Â£658m were recognised in trading income. 19. Loans and advances to banks 2007 2006 By geographical area Â£m Â£m United Kingdom 5,518 6,229 Other European Union 11,102 8,513 United States 13,443 9,056 Africa 2,581 2,219 Rest of the World 7,479 4,913 --------- --------- 40,123 30,930 Less: Allowance for impairment (3) (4) --------- --------- Total loans and advances to banks 40,120 30,926 --------- --------- 20. Loans and advances to customers 2007 2006 Â£m Â£m Retail business 164,062 139,350 Wholesale and corporate business 185,105 146,281 --------- --------- 349,167 285,631 Less: Allowances for impairment (3,769) (3,331) --------- --------- Total loans and advances to customers 345,398 282,300 --------- --------- By geographical area United Kingdom 190,347 170,518 Other European Union 56,533 43,430 United States 40,300 25,677 Africa 39,167 31,691 Rest of the World 22,820 14,315 --------- --------- 349,167 285,631 Less: Allowance for impairment (3,769) (3,331) --------- --------- Total loans and advances to customers 345,398 282,300 --------- --------- By industry Financial institutions 71,160 45,954 Agriculture, forestry and fishing 3,319 3,997 Manufacturing 16,974 15,451 Construction 5,423 4,056 Property 17,018 16,528 Government 2,036 2,426 Energy and water 8,632 6,810 Wholesale and retail distribution and leisure 17,768 15,490 Transport 6,258 5,586 Postal and communication 5,404 2,180 Business and other services 30,363 26,999 Home loans 112,087 94,635 Other personal 41,535 35,377 Finance lease receivables 11,190 10,142 --------- --------- 349,167 285,631 Less: Allowance for impairment (3,769) (3,331) --------- --------- Total loans and advances to customers 345,398 282,300 --------- --------- The industry classifications have been prepared at the level of the borrowing entity. This means that a loan to the subsidiary of a major corporation is classified by the industry in which that subsidiary operates even though the parent's predominant business may be a different industry. 21. Allowance for impairment on loans and advances 2007 2006 Â£m Â£m At beginning of year 3,335 3,450 Acquisitions and disposals (73) (23) Exchange and other adjustments 53 (153) Unwind of discount (113) (98) Amounts written off (see below) (1,963) (2,174) Recoveries (see below) 227 259 Amounts charged against profit (see below) 2,306 2,074 --------- --------- At end of year 3,772 3,335 --------- --------- Amounts written off United Kingdom (1,530) (1,746) Other European Union (143) (74) United States (145) (46) Africa (145) (264) Rest of the World - (44) --------- --------- (1,963) (2,174) --------- --------- Recoveries United Kingdom 154 178 Other European Union 32 18 United States 7 22 Africa 34 33 Rest of the World - 8 --------- --------- 227 259 --------- --------- New and increased impairment allowances United Kingdom 1,960 2,253 Other European Union 192 182 United States 431 60 Africa 268 209 Rest of the World 20 18 --------- --------- 2,871 2,722 --------- --------- Less: Releases of impairment allowance United Kingdom (213) (195) Other European Union (37) (72) United States (50) (26) Africa (20) (33) Rest of the World (18) (63) --------- --------- (338) (389) --------- --------- Recoveries (227) (259) --------- --------- Total impairment charges on loans and advances 2,306 2,074 --------- --------- 2007 2006 Allowance Â£m Â£m United Kingdom 2,526 2,477 Other European Union 344 311 United States 356 100 Africa 514 417 Rest of the World 32 30 --------- --------- At end of year 3,772 3,335 --------- --------- 22. Potential credit risk loans 2007 2006 Â£m Â£m Impaired loans - Loans and advances 5,230 4,444 - ABS CDO Super Senior 3,344 - --------- --------- 8,574 4,444 Accruing loans which are contractually overdue 90 days or more as to principal or interest 794 598 Impaired and restructured loans 273 46 --------- --------- Credit risk loans(1) 9,641 5,088 Potential problem loans Loans and advances 846 761 ABS CDO Super Senior and SIV-lites 951 - --------- --------- 1,797 761 --------- --------- Potential credit risk loans 11,438 5,849 --------- --------- Geographical split Impaired loans: United Kingdom 3,605 3,340 Other European Union 472 410 United States 3,703 129 Africa 757 535 Rest of the World 37 30 --------- --------- Total 8,574 4,444 --------- --------- Accruing loans which are contractually overdue 90 days or more as to principal or interest United Kingdom 676 516 Other European Union 79 58 United States 10 3 Africa 29 21 Rest of the World - - --------- --------- Total 794 598 --------- --------- (1) The term credit risk loans has replaced non-performing loans as the collective term for impaired loans, accruing loans which are more than 90 days past due and impaired and restructured loans. This recognises the fact that the impaired loans category may include loans which, while impaired, are still performing. 2007 2006 Â£m Â£m Impaired and restructured loans United Kingdom 179 - Other European Union 14 10 United States 38 22 Africa 42 14 Rest of the World - - --------- --------- Total 273 46 --------- --------- Credit risk loans United Kingdom 4,460 3,856 Other European Union 565 478 United States 3,751 154 Africa 828 570 Rest of the World 37 30 --------- --------- Total 9,641 5,088 --------- --------- Potential problem loans United Kingdom 419 465 Other European Union 59 32 United States 964 21 Africa 355 240 Rest of the World - 3 --------- --------- Total 1,797 761 --------- --------- Potential credit risk loans United Kingdom 4,879 4,321 Other European Union 624 510 United States 4,715 175 Africa 1,183 810 Rest of the World 37 33 --------- --------- Total 11,438 5,849 --------- --------- 2007 2006 Allowance coverage of credit risk loans % % United Kingdom 56.6 64.2 Other European Union 60.9 65.1 United States 9.5 64.9 Africa 62.1 73.2 Rest of the World 86.5 100.0 --------- --------- Total 39.1 65.6 --------- --------- Allowance coverage of potential credit risk % % loans United Kingdom 51.8 57.3 Other European Union 55.1 61.0 United States 7.6 57.1 Africa 43.4 51.5 Rest of the World 86.5 91.0 --------- --------- Total 33.0 57.0 --------- --------- Allowance coverage of credit risk loans: % % Retail 55.8 65.6 Wholesale and corporate 24.9 65.5 --------- --------- Total 39.1 65.6 --------- --------- Total excluding ABS CDO Super Senior exposure 55.6 65.6 Allowance coverage of potential credit risk % % loans: Retail 51.0 59.8 Wholesale and corporate 19.7 50.6 --------- --------- Total 33.0 57.0 --------- --------- Total excluding ABS CDO Super Senior exposure 49.0 57.0 Allowance coverage of credit risk loans and potential credit risk loans excluding the drawn ABS CDO Super Senior exposure decreased to 55.6% (31st December 2006: 65.6%) and 49.0% (31st December 2006: 57.0%), respectively. The decrease in these ratios reflected a change in the mix of credit risk loans and potential credit risk loans: unsecured retail exposures, where the recovery outlook is relatively low, decreased as a proportion of the total as the collections and underwriting processes were improved. Secured retail and wholesale and corporate exposures, where the recovery outlook is relatively high, increased as a proportion of credit risk loans and potential credit risk loans. Allowance coverage of ABS CDO Super Senior credit risk loans was low relative to allowance coverage of other credit risk loans since substantial protection against loss is also provided by subordination and hedges. On ABS CDO super senior exposures, the combination of subordination, hedging and writedowns provide protection against loss levels to 72% on US sub-prime collateral as at 31st December 2007. 23. Available for sale financial investments 2007 2006 Â£m Â£m Debt securities 38,673 47,912 Equity securities 1,676 1,371 Treasury bills and other eligible bills 2,723 2,420 --------- --------- 43,072 51,703 --------- --------- 24. Other assets 2007 2006 Â£m Â£m Sundry debtors 4,042 4,298 Prepayments 551 658 Accrued income 400 722 Insurance assets, including unit linked assets 157 172 --------- --------- 5,150 5,850 --------- --------- 25. Other liabilities 2007 2006 Â£m Â£m Obligations under finance leases payable 83 92 Sundry creditors 4,341 4,118 Accruals and deferred income 6,075 6,127 --------- --------- 10,499 10,337 --------- --------- 26. Provisions 2007 2006 Â£m Â£m Redundancy and restructuring 82 102 Undrawn contractually committed facilities and guarantees 475 46 Onerous contracts 64 71 Sundry provisions 209 243 --------- --------- 830 462 --------- --------- 27. Retirement benefit liabilities The Group's IAS 19 pension surplus across all schemes as at 31st December 2007 was Â£393m (31st December 2006: deficit of Â£817m). There are net recognised liabilities of Â£1,501m (31st December 2006: Â£1,719m) and unrecognised actuarial gains of Â£1,894m (31st December 2006: Â£902m). The net recognised liabilities comprised retirement benefit liabilities of Â£1,537m (31st December 2006: Â£1,807m) and assets of Â£36m (31st December 2006: Â£88m). The Group's IAS 19 pension surplus in respect of the main UK scheme as at 31st December 2007 was Â£668m (31st December 2006: deficit of Â£475m). Among the reasons for the movement of Â£1,143m was the increase in AA long-term corporate bond yields which resulted in a higher discount rate of 5.82% (31st December 2006: 5.12%), partially offset by lower than expected returns and an increase in the inflation assumption to 3.45% (31st December 2006: 3.08%). 28. Total shareholders' equity 2007 2006 Â£m Â£m Called up share capital 1,651 1,634 Share premium account 56 5,818 --------- --------- Available for sale reserve 154 132 Cash flow hedging reserve 26 (230) Capital redemption reserve 384 309 Other capital reserve 617 617 Currency translation reserve (307) (438) --------- --------- Other reserves 874 390 Retained earnings 20,970 12,169 Less: Treasury shares (260) (212) --------- --------- Shareholders' equity excluding minority interests 23,291 19,799 --------- --------- Preference shares 4,744 3,414 Reserve capital instruments 1,906 1,906 Upper tier 2 instruments 586 586 Absa minority interests 1,676 1,451 Other minority interests 273 234 --------- --------- Minority interests 9,185 7,591 --------- --------- Total shareholders' equity 32,476 27,390 --------- --------- Total shareholders' equity increased Â£5,086m to Â£32,476m (2006: 27,390m). Called up share capital comprises 6,600 million (2006: 6,535 million) ordinary shares of 25p each and 1 million (2006: 1 million) staff shares of Â£1 each. Called up share capital increased by Â£17m representing the nominal value of shares issued to Temasek Holdings, China Development Bank (CDB) and employees under share option plans largely offset by a reduction in nominal value arising from share buy-backs. Share premium reduced by Â£5,762m; the reclassification of Â£7,223m to retained earnings resulting from the High Court approved cancellation of share premium was partly offset by additional premium arising on the issuance to CDB and on employee options. The capital redemption reserve increased by Â£75m representing the nominal value of the share buy-backs. Retained earnings increased by Â£8,801m. Increases primarily arose from profit attributable to equity holders of the parent of Â£4,417m, the reclassification of share premium of Â£7,223m and the proceeds of the Temasek issuance in excess of nominal value of Â£941m. Reductions primarily arose from external dividends paid of Â£2,079m and the total cost of share repurchases of Â£1,802m. Movements in other reserves, except the capital redemption reserve, reflect the relevant amounts recorded in the consolidated statement of recognised income and expense on page 82. Minority interests increased Â£1,594m to Â£9,185m (2006: Â£7,591m). The increase was primarily driven by a preference share issuance of Â£1,322m and an increase in the minority interest in Absa of Â£225m. 29. Contingent liabilities and commitments 2007 2006 Â£m Â£m Acceptances and endorsements 365 287 Guarantees and letters of credit pledged as collateral for security 35,692 31,252 Other contingent liabilities 9,717 7,880 --------- --------- Contingent liabilities 45,774 39,419 --------- --------- Commitments 192,639 205,504 --------- --------- 30. Legal proceedings Barclays has for some time been party to proceedings, including a class action, in the United States against a number of defendants following the collapse of Enron; the class action claim is commonly known as the Newby litigation. On 20th July 2006 Barclays received an Order from the United States District Court for the Southern District of Texas Houston Division which dismissed the claims against Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. in the Newby litigation. On 4th December 2006 the Court stayed Barclays dismissal from the proceedings and allowed the plaintiffs to file a supplemental complaint. On 19th March 2007 the United States Court of Appeals for the Fifth Circuit issued its decision on an appeal by Barclays and two other financial institutions contesting a ruling by the District Court allowing the Newby litigation to proceed as a class action. The Court of Appeals held that because no proper claim against Barclays and the other financial institutions had been alleged by the plaintiffs, the case could not proceed against them. The plaintiffs applied to the United States Supreme Court for a review of this decision. On 22 January 2008, the United States Supreme Court denied the plaintiffs' request for review. Following the Supreme Court's decision, the District Court ordered a further briefing concerning the status of the plaintiffs' claims. Barclays plans to seek the dismissal of the plaintiffs' claims. Barclays considers that the Enron related claims against it are without merit and is defending them vigorously. It is not possible to estimate Barclays possible loss in relation to these matters, nor the effect that they might have upon operating results in any particular financial period. Barclays has been in negotiations with the staff of the US Securities and Exchange Commission with respect to a settlement of the Commission's investigations of transactions between Barclays and Enron. Barclays does not expect that the amount of any settlement with the Commission would have a significant adverse effect on its financial position or operating results. Like other UK financial services institutions, Barclays faces numerous County Court claims and complaints by customers who allege that its unauthorised overdraft charges either contravene the Unfair Terms in Consumer Contracts Regulations 1999 or are unenforceable penalties or both. Pending resolution of the test case referred to below (the 'test case'), existing and new claims in the County Courts are stayed, and there is an FSA waiver of the complaints handling process and a standstill of Financial Ombudsman Service decisions. In July 2007, and by agreement with all parties, the OFT launched the test case by commencing proceedings against seven banks and one building society including Barclays, the first stage of which seeks declarations on two issues of legal principle. The hearing commenced on 17 January 2008. Barclays is defending the test case vigorously. It is not practicable to estimate Barclays possible loss in relation to these matters, nor the effect that they may have upon operating results in any particular financial period. Barclays is engaged in various other litigation proceedings both in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against it which arise in the ordinary course of business. Barclays does not expect the ultimate resolution of any of the proceedings to which Barclays is party to have a significant adverse effect on the financial position of the Group and Barclays has not disclosed the contingent liabilities associated with these claims either because they cannot reasonably be estimated or because such disclosure could be prejudicial to the conduct of the claims. 31. Competition and regulatory matters The scale of regulatory change remains challenging, arising in part from the implementation of some key European Union (EU) directives. Many changes to financial services legislation and regulation have come into force in recent years and further changes will take place in the near future. Concurrently, there is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the UK and elsewhere. The nature and impact of future changes in policies and regulatory action are not predictable and beyond the Group's control but could have an impact on the Group's businesses and earnings.In June 2005 an inquiry into retail banking in all of the then 25 Member States was launched by the European Commission's Directorate General for Competition. The inquiry looked at retail banking in Europe generally. In January 2007 the European Commission announced that the inquiry had identified barriers to competition in certain areas of retail banking, payment cards and payment systems in the EU. The Commission indicated it will use its powers to address these barriers, and will encourage national competition authorities to enforce European and national competition laws where appropriate. Any action taken by the Commission and national competition authorities could have an impact on the payment cards and payment systems businesses of Barclays and on its retail banking activities in the EU countries in which it operates. In September 2005 the UK Office of Fair Trading (OFT) received a super-complaint from the Citizens Advice Bureau relating to payment protection insurance (PPI). As a result, the OFT commenced a market study on PPI in April 2006. In October 2006, the OFT announced the outcome of the market study and, following a period of consultation, the OFT referred the PPI market to the UK Competition Commission for an in-depth inquiry in February 2007. This inquiry could last for up to two years. Also in October 2006, the UK Financial Services Authority (FSA) published the outcome of its broad industry thematic review of PPI sales practices in which it concluded that some firms fail to treat customers fairly. Barclays has cooperated fully with these investigations and will continue to do so. In April 2006, the OFT commenced a review of the undertakings given following the conclusion of the Competition Commission inquiry in 2002 into the supply of banking services to small and medium enterprises. Based on the OFT's report, the Competition Commission issued its final decision on 21st December 2007 and decided to release the UK's four largest clearing banks (including Barclays) from most of the transitional undertakings given by them in 2002. The OFT has carried out investigations into Visa and MasterCard credit card interchange rates. The decision by the OFT in the MasterCard interchange case was set aside by the Competition Appeals Tribunal in June 2006. The OFT's investigation in the Visa interchange case is at an earlier stage and a second MasterCard interchange case is ongoing. The outcome is not known but these investigations may have an impact on the consumer credit industry in general and therefore on Barclays business in this sector. In February 2007 the OFT announced that it was expanding its investigation into interchange rates to include debit cards. In April 2007, the UK consumer interest association known as Which? submitted a super-complaint to the OFT pursuant to the Enterprise Act 2002. The super-complaint criticises the various ways in which credit card companies calculate interest charges on credit card accounts. In June 2007, the OFT announced a new programme of work with the credit card industry and consumer bodies in order to make the costs of credit cards easier for consumers to understand. This OFT decision follows the receipt by the OFT of the super-complaint from Which? This new work will explore the issues surrounding the costs of credit for credit cards including purchases, cash advances, introductory offers and payment allocation. The OFT's programme of work is expected to take six months. The OFT announced the findings of its investigation into the level of late and over-limit fees on credit cards in April 2006, requiring a response from credit card companies by 31st May 2006. Barclaycard responded by confirming that it would reduce its late and over-limit fees on credit cards from 1st August 2006. In September 2006, the OFT announced that it had decided to undertake a fact find on the application of its statement on credit card fees to current account unauthorised overdraft fees. The fact find was completed in March 2007. On 29th March 2007, the OFT announced its decision to conduct a formal investigation into the fairness of bank current account charges. The OFT announced a market study into personal current accounts (PCAs) in the UK on 26th April 2007. The market study will look at: (i) whether the provision of 'free if in credit' PCAs delivers sufficiently high levels of transparency and value for customers; (ii) the implications for competition and consumers if there were to be a shift away from 'free if in credit' PCAs; (iii) the fairness and impact on consumers generally of the incidence, level and consequences of account charges; and (iv) what steps could be taken to improve customers' ability to secure better value for money, in particular to help customers make more informed current account choices and drive competition. The study will focus on PCAs but will include an examination of other retail banking products, in particular savings accounts, credit cards, personal loans and mortgages in order to take into account the competitive dynamics of UK retail banking. The OFT will publish its interim findings after the test case (see below). In July 2007, the OFT commenced a test case in the High Court by agreement with Barclays and seven other financial institutions in which the parties seek declarations on two legal issues arising from the banks' terms and conditions relating to overdraft charges. The test case does not encompass claims from local, medium or larger business customers. The proceedings will run in parallel with the ongoing OFT dual inquiry into unauthorised overdraft charges and PCAs. Please also refer to the 'Legal proceedings' section on page 73. In January 2007, the FSA issued a statement of good practice relating to mortgage exit administration fees. Barclays agreed to charge the fee applicable at the time the customer took out the mortgage, which was one of the options recommended by the FSA. US laws and regulations require compliance with US economic sanctions, administered by the Office of Foreign Assets Control, against designated foreign countries, nationals and others. HM Treasury regulations similarly require compliance with sanctions adopted by the UK government. Barclays has been conducting an internal review of its conduct with respect to US dollar payments involving countries, persons or entities subject to these sanctions and has been reporting to governmental agencies about the results of that review. Barclays received inquiries relating to these sanctions and certain US dollar payments processed by its New York branch from the New York County District Attorney's Office and the US Department of Justice, which, along with other authorities, has been reported to be conducting investigations of sanctions compliance by non-US financial institutions. Barclays has responded to those inquiries and is cooperating with regulators, the Department of Justice and the District Attorney's Office in connection with their investigations of Barclays conduct with respect to sanctions compliance. Barclays has also been keeping the FSA informed of the progress of these investigations and Barclays internal review. Barclays review is ongoing. It is currently not possible to predict the ultimate resolution of the issues covered by Barclays review and the investigations, including the timing and potential financial effect of any resolution, which could be substantial. Barclays does not expect these matters to have a material adverse effect on the financial position of the Group, but it is not possible to estimate the effect they might have upon operating results in any particular financial period. 32. Market Risk Market risk is the risk that Barclays earnings, capital, or ability to meet its business objectives, will be adversely affected by changes in the level or volatility of market rates or prices such as interest rates, credit spreads, commodity prices, equity prices and foreign exchange rates. Barclays Capital's market risk exposure, as measured by average total Daily Value at Risk (DVaR), increased by 13% to Â£42.0m (2006: Â£37.1m). Interest rate and credit spread risks were broadly unchanged while commodity DVaR and equity DVaR increased by Â£8.9m and Â£3.4m respectively. Diversification across risk types remained significant, reflecting the broad product mix. Total DVaR as at 31st December 2007 was Â£53.9m (31st December 2006: Â£41.9m), reflecting the increased market volatility in the second half of the year. Analysis of Barclays Capital's market risk exposures The daily average, maximum and minimum values of DVaR were calculated as below: DVaR Twelve Months to 31st December 2007 ------------------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 20.0 33.3 12.6 Credit spread risk 24.9 43.3 14.6 Commodity risk 20.2 27.2 14.8 Equity risk 11.2 17.6 7.3 Foreign exchange risk 4.9 9.6 2.9 Diversification effect (39.2) n/a n/a --------- --------- --------- Total DVaR 42.0 59.3 33.1 --------- --------- --------- Twelve Months to 31st December 2006 ------------------------------ Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 20.1 28.8 12.3 Credit spread risk 24.3 33.1 17.9 Commodity risk 11.3 21.6 5.7 Equity risk 7.8 11.6 5.8 Foreign exchange risk 4.0 7.7 1.8 Diversification effect (30.4) n/a n/a --------- --------- --------- Total DVaR 37.1 43.2 31.3 --------- --------- --------- (1) The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. Consequently a diversification effect number for the high (and low) DVaR figures would not be meaningful and it is therefore omitted from the above table. 33. Capital Ratios Basel II Basel I Basel I Risk weighted assets: 2007 2007 2006 Banking book Â£m Â£m Â£m On-balance sheet 231,496 197,979 Off-balance sheet 32,620 33,821 Associated undertakings and joint ventures(1) 1,354 2,072 --------- --------- --------- Total banking book 244,474 265,470 233,872 --------- --------- --------- Trading book Market risks 39,812 36,265 30,291 Counterparty and settlement risks 41,203 51,741 33,670 --------- --------- --------- Total trading book 81,015 88,006 63,961 Operational risk 28,389 --------- --------- --------- Total risk weighted assets 353,878 353,476 297,833 --------- --------- --------- Capital resources: Tier 1 Called up share capital 1,651 1,651 1,634 Eligible reserves 22,939 22,526 19,608 Minority interests(2) 10,551 10,551 7,899 Tier 1 notes(3) 899 899 909 Less: intangible assets (8,191) (8,191) (7,045) Less: deductions from Tier 1 capital(1) (1,106) (28) - --------- --------- --------- Total qualifying Tier 1 capital 26,743 27,408 23,005 --------- --------- --------- Tier 2 Revaluation reserves 26 26 25 Available for sale-equity gains 295 295 221 Collectively assessed impairment 440 2,619 2,556 allowances Minority Interests 442 442 451 Qualifying subordinated liabilities(4): Undated loan capital 3,191 3,191 3,180 Dated loan capital 10,578 10,578 7,603 Less: deductions from Tier 2 capital(1) (1,106) (28) - --------- --------- --------- Total qualifying Tier 2 capital 13,866 17,123 14,036 --------- --------- --------- Less: Regulatory deductions: Investments not consolidated for (633) (633) (982) supervisory purposes Other deductions (193) (1,256) (1,348) --------- --------- --------- Total deductions (826) (1,889) (2,330) --------- --------- --------- Total net capital resources 39,783 42,642 34,711 --------- --------- --------- % % % Equity Tier 1 ratio 5.1 5.0 5.3 Tier 1 ratio 7.6 7.8 7.7 Risk asset ratio 11.2 12.1 11.7 (1) From 1st January 2007, under the FSA's Prudential Sourcebook for Banks, Building Societies and Investment Firms, eligible associates are proportionally, rather than fully, consolidated for regulatory purposes and certain deductions are made directly from Tiers 1 and 2 rather than being included in regulatory deductions. (2) Includes reserve capital instruments of Â£3,908m (31st December 2006: Â£2,765m). Of this amount, Â£1,118m was issued during 2007. This issue is classified within subordinated liabilities on the consolidated balance sheet. (3) Tier 1 notes are included in subordinated liabilities in the consolidated balance sheet. (4) Subordinated liabilities included in Tier 2 Capital are subject to limits laid down in the regulatory requirements. Basel I At 31st December 2007, the Tier 1 capital ratio was 7.8% and the risk asset ratio was 12.1%. From 31st December 2006, total net capital resources rose Â£7.9bn and risk weighted assets increased Â£55.6bn. Tier 1 capital rose Â£4.4bn, including Â£2.3bn arising from profits attributable to equity holders net of dividends paid. Minority interests within Tier 1 capital increased Â£2.7bn primarily due to the issuance of reserve capital instruments and preference shares. The deduction for goodwill and intangible assets increased by Â£1.1bn. Tier 2 capital increased Â£3.1bn mainly as a result of an increase of Â£3.0bn of dated loan capital. Basel II Barclays commenced calculating its risk weighted assets under the new Basel II Capital framework from 1st January 2008. Risk weighted assets (RWAs) calculated on a Basel II basis are broadly in line with RWAs calculated on a Basel I basis. A reduction in credit and counterparty RWAs of Â£31.5bn more than offset the identification of capital equivalent RWAs of Â£28.4bn attributable to operational risk. The reduced RWAs attributable to credit risk were mainly driven by recognition of the low risk profile of first charge residential mortgages in UK Retail Banking and Absa and the use of internal models to assess exposures to counterparty risk in the trading book. These were partially offset by higher counterparty risk weightings in emerging markets and greater recognition of undrawn commitments. Compared to Basel I, deductions from Tier 1 and Tier 2 capital under Basel II include additional amounts relating to expected loss and securitisations. For advanced portfolios, any excess of expected loss over impairment allowances is deducted half from Tier 1 and half from Tier 2 capital. Deductions relating to securitisation transactions, which are made from total capital under Basel I, are deducted half from Tier 1 and half from Tier 2 capital under Basel II. For portfolios treated under the standardised approach, the inclusion of collectively assessed impairment allowances in Tier 2 capital remains the same under Basel II. Collectively assessed impairment allowances against exposures treated under Basel II advanced approaches are not eligible for direct inclusion in Tier 2 capital. 34. Reconciliation of regulatory capital Capital is defined differently for accounting and regulatory purposes. A reconciliation of shareholders' equity for accounting purposes to called up share capital and eligible reserves for regulatory purposes is set out below: 2007 2006 Â£m Â£m Shareholders' equity excluding minority interests 23,291 19,799 Available for sale reserve (154) (132) Cash flow hedging reserve (26) 230 Adjustments to retained earnings Defined benefit pension scheme 1,053 1,165 Additional companies in regulatory consolidation and non-consolidated companies (281) (498) Foreign exchange on RCIs and upper Tier 2 loan stock 478 504 Adjustment for own credit (461) - Other adjustments 277 174 -------- -------- Called up share capital and eligible reserves for regulatory purposes 24,177 21,242 -------- -------- Under Basel II, called up share capital and eligible reserves for regulatory purposes included Â£413m of additional eligible reserves compared to Basel I. 35. Total assets and risk weighted assets Total assets 2007 2006 Â£m Â£m UK Banking 161,777 147,576 --------- --------- UK Retail Banking 87,833 81,692 Barclays Commercial Bank 73,944 65,884 --------- --------- Barclaycard 22,164 20,082 International Retail and Commercial Banking 89,457 68,588 --------- --------- International Retail and Commercial Banking-ex Absa 52,204 38,191 International Retail and Commercial Banking-Absa 37,253 30,397 --------- --------- Barclays Capital 839,662 657,922 Barclays Global Investors 89,224 80,515 Barclays Wealth 18,024 15,022 Head office functions and other operations 7,053 7,082 --------- --------- 1,227,361 996,787 --------- --------- Risk weighted assets(1) 2007 2006 Â£m Â£m UK Banking 99,836 92,981 --------- --------- UK Retail Banking 45,992 43,020 Barclays Commercial Bank 53,844 49,961 --------- --------- Barclaycard 19,929 17,035 International Retail and Commercial Banking 53,269 40,810 --------- --------- International Retail and Commercial Banking-ex Absa 29,667 20,082 International Retail and Commercial Banking-Absa 23,602 20,728 --------- --------- Barclays Capital 169,124 137,635 Barclays Global Investors 1,994 1,375 Barclays Wealth 7,692 6,077 Head office functions and other operations 1,632 1,920 --------- --------- 353,476 297,833 --------- --------- (1) Risk weighted assets are calculated under Basel I Total assets increased 23% to Â£1,227.4bn (2006: Â£996.8bn). Risk weighted assets increased 19% to Â£353.5bn (31st December 2006: Â£297.8bn). Loans and advances to customers that have been securitised increased Â£4.3bn to Â£28.7bn (31st December 2006: Â£24.4bn). The increase in risk weighted assets since 2006 reflected a rise of Â£31.6bn in the banking book and a rise of Â£24.0bn in the trading book. UK Retail Banking total assets increased 7% to Â£87.8bn (31st December 2006: Â£81.7bn). This was mainly attributable to growth in mortgage balances. Risk weighted assets increased by 7% to Â£46.0bn (31st December 2006: Â£43.0bn) with growth in mortgages partially offset by an increase in securitised balances and other reductions. Barclays Commercial Bank total assets grew 12% to Â£73.9bn (31st December 2006: Â£65.9bn) driven by growth across lending products. Risk weighted assets increased 8% to Â£53.8bn (31st December 2006: Â£50.0bn), reflecting asset growth partially offset by increased regulatory netting and an increase in securitised balances. Barclaycard total assets increased 10% to Â£22.2bn (31st December 2006: Â£20.1bn). Risk weighted assets increased 17% to Â£19.9bn (31st December 2006: Â£17.0bn), primarily reflecting the increase in total assets, redemption of securitisation transactions, partially offset by changes to the treatment of regulatory associates and the sale of part of the Monument card portfolio. International Retail and Commercial Banking - excluding Absa total assets grew 37% to Â£52.2bn (31st December 2006: Â£38.2bn). This growth was mainly driven by increases in retail mortgages and unsecured lending in Western Europe and increases in unsecured lending in Emerging Markets. Risk weighted assets increased 48% to Â£29.7bn (31st December 2006: Â£20.1bn), reflecting asset growth and a change in product mix. International Retail and Commercial Banking - Absa total assets increased 23% to Â£37.3bn (31st December 2006: Â£30.4bn), primarily driven by increases in mortgages and commercial property finance. Risk weighted assets increased 14% to Â£23.6bn (31st December 2006: Â£20.7bn), reflecting balance sheet growth. Barclays Capital total assets rose 28% to Â£839.7bn (31st December 2006: Â£657.9bn). Derivative assets increased Â£109.3bn primarily due to movements across a range of market indices. This was accompanied by a corresponding increase in derivative liabilities. The increase in non-derivative assets reflects an expansion of the business across a number of asset classes, combined with an increase in drawn leveraged loan positions and mortgage-related assets. Risk weighted assets increased 23% to Â£169.1bn (31st December 2006: Â£137.6bn) reflecting growth in fixed income, equities and credit derivatives. Barclays Global Investors total assets increased 11% to Â£89.2bn (31st December 2006: Â£80.5bn), mainly attributable to growth in certain asset management products recognised as investment contracts. The majority of total assets relates to asset management products with equal and offsetting balances reflected within liabilities to customers. Risk weighted assets increased 43% to Â£2.0bn (31st December 2006: Â£1.4bn) mainly attributable to overall growth in the balance sheet and the mix of securities lending activity. Barclays Wealth total assets increased 20% to Â£18.0bn (31st December 2006: Â£15.0bn) reflecting strong growth in lending to high net worth, affluent and intermediary clients. Risk weighted assets increased 26% to Â£7.7bn (31st December 2006: Â£6.1bn) reflecting the increase in lending. Head office functions and other operations total assets remained flat at Â£7.1bn (31st December 2006: Â£7.1bn). Risk weighted assets decreased 16% to Â£1.6bn (31st December 2006: Â£1.9bn). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 2007 2006 Â£m Â£m Net movements in available for sale reserve 2 (140) Net movements in cash flow hedging reserve 359 (487) Net movements in currency translation reserve 54 (781) Tax 54 253 Other movements 22 25 --------- --------- Amounts included directly in equity 491 (1,130) Profit after tax 5,095 5,195 --------- --------- Total recognised income and expense 5,586 4,065 --------- --------- Attributable to: Equity holders of the parent 4,854 3,682 Minority interests 732 383 --------- --------- 5,586 4,065 --------- --------- The consolidated statement of recognised income and expense reflects all items of income and expense for the period, including items taken directly to equity. Movements in individual reserves are shown including amounts which relate to minority interests; the impact of such amounts is then reflected in the amount attributable to such interests. Movements in individual reserves are also shown on a pre-tax basis with any related tax recorded on the separate tax line. The available for sale reserve reflects gains or losses arising from the change in fair value of available for sale financial assets except for items recorded in the income statement which are: impairment losses; gains or losses transferred to the income statement due to fair value hedge accounting; and foreign exchange gains or losses on monetary items such as debt securities. When an available for sale asset is impaired or derecognised, the cumulative gain or loss previously recognised in the available for sale reserve is transferred to the income statement. The transfer of net gains to the income statement, primarily on disposal of assets, was offset by the recognition of net unrealised gains from changes in fair value. Cash flow hedging aims to minimise exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss. The portion of the gain or loss on the hedging instrument that is deemed to be an effective hedge is recognised in the cash flow hedging reserve. The gains and losses deferred in this reserve will be transferred to the income statement in the same period or periods during which the hedged item is recognised in the income statement. The movement in 2007 reflects the transfer of net losses to the income statement and the recognition of net unrealised gains from changes in the fair value of the hedging instruments. Exchange differences arising on the net investments in foreign operations and effective hedges of net investments are recognised in the currency translation reserve and transferred to the income statement on the disposal of the net investment. The movement in 2007 primarily reflects the impact of changes in the value of the Euro on net investments partially offset by the impact of changes in the value of the US Dollar on net investments and other currency movements on net investments which are hedged on a post-tax basis. The Euro and US Dollar net investments are economically hedged through Euro-denominated and US Dollar-denominated preference share capital, which is not revalued for accounting purposes. SUMMARY CONSOLIDATED CASH FLOW STATEMENT 2007 2006 Â£m Â£m Net cash flow from operating activities (10,747) 10,047 Net cash flow from investing activities 10,064 (1,154) Net cash flow from financing activities 3,358 692 Effects of exchange rate on cash and cash equivalents (550) 562 --------- --------- Net increase in cash and cash equivalents 2,125 10,147 Cash and cash equivalents at beginning of period 30,952 20,805 --------- --------- Cash and cash equivalents at end of period 33,077 30,952 --------- --------- PERFORMANCE MANAGEMENT Economic capital Barclays assesses capital requirements by measuring the Group risk profile using both internally and externally developed models. The Group assigns economic capital primarily within seven risk categories: Credit Risk, Market Risk, Operational Risk, Business Risk, Insurance Risk, Fixed Assets and Private Equity. The Group regularly enhances its economic capital methodology and benchmarks outputs to external reference points. The framework uses default probabilities during average credit conditions, rather than those prevailing at the balance sheet date, thus removing cyclicality from the economic capital calculation. Economic capital for wholesale credit risk includes counterparty risk arising as a result of credit risk on traded market exposures. The framework also adjusts economic capital to reflect time horizon, correlation of risks and risk concentrations. Economic capital is allocated on a consistent basis across all of Barclays businesses and risk activities. A single cost of equity is applied to calculate the cost of risk. Economic capital allocations reflect varying levels of risk. The total average economic capital required by the Group, as determined by risk assessment models and after considering the Group's estimated portfolio effects, is compared with the supply of economic capital to evaluate economic capital utilisation. Supply of economic capital is calculated as the average available shareholders' equity after adjustment (as shown under economic capital supply, page 86) and including preference shares. The Group's economic capital calculations now form the basis of the Group's submissions for the Basel II Internal Capital Adequacy Assessment process. Economic capital demand(1) 2007 2006 Â£m Â£m UK Banking 6,600 6,000 --------- --------- UK Retail Banking 3,400 3,300 Barclays Commercial Bank 3,200 2,700 --------- --------- Barclaycard 2,100 1,950 International Retail and Commercial Banking 2,550 1,950 --------- --------- International Retail and Commercial Banking-ex Absa 1,600 1,200 International Retail and Commercial Banking-Absa 950 750 --------- --------- Barclays Capital 5,200 3,750 Barclays Global Investors 200 150 Barclays Wealth 500 400 Head office functions and other operations(2) 250 300 --------- --------- Economic Capital requirement (excluding goodwill) 17,400 14,500 Average historic goodwill and intangible assets (3) 8,400 7,750 --------- --------- Total economic capital requirement(4) 25,800 22,250 --------- --------- UK Retail Banking economic capital allocation increased Â£100m to Â£3,400m (2006: Â£3,300m), reflecting asset growth in UK mortgages offset by a reduction in consumer lending following methodology enhancements. Barclays Commercial Bank economic capital allocation increased Â£500m to Â£3,200m (2006: Â£2,700m) as a consequence of asset growth and implementation of updated Credit and Operational Risk models. Barclaycard economic capital allocation increased Â£150m to Â£2,100m (2006: Â£1,950m), as a consequence of asset growth, predominantly in secured lending and in Barclaycard International, offset by a reduction in UK cards following the sale of the Monument card portfolio. International Retail and Commercial Banking - excluding Absa economic capital allocation increased Â£400m to Â£1,600m (2006: Â£1,200m). This was driven by lending growth across Western Europe and Emerging Markets and some credit deterioration in Africa. International Retail and Commercial Banking - Absa economic capital allocation (excluding the risk borne by the minority interest) increased Â£200m to Â£950m (2006: Â£750m), reflecting lending growth in the business bank portfolio. Barclays Capital economic capital increased Â£1,450m to Â£5,200m (2006: Â£3,750m). This was driven by growth in the investment portfolio, exposure to drawn leveraged finance underwriting positions and deterioration in credit quality in the US. (1) Calculated using a five point average over the year and rounded to the nearest Â£50m for presentation purposes. (2) Includes Transition Businesses and capital for central functional risks. (3) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. (4) Total period end economic capital requirement as at 31st December 2007 was Â£29,650m (31st December 2006: Â£23,350m). Economic capital supply The capital resources to support economic capital demand comprise adjusted shareholders' equity including preference shares but excluding other minority interests. Preference shares have been issued to optimise the long-term capital base of the Group. The capital resources to support economic capital are impacted by a number of factors arising from the application of IFRS and are modified in calculating available funds for economic capital. This applies specifically to: â€¢ Cash flow hedging reserve - to the extent that the Group undertakes the hedging of future cash flows, shareholders' equity will include gains and losses which will be offset against the gain or loss on the hedged item when it is recognised in the income statement at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity when calculating economic capital. â€¢ Available for sale reserve - unrealised gains and losses on available for sale financial investments are included in shareholders' equity until disposal or impairment. Such gains and losses are excluded from shareholders' equity for the purposes of calculating economic capital. â€¢ Retirement benefits liability - the Group has recognised a deficit with a consequent reduction in shareholders' equity. This represents a non-cash reduction in shareholders' equity. For the purposes of calculating economic capital, the Group does not reflect in the pension surplus or deficit in shareholders' equity. The average supply of capital to support the economic capital framework is set out below(1): 2007 2006 Â£m Â£m Shareholders' equity excluding minority interests less goodwill(2) 14,150 11,400 Retirement benefits liability 1,150 1,300 Cashflow hedging reserve 250 100 Available for sale reserve (150) (50) Preference shares 3,700 3,200 -------- -------- Available funds for economic capital excluding goodwill 19,100 15,950 Average historic goodwill and intangible assets(2) 8,400 7,750 -------- -------- Available funds for economic capital including goodwill(3) 27,500 23,700 -------- -------- In addition to those capital resources included in economic capital supply the Group held other Tier 1 instruments of Â£4,807m as at 31st December 2007 (2006: Â£3,674m) consisting of Tier 1 notes of Â£899m and reserve capital instruments of Â£3,908m. These notes and instruments form part of our qualifying capital resources for regulatory purposes and provide an additional capital buffer. (1) Averages for the period will not correspond to period-end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentational purposes only. (2) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. (3) Available funds for economic capital as at 31st December 2007 stood at Â£29,700m (31st December 2006: Â£25,150m). Economic profit Economic profit comprises: â€¢ Profit after tax and minority interests; less â€¢ Capital charge (average shareholders' equity and goodwill excluding minority interests multiplied by the Group cost of capital). The Group cost of capital has been applied at a uniform rate of 9.5%(1). The costs of servicing preference shares are included in minority interests, and so preference shares are excluded from average shareholders' equity for economic profit purposes. 2007 2006 Â£m Â£m Profit after tax and minority interests 4,417 4,571 Addback of amortisation charged on acquired intangible assets(2) 137 83 -------- -------- Profit for economic profit purposes 4,554 4,654 -------- -------- Average shareholders' equity excluding minority interests (3), (4) 14,150 11,400 Adjustment for unrealised loss on cashflow hedge reserve(4) 250 100 Adjustment for unrealised gain on available for sale financial investments(4) (150) (50) Add: retirements benefits liability 1,150 1,300 Goodwill and intangible assets arising on acquisitions(4) 8,400 7,750 -------- -------- Average shareholders' equity for economic profit purposes(3),(4) 23,800 20,500 -------- -------- Capital charge at 9.5% (2,264) (1,950) -------- -------- Economic profit 2,290 2,704 -------- -------- (1) The Group's cost of capital has changed from 1st January 2008 to 10.5%. (2) Amortisation charged for purchased intangibles, adjusted for tax and minority interests. (3) Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill and intangible assets arising on acquisition, but excludes preference shares. (4) Averages for the period will not correspond exactly to period end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentation purposes only. Economic profit generated by business 2007 2006 Â£m Â£m UK Banking 1,272 1,327 -------- -------- UK Retail Banking 622 589 Barclays Commercial Bank 650 738 -------- -------- Barclaycard 183 137 International Retail and Commercial Banking 150 493 -------- -------- International Retail and Commercial Banking-ex Absa 20 309 International Retail and Commercial Banking-Absa 130 184 -------- -------- Barclays Capital 1,172 1,181 Barclays Global Investors 430 376 Barclays Wealth 233 130 Head office functions and other operations (470) (315) -------- -------- 2,970 3,329 Historic goodwill and intangibles arising on acquisition (800) (739) Variance to average shareholders' funds (excluding minority interest) 120 114 -------- -------- Economic profit 2,290 2,704 -------- -------- Economic profit for the Group decreased 15% (Â£414m) to Â£2,290m (2006: Â£2,704m). Gains from business disposals decreased 91% (Â£295m) to Â£28m (2006: Â£323m) and there was a 16% (Â£314m) increase in the economic capital charge. UK Retail Banking economic profit increased 6% (Â£33m) to Â£622m (2006: Â£589m) due to a 9% increase in profit before tax partially offset by a 3% increase in the economic capital charge. Barclays Commercial Bank economic profit decreased 12% (Â£88m) to Â£650m (2006: Â£738m), due to an 18% increase in the economic capital charge arising from the impact of lending growth and implementation of updated credit and operational risk models. Barclaycard economic profit increased 34% (Â£46m) to Â£183m (2006: Â£137m), due to an 18% increase in profit before tax, partially offset by a 4% increase in the economic capital charge. International Retail and Commercial Banking - excluding Absa economic profit decreased 94% (Â£289m) to Â£20m (2006: Â£309m), due to a 53% decrease in profit before tax due to the sale of FirstCaribbean International Bank in 2006 and an increase in the economic capital charge of 33%. The increase in economic capital charge reflected the impact of lending growth. International Retail and Commercial Banking - Absa economic profit decreased 29% (Â£54m) reflecting a 32% increase in the economic capital charge and broadly stable profit before tax in Sterling. Barclays Capital economic profit decreased to Â£1,172m (2006: Â£1,181m), due to higher economic capital charges and minority interests. Barclays Global Investors economic profit increased 14% (Â£54m) to Â£430m (2006: Â£376m) due to a 3% increase in profit before tax, a lower effective tax rate and lower minority interests. Barclays Wealth economic profit increased 79% (Â£103m) to Â£233m (2006: Â£130m), due to a 25% increase in profit before tax and a reduced tax charge, partially offset by an increase in the economic capital charge of 32%, reflecting exposure growth in the lending portfolio. Performance relative to the 2004 to 2007 goal period Barclays uses goals to drive performance. At the end of 2003, Barclays established a set of four year performance goals for the period 2004 to 2007 inclusive. The primary goal was to achieve top quartile Total Shareholder Return (TSR) relative to a peer group(1) of financial services companies. TSR is defined as the value created for shareholders through share price appreciation, plus reinvested dividend payments. The peer group is regularly reviewed to ensure that it remains aligned to our business mix and the direction and scale of our ambition. Barclays delivered Total Shareholder Return (TSR) of 20.4% for the goal period and was positioned 8th within its peer group (third quartile) for the goal period commencing 1st January 2004. At the time of setting the TSR goal, we estimated that achieving top quartile TSR would require the achievement of compound annual growth in economic profit in the range of 10% to 13% per annum (Â£6.5bn to Â£7.0bn of cumulative economic profit) over the 2004 to 2007 goal period. Economic profit for 2007 was Â£2.3bn, which, added to the Â£6.0bn generated in 2004, 2005 and 2006, delivered a cumulative total of Â£8.3bn for the goal period. Therefore Barclays has delivered 128% of the minimum range and 119% of the upper range of the cumulative economic profit goal in the goal period. 2008 to 2011 goal period Barclays has established a new set of four year performance goals for the period from 2008 to 2011 inclusive. The primary goal is to achieve compound annual growth in economic profit in the range of 5% to 10% (Â£9.3bn to Â£10.6bn of cumulative economic profit) over the 2008 to 2011 goal period. We believe that if we achieve the upper end of the economic profit range, we will also achieve our goal of top quartile TSR relative to our peer group of financial services companies. (1) Peer group for 2007 and 2006: Banco Santander, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan Chase, Lloyds TSB, Royal Bank of Scotland and UBS. In 2007 Banco Santander replaced ABN Amro in the peer group. Risk Tendency As part of its credit risk management system, the Group uses a model-based methodology to assess the point-in-time expected loss of credit portfolios across different customer categories. The approach is termed Risk Tendency and applies to credit exposures not already reported as Credit Risk Loans for both wholesale and retail sectors. Risk Tendency models provide statistical estimates of average expected loss levels for a rolling 12-month period based on averages in the ranges of possible losses expected from each of the current portfolios. This contrasts with impairment charges as required under accounting standards, which derive almost entirely from Credit Risk Loans where there is objective evidence of actual impairment as at the balance sheet date. Since Risk Tendency and impairment allowances are calculated for different parts of the portfolio, for different purposes and on different bases, Risk Tendency does not predict loan impairment. Risk Tendency is provided to present a view of the evolution of the scale and quality of the credit portfolios. 2007 2006 Â£m Â£m UK Banking 775 790 -------- -------- UK Retail Banking 470 500 Barclays Commercial Bank 305 290 -------- -------- Barclaycard 945 1,135 International Retail and Commercial Banking 475 220 -------- -------- International Retail and Commercial Banking-ex Absa 220 75 International Retail and Commercial Banking-Absa 255 145 -------- -------- Barclays Capital 140 95 Barclays Wealth 10 10 Transition Businesses(1) 10 10 -------- -------- 2,355 2,260 -------- -------- Risk Tendency increased 4% (Â£95m) to Â£2,355m (31st December 2006: Â£2,260m), significantly less than the 23% growth in the Group's loans and advances balances. This relatively small rise in Risk Tendency reflected, in particular, the improving profile of the UK unsecured loan book. Other factors influencing Risk Tendency included: methodology changes in Barclaycard; UK Retail Banking and International Retail and Commercial Banking - Absa; the sale of part of the Monument portfolio; and a maturing credit risk profile in the international card portfolios. UK Retail Banking Risk Tendency decreased Â£30m to Â£470m (31st December 2006: Â£500m). This reflected an improvement in the credit risk profile in the UK unsecured consumer lending portfolios, partially offset by the impact of methodology changes and asset growth. Risk Tendency in Barclays Commercial Bank increased Â£15m to Â£305m (31st December 2006: Â£290m). This reflected some growth in loan balances offset by improvements in the credit risk profile. Barclaycard Risk Tendency decreased Â£190m to Â£945m (31st December 2006: Â£1,135m). This reflected improvement in the credit risk profile of UK cards, the sale of part of the Monument portfolio and methodology changes in UK cards, partially offset by asset growth in the international portfolios. Risk Tendency at International Retail and Commercial Banking - excluding Absa increased Â£145m to Â£220m (31st December 2006: Â£75m), reflecting an increase to the risk profile and balance sheet growth in Emerging Markets and Western Europe. (1) Included within Head office functions and other operations In International Retail and Commercial Banking - Absa, the increase of Â£110m in Risk Tendency to Â£255m (31st December 2006: Â£145m) included a change to the methodology following the introduction of Basel compliant, Probability of Default, Exposure at Default and Loss Given Default models. Excluding this change, Risk Tendency increased Â£90m, reflecting a weakening of retail credit conditions in South Africa after a series of interest rate rises in 2006 and 2007 and balance sheet growth. Risk Tendency in Barclays Capital increased Â£45m to Â£140m (31st December 2006: Â£95m) primarily due to drawn leveraged loan positions. The drawn liquidity facilities on ABS CDO Super Senior positions are classified as credit risk loans and therefore no Risk Tendency is calculated on them. ADDITIONAL INFORMATION Group reporting changes in 2007 Barclays announced on 19th June 2007 the impact of certain changes in Group Structure and reporting on the 2006 results. There was no impact on the Group income statement or balance sheet. UK Retail Banking. The unsecured lending business, previously managed and reported within Barclaycard and the Barclays Financial Planning business, previously managed and reported within Barclays Wealth are now managed and reported within UK Retail Banking. The changes combine these products with related products already offered by UK Retail Banking. In the UK certain UK Premier customers are now managed and reported within Barclays Wealth. Barclaycard. The unsecured lending portfolio, previously managed and reported within Barclaycard, has been transferred and is now managed and reported within UK Retail Banking. International Retail and Commercial Banking - excluding Absa. A number of high net worth customers are now managed and reported within Barclays Wealth in order to better match client profiles to wealth services. Barclays Wealth. In the UK and Western Europe certain Premier and high net worth customers are now managed and reported within Barclays Wealth having been previously reported within UK Retail Banking and International Retail and Commercial Banking - excluding Absa. The Barclays Financial Planning business previously managed and reported within Barclays Wealth, has become a fully integrated part of and is managed and reported within UK Retail Banking. Finally with effect from 1st January 2007 Barclays Wealth - closed life assurance activities continues to be managed within Barclays Wealth and for reporting purposes has been combined rather than being reported separately. The structure and reporting remains unchanged for Barclays Commercial Bank, International Retail and Commercial Banking- Absa, Barclays Capital, Barclays Global Investors and Head Office Functions and Other Operations. Basis of Preparation There have been no significant changes to the accounting policies described in the 2006 Annual report. Therefore the information in this announcement has been prepared using the accounting policies and presentation applied in 2006. Prior period presentation has, where appropriate, been restated to conform with current year classification. Future accounting developments Consideration will be given during 2008 to the implications, if any, of the following new and revised standards and International Financial Reporting Interpretations Committee (IFRIC) interpretations as follows: â€¢ IFRS 3 - Business Combinations and IAS 27 - Consolidated and Separate Financial Statements are revised standards issued in January 2008. The revised IFRS 3 applies prospectively to business combinations first accounted for in accounting periods beginning on or after 1 July 2009 and the amendments to IAS 27 apply retrospectively to periods beginning on or after 1 July 2009. The main changes in existing practice resulting from the revision to IFRS 3 affect acquisitions that are achieved in stages and acquisitions where less than 100% of the equity is acquired. In addition, acquisition-related costs - such as fees paid to advisers -must be accounted for separately from the business combination, which means that they will be recognised as expenses unless they are directly connected with the issue of debt or equity securities. The revisions to IAS 27 specify that changes in a parent's ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. Until future acquisitions take place that are accounted for in accordance with the revised IFRS 3, the main impact on Barclays will be that, from 2010, gains and losses on transactions with non-controlling interests that do not result in loss of control will no longer be recognised in the income statement but directly in equity. In 2007, gains of Â£23m and losses of Â£6m were recognised in income relating to such transactions. â€¢IFRIC 13 - Customer Loyalty Programs addresses accounting by entities that grant loyalty award credits (such as 'points' or travel miles) to customers who buy other goods or services. It requires entities to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations. The Group is considering the implications of this interpretation and any resulting change in accounting policy would be accounted for in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in 2009. â€¢IFRS 8 - Operating Segments was issued in November 2006 and would first be required to be applied to the Group accounting period beginning on 1 January 2009. The standard replaces IAS 14 - Segmental Reporting and would align operating segmental reporting with segments reported to senior management as well as requiring amendments and additions to the existing segmental reporting disclosures. The standard does not change the recognition, measurement or disclosure of specific transactions in the consolidated financial statements. The Group is considering the enhancements that permitted early adoption in 2008 may make to the transparency of the segmental disclosures. â€¢IAS - 1 Presentation of Financial Statements is a revised standard applicable to annual periods beginning on 1 January 2009. The amendments affect the presentation of owner changes in equity and of comprehensive income. They do not change the recognition, measurement or disclosure of specific transactions and events required by other standards. â€¢IAS 23 - Borrowing Costs is a revised standard applicable to annual periods beginning on 1 January 2009. The revision does not impact Barclays. The revision removes the option not to capitalise borrowing costs on qualifying assets, which are assets that take a substantial period of time to get ready for their intended use or sale. â€¢ An amendment to IFRS 2 Share-based Payment was issued in January 2008 that clarifies that vesting conditions are service conditions and performance conditions only. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment, which results in the acceleration of charge. The Group is considering the implications of the amendment, particularly to the Sharesave scheme, and any resulting change in accounting policy would be accounted for in accordance with IAS 8 Accounting policies, changes in accounting estimates and errors in 2009. â€¢Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements were issued in February 2008 that require some puttable financial instruments and some financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity. The amendments, which are applicable to annual periods beginning on 1 January 2009, do not impact Barclays. The following IFRIC interpretations issued during 2006 and 2007 which first apply to accounting periods beginning on or after 1st January 2008 are not expected to result in any changes to the Group's accounting policies: â€¢IFRIC 11 IFRS 2 - Group and Treasury Share Transactions â€¢IFRIC 12 - Service Concession Arrangements â€¢IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Share capital The Group manages its debt and equity capital actively. The Group's authority to buy back ordinary shares (up to 980.8 million ordinary shares) was renewed at the 2007 Annual General Meeting. The Group will seek to renew its authority to buy back ordinary shares at the 2008 Annual General Meeting to provide additional flexibility in the management of the Group's capital resources. During 2007 Barclays repurchased in the market 299,547,510 of its ordinary shares of 25p each at a total cost of Â£1,793,216,231 in order to minimise the dilutive effect on its existing shareholders of the issuance of a total of 336,805,556 Barclays ordinary shares to Temasek Holdings and China Development Bank. Group share schemes The independent trustees of the Group's share schemes may make purchases of Barclays PLC ordinary shares in the market at any time or times following this announcement of the Group's results 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 The results will be furnished as a Form 6-K to the US Securities and Exchange Commission as soon as practicable following the publication of these results. Acquisitions On 8th February 2007 Barclays completed the acquisition of Indexchange Investment AG. Indexchange is based in Munich and offers exchange traded fund products. On 28th February 2007 Barclays completed the acquisition of Nile Bank Limited. Nile Bank is based in Uganda with 18 branches and 228 employees. On 30th March 2007 Barclays completed the acquisition of EquiFirst. EquiFirst is a non-prime wholesale mortgage originator in the United States. On 18th May 2007 Barclays completed the acquisition of Walbrook Group Limited. Walbrook is based in Jersey, Guernsey, Isle of Man and Hong Kong where it serves high net worth private clients and corporate customers. Disposals On 4th April 2007 Barclays completed the sale of part of Monument, a credit card business. On 24th September 2007 Barclays completed the sale of a 50% shareholding in Intelenet Global Services Pvt Ltd. Recent developments On 16th April 2007 Barclays announced the sale of Barclays Global Investors Japan Trust & Banking Co., Ltd, a Japanese trust administration and custody operation. The sale completed on 31st January 2008. On 5th October 2007, Barclays announced that as at 4th October 2007 not all of the conditions relating to its offer for ABN AMRO Holding N.V. were fulfilled and as a result Barclays was withdrawing its offer with immediate effect. Barclays also announced that it was restarting the Barclays PLC share buyback programme to minimise the dilutive effect of the issuance of shares to China Development Bank and Temasek Holdings (Private) Limited on existing Barclays PLC shareholders. This programme was subsequently extended to 31st January 2008. On 7th February 2008, Barclays announced the purchase of Discover's UK credit card business for a consideration of approximately Â£35m. The consideration is subject to an adjustment mechanism based on the net asset value of the business at completion. Completion is subject to various conditions, including competition clearance, and is expected to occur during the first half of 2008. Registered office 1 Churchill Place, London, E14 5HP, England, United Kingdom. Tel: +44 (0) 20 7116 1000. Company number: 48839. Website www.barclays.com Registrar The Registrar to Barclays PLC, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, England, United Kingdom. Tel: 0871 384 2055 (calls to this number are charged at 8p per minute if using a BT landline. Other telephony provider costs may vary) or +44 1214 157 004 from overseas. Listing The principal trading market for Barclays PLC ordinary shares is the London Stock Exchange. Ordinary shares are also listed on the Tokyo Stock Exchange. Trading on the New York Stock Exchange is in the form of ADSs under the ticker symbol 'BCS'. Each ADS represents four ordinary shares of 25p each and is evidenced by an ADR. The ADR depositary is The Bank of New York whose international telephone number is +1-212-815-3700, whose domestic telephone number is 1-888-BNY-ADRS and whose address is The Bank of New York, Investor Relations, PO Box 11258, Church Street Station, New York, NY 10286-1258. Filings with the SEC Statutory accounts for the year ended 31st December 2007, which also include certain information required for the joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission (SEC), can be obtained from Corporate Communications, Barclays Bank PLC, 200 Park Avenue, New York, NY 10166, United States of America or from the Director, Investor Relations at Barclays registered office address, shown above, once they have been published in late March. Once filed with the SEC, copies of the form 20-F will also be available from the Barclays Investor Relations website (details below) and from the SEC's website (www.sec.gov). Results timetable Ex dividend Date Wednesday, 5th March 2008 Dividend Record Date Friday, 7th March 2008 2008 Annual General Meeting Date Thursday, 24th April 2008 Dividend Payment Date Friday, 25th April 2008 2008 First-half Interim Management Statement* Thursday, 15th May 2008 2008 Half-yearly Financial Report* Thursday, 7th August 2008 *Note that these announcement dates are provisional and subject to change. Economic data 2007 2006 Period end - US$/Â£ 2.00 1.96 Average - US$/Â£ 2.00 1.84 Period end - EUR/Â£ 1.36 1.49 Average - EUR/Â£ 1.46 1.47 Period end - ZAR/Â£ 13.64 13.71 Average - ZAR/Â£ 14.11 12.47 For further information please contact: Investor Relations Media Relations Mark Merson/John McIvor Alistair Smith/Robin Tozer +44 (0) 20 7116 5752/2929 +44 (0) 20 7116 6132/6586 More information on Barclays can be found on our website at the following address: www.investorrelations.barclays.com APPENDIX 1 ABSA 2007 2006 Rm Rm ---------- ---------- Interest and similar income 55,123 37,569 Interest expense and similar charges (36,233) (22,682) ---------- ---------- Net interest income 18,890 14,887 Impairment losses on loans and advances (2,433) (1,573) ---------- ---------- Fee and commission income 12,873 11,247 Fee and commission expense (1,273) (1,094) ---------- ---------- Net fee and commission income 11,600 10,153 ---------- ---------- Insurance premium revenue 3,531 3,269 Premiums ceded to reinsurers (339) (275) ---------- ---------- Net insurance premium income 3,192 2,994 ---------- ---------- Gross claims and benefits incurred under insurance contracts 1,847 1,376 Reinsurance recoveries (244) (57) ---------- ---------- Net claims and benefits paid (1,603) (1,319) Changes in insurance and investment liabilities (489) (748) Gains and losses from banking and trading activities 1,622 1,376 Gains and losses from investment activities 1,561 1,891 Other operating income 845 672 ---------- ---------- Net operating income 33,185 28,333 Operating expenses (18,442) (16,089) Non-credit related impairments (58) (75) Indirect taxation (709) (865) Share of profit of associated and joint venture companies 91 113 ---------- ---------- Operating profit before income tax 14,067 11,417 ---------- ---------- This appendix summarises the Rand results of Absa Group Limited for the year to 31st December 2007 as reported to JSE Limited. Absa Group Limited results Absa Group Limited's operating profit before income tax increased 23% (R2,650m) to R14,067m (2006 R11,417m) reflecting very good performances from Retail Banking, Absa Capital and Absa Corporate and Business Bank. Absa Group Limited delivered a return on equity of 27.2% (2006: 27.4%). Key factors impacting the results included: very strong asset and income growth; the diversification of earnings in favour of investment banking and commercial banking; an increased retail credit impairment charge, and the achievement of the Absa - Barclays synergy target 18 months ahead of schedule. Net operating income grew 17% (R4,852m) to R33,185m (2006: R28,333m). Net interest income grew 27% (R4,003m) to R18,890m (2006: R14,887m) driven by growth in loans and advances and deposits at improved margins. Loans and advances to customers increased 22% from 31st December 2006 driven by growth of 23% in mortgages and 23% in credit cards. Non-interest income grew 11% (R1,709m) to R16,728m (2006: R15,019m) driven by increased transaction volumes in retail banking and Absa Corporate and Business Bank, as well as advisory fees from Absa Capital. Impairment charges on loans and advances increased 55% (R860m) to R2,433m (2006: R1,573m) from the cyclically low levels of recent years. Arrears in retail portfolios increased driven by interest rate increases in 2006 and 2007. Impairment charges as a percentage of loans and advances was 0.58%, ahead of the 0.45% charge in 2006 but within long-term industry averages. Operating expenses increased 15% (R2,353m) to R18,442m, (2006: R16,089m) resulting from increased investment in new distribution outlets and staff in order to support continued growth in volumes and customers. The cost:income ratio improved two percentage points from 54% to 52%. Excellent progress was made with the realisation of synergy benefits of R1,428m to date, thus achieving the synergy target of R1.4bn, 18 months ahead of schedule. APPENDIX 2 Profit before business disposals 2007 2006 Â£m Â£m Profit before tax 7,076 7,136 Excluding profit on disposal of subsidiaries, associates and joint ventures(1) (28) (323) -------- -------- Profit before business disposals 7,048 6,813 -------- -------- Tax on profit before business disposals (1,981) (1,941) -------- -------- Profit after tax before business disposals 5,067 4,872 -------- -------- Profit attributable to minority interests 678 624 Profit before business disposals attributable to equity holders of the parent 4,389 4,248 -------- -------- Profit after tax before business disposals 5,067 4,872 -------- -------- Â£m Â£m Economic profit 2,290 2,704 Economic profit before business disposals 2,262 2,381 p p Earnings per share 68.9 71.9 Earnings per share before business disposals 68.5 66.8 Diluted earnings per share 66.7 69.8 Diluted earnings per share before business disposals 66.3 64.8 Post-tax return on average shareholder equity 20.3% 24.7% Post-tax return on average shareholder equity before business disposals 20.2% 23.0% (1) Profit on disposals of subsidiaries, associates and joint ventures was Â£14m (2006: Â£76m) in Barclays Commercial Bank, Â£8m (2006: Â£247m) in International Retail and Commercial Banking - excluding Absa and Â£6m (2006: Â£nil) in other business segments. This information is provided by RNS The company news service from the London Stock Exchange

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