Interim Results - Part 1

Barclays PLC 03 August 2006 PART 1 OF 2 Interim Results Announcement 30th June 2006 BARCLAYS PLC INTERIM ANNOUNCEMENT OF RESULTS FOR 2006 TABLE OF CONTENTS PAGE Summary of key information 1 Performance summary 2 Financial highlights 4 Chief Executive's Half-year review 5 Consolidated income statement 9 Consolidated balance sheet 10 Results by business 12 Results by nature of income and expense 42 Analysis of amounts included in the balance sheet 58 Additional information 70 Notes 74 Consolidated statement of recognised income and expense 88 Summary consolidated cashflow statement 89 Other information 90 Appendix 92 Index 94 BARCLAYS PLC, 1 CHURCHILL PLACE, LONDON, E14 5HP, ENGLAND, UNITED KINGDOM. TELEPHONE: +44 (0) 20 7116 1000. COMPANY NO. 48839 The information in this announcement, which was approved by the Board of Directors on 2nd August 2006, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for the year ended 31st December 2005, which included 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) and which contained an unqualified audit report under Section 235 of the Act and which did not make any statements under Section 237 of the Act, have been delivered to the Registrar of Companies in accordance with Section 242 of the Act. Unless otherwise stated, the information in this announcement reflects the changes in Barclays group structure and reporting, and the revisions to the Group's policy for the internal cost of funding and the segmental disclosure of risk weighted assets, which were announced on 16th June 2006. For a fuller discussion of the changes, please refer to the 'Group reporting changes in 2006' announcement released on 16th June 2006. Details of these changes are also set out on page 70. Unless otherwise stated, the information set out in this announcement relates to the six months to 30th June 2006 and is compared to the corresponding six months of 2005. Forward-looking statements This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group's future financial position, income growth, impairment charges, business strategy, projected levels of growth in the banking and financial markets, projected costs, estimates of capital expenditures, and plans and objectives for future operations. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, the further development of standards and interpretations under IFRS applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, as well as UK domestic and global economic and business conditions, market related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, progress in the integration of Absa into the Group's business and the achievement of synergy targets related to Absa, the outcome of pending and future litigation, and the impact of competition - a number of which factors are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements. Any forward-looking statements made by or on behalf of Barclays speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in Barclays expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the SEC. Absa Definitions 'Absa Group Limited' refers to the South African company listed on the Johannesburg Stock Exchange in which Barclays owns a controlling stake. 'Absa' refers to the total results for Absa Group Limited consolidated into the results of Barclays PLC, translated into Sterling with adjustments for amortisation of intangible assets, certain head office adjustments, transfer pricing and minority interests. 'International Retail and Commercial Banking - Absa' is the portion of Absa's results that is reported by Barclays within the International Retail and Commercial Banking business. 'Absa Capital' is the portion of Absa's results that is reported by Barclays within the Barclays Capital business. Glossary of terms The Cost:income ratio is defined as operating expenses compared to total income net of insurance claims. The Cost:net income ratio is defined as operating expenses compared to total income net of insurance claims less impairment charges. The Return on average economic capital by business is defined as attributable profit compared to average economic capital. 'Income' refers to total income net of insurance claims, unless otherwise specified. 'Profit' refers to profit before tax unless otherwise specified. 3rd August 2006 BARCLAYS PLC 'Barclays had an excellent first half, with earnings per share up 25%. Successful strategy execution delivered outstanding performance from our global wholesale businesses, a substantial contribution from Absa and sustained income growth in UK Banking. We are very well positioned across the Group for future growth.' John Varley, Group Chief Executive RESULTS FOR THE SIX MONTHS TO 30TH JUNE 2006 (UNAUDITED) Half-year ended 30.06.06 30.06.05 % Change Group Results Â£m Â£m Total income net of insurance claims 10,969 7,922 38 Impairment charges (1,057) (706) 50 Operating expenses (6,269) (4,542) 38 Profit before tax 3,673 2,690 37 Profit attributable to minority interests (294) (134) 119 Profit attributable to equity holders of the parent 2,307 1,841 25 Economic profit 1,385 1,004 38 Earnings per share 36.3p 29.1p 25 Dividend per share 10.5p 9.2p 14 Post-tax return on average shareholders' equity 25.8% 23.4% Summary of divisional profit before tax(1) Â£m Â£m % Change UK Banking 1,265 1,138 11 UK Retail Banking 612 548 12 UK Business Banking 653 590 11 Barclaycard 297 346 (14) International Retail and Commercial Banking (IRCB) 539 174 210 IRCB - ex Absa 222 174 28 IRCB - Absa 317 - - Barclays Capital 1,246 750 66 Barclays Global Investors 364 241 51 Wealth Management 110 84 31 (1) Summary excludes Wealth Management - closed life assurance activities and Head office functions and other operations. Full analysis of business profit before tax is on page 16. PERFORMANCE SUMMARY â€¢ The financial results reflect the successful execution of strategy: - Total income up 38% to Â£10,969m - Profit before tax up 37% to Â£3,673m - Earnings per share up 25% to 36.3p - Dividend per share up 14% to 10.5p - Economic profit up 38% to Â£1,385m - Return on average shareholders' equity of 26%. â€¢ UK Banking produced strong profit growth, up 11% to Â£1,265m, with the cost:income ratio improving a further three percentage points. UK Retail Banking delivered a 12% improvement in profit to Â£612m, driven by sustained income growth across the business and with additional investment spend mostly offsetting the benefit of gains on the sale and leaseback of property. UK Business Banking delivered strong, broadly based growth, with profit up 11% to Â£653m. â€¢ Barclaycard profit fell 14% to Â£297m. Strong income growth was offset by a continued rise in impairment charges, principally in the UK unsecured lending portfolios and by higher costs, mainly as a result of continued investment in Barclaycard US, which is performing in line with the acquisition business plan. â€¢ International Retail and Commercial Banking - excluding Absa achieved a profit of Â£222m, with strong underlying growth. There were good performances in all geographies, with continued progress from recent acquisitions in Spain and France and continued strong organic growth. â€¢ International Retail and Commercial Banking - Absa's contribution to profit was Â£317m in the first half of 2006. Absa Group Limited reported 16% growth in profit before tax to R4.9bn. Absa Group Limited's performance reflected a favourable economic environment, strong growth in demand for credit and in deposits, and good progress on the integration. â€¢ Barclays Capital produced an outstanding performance, with profit rising 66% to Â£1,246m, and compared well against its peer group. Income growth was broadly based across all asset classes and geographies, reflecting returns on past investment and the strength of the client franchise. Profit growth significantly exceeded the rate of growth of risk and capital consumption. â€¢ Barclays Global Investors maintained its track record of excellent growth, with profit up 51% to Â£364m. There was strong performance across products, distribution channels and geographies, whilst investing in key growth initiatives. Net new assets in the period were US$30bn and at 30th June 2006 assets under management totalled US$1.6 trillion. â€¢ Wealth Management profit rose 31% to Â£110m. This reflected balance sheet growth across the business, higher client funds under management and increased client activity, whilst investing for future growth. â€¢ Group income grew 38%, or 23% excluding the impact of Absa. Income growth was well diversified by income type and particularly strong in the wholesale and international businesses. Net interest income represented 40% of total income. â€¢ Impairment charges rose 50%. Impairment charges on loans and advances, excluding Absa, increased 30%. The increase was principally driven by a continued increase in arrears balances and lower rates of recovery in UK credit cards and unsecured loans. Small and medium business impairment charges increased towards Risk Tendency. Wholesale charges were lower and mortgage impairment was negligible. â€¢ Operating expenses grew 38%, in line with income growth. Excluding Absa, operating expenses growth was 21% and the cost:income ratios of all businesses improved. Growth in operating expenses was driven by higher performance related expenses, organic expansion of distribution channels in International Retail and Commercial Banking and continued investment for future growth. â€¢ The Group took advantage of historically low yields on property to realise gains of Â£238m from the sale and leaseback of some of its freehold portfolio. The majority of the gains were in UK Banking (Â£145m) where they were largely offset by an acceleration of investment expenditure. The remaining property gains were recorded in Barclaycard (Â£38m) and International Retail and Commercial Banking (Â£55m). â€¢ Approximately 50% of the Group's profits were generated from outside the UK. â€¢ Barclays primary performance goal is to achieve top quartile Total Shareholder Return (TSR). As at 30th June 2006, in the 2004-2007 goal period, Barclays was positioned 7th within its peer group(1), which is third quartile. Compound annual growth in economic profit is well ahead of the growth target range (10%-13% pa). (1) Peer group for 2006 remained unchanged from 2005: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan, Lloyds TSB, Royal Bank of Scotland and UBS. FINANCIAL HIGHLIGHTS (UNAUDITED) Half-year ended 30.06.06 31.12.05 30.06.05 RESULTS Â£m Â£m Â£m ---------- Net interest income 4,404 4,375 3,700 Net fee and commission income 3,652 3,165 2,540 Principal transactions(1) 2,575 1,630 1,549 Net premiums from insurance 510 501 371 contracts Other income 61 98 49 -------- -------- -------- Total income 11,202 9,769 8,209 Net claims and benefits paid on insurance contracts (233) (358) (287) -------- -------- -------- Total income net of insurance claims 10,969 9,411 7,922 Impairment charges (1,057) (865) (706) -------- -------- -------- Net income 9,912 8,546 7,216 Operating expenses (6,269) (5,985) (4,542) Share of post-tax results of associates 30 29 16 and joint ventures -------- -------- -------- Profit before tax 3,673 2,590 2,690 -------- -------- -------- Profit attributable to equity holders of the parent 2,307 1,606 1,841 Economic profit 1,385 748 1,004 PER ORDINARY SHARE p p p -------------------- Earnings 36.3 25.4 29.1 Diluted earnings 35.1 24.3 28.4 Dividend 10.5 17.4 9.2 Net asset value 276 269 249 PERFORMANCE RATIOS % % % -------------------- Post-tax return on average shareholders' equity 25.8 26.4 23.4 Cost:income ratio 57 64 57 Cost:net income ratio 63 70 63 As at 30.06.06 31.12.05 30.06.05 BALANCE SHEET Â£m Â£m Â£m --------------- Shareholders' equity excluding minority 17,988 17,426 16,099 interests Minority interests 7,551 7,004 5,686 -------- -------- -------- Total shareholders' equity 25,539 24,430 21,785 Subordinated liabilities 13,629 12,463 11,309 -------- -------- -------- Total capital resources 39,168 36,893 33,094 -------- -------- -------- Total assets 986,124 924,357 850,123 Risk weighted assets 290,924 269,148 242,406 CAPITAL RATIOS % % % ---------------- Tier 1 ratio 7.2 7.0 7.6 Risk asset ratio 11.6 11.3 12.1 (1) Principal transactions comprise net trading income and net investment income. CHIEF EXECUTIVE'S HALF-YEAR REVIEW Barclays had an excellent first half, delivering a substantial increase in returns to shareholders, whilst continuing to invest heavily for the future. Profit before tax increased 37% to Â£3,673m (2005: Â£2,690m). Earnings per share rose 25% to 36.3p (2005: 29.1p). Economic profit increased 38%, and return on average shareholders' equity was 26%, (2005: 23%). We increased the interim dividend by 14% to 10.5p (2005: 9.2p). The strength of the Group's results demonstrates successful execution of our four strategic priorities: - Building the best bank in the UK - Accelerating growth of global businesses - Developing retail and commercial banking activities in selected countries outside the UK - Enhancing operational excellence. Group Performance Total income grew 38% to Â£10,969m (2005: Â£7,922m). Income growth was broadly based by business and geography. The growth demonstrated the strength of momentum in each business, the contribution of Absa and especially strong performances in the wholesale and institutional businesses. Excluding the effect of the first time consolidation of Absa, total income was up 23% compared with expense growth of 21%. The mix of income continued to evolve reflecting the development of the business. Net interest income represented approximately 40% of total income. Approximately half of our profits were made from outside the UK. Total impairment charges rose 50% to Â£1,057m (2005: Â£706m). Impairment charges on loans and advances, excluding Absa, increased 30%. This reflected the growth in the loan book, an increase in arrears balances and reduced recoveries in UK unsecured loans and credit cards and some growth in impairment charges for small and medium businesses as they trended towards Risk Tendency. Credit related impairment was stable in UK mortgages and was lower in wholesale and larger corporate business. Loans and advances to customers grew 19% since 30th June 2005, or 8% excluding Absa. Operating expenses increased 38% to Â£6,269m (2005: Â£4,542m). Excluding the impact of Absa, operating expenses grew 21% and the cost:income ratio improved in all businesses. The principal driver of expense growth was variable costs driven by the outstanding performances in Barclays Capital and Barclays Global Investors. Reported operating expenses were reduced by Â£238m from gains on the sale and leaseback of freehold properties, as the Group took advantage of historically low yields on property to realise gains on some of its freehold portfolio. Gains of Â£145m in UK Banking were largely offset by an acceleration of investment expenditure. The remaining property gains were in Barclaycard (Â£38m) and International Retail and Commercial Banking (Â£55m). Business Performance UK Banking achieved strong growth in profit before tax, up 11% to Â£1,265m (2005: Â£1,138m). The cost:income ratio improved three percentage points relative to the first half of 2005. UK Retail Banking profit before tax grew 12% to Â£612m (2005: Â£548m). Income growth of 7% extended the momentum established in 2005. Operating expenses grew 3%, after property gains of Â£116m, which were largely reinvested through an acceleration of our plans to develop the business. UK Business Banking profit before tax increased 11% to Â£653m (2005: Â£590m). Income growth of 12% was driven by strong growth in average loans and deposits. Operating expenses increased 7% and benefited from property gains of Â£29m. Barclaycard profit before tax fell 14% to Â£297m (2005: Â£346m) as the impact of higher impairment charges and costs relating to international investment exceeded income growth of 14%. Income growth reflected improved margins in the UK Cards portfolio, balance growth in UK unsecured loans, and strong momentum in international cards particularly Barclaycard US. Operating expenses grew 9%, or 18% excluding property gains, reflecting continued investment in Barclaycard US and further development of the UK cards partnerships business. International Retail and Commercial Banking profit before tax of Â£539m (2005: Â£174m) reflected the first full period of our ownership of Absa. Absa Group Limited reported 16% growth in profit before tax to R4,881m (2005: R4,193m), driven by very strong growth in demand for banking assets, especially in mortgages, vehicle and asset finance and credit cards. We are making good progress with integration and the realisation of synergy benefits. International Retail and Commercial Banking - excluding Absa increased profit before tax by 28% to Â£222m (2005: Â£174m). Strong income growth of 11% reflected good balance sheet growth in continental Europe, Africa and the Middle East, development of the corporate business in Spain and a strong performance from the Spanish funds business. Flat operating expenses reflected expansion of the distribution network in Europe and India, offset by property gains of Â£55m. We have reached an agreement, subject to regulatory approval, to dispose of our 43.7% stake in FirstCaribbean International Bank to Canadian Imperial Bank of Commerce for US$1.08bn. Barclays Capital delivered outstanding results, increasing profit before tax 66% to Â£1,246m (2005: Â£750m). Performance was driven by income growth of 58%, arising from higher business volumes and client activity levels. Particularly strong growth was delivered by interest rate products, equity products, currency products, emerging markets, credit products and commodities. Growth in market risk and capital consumption was substantially lower than growth in income and profit. Operating expenses growth of 54% reflected performance related costs and continued investment. The cost:net income ratio improved by two percentage points. Barclays Global Investors profit before tax increased 51% to Â£364m (2005: Â£241m). This excellent profit performance reflected income growth from flows of net new assets last year, strong investment performance in active products and a two percentage point improvement in the cost: income ratio to 57%. Total assets under management increased to US$1.6 trillion, and net new asset flows continued to be strong. Wealth Management delivered a 31% improvement in profit before tax to Â£110m (2005: Â£84m). Income growth of 15% was driven by growth in client transactions, deposit and loan balances and client funds under management. Operating expenses grew 11% partly as a result of significant investment in client-facing professionals and infrastructure. Head office functions and other operations loss before tax increased to Â£157m (2005: Â£40m). This was driven by a reduction in net interest income retained in Group Treasury, which was partially offset by a lower net impact of consolidation adjustments and lower operating expenses caused by the completion in 2005 of the Head Office relocation. The net gain from hedging activity was also lower than in 2005. Capital Management We continue to direct a lot of attention to capital management, maintaining a strong credit rating whilst optimising the returns to shareholders. At 30th June 2006, our Tier 1 capital ratio was 7.2%. Our target Tier 1 capital ratio remains 7.25%. As part of our active management of the balance sheet, we have taken advantage of historically low yields on property to dispose of a portion of our freehold estate and crystallised gains of Â£238m in the first half of 2006 and expect to realise further gains of about Â£150m in the second half of 2006. Dividends We expect to grow dividends per share approximately in line with earnings per share over the longer term. We weight the annual dividend towards the final dividend to maintain flexibility, consistent with our practice of prior years. Group Goals Barclays ranked 7th in its Total Shareholder Return (TSR) peer group(1) for the current four year goal period which commenced on 1st January 2004. Outlook For the rest of 2006, the global economic outlook remains positive and we expect global growth to be at or ahead of the levels of 2005. We anticipate strong economic performances in the United Kingdom, the United States of America, the Eurozone and Japan. In South Africa, actions by the monetary authorities in response to inflationary pressures are expected to moderate the pace of growth but we remain confident as to the long-term growth prospects for the economy. The instability in the Middle East may affect volatility and the volume of activity in world financial markets. We expect retail credit conditions in the UK to remain challenging in the second half of 2006 as impairment trends continue to be affected by the rise in average balances and the growth in personal bankruptcies. There are, however, signs of stabilisation of the new flow into delinquency in our main credit card portfolio as the measures taken in the past 18 months have had a positive impact on the credit quality of new business and the management of existing exposures. There is good earnings momentum across the Group and Barclays is well positioned to deliver strong earnings growth going forward. Senior Management I am delighted to welcome to the Executive Committee Frits Seegers, who joined Barclays on 10th July 2006 as Chief Executive, Global Retail and Commercial Banking. John Varley Group Chief Executive (1) Peer group for 2006 remained unchanged from 2005: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan, Lloyds TSB, Royal Bank of Scotland and UBS. CONSOLIDATED INCOME STATEMENT (UNAUDITED) Half-year ended 30.06.06 31.12.05 30.06.05 Continuing operations Â£m Â£m Â£m Interest income 10,544 9,584 7,648 Interest expense (6,140) (5,209) (3,948) -------- -------- -------- Net interest income 4,404 4,375 3,700 -------- -------- -------- Fee and commission income 4,077 3,558 2,872 Fee and commission expense (425) (393) (332) -------- -------- -------- Net fee and commission income 3,652 3,165 2,540 -------- -------- -------- Net trading income 2,201 1,145 1,176 Net investment income 374 485 373 -------- -------- -------- Principal transactions 2,575 1,630 1,549 Net premiums from insurance contracts 510 501 371 Other income 61 98 49 -------- -------- -------- Total income 11,202 9,769 8,209 Net claims and benefits paid on insurance contracts (233) (358) (287) -------- -------- -------- Total income net of insurance claims 10,969 9,411 7,922 Impairment charges (1,057) (865) (706) -------- -------- -------- Net income 9,912 8,546 7,216 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (6,206) (5,923) (4,525) Amortisation of intangible assets (63) (62) (17) -------- -------- -------- Operating expenses (6,269) (5,985) (4,542) Share of post-tax results of associates and joint ventures 30 29 16 -------- -------- -------- Profit before tax 3,673 2,590 2,690 Tax (1,072) (724) (715) -------- -------- -------- Profit for the period 2,601 1,866 1,975 -------- -------- -------- Profit attributable to minority interests 294 260 134 Profit attributable to equity holders of the parent 2,307 1,606 1,841 -------- -------- -------- 2,601 1,866 1,975 -------- -------- -------- p p p Basic earnings per ordinary share 36.3 25.4 29.1 Diluted earnings per ordinary share 35.1 24.3 28.4 Dividends per ordinary share: Interim dividend 10.5 - 9.2 Final dividend - 17.4 - Dividend Â£667m Â£1,105m Â£582m CONSOLIDATED BALANCE SHEET (UNAUDITED) As at 30.06.06 31.12.05 30.06.05 Assets Â£m Â£m Â£m Cash and balances at central banks 6,777 3,906 4,106 Items in the course of collection from 2,600 1,901 2,208 other banks Trading portfolio assets 181,857 155,723 134,235 Financial assets designated at fair value: - held on own account 18,833 12,904 9,747 - held in respect of linked liabilities to customers under investment contracts 79,334 83,193 69,792 Derivative financial instruments 136,901 136,823 133,932 Loans and advances to banks 35,330 31,105 35,225 Loans and advances to customers 282,097 268,896 237,123 Available for sale financial investments 53,716 53,497 61,143 Reverse repurchase agreements and cash collateral on securities borrowed 171,869 160,398 149,400 Other assets 5,866 4,734 3,598 Investments in associates and joint ventures 560 546 438 Goodwill 5,968 6,022 4,590 Intangible assets 1,125 1,269 120 Property plant and equipment 2,515 2,754 2,407 Deferred tax assets 776 686 2,059 -------- -------- -------- Total assets 986,124 924,357 850,123 -------- -------- -------- CONSOLIDATED BALANCE SHEET (UNAUDITED) As at 30.06.06 31.12.05 30.06.05 Liabilities Â£m Â£m Â£m Deposits from banks 86,221 75,127 84,538 Items in the course of collection due to other banks 2,700 2,341 2,809 Customer accounts 253,200 238,684 217,715 Trading portfolio liabilities 74,719 71,564 65,598 Financial liabilities designated at fair value 43,594 33,385 8,231 Liabilities to customers under investment contracts 81,380 85,201 71,608 Derivative financial instruments 138,982 137,971 132,784 Debt securities in issue 102,198 103,328 93,328 Repurchase agreements and cash collateral on securities lent 146,165 121,178 122,076 Other liabilities 10,767 11,131 9,649 Current tax liabilities 592 747 786 Insurance contract liabilities, including unit-linked liabilities 3,558 3,767 3,589 Subordinated liabilities 13,629 12,463 11,309 Deferred tax liabilities 430 700 1,891 Other provisions for liabilities 474 517 386 Retirement benefit liabilities 1,976 1,823 2,041 -------- -------- -------- Total liabilities 960,585 899,927 828,338 -------- -------- -------- Shareholders' equity Called up share capital 1,628 1,623 1,616 Share premium account 5,720 5,650 5,554 Other reserves 587 1,377 1,593 Retained earnings 10,279 8,957 7,575 Less: treasury shares (226) (181) (239) -------- -------- -------- Shareholders' equity excluding minority interests 17,988 17,426 16,099 Minority interests 7,551 7,004 5,686 -------- -------- -------- Total shareholders' equity 25,539 24,430 21,785 -------- -------- -------- -------- -------- -------- Total liabilities and shareholders' equity 986,124 924,357 850,123 -------- -------- -------- FINANCIAL REVIEW Results by business The following section analyses the Group's performance by business. For management and reporting purposes, Barclays is organised into the following business groupings: â€¢ UK Banking, comprising - UK Retail Banking - UK Business Banking â€¢ Barclaycard â€¢ International Retail and Commercial Banking, comprising - International Retail and Commercial Banking - excluding Absa - International Retail and Commercial Banking - Absa, included with effect from 27th July 2005 â€¢ Barclays Capital â€¢ Barclays Global Investors â€¢ Wealth Management â€¢ Wealth Management - closed life assurance activities â€¢ Head office functions and other operations. UK Banking UK Banking delivers banking solutions to Barclays UK retail and business banking customers. It offers a range of integrated products and services and access to the expertise of other Group businesses. Customers are served through a variety of channels comprising the branch network, automated teller machines, telephone banking, online banking and relationship managers. UK Banking is managed through two business areas, UK Retail Banking and UK Business Banking. UK Retail Banking UK Retail Banking comprises Personal Customers, Local Business (formerly Small Business), UK Premier and Home Finance (formerly Mortgages). This cluster of businesses aims to build broader and deeper relationships with both existing and new customers. Personal Customers and Home Finance provide a wide range of products and services to retail customers, including current accounts, savings and investment products, mortgages and general insurance. Local Business provides banking services to small businesses with an annual turnover up to Â£1m. UK Premier provides banking, investment products and advice to affluent customers. UK Business Banking UK Business Banking provides relationship banking to Barclays larger and medium business customers in the United Kingdom. Customers are served by a network of relationship and industry sector specialist managers who provide local access to an extensive range of products and services, as well as offering business information and support. Customers are also offered access to the products and expertise of other businesses in the Group, particularly Barclays Capital. UK Business Banking provides asset financing and leasing solutions through a specialist business. Barclaycard Barclaycard is a multi-brand credit card and consumer lending business. It is one of Europe's leading credit card businesses and has an increasing international presence. In the UK, Barclaycard includes Barclaycard branded credit cards, Barclays branded loans, FirstPlus secured lending, Monument cards, SkyCard and the retail finance business Clydesdale Financial Services. Barclaycard also manages card operations on behalf of Solution Personal Finance. Outside the UK, Barclaycard provides credit cards in the United States, Germany, Spain, Italy, Portugal and a number of other countries. In the Nordic region, Barclaycard operates through Entercard, a joint venture with ForeningsSparbanken (Swedbank). Barclaycard has successfully launched the Manchester United affinity credit card in 11 countries across Asia Pacific, Africa, Europe and in the United States. Barclaycard Business processes card payments for retailers and merchants and issues credit and charge cards to corporate customers and the UK government. Barclaycard works closely with other parts of the Group, including UK Retail Banking, UK Business Banking and International Retail and Commercial Banking, to leverage their distribution capabilities. International Retail and Commercial Banking International Retail and Commercial Banking provides Barclays international personal and corporate customers with banking services. The products and services offered to customers are tailored to meet the regulatory and commercial environments within each country. For reporting purposes from 2005, the operations have been grouped into two components: International Retail and Commercial Banking - excluding Absa and International Retail and Commercial Banking - Absa. As announced on 29th June 2006, Barclays has now entered into a definitive agreement with Canadian Imperial Bank of Commerce for the sale of its 43.7% shareholding in FirstCaribbean International Bank Limited, which is expected to complete by the end of 2006. International Retail and Commercial Banking works closely with all other parts of the Group to leverage synergies from product and service propositions. International Retail and Commercial Banking - excluding Absa International Retail and Commercial Banking - excluding Absa provides a range of banking services, including current accounts, savings, investments, mortgages and loans to personal and corporate customers across Spain, Portugal, France, Italy, the Caribbean, Africa and the Middle East. International Retail and Commercial Banking - Absa International Retail and Commercial Banking - Absa represents Barclays consolidation of Absa, excluding Absa Capital which is included as part of Barclays Capital. Absa Group Limited is one of South Africa's largest financial services organisations serving personal, commercial and corporate customers predominantly in South Africa. International Retail and Commercial Banking - Absa serves retail customers through a variety of distribution channels and offers a full range of banking services, including basic bank accounts, mortgages, instalment finance, credit cards, bancassurance products and wealth management services; it also offers customised business solutions for commercial and large corporate customers. Barclays Capital Barclays Capital is a leading global investment bank which provides large corporate, institutional and government clients with solutions to their financing and risk management needs. Barclays Capital services a wide variety of client needs, from capital raising and managing foreign exchange, interest rate, equity and commodity risks, through to providing technical advice and expertise. Activities are organised into three principal areas: Rates, which includes fixed income, foreign exchange, commodities, emerging markets, money markets, sales, trading and research, prime services and equity products; Credit, which includes primary and secondary activities for loans and bonds for investment grade, high yield and emerging market credit, as well as hybrid capital products, asset based finance, commercial mortgage backed securities, credit derivatives, structured capital markets and large asset leasing; and Private Equity. Barclays Capital includes Absa Capital, the investment banking business of Absa. Barclays Global Investors Barclays Global Investors (BGI) is one of the world's largest asset managers and a leading global provider of investment management products and services. BGI offers structured investment strategies such as indexing, global asset allocation and risk-controlled active products, including hedge funds. BGI also provides related investment services such as securities lending, cash management and portfolio transition services. In addition, BGI is the global leader in assets and products in the exchange traded funds business, with over 150 funds for institutions and individuals trading in thirteen markets globally. BGI's investment philosophy focuses on the three dimensions of performance; return, risk and cost, offering clients total performance management. Wealth Management Wealth Management serves affluent, high net worth and intermediary clients worldwide, providing private banking, asset management, stockbroking, offshore banking, wealth structuring and financial planning services. Wealth Management works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities. Wealth Management - closed life assurance activities Wealth Management - closed life assurance activities comprise the closed life assurance businesses of Barclays and Woolwich in the UK. Head office functions and other operations Head office functions and other operations comprise: â€¢ Head office and central support functions â€¢ Businesses in transition â€¢ Consolidation adjustments. Head office and central support functions comprise the following areas: Executive Management, Finance, Treasury, Corporate Affairs, Human Resources, Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are recharged to them. Businesses in transition principally relate to certain lending portfolios that are centrally managed with the objective of maximising recovery from the assets. Consolidation adjustments largely reflect the elimination of inter-segment transactions. Group reporting changes in 2006 (see page 70) Barclays announced on 16th June 2006 the impact of certain changes in Group structure and reporting on the 2005 and 2004 results. Barclays has realigned a number of reportable business segments based on the reorganisation of certain portfolios to better reflect the type of client served, the nature of the products offered and the associated risks and rewards. The Group's policy for the internal cost of funding and the segmental disclosure of risk weighted assets were also revised with effect from 1st January 2006. The resulting restatements had no impact on the Group Income Statement or Balance Sheet. The figures in this document for the six months ended 30th June 2006 and the comparatives for the prior periods reflect the new structure. SUMMARY OF RESULTS (UNAUDITED) Analysis of profit attributable to equity holders of the parent Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Banking 1,265 1,062 1,138 -------- -------- -------- UK Retail Banking 612 492 548 UK Business Banking 653 570 590 -------- -------- -------- Barclaycard 297 294 346 International Retail and Commercial Banking 539 459 174 -------- -------- -------- International Retail and Commercial Banking - ex Absa 222 161 174 International Retail and Commercial Banking - Absa 317 298 - -------- -------- -------- Barclays Capital 1,246 681 750 Barclays Global Investors 364 299 241 Wealth Management 110 82 84 Wealth Management - closed life assurance activities 9 (4) (3) Head office functions and other operations (157) (283) (40) -------- -------- -------- Profit before tax 3,673 2,590 2,690 Tax (1,072) (724) (715) -------- -------- -------- Profit for the period 2,601 1,866 1,975 Profit attributable to minority interests (294) (260) (134) -------- -------- -------- Profit attributable to equity holders of the parent 2,307 1,606 1,841 -------- -------- -------- TOTAL ASSETS AND RISK WEIGHTED ASSETS Total assets As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Banking 134,391 130,304 129,093 -------- -------- -------- UK Retail Banking 70,906 70,389 71,476 UK Business Banking 63,485 59,915 57,617 -------- -------- -------- Barclaycard 26,604 25,771 24,166 International Retail and Commercial Banking 65,132 63,556 29,985 -------- -------- -------- International Retail and Commercial Banking - ex Absa 35,832 34,195 29,985 International Retail and Commercial Banking - Absa 29,300 29,361 - -------- -------- -------- Barclays Capital 659,328 601,193 573,131 Barclays Global Investors 77,298 80,900 68,877 Wealth Management 6,841 6,094 5,843 Wealth Management - closed life assurance activities 7,243 7,276 6,653 Head office functions and other operations 9,287 9,263 12,375 -------- -------- -------- 986,124 924,357 850,123 -------- -------- -------- Risk weighted assets As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Banking 84,625 79,929 83,554 -------- -------- -------- UK Retail Banking 33,841 32,803 37,129 UK Business Banking 50,784 47,126 46,425 -------- -------- -------- Barclaycard 23,968 21,752 21,335 International Retail and Commercial Banking 42,081 41,228 18,900 -------- -------- -------- International Retail and Commercial Banking - ex Absa 21,408 20,394 18,900 International Retail and Commercial Banking - Absa 20,673 20,834 - -------- -------- -------- Barclays Capital 130,533 116,677 107,201 Barclays Global Investors 1,378 1,456 1,408 Wealth Management 4,915 4,061 4,457 Wealth Management - closed life assurance activities - - - Head office functions and other operations 3,424 4,045 5,551 -------- -------- -------- 290,924 269,148 242,406 -------- -------- -------- Further analysis of total assets and risk weighted assets, can be found on page 61. UK Banking Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 1,959 1,960 1,784 Net fee and commission income 919 879 841 -------- -------- -------- Net trading income 2 2 (2) Net investment income 17 9 17 -------- -------- -------- Principal transactions 19 11 15 Net premiums from insurance contracts 135 139 141 Other income 2 13 20 -------- -------- -------- Total income 3,034 3,002 2,801 Net claims and benefits on insurance contracts (26) (25) (33) -------- -------- -------- Total income net of insurance claims 3,008 2,977 2,768 Impairment charges (198) (188) (139) -------- -------- -------- Net income 2,810 2,789 2,629 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (1,546) (1,728) (1,484) Amortisation of intangible assets (1) (2) (1) -------- -------- -------- Operating expenses (1,547) (1,730) (1,485) Share of post-tax results of associates 2 3 (6) and joint ventures -------- -------- -------- Profit before tax 1,265 1,062 1,138 -------- -------- -------- Cost:income ratio 51% 58% 54% Cost:net income ratio 55% 62% 57% Risk Tendency Â£470m Â£430m Â£400m Return on average economic capital 36% 33% 33% Economic profit Â£641m Â£577m Â£553m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£120.6bn Â£118.2bn Â£117.1bn Customer accounts Â£136.0bn Â£129.7bn Â£126.8bn Total assets Â£134.4bn Â£130.3bn Â£129.1bn Risk weighted assets Â£84.6bn Â£79.9bn Â£83.6bn Key Facts Number of UK branches 2,014 2,029 2,053 UK Banking profit before tax increased 11% (Â£127m) to Â£1,265m (2005: Â£1,138m) driven by good income growth, partly offset by higher impairment charges and costs. Gains from the sale and leaseback of properties of Â£145m included in operating expenses were largely offset by Â£114m of incremental investment expenditure undertaken to accelerate the development of UK Retail Banking. UK Banking has targeted a cost:income ratio reduction of two percentage points per annum in each of 2005, 2006 and 2007. This was exceeded in 2005 as the cost: income ratio improved by three percentage points to 56% for the year. Good progress has been made in delivering the 2006 cost:income ratio reduction and in the first half of 2006 a year-on-year improvement of three percentage points was achieved. UK Retail Banking Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 1,137 1,158 1,050 Net fee and commission income 608 572 559 -------- -------- -------- Net trading income - - - Net investment income - - 9 -------- -------- -------- Principal transactions - - 9 Net premiums from insurance contracts 135 139 141 Other income - 4 12 -------- -------- -------- Total income 1,880 1,873 1,771 Net claims and benefits on insurance contracts (26) (25) (33) -------- -------- -------- Total income net of insurance claims 1,854 1,848 1,738 Impairment charges (98) (75) (75) -------- -------- -------- Net income 1,756 1,773 1,663 Operating expenses (1,144) (1,282) (1,108) Share of post-tax results of associates and joint ventures - 1 (7) -------- -------- -------- Profit before tax 612 492 548 -------- -------- -------- Cost:income ratio 62% 69% 64% Cost:net income ratio 65% 72% 67% Risk Tendency Â£195m Â£180m Â£170m Return on average economic capital 36% 37% 33% Economic profit Â£314m Â£316m Â£270m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£65.0bn Â£64.8bn Â£66.0bn Customer accounts Â£81.7bn Â£78.8bn Â£75.4bn Total assets Â£70.9bn Â£70.4bn Â£71.5bn Risk weighted assets Â£33.8bn Â£32.8bn Â£37.1bn Key Facts Personal Customers -------------------- Number of UK current accounts 11.3m 11.1m 10.9m Number of UK savings accounts 10.9m 10.8m 10.7m Total UK mortgage balances (residential) Â£59.3bn Â£59.6bn Â£61.0bn Number of household insurance policies 727,000 616,000 590,000 Local Business and UK Premier ------------------------------- Number of Local Business customers 641,000 630,000 617,000 Number of UK Premier customers 293,000 286,000 280,000 UK Retail Banking profit before tax increased 12% (Â£64m) to Â£612m (2005: Â£548m). Total income net of insurance claims increased 7% (Â£116m) to Â£1,854m (2005: Â£1,738m), demonstrating continued momentum. The improvement was broadly based across business segments and income categories. There was strong growth in Local Business, UK Premier and Personal Customers retail savings. Net interest income increased 8% (Â£87m) to Â£1,137m (2005: Â£1,050m). Growth was driven by higher contributions from Local Business, UK Premier and Personal Customers retail savings. UK residential mortgage balances ended the period at Â£59.3bn (31st December 2005: Â£59.6bn). Gross advances were 43% higher at Â£7.3bn (31st December 2005: Â£5.1bn), which represented a market share of 5% (2005: 4%) but this was offset by redemptions. Mortgage applications, by value, were 67% higher than last year and reflected the launch of new competitive products in a stronger market, supported by greater promotion, as well as improved capacity and servicing. Mortgage servicing was brought back in-house with the termination of an outsourcing arrangement taking effect in February 2006. Significant progress has been made since then in improving processing efficiency. The average loan to value ratio within the mortgage book on a current valuation basis was 34% (2005: 34%). In non-mortgage loans, Local Business average loans and advances balances increased 15%, and UK Premier average loans and advances balances increased 34%. The assets margin improved slightly to 0.86% (2005: 0.83%) reflecting a broadly stable mortgage margin, despite the impact of new product launches and a higher contribution from non-mortgage assets. Total average customer deposit balances increased 8% to Â£77.6bn (2005: Â£72.1bn). Good growth was achieved in Local Business and in UK Premier where average balances increased 8% and 9% respectively. Within Personal Customers, retail savings average balance growth was 8% and current account average balances increased 5%. The liabilities margin was broadly stable at 1.98% (2005: 2.01%). Net fee and commission income increased 9% (Â£49m) to Â£608m (2005: Â£559m). There was strong growth in current account and debit card fees. Local Business delivered strong growth, driven by increased income from current accounts. There was also strong growth from UK Premier, reflecting higher income from investment advice and banking services. Net premiums from insurance underwriting activities decreased to Â£135m (2005: Â£141m), reflecting lower consumer loan volumes and reduced take-up of insurance on these loans. Impairment charges increased 31% (Â£23m) to Â£98m (2005: Â£75m). The increase was driven by strong volume growth and some deterioration in delinquency rates in the Local Business loan portfolio. Losses from the mortgage portfolio remained negligible, with arrears at low levels and broadly stable compared with the year-end 2005 position. Operating expenses increased 3% (Â£36m) to Â£1,144m (2005: Â£1,108m). Gains from the sale and leaseback of property of Â£116m were largely offset by incremental investment expenditure to bring forward planned improvements in operating efficiency and customer service. This included the costs associated with enhancing the Woolwich brand, improving the branch network and streamlining and re-engineering back office processes, as recently announced, as well as additional investment in technology deployed in branches and restructuring costs. The cost:income ratio improved two percentage points to 62% (2005: 64%). UK Business Banking Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 822 802 734 Net fee and commission income 311 307 282 --------- --------- --------- Net trading income 2 2 (2) Net investment income 17 9 8 --------- --------- --------- Principal transactions 19 11 6 Other income 2 9 8 --------- --------- --------- Total income 1,154 1,129 1,030 Impairment charges (100) (113) (64) --------- --------- --------- Net income 1,054 1,016 966 --------- --------- --------- Operating expenses excluding amortisation of intangible assets (402) (446) (376) Amortisation of intangible assets (1) (2) (1) --------- --------- --------- Operating expenses (403) (448) (377) Share of post-tax results of associates 2 2 1 and joint ventures --------- --------- --------- Profit before tax 653 570 590 --------- --------- --------- Cost:income ratio 35% 40% 37% Cost:net income ratio 38% 44% 39% Risk Tendency Â£275m Â£250m Â£230m Return on average economic capital 35% 30% 33% Economic profit Â£327m Â£261m Â£283m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£55.6bn Â£53.4bn Â£51.1bn Customer accounts Â£54.3bn Â£50.9bn Â£51.4bn Total assets Â£63.5bn Â£59.9bn Â£57.6bn Risk weighted assets Â£50.8bn Â£47.1bn Â£46.5bn Key Facts Total number of Business Banking customers 147,000 144,000 144,000 UK Business Banking profit before tax increased 11% (Â£63m) to Â£653m (2005: Â£590m), driven by strong income growth. Performance was particularly strong in Larger Business. The first half of 2006 included an Â£11m contribution for a full six months from Iveco Finance, in which a 51% stake was acquired on 1st June 2005. Iveco Finance is performing in line with the acquisition business plan. Total income increased 12% (Â£124m) to Â£1,154m (2005: Â£1,030m), with the increase being broadly based and driven by strong balance sheet growth. Net interest income increased 12% (Â£88m) to Â£822m (2005: Â£734m) largely driven by growth in the loan portfolio. Average lending balances increased 21% to Â£51.1bn (2005: Â£42.1bn), with good contributions from all business areas and a stable lending margin. Iveco Finance contributed Â£1.6bn of the growth in average lending balances. Average deposit balances increased 11% to Â£43.7bn (2005: Â£39.2bn) with good growth from both Larger Business and Medium Business. The deposit margin experienced some compression, although it improved relative to the second half of 2005. Net fee and commission income increased 10% (Â£29m) to Â£311m (2005: Â£282m), principally from foreign exchange and derivative business transacted through Barclays Capital on behalf of a number of business customers. Income from principal transactions was Â£19m (2005: Â£6m), relating principally to profit realised on the sale of three equity investments. Impairment charges increased 56% (Â£36m) to Â£100m (2005: Â£64m). The increase in impairment reflected the growth in lending balances and the inclusion of Iveco Finance. Operating expenses increased 7% (Â£26m) to Â£403m (2005: Â£377m) reflecting volume growth, increased expenditure on front line staff, higher revenue related costs and the inclusion of Iveco Finance. Operating expenses include a credit of Â£29m on the sale and leaseback of property. The cost:income ratio improved two percentage points to 35% (2005: 37%). Barclaycard Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 914 896 830 Net fee and commission income 533 518 454 Net investment income 15 - - Net premiums from insurance contracts 15 14 10 -------- -------- -------- Total income 1,477 1,428 1,294 Net claims and benefits on insurance contracts (6) (5) (2) -------- -------- -------- Total income net of insurance claims 1,471 1,423 1,292 Impairment charges (696) (590) (508) -------- -------- -------- Net income 775 833 784 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (471) (531) (430) Amortisation of intangible assets (8) (8) (9) -------- -------- -------- Operating expenses (479) (539) (439) Share of post-tax results of associates and joint ventures 1 - 1 -------- -------- -------- Profit before tax 297 294 346 -------- -------- -------- Cost:income ratio 33% 38% 34% Cost:net income ratio 62% 65% 56% Risk Tendency Â£1,340m Â£1,100m Â£980m Return on average economic capital 13% 14% 18% Economic profit Â£55m Â£68m Â£115m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£24.8bn Â£24.0bn Â£23.1bn Total assets Â£26.6bn Â£25.8bn Â£24.2bn Risk weighted assets Â£24.0bn Â£21.8bn Â£21.3bn Key Facts Number of Barclaycard UK customers 11.2m 11.2m 11.2m Number of retailer relationships 95,000 93,000 92,000 UK credit cards - average outstanding balances Â£9.6bn Â£10.1bn Â£10.2bn UK credit cards - average extended credit balances Â£8.2bn Â£8.6bn Â£8.8bn UK loans - average consumer lending balances Â£11.6bn Â£10.3bn Â£9.9bn International - average extended credit balances Â£2.3bn Â£1.8bn Â£1.7bn International - cards in issue 5.3m 4.3m 3.7m Barclaycard profit before tax decreased 14% (Â£49m) to Â£297m (2005: Â£346m) as strong income growth was more than offset by higher impairment charges and increased costs from the continued development of the International businesses. Total income net of insurance claims increased 14% (Â£179m) to Â£1,471m (2005: Â£1,292m) driven by good performances across the diversified UK cards and consumer loans businesses and Barclaycard Business, and by very strong momentum in international cards. Net interest income increased 10% (Â£84m) to Â£914m (2005: Â£830m). UK average extended credit card balances fell 7% to Â£8.2bn (2005: Â£8.8bn), reflecting lower promotional rate balances and tighter lending criteria. UK average consumer lending balances increased 17% to Â£11.6bn (2005: Â£9.9bn). International average extended credit card balances rose 35% to Â£2.3bn (2005: Â£1.7bn). Margins in credit cards improved in the first half of 2006 to 8.78% (2005: 7.56%), due to the impact of increased card rates and a reduced proportion of promotional rate balances in the UK. Margins in consumer lending fell to 4.34% (2005: 5.15%), due to continued competitive pressures and a change in the product mix, with a higher weighting to secured lending in FirstPlus. Net fee and commission income increased 17% (Â£79m) to Â£533m (2005: Â£454m) as a result of increased contributions from SkyCard, FirstPlus, Barclaycard Business and Barclaycard International. Investment income of Â£15m represents the proceeds arising from the sale of part of the stake in MasterCard Inc, as part of its flotation. Impairment charges increased 37% (Â£188m) to Â£696m (2005: Â£508m). Relative to the second half of 2005, impairment charges increased 18%. The increase was driven by a rise in delinquent balances, increased numbers of bankruptcies and lower rates of recovery from customers in the UK cards and loans businesses. The rise in delinquent balances is reflected in a significant increase in non-performing loans. Operating expenses increased 9% (Â£40m) to Â£479m (2005: Â£439m), which included a gain from the sale and leaseback property of Â£38m. Excluding this gain, underlying operating expenses increased 18% (Â£78m) to Â£517m largely as a result of the continued investment in Barclaycard US and the development of the UK Partnerships business. Barclaycard International continued its growth strategy, with the continental European businesses delivering excellent results and the Swedbank joint venture performing in line with its business plan. Barclaycard International loss before tax increased to Â£4m (2005: loss Â£3m). The loss before tax for Barclaycard US was Â£21m (2005: loss Â£13m). The performance and integration of Barclaycard US proceeded in line with expectations, with continued strong growth in balances and customer numbers and the creation of a number of new partnerships. International Retail and Commercial Banking Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 847 776 274 Net fee and commission income 669 534 171 -------- -------- -------- Net trading income 3 (3) 6 Net investment income 47 76 67 -------- -------- -------- Principal transactions 50 73 73 Net premiums from insurance contracts 174 167 60 Other income 34 46 14 -------- -------- -------- Total income 1,774 1,596 592 Net claims and benefits on insurance contracts (119) (120) (85) -------- -------- -------- Total income net of insurance claims 1,655 1,476 507 Impairment charges (68) (24) (8) -------- -------- -------- Net income 1,587 1,452 499 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (1,030) (974) (343) Amortisation of intangible assets (45) (45) (2) -------- -------- -------- Operating expenses (1,075) (1,019) (345) Share of post-tax results of associates and joint ventures 27 26 20 -------- -------- -------- Profit before tax 539 459 174 -------- -------- -------- Cost:income ratio 65% 69% 68% Cost:net income ratio 68% 70% 69% Risk Tendency Â£195m Â£175m Â£75m Return on average economic capital 30% 24% 22% Economic profit Â£187m Â£135m Â£70m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£50.4bn Â£49.3bn Â£21.7bn Customer accounts Â£23.0bn Â£22.6bn Â£9.6bn Total assets Â£65.1bn Â£63.6bn Â£30.0bn Risk weighted assets Â£42.1bn Â£41.2bn Â£18.9bn Key Facts Number of international branches 1,542 1,516 799 International Retail and Commercial Banking profit before tax increased Â£365m to Â£539m (2005: Â£174m). The increase reflected the inclusion of International Retail and Commercial Banking - Absa profit before tax of Â£317m for 2006 and strong underlying organic growth in Europe. International Retail and Commercial Banking - excluding Absa Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 296 288 274 Net fee and commission income 226 206 171 -------- -------- -------- Net trading income 12 25 6 Net investment income 29 21 67 -------- -------- -------- Principal transactions 41 46 73 Net premiums from insurance contracts 50 69 60 Other income 14 9 14 -------- -------- -------- Total income 627 618 592 Net claims and benefits on insurance contracts (65) (76) (85) -------- -------- -------- Total income net of insurance claims 562 542 507 Impairment charges (16) (5) (8) -------- -------- -------- Net income 546 537 499 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (341) (391) (343) Amortisation of intangible assets (4) (4) (2) -------- -------- -------- Operating expenses (345) (395) (345) Share of post-tax results of associates and joint ventures 21 19 20 -------- -------- -------- Profit before tax 222 161 174 -------- -------- -------- Cost:income ratio 61% 73% 68% Cost:net income ratio 63% 74% 69% Risk Tendency Â£70m Â£75m Â£75m Return on average economic capital 26% 17% 22% Economic profit Â£94m Â£45m Â£70m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£27.0bn Â£25.4bn Â£21.7bn Customer accounts Â£10.9bn Â£10.4bn Â£9.6bn Total assets Â£35.8bn Â£34.2bn Â£30.0bn Risk weighted assets Â£21.4bn Â£20.4bn Â£18.9bn Key Facts Number of international branches 815 798 799 Number of Barclays Africa and Middle 1.3m 1.3m 1.3m East customer accounts Number of Barclays Europe customers 801,000 800,000 760,000 Number of European mortgage customers 232,000 221,000 206,000 European mortgages - average balances (Euros) â‚¬24.9bn â‚¬21.2bn â‚¬19.9bn European assets under management (Euros) â‚¬23.8bn â‚¬22.6bn â‚¬19.5bn International Retail and Commercial Banking - excluding Absa performed well, with profit before tax increasing 28% (Â£48m) to Â£222m (2005: Â£174m). The performance was broad based, with stronger underlying profits in all geographies. Underlying profit before tax, excluding gains from asset sales in 2006 and 2005 increased 17% (Â£24m) to Â£167m (2005: Â£143m). Total income net of insurance claims increased 11% (Â£55m) to Â£562m (2005: Â£507m). Underlying income increased 18% (Â£86m) to Â£562m (2005: Â£476m). Net interest income increased 8% (Â£22m) to Â£296m (2005: Â£274m), reflecting strong balance sheet growth in continental Europe, Africa and the Middle East, and the development of the corporate business in Spain. Total average customer loans increased 25% to Â£26.2bn (2005: Â£20.9bn). Mortgage balance growth in continental Europe was particularly strong, with average Euro balances up 25%. Growth in European mortgages as a proportion of total balances and competitive pressures in key European markets contributed to lower lending margins. Average customer deposits increased 12% to Â£10.2bn (2005: Â£9.1bn), with deposit margins rising modestly. Net fee and commission income increased 32% (Â£55m) to Â£226m (2005: Â£171m). This reflected a strong performance from the Spanish funds business, where average assets under management increased 14%, together with good growth in France, including the contribution of the ING Ferri business which was acquired on 1st July 2005. Net fee and commission income showed solid growth in Africa and the Middle East. Principal transactions reduced to Â£41m (2005: Â£73m), which in 2005 included Â£23m from the redemption of preference shares in FirstCaribbean International Bank. Impairment charges increased to Â£16m (2005: Â£8m), principally as a result of the absence in 2006 of one-off recoveries which arose in 2005 in Africa and the Middle East. Operating expenses were flat at Â£345m, including gains from the sale and leaseback of property in Spain of Â£55m. Excluding these gains, underlying operating expenses increased 16% to Â£400m (2005: Â£345m). The increase was below the growth in underlying income, and reflected the continued expansion of the business in Africa and the Middle East, investments in the European distribution network, particularly in Portugal and Italy, and the acquisition of the ING Ferri business in France. Barclays Spain continued to perform strongly. Profit before tax increased 25% (Â£17m) to Â£86m (2005: Â£69m), excluding one off gains on asset sales of Â£55m (2005: Â£8m) and integration costs of Â£16m (2005: Â£28m). This was driven by the continued realisation of benefits from the integration of Banco Zaragozano, together with good growth in mortgages and assets under management. Profit before tax also increased strongly in Portugal reflecting good flows of new customers and increased business volumes. France performed well as a result of good organic growth and the acquisition of ING Ferri. Africa and the Middle East profit before tax was in line with prior year at Â£62m (2005: Â£62m). This reflected balance sheet growth across the businesses offset by continued investment and higher impairment charges as a result of the absence of one off recoveries that arose in 2005. The share of post tax profits from associates increased Â£1m to Â£21m (2005: Â£20m) reflecting an increased contribution from FirstCaribbean. International Retail and Commercial Banking - Absa Half-year Period from ended 27.07.05 until 30.06.06 31.12.05(1) Â£m Â£m Net interest income 551 488 Net fee and commission income 443 328 --------- --------- Net trading income (9) (28) Net investment income 18 55 --------- --------- Principal transactions 9 27 Net premiums from insurance contracts 124 98 Other income 20 37 --------- --------- Total income 1,147 978 Net claims and benefits on insurance contracts (54) (44) --------- --------- Total income net of insurance claims 1,093 934 Impairment charges (52) (19) --------- --------- Net income 1,041 915 --------- --------- Operating expenses excluding amortisation of intangible assets (689) (583) Amortisation of intangible assets (41) (41) --------- --------- Operating expenses (730) (624) Share of post-tax results of associates and joint ventures 6 7 --------- --------- Profit before tax 317 298 --------- --------- Cost:income ratio 67% 67% Cost:net income ratio 70% 68% Risk Tendency Â£125m Â£100m Return on average economic capital 37% 36% Economic profit Â£93m Â£90m As at 30.06.06 31.12.05 Loans and advances to customers Â£23.4bn Â£23.9bn Customer accounts Â£12.1bn Â£12.2bn Total assets Â£29.3bn Â£29.4bn Risk weighted assets Â£20.7bn Â£20.8bn Key Facts Number of branches 727 718 Number of ATMs 6,256 5,835 Number of retail customers 8.0m 7.6m Number of corporate customers 80,000 79,000 (1) Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005. The comparable period referred to below, for illustrative purposes only, is the six months to 30th June 2005. Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005. A summary of Absa Group Limited's results for the six months to 30th June 2006 is included in the Appendix on page 92(1). Absa Group Limited's profit before tax increased 16% reflecting very good performances from banking operations which were well spread across all business segments. Absa's bancassurance offering was negatively affected by increased equity market volatility. Net interest income grew strongly as credit demand remained strong. Growth in loans and advances to customers was driven by mortgages and credit cards. Margins contracted modestly reflecting an increased reliance on wholesale funding as well as increased competition. Growth in non-interest income reflected increased retail transaction volumes, partially offset by the closure of the Absa Group's international operations outside Africa and lower fair value gains in respect of the listed equity portfolio. Impairment charges grew, largely within Absa Home Loans and Retail Banking Services. The ratio of non-performing loans to total advances continued to improve. Operating expenses increased, principally due to the further expansion of the Absa branch and ATM network and regulatory and compliance expenditure. We are making good progress with integration and the realisation of synergy benefits. (1) Absa Group's interim reporting period has changed from the six months ended 30th September to the six months ended 30th June. This change was necessitated by the need to align Absa's financial reporting with that of Barclays. To facilitate evaluation and interpretation, these results are compared with unaudited proforma results for the six months ended 30th June 2005. Barclays Capital Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 495 540 525 Net fee and commission income 516 403 373 -------- -------- -------- Net trading income 2,139 1,116 1,115 Net investment income 277 253 160 -------- -------- -------- Principal transactions 2,416 1,369 1,275 Other income 10 12 8 -------- -------- -------- Total income 3,437 2,324 2,181 Impairment charges (70) (59) (52) -------- -------- -------- Net income 3,367 2,265 2,129 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (2,120) (1,583) (1,378) Amortisation of intangible assets (1) (1) (1) -------- -------- -------- Operating expenses (2,121) (1,584) (1,379) -------- -------- -------- Profit before tax 1,246 681 750 -------- -------- -------- Cost:income ratio 62% 68% 63% Cost:net income ratio 63% 70% 65% Risk Tendency Â£125m Â£110m Â£80m Return on average economic capital 47% 30% 38% Average net income generated per member Â£330 Â£242 Â£259 of staff ('000) Economic profit Â£671m Â£323m Â£383m As at 30.06.06 31.12.05 30.06.05 Total assets Â£659.3bn Â£601.2bn Â£573.1bn Risk weighted assets Â£130.5bn Â£116.7bn Â£107.2bn Key Facts(1) 30.06.06 30.06.05 League League table Issuance table Issuance position value position value All international bonds (all 2nd $111.0bn 4th $96.0bn currencies) Sterling bonds 2nd Â£10.9bn 2nd Â£8.3bn International securitisations 4th $16.5bn 9th $10.7bn US investment grade bonds 7th $3.2bn 4th $5.1bn (1) League tables compiled by Barclays Capital from external sources including Dealogic and Thomson Financial. Barclays Capital delivered record profit before tax and net income. Profit before tax increased 66% (Â£496m) to Â£1,246m (2005: Â£750m). This was the result of the very strong income performance which was driven by higher business volumes and client activity levels. Net income increased 58% (Â£1,238m) to Â£3,367m (2005: Â£2,129m). Profit before tax for Absa Capital was Â£45m. Excluding Absa Capital, profit before tax increased by 60%. Total income increased 58% (Â£1,256m) to Â£3,437m (2005: Â£2,181m) as a result of very strong growth across the Rates and Credit businesses. Income grew across all asset classes, in particular interest rate products, equity products, currency products, emerging markets, credit products and commodities. Income by geography was well spread with significant contributions from the US, Europe and Asia. The top line performance reflects returns from past investments and the strength of the client franchise. Average DVaR grew to Â£36m (2005: Â£30m) well below the rate of income growth. Secondary income, comprising principal transactions (net trading income and net investment income) and net interest income, is mainly generated from providing client financing and risk management solutions. Secondary income increased 62% (Â£1,111m) to Â£2,911m (2005: Â£1,800m). Net trading income increased 92% (Â£1,024m) to Â£2,139m (2005: Â£1,115m) with very strong contributions across the Rates and Credit businesses, in particular equities, commodities, fixed income and credit derivatives. These results were driven by higher volumes of client led activity and favourable market conditions. Net investment income increased 73% (Â£117m) to Â£277m (2005: Â£160m) driven by investment realisations, primarily in Private Equity and structured capital markets. Net interest income decreased 6% (Â£30m) to Â£495m (2005: Â£525m) driven by lower contributions from money markets. Primary income, which comprises net fee and commission income from advisory and origination activities, grew 38% (Â£143m) to Â£516m (2005: Â£373m). This reflected higher volumes and continued market share gains in a number of key markets, with strong contributions from bonds, European leveraged loans and convertibles issuances. Impairment charges of Â£70m relate primarily to impairment charges on available for sale assets of Â£83m, partially offset by recoveries in the loan portfolio. The impairment charge on available for sale assets arose where an intention to sell caused losses in the available for sale portfolio to be treated as other than temporary in nature. The impairment charge arose from interest rate movements rather than credit deterioration. There is a corresponding gain recognised in net trading income. Operating expenses increased 54% (Â£742m) to Â£2,121m (2005: Â£1,379m), reflecting higher performance related costs due to strong results. The cost:net income ratio improved to 63% (2005: 65%). Staff costs to net income ratio improved to 51% (2005: 52%). Compared with the first half of 2005, performance related pay, discretionary investment spend and short-term contractor resource represented a higher proportion of operating expenses of 54% (2005: 46%). Total headcount increased by 600 during the first half of 2006 to 10,500 (31st December 2005: 9,900). Growth was broadly based across all regions and reflected further investments in the front office, systems development and control functions to support greater business volumes. Barclays Global Investors Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 7 9 6 Net fee and commission income 837 727 570 -------- -------- -------- Net trading income 1 - 2 Net investment income - - 4 -------- -------- -------- Principal transactions 1 - 6 -------- -------- -------- Total income 845 736 582 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (479) (435) (340) Amortisation of intangible assets (2) (2) (2) -------- -------- -------- Operating expenses (481) (437) (342) Share of post-tax results of associates and joint ventures - - 1 -------- -------- -------- Profit before tax 364 299 241 -------- -------- -------- Cost:income ratio 57% 59% 59% Average net income generated per member of staff ('000) Â£360 Â£330 Â£298 Return on average economic capital 260% 282% 214% Economic profit Â£195m Â£170m Â£129m As at 30.06.06 31.12.05 30.06.05 Total assets Â£77.3bn Â£80.9bn Â£68.9bn Risk weighted assets Â£1.4bn Â£1.5bn Â£1.4bn Key Facts Number of institutional clients 2,800 2,800 2,700 Assets under management: -indexed Â£571bn Â£586bn Â£517bn -active Â£199bn Â£198bn Â£169bn -managed cash and other Â£107bn Â£97bn Â£95bn Total assets under management Â£877bn Â£881bn Â£781bn Total assets under management (US$) $1,623bn $1,513bn $1,401bn Net new assets in period Â£17bn Â£19bn Â£29bn Net new assets in period (US$) $30bn $27bn $61bn Number of iShares products 164 149 135 Total iShares assets under management(1) Â£124bn Â£113bn Â£84bn (1) Included in indexed assets. Barclays Global Investors (BGI) delivered excellent growth in profit before tax, increasing 51% (Â£123m) to Â£364m (2005: Â£241m), reflecting exceptionally strong income growth. The performance was broad-based by products, distribution channels and geographies. Net fee and commission income increased 47% (Â£267m) to Â£837m (2005: Â£570m). The very strong income performance was attributable to increased management and incentive fees, particularly in the iShares and active businesses. Incentive fees increased 41% (Â£31m) to Â£107m (2005: Â£76m). Higher asset values, driven by good net new inflows and higher market levels, and a strong investment performance, contributed to the growth in income. Operating expenses increased 41% (Â£139m) to Â£481m (2005: Â£342m) as a result of higher performance based expenses, significant investment in key growth initiatives and ongoing investment in product development and infrastructure. The cost:income ratio improved to 57% (2005: 59%). Total headcount rose by 100 to 2,400 (31st December 2005: 2,300). Headcount increased in all regions, across product groups and the support functions, reflecting continued investment to support strategic initiatives. Total assets under management of Â£877bn remained in line with 2005 year-end levels (31st December 2005: Â£881bn). Net new inflows of Â£17bn and positive market move impact of Â£27bn were more than offset by the adverse impact of exchange rate movements of Â£48bn. In US$ terms assets under management increased by US$110bn to US$1,623bn (31st December 2005: US$1,513bn), comprising US$30bn of net new assets, US$43bn of favourable market movements and US$37bn of exchange rate movements. Wealth Management Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 178 169 160 Net fee and commission income 336 306 283 -------- -------- -------- Net trading income - - - Net investment income - - 5 -------- -------- -------- Principal transactions - - 5 Other income (1) - (1) -------- -------- -------- Total income 513 475 447 Impairment charges (1) (1) (1) -------- -------- -------- Net income 512 474 446 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (400) (391) (361) Amortisation of intangible assets (2) (1) (1) -------- -------- -------- Operating expenses (402) (392) (362) -------- -------- -------- Profit before tax 110 82 84 -------- -------- -------- Cost:income ratio 78% 83% 81% Cost:net income ratio 79% 83% 81% Risk Tendency Â£10m Â£5m Â£5m Return on average economic capital 52% 42% 35% Average net income generated per member Â£70 Â£66 Â£62 of staff ('000) Economic profit Â£77m Â£60m Â£49m As at 30.06.06 31.12.05 30.06.05 Loans and advances to customers Â£5.1bn Â£4.7bn Â£4.4bn Customer accounts Â£25.0bn Â£23.1bn Â£22.5bn Total assets Â£6.8bn Â£6.1bn Â£5.8bn Risk weighted assets Â£4.9bn Â£4.1bn Â£4.5bn Key Facts Total client assets Â£84.7bn Â£78.3bn Â£74.2bn Wealth Management profit before tax rose 31% (Â£26m) to Â£110m (2005: Â£84m), driven by broad based income growth and favourable market conditions, partially offset by increased volume related costs and increased investment in people and infrastructure to support future growth. Total income increased 15% (Â£66m) to Â£513m (2005: Â£447m). Net interest income increased 11% (Â£18m) to Â£178m (2005: Â£160m) reflecting growth in both customer deposits and customer lending. Average loans to customers grew 16% to Â£4.9bn, driven mainly by increased lending to offshore and private banking clients. Average customer deposits grew 10% (Â£2.3bn) to Â£24.5bn (2005: Â£22.2bn). Asset margins increased to 1.11% (2005: 0.98%) and the deposit margin was stable at 1.08% (2005: 1.06%). Net fee and commission income increased 19% (Â£53m) to Â£336m (2005: Â£283m). The increase reflected growth in client assets and higher transactional income, including increased sales of investment products to private banking and financial planning clients, and higher stockbroking volumes. Operating expenses increased 11% (Â£40m) to Â£402m (2005: Â£362m) with greater volume related and investment costs. Investment costs include increased hiring and improvements to infrastructure with the upgrade of technology and operations platforms. The cost:net income ratio improved two percentage points to 79% (2005: 81%). Total client assets, comprising customer deposits and client investments, increased to Â£84.7bn (31st December 2005: Â£78.3bn) reflecting good net new asset inflows and favourable market conditions. Wealth Management - closed life assurance activities Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income (4) 2 (16) Net fee and commission income 25 26 18 -------- -------- -------- Net trading income 1 - - Net investment income 24 144 115 -------- -------- -------- Principal transactions 25 144 115 Net premiums from insurance contracts 93 95 100 Other income 6 10 1 -------- -------- -------- Total income 145 277 218 Net claims and benefits on insurance contracts (82) (208) (167) -------- -------- -------- Total income net of insurance claims 63 69 51 Operating expenses (54) (73) (54) -------- -------- -------- Profit/(loss) before tax 9 (4) (3) -------- -------- -------- Cost:income ratio 86% 106% 106% Return on average economic capital 22% 11% (18)% Economic profit/(loss) Â£4m Â£1m Â£(8m) As at 30.06.06 31.12.05 30.06.05 Total assets Â£7.2bn Â£7.3bn Â£6.7bn Wealth Management - closed life assurance activities profit before tax was Â£9m (2005: loss Â£3m) predominantly due to lower funding costs and reduced customer redress costs in 2006. Profit before tax excluding customer redress costs was Â£43m (2005: Â£37m). Total income increased to Â£63m (2005: Â£51m) due to reduced funding costs. Operating expenses remained steady at Â£54m. Costs relating to redress for customers decreased to Â£34m (2005: Â£40m) whilst other operating expenses increased to Â£20m (2005: Â£14m). Head office functions and other operations Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net interest income 8 23 137 Net fee and commission income (183) (228) (170) -------- -------- -------- Net trading income 55 30 55 Net investment income (6) 3 5 -------- -------- -------- Principal transactions 49 33 60 Net premiums from insurance contracts 93 86 60 Other income 10 17 7 -------- -------- -------- Total income (23) (69) 94 Impairment (charges)/releases (24) (3) 2 -------- -------- -------- Net (loss)/income (47) (72) 96 -------- -------- -------- Operating expenses excluding amortisation of intangible assets (106) (208) (135) Amortisation of intangible assets (4) (3) (1) -------- -------- -------- Operating expenses (110) (211) (136) -------- -------- -------- Loss before tax (157) (283) (40) -------- -------- -------- Risk Tendency Â£25m Â£25m Â£35m As at 30.06.06 31.12.05 30.06.05 Total assets Â£9.3bn Â£9.3bn Â£12.4bn Risk weighted assets Â£3.4bn Â£4.0bn Â£5.6bn Head office functions and other operations loss before tax increased Â£117m to Â£157m (2005: loss Â£40m). This reflects the reduced interest income on capital retained within Treasury, following the acquisition of Absa Group Limited, partially offset by lower net impact of asymmetric consolidation adjustments, and lower operating expenses following the head office relocation to Canary Wharf in 2005. Group segmental reporting is performed in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arm's length basis. Consolidation adjustments necessary to eliminate the inter-segment transactions, including adjustments to eliminate the timing differences on the recognition of inter-segment income and expenses, are included in Head Office functions and other operations. The impact of such asymmetric consolidation adjustments reduced by Â£51m to Â£81m (2005: Â£132m). These adjustments related to the timing of the recognition of insurance commissions included in Barclaycard and UK Banking amounting to Â£35m (2005: Â£49m); internal fees for structured capital markets activities of Â£41m (2005: Â£63m); and fees paid to Barclays Capital for capital raising and risk management advice of Â£5m (2005: Â£32m). Net interest income reduced Â£129m to Â£8m (2005: Â£137m) mainly due to a reduction in net interest income retained in Treasury as 2005 included interest earned on excess capital held in anticipation of the acquisition of Absa Group Limited. Treasury's net interest income also included the hedge ineffectiveness for the period, which together with other related Treasury adjustments, amounted to a loss of Â£3m (2005: Â£35m gain) and the cost of hedging the foreign exchange risk on the Group's investment in Absa, which amounted to Â£39m (2005: Â£nil). Net trading income of Â£55m (2005: Â£55m) includes Â£59m (2005: Â£nil) in respect of a hedge of the translation exposure arising from Absa's Rand earnings, of which Â£10m was realised at 30th June 2006. Impairment charges increased Â£26m to Â£24m (2005: recovery Â£2m). The increase was driven by impairment in the transition businesses. Operating expenses decreased Â£26m to Â£110m (2005: Â£136m), primarily due to the elimination in 2006 of expenses incurred in 2005 relating to the head office relocation to Canary Wharf (2005: Â£52m). MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange

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