Interim Results - Part 2

Barclays PLC 3 August 2000 PART 2 BARCLAYS PLC Earnings per ordinary share Earnings per ordinary share is based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares. Half-year ended 30.6.00 31.12.99 30.6.99 Earnings in period £1,320m £1,063m £696m Earnings in period before restructuring and exceptional £1,215m £1,073m £1,064m items Weighted average of ordinary 1,484m 1,490m 1,505m shares in issue Earnings per ordinary share 88.9p 71.3p 46.2p Earnings per ordinary share before restructuring and 81.9p 72.1p 70.7p exceptional items Diluted earnings per share is not materially different from the basic earnings per share figure reported above in either 2000 or 1999. Dividends on ordinary shares The Board has decided to pay, on 3rd October 2000, an interim dividend for the year ending 31st December 2000 of 20.0p per ordinary share, for shares registered in the books of the Company at the close of business on 18th August 2000. For qualifying US and Canadian resident ADR holders, the interim dividend of 20.0p per ordinary share becomes 80.0p per ADS (representing four shares). The ADR depositary will mail the dividend on 3rd October 2000 to ADR holders on the record on 18th August 2000. For qualifying Japanese shareholders, the interim dividend of 20.0p per ordinary share will be distributed in mid October to shareholders on the record on 18th August 2000. 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 provided that they do not live in or 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, PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH or by phoning 0870 702 0196. The completed form should be returned to the plan administrator on or before 12th September 2000 for it to be in time for the payment of the interim dividend on 3rd October 2000. Shareholders who are already in the plan should take no action unless they wish to change their instructions in which case they should write to the plan administrator. Balance sheet Half-year ended Capital resources 30.6.00 31.12.99 30.6.99 £m £m £m Shareholders' funds 9,237 8,483 8,219 Minority interests 765 352 349 10,002 8,835 8,568 Loan capital 4,748 4,597 4,117 14,750 13,432 12,685 The Group continues to actively manage both its debt and equity capital. Total capital resources increased over the half year by £1,081m before favourable exchange rate translation differences of £237m. Shareholders' funds increased by £727m before favourable exchange rate differences of £27m. Profit retentions of £1,025m were reduced by share buybacks, including costs, of £311m. Loan capital and other subordinated liabilities rose by £151m consisting of exchange movements of £162m offset by repayments of £11m. The increase in minority interests reflects the issue by Barclays Bank PLC of Euro 850m (£510m) Reserve Capital Instruments on 3rd May 2000. 17,920,000 outstanding Series C1 and C2 Non-cumulative Dollar Denominated Preference Shares of $0.01 each were redeemed on 30th June 2000. The aggregate redemption cost was $224m (£149m). Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprise: Half-year ended 30.6.00 31.12.99 30.6.99 Weighted risk assets: £m £m £m Banking book on-balance sheet 89,917 84,535 83,101 off-balance sheet 18,132 15,567 16,172 associated undertakings 929 1,341 1,562 Total banking book 108,978 101,443 100,835 Trading book market risks 5,665 6,015 5,828 counterparty and settlement 8,840 8,420 7,331 risks Total trading book 14,505 14,435 13,159 Total weighted risk assets 123,483 115,878 113,994 Capital resources: tier 1 capital 9,841 8,696 8,398 tier 2 capital 5,070 4,948 4,539 tier 3 capital 343 343 328 Total gross capital resources 15,254 13,987 13,265 Less: supervisory deductions (1,004) (853) (892) Total net capital resources 14,250 13,134 12,373 % % % Tier 1 ratio 8.0 7.5 7.4 Risk asset ratio 11.5 11.3 10.9 Total Assets The Group's balance sheet grew by £32 billion, or 12%, in the first half of 2000 compared to 10% growth in the same period of 1999, and 6% growth in the second half of 1999. Weighted risk assets increased by 7% in the first half of 2000. Barclays Capital assets increased by 18%, or £26bn, to £171bn in the first half of 2000. There was a £10bn increase in the level of reverse repos, mainly in the collateralised equity financing business which continues to build customer inventory financing positions. The other increases were in debt securities, equity securities and settlement balances. The weakening of sterling, primarily against the US dollar, contributed £3bn of the increase. Total risk weighted assets increased by only 4% reflecting the low weightings attached to the reverse repos. Within Corporate Banking, assets grew by 8% to £51bn in the first half of 2000. Weighted risk assets increased by 9% during the same period. UK middle market lending grew strongly reflecting a concentration of lending growth towards larger and higher quality customers. Lending volumes in the international business continued to grow strongly in Europe and the Middle East whilst volumes in Latin America reduced. Retail Financial Services assets grew 3% in the first half of 2000, compared with 2% growth in the same period last year (adjusted for the impact of the sale of Merck Finck). Weighted risk assets were 5% higher at £27.5bn. Consumer lending balances in the United Kingdom increased by 4% to £6.5bn during the first half of 2000 and mortgage outstandings grew by 2% to £17.1bn. Wealth Management assets have grown steadily across all business units, with particularly high growth in the Caribbean and UK Premier Banking. Barclaycard assets grew by £353m, or 5%, to £7.7bn in the first half of 2000 compared with 3% growth in the first half of 1999. Weighted risk assets increased by 7%. The reduction in retail life-fund assets is as a result of adverse stock market movements in the first half of the year. Repo transactions Under a repo (sale and repurchase agreement), an asset is sold to a counterparty with a commitment to repurchase it at a future date at an agreed price. The Group engages in repos and also in reverse repos, which are the same transaction from the opposite viewpoint, the Group buying an asset with a fixed commitment to resell. The Group aims to earn spread and trading income from these activities as well as funding its own holdings of securities. The following amounts are included in the balance sheet for repos and reverse repos: Half-year ended 30.6.00 31.12.99 30.6.99 Reverse repos (assets) £m £m £m Loans and advances to banks 27,774 26,040 18,778 Loans and advances to customers 28,192 19,910 14,744 55,966 45,950 33,522 Repos (liabilities) Deposits by banks 18,378 16,631 12,713 Customer accounts 21,894 17,422 14,071 40,272 34,053 26,784 Analysis of operating profit by business Retail Financial Services Retail Financial Services provides a broad range of financial services to its customers worldwide. Its purpose is to serve customers by understanding their needs as individuals and by offering services and products that anticipate and satisfy their requirements. Retail Financial Services is organised into two major business groupings: Retail Customers and Wealth Management. 30.6.00 31.12.99 30.6.99 £m £m £m Net interest income 1,306 1,249 1,222 Net fees and commissions 694 660 640 Income from long-term assurance 79 26 18 business* Other operating income 79 79 64 Total income * 2,158 2,014 1,944 Total costs (1,135) (1,161) (1,165) Provisions for bad and doubtful (201) (162) (158) debts Operating profit* 822 691 621 * Half year ended 30th June 1999 includes a £40m provision (half year ended 31st December 1999: £35m) for possible redress for personal pension customers. Retail Financial Services achieved a strong performance with a 32%, or £201m, increase in operating profit to £822m. Total income increased by 11% to £2,158m. Adjusted for the impact of the personal pension redress provision of £40m during the half year ended 30th June 1999, operating profit and total income rose by 24% and 9%, respectively. Net interest income increased by 7%, to £1,306m (1999: £1,222m), primarily as a result of growth in average UK consumer lending, average mortgage lending (particularly in UK Premier Banking) and an increase in average UK savings balances. UK lending and deposit margins fell slightly. The UK lending margin reduced primarily as a result of pricing decisions in respect of consumer lending products. The deposit margin fell primarily as a result of a change in mix. Net fees and commissions grew by 8%, or £54m, to £694m. This increase was primarily within the Retail Customers business, which improved 9% to £391m. Increased activity on current accounts and a significant increase in the number of Additions accounts more than offset the absence of £11m of ATM commissions received in the first half of 1999. This followed the abolition in the final quarter of last year of charges for customers use of non- affiliated ATM machines. In Wealth Management, there were good increases in the contributions from Stockbrokers, Private Banking and Offshore Services. Total customer funds, which include assets under management and on-balance sheet deposits, grew by 3% to £122bn (31st December 1999: £118bn). Assets under management increased by 2% to £56bn (31st December 1999: £55bn) primarily attributable to net new business. Loans to customers rose by 6% to £35bn (31st December 1999: £33bn). Total costs fell by 3% to £1,135m (1999: £1,165m), despite increases in strategic investment expenditure of £14m and higher revenue related costs. Total staff costs, excluding restructuring costs, were down 6% compared with the first half of 1999. Provisions rose by 27% to £201m (1999: £158m). Adjusted for a one-off £11m release of general provision, the underlying increase in provisions was 19% which was mainly attributable to the volume growth in UK consumer lending. Retail Customers This business provides a wide range of services and products to personal and small business customers throughout the United Kingdom and to personal and corporate customers in parts of Africa. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Net interest income 1,003 971 945 Net fees and commissions 391 377 358 Income from long-term assurance 75 21 11 business * Other operating income 67 66 48 Total income * 1,536 1,435 1,362 Total costs (782) (794) (794) Provisions for bad and doubtful (198) (157) (168) debts Operating profit * 556 484 400 * Half year ended 30th June 1999 includes a £40m provision (half year ended 31st December 1999: £35m provision) for possible redress for personal pension customers. Operating profit in Retail Customers increased by 39%, or £156m, to £556m. Adjusted for the impact of the provision for the personal pension redress of £40m during the half year ended 30th June 1999, operating profit increased by 26%. Total income rose by 13% to £1,536m compared with the same period in 1999. Costs fell by 2% to £782m (1999: £794m), largely as a result of centralisation of processing activity. This was achieved despite the additional costs associated with increased investment in on-line banking. Provisions for bad and doubtful debts increased by 18% to £198m (1999: £168m), mainly as a result of volume growth in UK consumer lending. Total customer funds, which include assets under management and on-balance sheet deposits, increased to £49bn (31st December 1999: £48bn). Loans to customers grew slightly to £24bn (31st December 1999: £23bn). UK Personal Customers Average consumer lending balances grew by 8% to £6.4bn (1999: 13% to £5.9bn). The reduced growth rate compared with 1999 is a result of a tightening in the risk assessment criteria reflecting the steady increase in borrowing as a percentage of household income. Average UK mortgage lending outstandings increased by 8% to £17.0bn (1999: £15.7bn). Gross new lending was £2.2bn (1999: £2.1bn) and market share was broadly maintained at 3.7% (1999: 3.8%). Margins in the first half of the year remained stable. Average UK savings balances grew by 6% to £20.5bn (1999: £19.4bn), in line with market growth. Margins reduced slightly as a result of continued competition and changes in portfolio mix. Fees and commissions increased by 11% mainly due to additional current account and overdraft lending activity and as a result of higher fee income from the Additions accounts. The number of Additions account holders increased by 10% to 958,000 (31st December 1999: 871,000). Income from payment protection underwriting benefited in line with improved volumes of consumer lending, overdraft, mortgages and credit card lending. Progress continued in long term savings and investment activities with annual premium income arising on sales of unit trusts, managed portfolios and pension products remaining strong at £97m (1999: £91m). Demand for on-line banking continued to grow rapidly with the number of registered personal and small business internet banking users now 1,110,000 (31st December 1999: 500,000). Around 1 in 8 personal current account customers are now registered for on-line banking. The number of customers registered for telephone banking continued to grow, increasing by 11% to 1,109,000 (31st December 1999: 1,000,000). UK Small Business Total income grew 11% during the first half of 2000 as a result of 12% growth in average deposits, and growth in average lending balances of 18%. Fees and commissions remained at similar levels despite increased activity, reflecting continued pressure on money transmission tariffs. Total costs fell by 1% compared with the first half of 1999, primarily as a result of efficiency benefits from the continued centralisation of activities. Internet initiatives within Small Business included the launch of a joint e- commerce development with Freeserve to provide a small business portal in the UK for services, information and advice needed to start up and run a successful small business. The number of Small Business customers registered for on-line banking continued to grow, up 73% to 116,000 (31st December 1999: 67,000). Africa Operating profit rose by 41%, or £17m, to £58m reflecting strong performances in Ghana and Mauritius and despite difficult economic conditions in Zimbabwe and Kenya. Income across Africa rose by 28% to £142m. Overall costs increased £6m to £73m. Wealth Management Wealth Management serves affluent and high net worth clients globally with relationship based services and bespoke products, particularly in the areas of banking, asset management and long-term financial planning. Wealth Management includes Private Banking, Offshore Services, UK Premier Banking, Stockbrokers, continental European retail businesses and the Caribbean. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Net interest income 303 278 277 Net fees and commissions 303 283 282 Income from long-term assurance 4 5 7 business Other operating income 12 13 16 Total income 622 579 582 Total costs (353) (367) (371) Provisions for bad and doubtful (3) (5) 10 debts Operating profit 266 207 221 Operating profit in Wealth Management rose by 20%, or £45m, (27% adjusting for the sale of Merck Finck in the first half of 1999) to £266m driven by strong growth across the businesses. Total income grew by 7%, or £40m, to £622m (10% adjusting for the sale of Merck Finck) reflecting particularly good income growth in Stockbrokers, up 15% to £76m, Private Banking by 9% to £83m and Offshore Services up 13% to £127m. Total costs fell by 5% (2% adjusting for the sale of Merck Finck) to £353m. Total customer funds, which include assets under management and on balance sheet deposits, grew by 4% to £73bn (31st December 1999: £70bn). Loans to customers grew by 10% to £11bn (31st December 1999: £10bn). UK Premier Banking operating profit grew by 20% to £42m benefiting from increased customer volumes, with customer loans and mortgages increasing 60% and 43% respectively, compared with the first half of 1999. Offshore Services operating profit rose 14% to £84m, with overall average funds under management growing by 3% to £13bn (31st December 1999: £12.6bn). Asset and liability margins were maintained. Operating profit in the continental European retail businesses benefited from the continued application of sophisticated customer knowledge and behaviour tools. Operating profit, excluding the contribution from Merck Finck, was up 38% to £44m (1999: £32m). Fees and commissions also grew as a result of a good performance in French mutual fund and unit linked insurance sales, together with higher stock exchange commissions and increased growth in mortgage products. On-line banking facilities are also available to European customers, with over 17,000 customers in France, Spain and Portugal now registered to bank on-line. On-line share dealing facilities are available to customers in France and Spain. On-line banking in Offshore Services (with full multi- currency functionality) was launched in June. Operating profit for the Caribbean business increased by 50% to £36m, aided by the strong offshore market and increased lending volumes in the domestic business, up 24% compared with the first half of 1999. Private Banking operating profit rose 38% to £29m, reflecting increased clients' funds which rose 4% to £25.6bn (31st December 1999: £24.7bn). Stockbrokers' operating profit grew by 52% to £32m as a result of good growth in investment management income and increased dealing activity. Average daily deal volumes increased to 8,900 in the first half of this year (1999: 6,400). Around 30% of retail private customer deals are now executed across the internet. Barclaycard Barclaycard is the largest credit card business in Europe with a presence in the United Kingdom, Germany, France and Spain. It offers a full range of credit card services to individual customers, together with card payment facilities to retailers and other businesses. Barclaycard was the first UK credit card to offer internet account services and continues to expand its e- commerce operations. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Net interest income 269 247 241 Net fees and commissions 254 249 231 Total income 523 496 472 Total costs (218) (202) (195) Provisions for bad and doubtful (110) (88) (82) debts Operating profit 195 206 195 Operating profit at £195m was at the same level as the first half of 1999. Net interest income rose 12% to £269m benefiting from a 17% increase in average UK extended credit balances to £5.2bn, with Barclaycard's share of the UK credit card market being maintained. The proportion of interest earning balances to non-interest earning balances was maintained at more than 70%. The interest margin has reduced slightly as a result of a rise in funding costs and the introduction of a competitive range of customer rates. During the first half of this year customer recruitment rose 39% to 388,000 (1999: 280,000) and self closure attrition rates reduced by 17%. Fees and commissions increased 10% to £254m (1999: £231m) as a result of a 12% growth in transaction volumes compared to the first half of 1999. This was slightly offset by continued pressure on merchant acquisition fees. Barclaycard's international business in Germany, France and Spain continued to grow with average outstanding balances increasing by 59% over the first half of last year. The number of cards in issue overseas increased 10% to 1.1 million (31st December 1999: 1.0 million). Total costs in Barclaycard increased by 12%, or £23m, to £218m mainly as a result of increased strategic investment costs of £33m (1999: £16m) including the development of information management capabilities, international expansion and e-commerce businesses. Staff costs in the UK were held at the same level as last year. Barclaycard continues to build its technology capability. It was the first UK credit card company to post products on the web. Over 235,000 customers are registered to use the Barclaycard website for on-line account servicing, growing at a rate of 5,000 per week. It also has 80,000 active retailers, with 4,000 already providing shopping facilities on-line. Provisions for bad and doubtful debts increased by 34%, to £110m (1999: £82m). This was primarily attributable to the increased volumes of new business within UK extended credit balances and relatively stronger growth in international interest earning balances. Corporate Banking Corporate Banking provides relationship banking to the Group's middle market, large corporate and institutional customers. Customers are served by a network of 1,200 specialist relationship managers across the United Kingdom who provide access to an extensive range of products. Corporate Banking also offers its customers access to business centres in the rest of Europe, the United States and the Middle East. In addition, an office in Miami provides finance and correspondent banking services to the Group's customers in Latin America. Corporate Banking's close working relationships with Barclays Capital ensures that large corporate and institutional customers have access to the capital markets and to specialist investment banking products which complement Corporate Banking's product and service range. Corporate Banking has a strong competitive position in the United Kingdom, where around a quarter of middle market companies bank with Barclays. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Net interest income 658 642 610 Net fees and commissions 366 362 328 Other operating income (5) (17) 5 Total income 1,019 987 943 Total costs (434) (443) (420) Provisions for bad and doubtful (44) (55) (65) debts Operating profit 541 489 458 Corporate Banking operating profit increased by 18%, or £83m, to £541m. Net interest income rose by 8% to £658m. Average customer lending balances increased by 11% to £46bn. This reflected strong growth in average UK lending and continued growth in average international business volumes which increased by 17% to £8bn. High levels of origination have continued within large corporate banking in the United Kingdom largely as a result of acquisition linked activity. UK middle market lending volumes grew strongly, resulting from the implementation of the new sales strategy, providing relationship managers with a more focused sales management approach, together with mobile working technology. Lending growth has been concentrated towards larger and higher quality customers and as a result the overall quality of the portfolio has improved. The Sales Financing product range, which includes factoring and confidential invoice discounting, has seen particularly rapid growth in total volumes, up 63% to £3.1bn, as a result of an ongoing investment programme to develop this business. Growth in customer lending within the rest of Europe has been predominantly in the established operations in Germany and France, although the new representative office in the Netherlands has also made encouraging progress. The Middle East also saw a good flow of new business. Exposure to Latin America remains carefully managed and fell 16% compared with the average for the first half of 1999. Overall lending margins have eased slightly. UK lending margins continued to narrow, reflecting the concentration of growth in the larger and higher quality customer segment. Overseas margins fell as stability returned to Latin American markets. Average deposit volumes increased by 5% to £36bn albeit at a slower rate than 1999, reflecting a contraction in corporate liquidity. Growth has been stronger in higher margin branch based deposits compared to lower margin Treasury deposits. As a result the overall deposit margin has been maintained, despite competitive pressure in some products and lower margins on non-interest bearing current accounts. Net fees and commissions increased by 12% to £366m (1999: £328m). Lending related fees rose strongly reflecting a higher volume of arrangement fees in respect of on and off-balance sheet financing products. Money transmission income remained at a similar level as a result of continued pricing pressure. Strong growth in electronic products has resulted in over 30% of UK corporate customers being registered for these services. Foreign exchange related income increased as a result of volume growth. Other operating income fell as a result of increased credit provisions in the Group's Brazilian associate, Banco Barclays e Galicia SA. There was no contribution in the first half of 2000 (1999: £3m) from Cairo Barclays SAE, which became a subsidiary from June 1999. Costs increased by £14m, or 3%, to £434m as a result of higher investment in the business and the impact of the consolidation of Cairo Barclays, which added £5m to costs in the first half of 2000. Strategic investment costs increased to £41m (1999: £16m). This increase was in respect of the new business to business e-commerce initiative Barclays B2B.com, the UK's first secure 'purchase-to-payment' e-procurement system and continued investment to enhance Corporate Banking's middle market franchise. Costs (excluding strategic investment costs and the impact of the consolidation of Cairo Barclays) fell by 4% with staff costs down compared to the first half of 1999 reflecting continuing efficiency programmes. The net provisions charge remained at a relatively low level of £44m (1999: £65m). Releases and recoveries were £37m (1999: £39m). Barclays Capital Barclays Capital conducts the Group's international investment banking business. The business focuses on areas where it has a competitive advantage and which are integral to the Group. It serves as the Group's principal point of access to the wholesale markets and also deals in these markets with governments, supranational organisations, corporates, banks, insurance companies and other institutional investors. The activities of Barclays Capital are grouped into two principal areas: Rates which includes sales, trading and research relating to government bonds, money markets, foreign exchange, commodities, and their related derivative instruments and Credit which includes origination, sales, trading and research relating to loans, securitised assets, corporate bonds and their related derivative instruments and private equity investment and equity derivatives. Barclays Capital is an important component of the overall Group, providing a variety of complementary services and products to all of the Group's businesses and customers. It also provides a counterbalance to disintermediation of the traditional corporate lending businesses. Barclays Capital, with its leading European loan business and strong client franchise, is well positioned to benefit from the continued strong growth in the European capital markets. In addition, the globalisation of investment flows creates significant opportunities for investment banks like Barclays Capital which have global capability for providing financing solutions to companies. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Net interest income 222 199 201 Dealing profits 415 233 316 Net fees and commissions 105 80 83 Other operating income 23 19 21 Total income 765 531 621 Total costs (509) (382) (423) Provisions for bad and doubtful (38) (13) (23) debts Operating profit 218 136 175 Operating profit increased by 25% to £218m (1999: £175m) reflecting strong performances in both the Rates businesses and the Credit businesses despite a continued challenging trading environment. Dealing profits rose by 31% to £415m (1999: £316m). The Rates businesses continued to perform strongly with good contributions from interest rate derivatives and government bonds. In the Credit businesses, there was strong growth in equity derivatives from increased customer related activities. Dealing profits in the second half of 1999 were adversely affected by widening credit spreads which continued to affect secondary corporate bonds in the first half of 2000. The average daily value at risk level during the period was £17.9m (1999: £13.0m). Net interest income increased 10% to £222m (1999: £201m) as a result of good performances from structured capital markets and the money markets business. Net fees and commissions rose by £22m to £105m (1999: £83m) reflecting the increased number and size of transactions in the Credit businesses, in particular from large acquisition related loans. These included high profile transactions such as Vodafone AirTouch PLC's purchase of Mannesmann AG, France Telecom's purchase of Orange PLC, Pacific Century CyberWork Limited's bid for Cable and Wireless HKT in Asia and Nisource Inc's acquisition of Columbia Energy Group in the United States. Other operating income increased by £2m to £23m and includes a profit arising from further distributions from Long Term Capital Portfolio, which have now resulted in the full repayment of the original amount invested. Realisations in the Private Equity business continued to make a good contribution. Provisions for bad and doubtful debts increased to £38m and were mainly in respect of overseas exposures. Costs rose by 20% to £509m (1999: £423m), reflecting a higher level of performance-related pay in line with improved profitability. Other costs remained at a similar level to the first half of 1999. This was achieved while continuing to hire a broad range of staff as part of the strategic expansion of Barclays Capital's European franchise and despite increased investment in e-commerce. Through e-commerce, Barclays Capital supplies electronic research, analytical, trading and reporting systems to clients in a range of products including exchange traded futures, commercial paper and foreign exchange. This e-enablement capability has made a range of initiatives possible, such as working with the Charles Schwab Corporation to develop automated foreign exchange facilities which would enable retail investors to buy and sell multi-currency securities, lead managing the first e-bond issue for the European Investment Bank and being a founding provider of fixed income credit products through SWX, an electronic exchange for Swiss retail clients. Barclays Global Investors Barclays Global Investors (BGI) is the largest institutional asset manager in the world counting some of the world's most sophisticated investing institutions amongst its 1,600 clients. BGI offers quantitative active and indexed asset management services for clients in thirty four countries from offices located in seven countries around the world. BGI is also a leading global lender of securities to qualified financial institutions who borrow securities on a fully collateralised basis as a financing tool and to support customer activities. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Net fees and commissions 196 166 152 Net interest income 4 3 3 Total income 200 169 155 Total costs (167) (154) (127) Operating profit 33 15 28 Operating profit has increased by 18% to £33m (1999: £28m). Fees and commissions increased 29% to £196m (1999: £152m) as a result of management fees from new business growth in assets under management and increased sales of higher margin products in advanced active and exchange traded funds. New business volumes were particularly strong in the United States, United Kingdom and Japan, with good growth in Canada and Australia. Over a third of assets under management are now sourced outside the US. The introduction of securities lending in Japan last year and the volume growth in the US also contributed to the revenue improvements. Total assets under management grew to £529bn from £486bn at 31st December 1999; £23bn of the increase is attributable to net new business and £20bn is attributable to market and exchange rate translation movements. Assets under management consist of £418bn of indexed funds and £111bn under quantitative active management. Costs rose by £40m to £167m partly reflecting continued investment in the development of the business and increased staff costs. Staff costs increased by 28% mainly as a result of an increase in staff by 200 to 1,900 during the first half of 2000 to support the growth in the business and also increased performance related payments. In the first half of 2000, BGI launched 28 new ishares (exchange traded funds) in the US, bringing the total number now listed to 45 and over £5bn of funds under management globally. The iFTSE 100, the UK's first exchange traded fund was launched in April. BGI's UK Defined Contribution business grew rapidly, experiencing a 36% and 39% increase in client numbers and assets under management to 137 and £1.3bn respectively, at 30th June 2000. Other operations Property costs include Barclays Group Property Services which is responsible for the management of the Group's operational premises and property related services. Property costs also include the central administration of certain operational property costs. Central services includes a variety of activities which support the operating businesses and Service Provision which provides central information technology services and recovers the full cost of these by way of charges to the businesses receiving the service. Management of Group capital is the balance of earnings on the Group's capital remaining after allocations to business groups, based generally on weighted risk assets. The Group maintains hedges with respect to its capital and its current account balances, which are designed both to reduce the impact of short-term interest rate fluctuations on profits and to increase profitability over the interest rate cycle. The hedges increase profitability when average short-term interest rates are lower than average medium-term interest rates and depress profitability when average short-term interest rates are higher than average medium-term interest rates. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Property costs 9 11 10 Central services (28) (23) (29) Management of Group capital 25 35 9 Operating profit 6 23 (10) The surplus reported in Management of Group Capital is attributable to credits arising in transition businesses that are managed centrally. This has been partly offset by a deficit from the central management of Group capital, compared with a surplus in 1999. The deficit is mainly attributable to allocations to business groups, reflecting higher short-term interest rates. The basis of allocation to the businesses remains in line with previous years. Lower average medium-term rates have had an adverse effect on the earnings from capital balances as have the costs of share buy backs. Head office functions Head office functions comprise the Group's central executive, Group finance, corporate communications, human resources and Group risk. Group finance includes Group general counsel's office, the Group corporate secretariat and the treasury, financial control, investor relations, economics and taxation functions. Group risk includes risk management, Group Credit Policy Unit and internal audit operations. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Operating cost (39) (47) (30) Restructuring charge Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Staff costs 92 (55) 247 Administrative expenses - other 14 54 98 106 (1) 345 A significant element of the restructuring charge of £106m relates to Retail Financial Services with the remainder arising primarily in Corporate Banking and Central services. The staff costs charge of £92m includes some 1,000 staff reductions in the first half of 2000. The charge also includes costs associated with some 3,200 further affected staff. In the first half of 2000 expenditure of £119m was incurred in respect of the 1999 provision. The majority of the remaining element of £71m relates to property costs. Expenditure of £33m has been incurred in respect of the restructuring charge for 2000. Value Based Management Barclays is introducing Value Based Management (VBM), the principles of which are designed to align management decision taking at all levels of the Group with the interests of its shareholders. The VBM framework is designed to identify and reward performance that maximises shareholder return. The basic principle is to establish a robust financial framework that provides a consistent evaluation of the risk and return characteristics that can be applied to all business activities. VBM will also have a significant impact on key processes such as strategy development, management decision taking and performance-linked incentivisation. Economic profit VBM is based on the concept of economic profit - the post-tax attributable profit generated by a business over and above the cost of capital. A business or activity that generates a positive economic profit creates value for our shareholders, whereas a business that generates a negative economic profit destroys value. To avoid the problems of short-term optimisation of business performance that have sometimes been associated with VBM frameworks, the strategy and performance of business will be assessed on a multi-year basis by discounting future projected economic profits. Economic profit is defined as profit after tax and minority interests less a charge for the cost of average shareholders' funds. This is calculated using a capital asset pricing model. The assumptions made include estimates of the future equity market risk premium of 4.5% and the relative risk of Barclays shares compared to the FTSE, measured by beta. A forward looking beta of 1.2 has been used. The Group's target is to double economic profit every four years. Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Profit after tax and minority 1,320 1,063 834 interests Average shareholders' funds 8,924 8,307 8,265 Post tax cost of equity 11% 11% 11% Cost of average shareholders' (491) (456) (455) funds Economic profit 829 607 379 Profit after tax and minority interests excludes the charge for the write- back of goodwill on disposals of £138m in the first half of 1999. Economic profit as defined above but risk adjusted (replacing credit risk provisions with risk tendency (see page 37) was £802m (half year to 31st December 1999: £556m, half year to 30th June 1999: £355m). Economic capital Economic capital, which is distinct from regulatory capital, is a management tool that estimates risk on the basis of the volatility of earnings around their predicted level and therefore their contribution to overall Group risk. The higher the volatility, and hence risk, the more capital is required. Capital is calculated for each business based on its contribution to the overall risk of the Group. The major factor affecting profit volatility is credit risk. The calculation also reflects market risk and business and operational risk. The calculation of economic capital is an integral part of the work to introduce the VBM principles and is being further developed as part of that process. Risk tendency The Group uses a corporate grading structure which shows the probability of future default by the borrower. This, together with similar risk calibration of categories of personal sector lendings, is used to estimate levels of annualised future credit losses from the overall lending portfolio averaged across the economic cycle (termed risk tendency). Risk tendency estimates assist in portfolio management decisions, such as exposure limits to any single counterparty or borrower, the desired aggregate exposure levels to individual sectors and pricing policy and also provide a guide to changes in the underlying credit quality of the lending portfolio over time. Based upon the composition of the lending portfolio as at 30th June 2000, the underlying level of risk tendency, averaged across the economic cycle, is estimated at around £830m (31st December 1999: £750m). Risk tendency rose by £80m during the first half of the year primarily as a result of growth in Barclaycard and the consumer loan portfolio within Retail Financial Services. There has also been an increase at Barclays Capital reflecting methodology enhancements and some asset growth. The growth in UK corporate lending has been concentrated towards large and high quality customers and this has resulted in Corporate Banking's risk tendency being maintained at last year's level. Risk Tendency 30.6.00 31.12.99 30.6.99 £m £m £m Retail Financial Services 360 325 305 Barclaycard 200 170 165 Corporate Banking 210 210 210 Barclays Capital 60 45 45 830 750 725 BARCLAYS PLC ADDITIONAL INFORMATION (UNAUDITED) KEY FACTS Half-year ended 30.6.00 31.12.99 30.6.99 RETAIL FINANCIAL SERVICES Number of UK branches 1,728 1,899 1,945 Retail Customers UK current account customers 8.1m 8.1m 8.0m UK savings account customers 4.0m 3.8m 3.7m UK Small Business customers 442,000 440,000 440,000 UK customers registered for 1,109,000 1,000,000 943,000 Barclaycall UK customers registered for 1,110,000 500,000 342,000 on-line banking Africa - number of countries 10 9 10 represented Africa - customer deposits £1.7bn £1.6bn £1.5bn Wealth Management Customers in continental Europe 311,000 307,000 304,000 Total customer funds £69.3bn £66.0bn £61.2bn Stockbrokers - deal volumes per 8,900 6,600 6,400 day Caribbean - number of countries 14 14 14 represented Caribbean - customer deposits £3.4bn £3.1bn £3.0bn BARCLAYCARD UK Barclaycards in issue 10.1m 9.7m 9.5m International cards in issue 1.1m 1.0m 0.8m Number of merchant transactions 560m 600m 500m processed Customers registered for internet 235,000 111,000 52,000 account services CORPORATE BANKING Number of UK Corporate Banking 112,000 112,000 112,000 connections - Mid corporate connections 96,000 96,000 96,000 - Larger business connections 14,000 14,000 14,000 - Large corporate connections 2,400 2,200 2,100 Customers registered for 36,000 29,000 25,000 electronic banking Number of current accounts 234,000 231,000 226,000 Number of deposit accounts 101,000 102,000 100,000 MORE TO FOLLOW

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Barclays (BARC)
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