Final Results - Part 4

Barclays PLC 8 February 2001 PART 4 ADDITIONAL INFORMATION CHANGES IN REPORTING OF GROUP STRUCTURE IN 2000 From 1st January 2000, Barclaycard became a separate business unit. Retail Financial Services now comprises Retail Customers, Wealth Management, and, from the 25th October 2000, The Woolwich. Within Other operations, costs relating to the central administration of certain operational property costs have been combined with Barclays Group Property Services under the heading Property Costs. Comparative figures have been restated for the above changes, where appropriate. ACQUISITIONS AND DISPOSALS The acquisition of The Woolwich was completed on the 25th October 2000. Details of the acquisition are set out on page 13. There have been no other significant acquisitions since 31st December 1999. Details of significant disposals are set out under exceptional items on page 24. ACCOUNTING POLICIES Changes to the Group's accounting policies have occurred following the adoption in 2000 of Financial Reporting Standard 15 'Tangible Fixed Assets' (FRS 15) and Financial Reporting Standard 16 'Current Tax' (FRS 16). The Group has applied the transitional rules available under FRS 15. The revalued book amounts of fixed assets will be retained without subsequent revaluation subject to the requirement to test for impairment. This change has had no impact on reported profit or shareholders' funds. In accordance with FRS 16, incoming dividends, interest and other income now exclude taxes, such as attributable tax credits, not payable wholly on behalf of the Group. This change in policy has resulted in a reduction in profit before tax for 1999 of £5m with a commensurate reduction in the tax charge. Shareholders' funds are unchanged by this change in policy. There have been no other significant changes to the accounting policies as described in the 1999 Annual Report. CHANGES IN ACCOUNTING PRESENTATION The Group's share of the results of Joint Ventures and Associated Undertakings are shown separately below operating profit having previously been included in Other operating income. For the purposes of Business Group analysis the share of the results is still included in Operating profit. There have been no other changes in accounting presentation from that reflected in the 1999 Annual report. GROUP SHARE SCHEMES The trustees of the Group's share schemes may make purchases of Barclays PLC ordinary shares in the market following this announcement of the Group's results for the purposes of those schemes' current and future requirements. The total number of ordinary shares purchased would not be material in relation to the issued share capital of Barclays PLC. RECENT DEVELOPMENTS On 16th of January, 2001 Barclays PLC and Legal & General Group Plc ('Legal & General') announced their intention to form a strategic alliance under which Barclays Bank PLC would, subject to regulatory approval, sell Legal & General branded life, pension (including stakeholder pension) and investment products through its UK distribution network. NOTES 1. Loans and advances to banks 2000 1999 £m £m Banking business: United Kingdom 3,345 6,307 Other European Union 2,042 2,173 United States 2,056 2,118 Rest of the World 2,153 2,497 9,596 13,095 Less - provisions (26) (24) 9,570 13,071 Trading business 26,856 26,555 Total loans and advances to banks 36,426 39,626 Total loans and advances to banks at 31st December 2000 include £ 225m in respect of The Woolwich. Of the total loans and advances to banks, placings with banks were £32.2bn at 31st December 2000 (1999: £36.1bn). Placings with banks include reverse repos of £25.6bn (1999: £29.1bn). The majority of the placings have a residual maturity of less than one year. 2. Loans and advances to customers 2000 1999 £m £m Banking business: United Kingdom 115,314 78,677 Other European Union 10,203 5,976 United States 6,376 4,048 Rest of the World 8,950 8,344 140,843 97,045 Less - provisions (2,327) (1,959) - interest in suspense (93) (80) 138,423 95,006 Trading business 23,687 21,562 Total loans and advances to customers 162,110 116,568 Total loans and advances to customers at 31st December 2000 include £32,812m in respect of The Woolwich. Of the total loans and advances to customers, reverse repos were £ 20.8bn at 31st December 2000 (1999: £16.9bn). 3. Provisions for bad and doubtful debts 2000 1999 Credit risk provisions £m £m Provisions at beginning of year 1,913 1,862 Acquisitions and disposals 119 (9) Exchange and other adjustments 8 (3) Amounts written off United Kingdom (592) (546) Other European Union (45) (44) United States (26) (40) Rest of the World (17) (21) (680) (651) Recoveries (analysed below) 113 93 Sub-total 1,473 1,292 Provisions charged against profit: New and increased specific provisions United Kingdom 843 768 Other European Union 35 27 United States 27 45 Rest of the World 76 47 981 887 Less: Releases of specific provisions United Kingdom (50) (114) Other European Union (17) (21) United States (6) (7) Rest of the World (13) (15) (86) (157) Less: Recoveries United Kingdom (100) (85) Other European Union (6) (4) United States (4) (4) Rest of the World (3) - (113) (93) Net specific provisions charge 782 637 General provision - charge/(release) 40 (16) Net credit risk charge to profit 822 621 Provisions at end of year 2,295 1,913 Country risk provisions Provisions at beginning of year 70 81 Exchange and other adjustments (4) (11) Amounts written off (net of recoveries) (3) - Net specific provision releases (5) (2) General provision charge - 2 Provisions at end of year 58 70 Total provisions at end of year 2,353 1,983 Total provisions charge to profit 817 621 Total provisions for bad and doubtful debts at end of year comprise: 2000 1999 Specific - credit risk £m £m United Kingdom 1,343 1,075 Other European Union 111 126 United States 20 23 Rest of the World 118 74 Specific - credit risk 1,592 1,298 Specific - country risk 1 13 Total specific provisions 1,593 1,311 General provisions - credit risk 703 615 - country risk 57 57 2,353 1,983 The geographic analysis of provisions shown above is based on location of office. 4. Other assets 2000 1999 £m £m Own shares 5 5 Balances arising from off-balance sheet financial instruments 12,100 13,390 Shareholders' interest in long-term assurance fund 820 555 London Metal Exchange warrants and other metals trading positions 1,001 331 Sundry debtors 1,592 1,629 Prepayments and accrued income 2,827 2,203 18,345 18,113 'Own shares' represent Barclays PLC shares held in employee benefit trusts that have not yet vested unconditionally with the eligible employees. 5. Other liabilities 2000 1999 £m £m Obligations under finance leases payable 159 140 Balances arising from off-balance sheet financial instruments 11,971 13,619 Short positions in securities 21,201 16,813 Current tax 642 462 Cash receipts from securitisation 747 1,049 Sundry creditors 3,464 3,036 Accruals and deferred income 4,457 3,290 Provisions for liabilities and charges 1,266 1,247 Dividend 632 484 44,539 40,140 Cash receipts from securitisation are in respect of the securitisation of a portfolio of investment debt securities which did not qualify for linked presentation under Financial Reporting Standard 5. 6. Potential credit risk lendings The following table presents an analysis of potential credit risk lendings in accordance with the US Securities and Exchange Commission guidelines. Additional categories of disclosure are included, however, to record lendings where interest continues to be accrued and where either interest is being suspended or specific provisions have been raised. Normal US banking practice would be to place such lendings on non-accrual status. The amounts, the geographical presentation of which is based on the location of the office recording the transaction, are stated before deduction of the value of security held, specific provisions carried or interest suspended. 6. Potential credit risk lendings (continued) Non-performing lendings 2000 1999 £m £m Non-accrual lendings: United Kingdom 1,223 1,007 Foreign 316 244 Accruing lendings where interest is being suspended: United Kingdom 351 326 Foreign 145 110 Other accruing lendings against which provisions have been made: United Kingdom 873 423 Foreign 149 130 Sub-totals: United Kingdom 2,447 1,756 Foreign 610 484 Accruing lendings 90 days overdue, against which no provisions have been made: United Kingdom 296 343 Foreign 18 18 Reduced rate lendings: United Kingdom 6 6 Foreign - 2 Total non-performing lendings United Kingdom 2,749 2,105 Foreign 628 504 3,377 2,609 The increase in UK non-performing lendings primarily relates to the inclusion of The Woolwich (£592m). The residual increase largely arose in Barclaycard and Barclays Capital. Potential problem lendings: In addition to the above, the following table shows lendings which are current as to payment of principal and interest, but where serious doubt exists as to the ability of the borrower to comply with repayment terms in the near future. 2000 1999 £bn £bn United Kingdom 0.7 0.6 Foreign 0.4 0.1 1.1 0.7 The increase in foreign potential problem lendings reflect exposures held by both Barclays Capital and Corporate Banking. 2000 1999 Credit risk provision coverage of: % % - credit risk non-performing lendings 70.7 76.4 - total potential credit risk lendings 53.3 60.0 The high level of security held against the exposures included following the acquisition of The Woolwich reduces the average level of provisions required and consequently this reduces the Group's coverage ratios. Excluding Woolwich balances and provisions, the coverage would be 81.2% and 58.1% respectively. 2000 1999 Interest forgone on non-performing £m £m Lendings: Interest income that would have been Recognised under original contractual terms 246 165 Interest income included in profit (48) (45) Interest forgone 198 120 7. Exposure to countries subject to International Monetary Fund liquidity support programmes Amounts outstanding, net of provisions, and commitments to counterparties in countries which make significant use of International Monetary Fund liquidity support programmes were as follows: 2000 1999 Asia £bn £bn Indonesia 0.1 0.1 South Korea 0.2 0.4 Thailand 0.1 0.1 0.4 0.6 Latin America Argentina * 0.9 - Brazil ** - 0.8 Mexico ** - 0.9 1.3 2.3 * Not reportable in 1999 ** Not reportable in 2000 The total was broken down, as follows: 2000 1999 £bn £bn Banks 0.8 1.3 Governments and sovereigns 0.1 0.4 Corporates and project financings 0.4 0.6 1.3 2.3 The Group has a 50% shareholding in Banco Barclays e Galicia which in 2000 was equity accounted as an Associate. As at 31st December 2000 this holding was included in the balance sheet at a value of £31m (31st December 1999: £33m). From 1st January 2001, following the completion of management changes, the Group considers itself to exert dominant influence so that it has control over the operations of Banco Barclays e Galicia SA and consequently from that date the entity will be consolidated as a subsidiary in accordance with Financial Reporting Standard 2. During the year the general provision in respect of country transfer risk arising from the Group's business world wide, including exposures in these countries, remained unchanged at £57m as at 31st December 2000. This is in addition to £703m of general provision held against credit risk. 8. European Economic and Monetary Union (EMU) The delivery of changes required to deal with the introduction of euro notes and coins, and the demise of the legacy currencies of the eurozone countries are being planned. No significant incremental costs are expected as a result of these preparations. Barclays incurred minimal expenditure during 2000 with respect to any decision to introduce the euro in the United Kingdom that may be made by the Government in the near future. 9. Legal proceedings Barclays is party to various legal proceedings, the ultimate resolution of which is not expected to have a material adverse effect on the financial position of the Group. 10. Geographical analysis 2000 1999 Profit before tax £m £m United Kingdom 2,767 1,872 Other European Union 395 313 United States 105 131 Rest of the World 229 139 3,496 2,455 2000 1999 Total assets £m £m United Kingdom 234,099 171,772 Other European Union 20,009 17,017 United States 38,662 39,536 Rest of the World 23,420 26,468 316,190 254,793 11. Contingent liabilities and commitments 2000 1999 Contingent liabilities £m £m Acceptances and endorsements 1,170 1,530 Guarantees and assets pledged as collateral security 15,180 12,044 Other contingent liabilities 6,503 5,360 22,853 18,934 Commitments Standby facilities, credit lines and other commitments 87,971 82,479 12. Off-balance sheet financial instruments, including derivatives The tables set out below analyse the contract or underlying principal amounts of derivative financial instruments held for trading purposes and for the purposes of managing the Group's structural exposures. Foreign exchange derivatives 2000 1999 £m £m Contract or underlying principal amount Forward foreign exchange 240,435 225,518 Currency swaps 125,812 88,453 Other exchange rate related contracts 105,603 65,803 471,850 379,774 Interest rate derivatives Contract or underlying principal amount Interest rate swaps 1,247,705 975,720 Forward rate agreements 39,939 49,577 OTC options bought and sold 377,565 266,085 Other interest rate related contracts 535,557 273,222 2,200,766 1,564,604 Equity, stock index and commodity derivatives Contract or underlying principal amount 501,136 152,072 Other exchange rate related contracts are primarily OTC options. Other interest rate related contracts are primarily exchange traded options and futures. Derivatives entered into as trading transactions, together with any associated hedging thereof, are measured at fair value and the resultant profits and losses are included in dealing profits. The tables below summarise the positive and negative fair values of such derivatives, including an adjustment for netting where the Group has the ability to insist on net settlement which is assured beyond doubt, based on a legal right that would survive the insolvency of the counterparty. Positive fair values 2000 1999 £m £m Foreign exchange derivatives 9,511 7,178 Interest rate derivatives 21,967 16,160 Equity, stock index and commodity derivatives 1,817 2,872 Effect of netting (20,748) (12,820) Cash collateral meeting offset criteria (447) - 12,100 13,390 Negative fair values Foreign exchange derivatives 9,685 7,583 Interest rate derivatives 21,229 15,590 Equity, stock index and commodity derivatives 2,588 3,266 Effect of netting (20,748) (12,820) Cash collateral meeting offset criteria (783) - 11,971 13,619 13. Market risk Market risk is the risk of loss arising from adverse movements in the level or volatility of market prices, which can occur in the interest rate, foreign exchange, equity and commodity markets. It is incurred as a result of both trading and asset/liability management activities. The market risk management policies of the Group are determined by the Group Risk Management Committee, which also determines overall market risk appetite. The Group's policy is that exposure to market risk arising from trading activities is concentrated in Barclays Capital. The Group's banking businesses are also subject to market risk, which arises in relation to non-trading positions, such as capital balances, demand deposits and customer originated transactions and flows. The Group uses a daily 'value at risk' measure as the primary mechanism for controlling market risk. Daily Value at Risk (DVAR) is an estimate, with a confidence level of 98%, of the potential loss which might arise if the current positions were to be held unchanged for one business day. Daily losses exceeding the DVAR figure are likely to occur, on average, only twice in every one hundred business days. Actual outcomes are monitored regularly to test the validity of the assumptions made in the calculation of DVAR. Barclays Capital Trading Activities In Barclays Capital, the formal process for the management of risk is through the Barclays Capital Risk Management Committee. Day-to-day responsibility for market risk lies with the Chief Executive of Barclays Capital, supported by a dedicated global market risk management unit that operates independently of the business areas. There has been no significant change in overall market risk exposure in 2000, although average DVAR was slightly higher than in 1999. The daily average, maximum and minimum values of DVAR were estimated as below. Year end DvaR at 31st December 2000 was £19.0m (1999: £20.2m). The daily average, maximum and minimum values of DVAR were estimated as below. Twelve months to Twelve months to 31st December 2000 31st December 1999 Average High* Low* Average High* Low* £m £m £m £m £m £m Interest rate risk 16.2 23.7 10.7 13.7 30.2 6.2 Foreign exchange risk 2.9 4.7 1.8 2.8 11.7 0.8 Equities risk 3.9 7.1 1.4 1.7 3.7 0.6 Commodities risk 1.4 3.5 0.9 1.2 2.2 0.5 Diversification effect (6.9) (3.3) Total DVAR 17.5 27.7 11.5 16.1 32.5 7.7 * The high (and low) DVAR figures reported for each category did not necessarily occur on the same day as the high (and low) DVAR reported as a whole. A corresponding diversification effect cannot be calculated and is therefore omitted from the above table. Barclays Capital uses the historical simulation method for calculating DVAR. At the beginning of 2000, the length of the historical sample was increased from one to two years. This change has not had a material impact on the reported numbers. The figures shown in the above table were calculated using a one year sample for 1999 and a two year sample in 2000. 14. US GAAP There are some significant differences between accounting practices in the United States (US GAAP) and those in the United Kingdom (UK GAAP). Key figures on a UK GAAP basis and as estimated on a US GAAP basis are: 2000 2000 1999 1999 £m £m £m £m UK GAAP US GAAP UK GAAP US GAAP Net income 2,473 2,195 1,759 1,695 Shareholders' funds 13,187 13,029 8,483 8,262 MORE TO FOLLOW

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