Final Results - Part 2

19th Feb 2008 07:01

Barclays PLC19 February 2008 PART TWO 14. Dividends on ordinary shares The Board has decided to pay, on 25th April 2008, a final dividend for the yearended 31st December 2007 of 22.5p per ordinary share for shares registered inthe books of the Company at the close of business on 7th March 2008.Shareholders who have their dividends paid direct to their bank or buildingsociety account will receive a consolidated tax voucher detailing the dividendspaid in the 2008-2009 UK tax year in mid-October 2008. The amount payable for the 2007 final dividend based on the number of sharesoutstanding at 31st December 2007 would be £1,485m (2006: £1,307m). This amountexcludes £45m payable on own shares held by employee benefit trusts (2006:£33m). For qualifying US and Canadian resident ADR holders, the final dividend of 22.5pper ordinary share becomes 90p per ADS (representing four shares). The ADRdepositary will mail the dividend on 25th April 2008 to ADR holders on therecord on 7th March 2008. For qualifying Japanese shareholders, the final dividend of 22.5p per ordinaryshare will be distributed in mid-May to shareholders on the record on 7th March2008. Shareholders may have their dividends reinvested in Barclays PLC shares byparticipating in the Barclays Dividend Reinvestment Plan. The plan is availableto all shareholders, including members of Barclays Sharestore, provided thatthey neither live in nor are subject to the jurisdiction of any country wheretheir participation in the plan would require Barclays or The Plan Administratorto take action to comply with local government or regulatory procedures or anysimilar formalities. Any shareholder wishing to obtain details and a form tojoin the plan should contact The Plan Administrator by writing to: The PlanAdministrator to Barclays, Aspect House, Spencer Road, Lancing, West Sussex,BN99 6DA; or, by telephoning 0871 384 2055 (calls to this number are charged at8p per minute if using a BT landline. Other telephony provider costs may vary).The completed form should be returned to The Plan Administrator on or before 4thApril 2008 for it to be effective in time for the payment of the dividend on25th April 2008. Shareholders who are already in the plan need take no actionunless they wish to change their instructions in which case they should write toThe Plan Administrator. 15. Assets held in respect of linked liabilities to customers under investment contracts/liabilities to customers under investment contracts 2007 2006 £m £mNon-trading financial instruments fair valuedthrough profit and loss held in respect of linked liabilities 90,851 82,798Cash and bank balances within the funds 1,788 1,839 -------- --------Assets held in respect of linked liabilities to customers under investment contracts 92,639 84,637 -------- --------Liabilities arising from investment contracts (92,639) (84,637) -------- -------- 16. Derivative financial instruments The tables below analyse the contract or underlying principal and the fair valueof derivative financial instruments held for trading and hedging purposes.Derivatives are measured at fair value and the resultant profits and losses fromderivatives held for trading purposes are included in net trading income. Wherederivatives are held for hedging purposes and meet the criteria specified in IAS39, the Group applies hedge accounting as appropriate to the risks being hedged. Contract 2007 notional Fair value amount Assets LiabilitiesDerivatives designated as held for £m £m £mtradingForeign exchange derivatives 2,208,369 30,348 (30,300)Interest rate derivatives 23,608,949 139,940 (138,426)Credit derivatives 2,472,249 38,696 (35,814)Equity and stock index and commodity derivatives 910,328 37,966 (42,838) ------------ ----------- ------------Total derivative assets/(liabilities) held for trading 29,199,895 246,950 (247,378) ------------ ----------- ------------ Derivatives designated in hedgeaccounting relationshipsDerivatives designated as cash flow hedges 55,292 458 (437)Derivatives designated as fair value hedges 23,952 462 (328)Derivatives designated as hedges of net investments 12,620 218 (145) ------------ ----------- ------------Total derivative assets/(liabilities)designated in hedge accounting relationships 91,864 1,138 (910) ------------ ----------- ------------Total recognised derivative assets/ (liabilities) 29,291,759 248,088 (248,288) ------------ ----------- ------------ Contract 2006 notional Fairvalue amount Assets LiabilitiesDerivatives designated as held for £m £m £mtradingForeign exchange derivatives 1,500,774 22,026 (21,745)Interest rate derivatives 17,666,353 76,010 (75,854)Credit derivatives 1,224,548 9,275 (8,894)Equity and stock index and commodity derivatives 495,080 29,962 (33,253) ------------ ----------- ------------Total derivative assets/(liabilities) held for trading 20,886,755 137,273 (139,746) ------------ ----------- ------------ Derivatives designated in hedgeaccounting relationshipsDerivatives designated as cash flow hedges 63,895 132 (401)Derivatives designated as fair value hedges 19,489 298 (441)Derivatives designated as hedges of net investments 12,050 650 (109) ------------ ----------- ------------Total derivative assets/(liabilities)designated in hedge accounting relationships 95,434 1,080 (951) ------------ ----------- ------------Total recognised derivative assets/ (liabilities) 20,982,189 138,353 (140,697) ------------ ----------- ------------ Total derivative notionals have grown over the period primarily due to increasesin the volume of fixed income derivatives, reflecting the continued growth inclient based activity and increased use of electronic trading platforms inEurope and the US. Interest rate and credit derivative values have alsoincreased significantly, largely due to growth in the market for these products. Derivative assets and liabilities subject to counterparty netting agreementsamounted to £199bn (31st December 2006: £102bn). Additionally, we held £17bn(31st December 2006: £8bn) of collateral against the net derivative assetsexposure. 17. Fair value measurement of financial instruments Where a financial instrument is stated at fair value, this is determined byreference to the quoted price in an active market wherever possible. Where nosuch active market exists for the particular asset or liability, the Group usesan appropriate valuation technique to arrive at the fair value. Fair value amounts can be analysed into the following categories: Unadjusted quoted prices in active markets where the quoted price is readilyavailable and the price represents actual and regularly occurring markettransactions on an arm's length basis. Valuation techniques based on market observable inputs. Such techniques mayinclude: - using recent arm's length market transactions;- reference to the current fair value of similar instruments;- discounted cash flow analysis, pricing models or other techniques commonly used by market participants. Valuation techniques used above, but which include significant inputs that arenot observable. On initial recognition of financial instruments measured usingsuch techniques the transaction price is deemed to provide the best evidence offair value for accounting purposes. The following tables set out the total financial instruments stated at fairvalue as at 31st December 2007 and those fair values which include unobservableinputs. Unobservable inputs Total £m £mAssets stated at fair valueTrading portfolio assets 4,457 193,691Financial assets designated at fair value:held on own account 16,819 56,629held in respect of linked liabilities to - 90,851customers under investment contractsDerivative financial instruments 2,707 248,088Available for sale financial investments 810 43,072 -------- --------Total 24,793 632,331 -------- -------- Unobservable inputs Total £m £mLiabilities stated at fair valueTrading portfolio liabilities 42 65,402Financial liabilities designated at fair value 6,172 74,489Liabilities to customers under investment contracts - 92,639Derivative financial instruments 4,382 248,288 -------- --------Total 10,596 480,818 -------- -------- The amount that has yet to be recognised in income that relates to thedifference between the transaction price (the fair value at initial recognition)and the amount that would have arisen had valuation models using unobservableinputs been used on initial recognition, less amounts subsequently recognised,was as follows: 2007 2006 £m £mAt 1st January 534 260Additions in year 134 359Amortisation and releases in the year (514) (85) -------- --------At 31st December 154 534 -------- -------- 18. Barclays Capital credit market positions Barclays Capital credit market exposures resulted in net losses of £1,635m in2007, due to dislocations in the credit markets. The net losses primarilyrelated to ABS CDO super senior exposures, with additional losses from othercredit market exposures partially offset by gains from the general widening ofcredit spreads on issued notes held at fair value. Credit market exposures in this note are stated relative to comparatives as at30th June 2007, being the reporting date immediately prior to the credit marketdislocations. As at 31.12.2007 30.06.2007 £m £mABS CDO Super SeniorHigh Grade 4,869 6,151Mezzanine 1,149 1,629 --------- ---------Exposure before hedging 6,018 7,780Hedges (1,347) (348) --------- ---------Net ABS CDO Super Senior 4,671 7,432 --------- ---------Other US sub-primeWhole loans 3,205 2,900Other direct and indirect exposures 1,832 3,146 --------- ---------Other US sub-prime 5,037 6,046 --------- ---------Alt-A 4,916 3,760 --------- ---------Monoline insurers 1,335 140 --------- ---------Commercial mortgages 12,399 8,282 --------- ---------SIV-lite liquidity facilities 152 692 --------- ---------Structured investment vehicles 590 925 --------- --------- ABS CDO Super Senior exposure ABS CDO Super Senior net exposure was £4,671m (30th June 2007: £7,432m).Exposures are stated net of writedowns and charges of £1,412m (30th June 2007:£56m) and hedges of £1,347m (30th June 2007: £348m). The collateral for the ABS CDO Super Senior exposures primarily comprisedResidential Mortgage Backed Securities (RMBS). 79% of the RMBS sub-primecollateral comprised 2005 or earlier vintage mortgages. On ABS CDO super seniorexposures, the combination of subordination, hedging and writedowns provideprotection against loss levels to 72% on US sub-prime collateral as at 31stDecember 2007. None of the above hedges of ABS CDO Super Senior exposures as at31st December 2007. were held with monoline insurer counterparties. Other credit market exposures Barclays Capital held other exposures impacted by the turbulence in creditmarkets, including: whole loans and other direct and indirect exposures to USsub-prime and Alt-A borrowers; exposures to monoline insurers; and commercialmortgage backed securities. The net losses in 2007 from these exposures were£823m. Other US sub-prime whole loan and net trading book exposure was £5,037m (30thJune 2007: £6,046m). Whole loans included £2,843m (30th June 2007: £1,886m)acquired since the acquisition of EquiFirst in March 2007, all of which weresubject to Barclays underwriting criteria. As at 31st December 2007 the averageloan-to-value of these EquiFirst loans was 80% with less than 3% at above 95%loan to value. 99% of the EquiFirst inventory was first lien. Net exposure to the Alt-A market was £4,916m (30th June 2007: £3,760m), througha combination of securities held on the balance sheet including those held inconsolidated conduits and residuals. Alt-A exposure is generally to borrowers ofa higher credit quality than sub-prime borrowers. As at 31st December 2007, 99%of the Alt-A whole loan exposure was performing, and the average loan to valueratio was 81%. 96% of the Alt-A securities held were rated AAA or AA. Barclays Capital held assets with insurance protection or other creditenhancement from monoline insurers. The value of exposure to monoline insurersunder these contracts was £1,335m (30th June 2007: £140m). There were no claimsdue under these contracts as none of the underlying assets were in default. Exposures in our commercial mortgage backed securities business comprisedcommercial real estate loans of £11,103m (30th June 2007: £7,653m) andcommercial mortgage backed securities of £1,296m (30th June 2007: £629m). Theloan exposures were 54% US and 43% European. The US exposures had an averageloan to value of 65% and the European exposures had an average loan to value of71%. 87% of the commercial mortgage backed securities held as at 31st December2007 were AAA or AA rated. Loans and advances to customers included £152m (30th June 2007: £692m) of drawnliquidity facilities in respect of SIV-lites. Total exposure to other structuredinvestment vehicles, including derivatives, undrawn commercial paper backstopfacilities and bonds held in trading portfolio assets was £590m (30th June 2007:£925m). Leveraged Finance At 31st December 2007, drawn leveraged finance positions were £7,368m (30th June2007: £7,317m). The positions were stated net of fees of £130m and impairment of£58m driven by widening of corporate credit spreads. Own Credit At 31st December 2007, Barclays Capital had issued notes held at fair value of£57,162m (30th June 2007: £44,622m). The general widening of credit spreadsaffected the carrying value of these notes and as a result revaluation gains of£658m were recognised in trading income. 19. Loans and advances to banks 2007 2006By geographical area £m £mUnited Kingdom 5,518 6,229Other European Union 11,102 8,513United States 13,443 9,056Africa 2,581 2,219Rest of the World 7,479 4,913 --------- --------- 40,123 30,930Less: Allowance for impairment (3) (4) --------- ---------Total loans and advances to banks 40,120 30,926 --------- --------- 20. Loans and advances to customers 2007 2006 £m £mRetail business 164,062 139,350Wholesale and corporate business 185,105 146,281 --------- --------- 349,167 285,631Less: Allowances for impairment (3,769) (3,331) --------- ---------Total loans and advances to customers 345,398 282,300 --------- ---------By geographical areaUnited Kingdom 190,347 170,518Other European Union 56,533 43,430United States 40,300 25,677Africa 39,167 31,691Rest of the World 22,820 14,315 --------- --------- 349,167 285,631Less: Allowance for impairment (3,769) (3,331) --------- ---------Total loans and advances to customers 345,398 282,300 --------- ---------By industryFinancial institutions 71,160 45,954Agriculture, forestry and fishing 3,319 3,997Manufacturing 16,974 15,451Construction 5,423 4,056Property 17,018 16,528Government 2,036 2,426Energy and water 8,632 6,810Wholesale and retail distribution and leisure 17,768 15,490Transport 6,258 5,586Postal and communication 5,404 2,180Business and other services 30,363 26,999Home loans 112,087 94,635Other personal 41,535 35,377Finance lease receivables 11,190 10,142 --------- --------- 349,167 285,631Less: Allowance for impairment (3,769) (3,331) --------- ---------Total loans and advances to customers 345,398 282,300 --------- --------- The industry classifications have been prepared at the level of the borrowingentity. This means that a loan to the subsidiary of a major corporation isclassified by the industry in which that subsidiary operates even though theparent's predominant business may be a different industry. 21. Allowance for impairment on loans and advances 2007 2006 £m £mAt beginning of year 3,335 3,450Acquisitions and disposals (73) (23)Exchange and other adjustments 53 (153)Unwind of discount (113) (98)Amounts written off (see below) (1,963) (2,174)Recoveries (see below) 227 259Amounts charged against profit (see below) 2,306 2,074 --------- ---------At end of year 3,772 3,335 --------- ---------Amounts written offUnited Kingdom (1,530) (1,746)Other European Union (143) (74)United States (145) (46)Africa (145) (264)Rest of the World - (44) --------- --------- (1,963) (2,174) --------- ---------RecoveriesUnited Kingdom 154 178Other European Union 32 18United States 7 22Africa 34 33Rest of the World - 8 --------- --------- 227 259 --------- --------- New and increased impairment allowancesUnited Kingdom 1,960 2,253Other European Union 192 182United States 431 60Africa 268 209Rest of the World 20 18 --------- --------- 2,871 2,722 --------- --------- Less: Releases of impairment allowanceUnited Kingdom (213) (195)Other European Union (37) (72)United States (50) (26)Africa (20) (33)Rest of the World (18) (63) --------- --------- (338) (389) --------- ---------Recoveries (227) (259) --------- ---------Total impairment charges on loans and advances 2,306 2,074 --------- --------- 2007 2006Allowance £m £mUnited Kingdom 2,526 2,477Other European Union 344 311United States 356 100Africa 514 417Rest of the World 32 30 --------- ---------At end of year 3,772 3,335 --------- --------- 22. Potential credit risk loans 2007 2006 £m £m Impaired loans- Loans and advances 5,230 4,444- ABS CDO Super Senior 3,344 - --------- --------- 8,574 4,444Accruing loans which are contractually overdue90 days or more as to principal or interest 794 598Impaired and restructured loans 273 46 --------- ---------Credit risk loans(1) 9,641 5,088 Potential problem loansLoans and advances 846 761ABS CDO Super Senior and SIV-lites 951 - --------- --------- 1,797 761 --------- ---------Potential credit risk loans 11,438 5,849 --------- ---------Geographical splitImpaired loans:United Kingdom 3,605 3,340Other European Union 472 410United States 3,703 129Africa 757 535Rest of the World 37 30 --------- ---------Total 8,574 4,444 --------- ---------Accruing loans which are contractually overdue90 days or more as to principal or interestUnited Kingdom 676 516Other European Union 79 58United States 10 3Africa 29 21Rest of the World - - --------- ---------Total 794 598 --------- --------- (1) The term credit risk loans has replaced non-performing loans as the collective term for impaired loans, accruing loans which are more than 90 days past due and impaired and restructured loans. This recognises the fact that the impaired loans category may include loans which, while impaired, are still performing. 2007 2006 £m £mImpaired and restructured loansUnited Kingdom 179 -Other European Union 14 10United States 38 22Africa 42 14Rest of the World - - --------- ---------Total 273 46 --------- ---------Credit risk loansUnited Kingdom 4,460 3,856Other European Union 565 478United States 3,751 154Africa 828 570Rest of the World 37 30 --------- --------- Total 9,641 5,088 --------- ---------Potential problem loansUnited Kingdom 419 465Other European Union 59 32United States 964 21Africa 355 240Rest of the World - 3 --------- ---------Total 1,797 761 --------- --------- Potential credit risk loansUnited Kingdom 4,879 4,321Other European Union 624 510United States 4,715 175Africa 1,183 810Rest of the World 37 33 --------- ---------Total 11,438 5,849 --------- --------- 2007 2006Allowance coverage of credit risk loans % %United Kingdom 56.6 64.2Other European Union 60.9 65.1United States 9.5 64.9Africa 62.1 73.2Rest of the World 86.5 100.0 --------- ---------Total 39.1 65.6 --------- --------- Allowance coverage of potential credit risk % %loansUnited Kingdom 51.8 57.3Other European Union 55.1 61.0United States 7.6 57.1Africa 43.4 51.5Rest of the World 86.5 91.0 --------- ---------Total 33.0 57.0 --------- --------- Allowance coverage of credit risk loans: % %Retail 55.8 65.6Wholesale and corporate 24.9 65.5 --------- ---------Total 39.1 65.6 --------- --------- Total excluding ABS CDO Super Senior exposure 55.6 65.6 Allowance coverage of potential credit risk % %loans:Retail 51.0 59.8Wholesale and corporate 19.7 50.6 --------- ---------Total 33.0 57.0 --------- --------- Total excluding ABS CDO Super Senior exposure 49.0 57.0 Allowance coverage of credit risk loans and potential credit risk loansexcluding the drawn ABS CDO Super Senior exposure decreased to 55.6% (31stDecember 2006: 65.6%) and 49.0% (31st December 2006: 57.0%), respectively. Thedecrease in these ratios reflected a change in the mix of credit risk loans andpotential credit risk loans: unsecured retail exposures, where the recoveryoutlook is relatively low, decreased as a proportion of the total as thecollections and underwriting processes were improved. Secured retail andwholesale and corporate exposures, where the recovery outlook is relativelyhigh, increased as a proportion of credit risk loans and potential credit riskloans. Allowance coverage of ABS CDO Super Senior credit risk loans was low relative toallowance coverage of other credit risk loans since substantial protectionagainst loss is also provided by subordination and hedges. On ABS CDO supersenior exposures, the combination of subordination, hedging and writedownsprovide protection against loss levels to 72% on US sub-prime collateral as at31st December 2007. 23. Available for sale financial investments 2007 2006 £m £mDebt securities 38,673 47,912Equity securities 1,676 1,371Treasury bills and other eligible bills 2,723 2,420 --------- --------- 43,072 51,703 --------- --------- 24. Other assets 2007 2006 £m £mSundry debtors 4,042 4,298Prepayments 551 658Accrued income 400 722Insurance assets, including unit linked assets 157 172 --------- --------- 5,150 5,850 --------- --------- 25. Other liabilities 2007 2006 £m £mObligations under finance leases payable 83 92Sundry creditors 4,341 4,118Accruals and deferred income 6,075 6,127 --------- --------- 10,499 10,337 --------- --------- 26. Provisions 2007 2006 £m £mRedundancy and restructuring 82 102Undrawn contractually committed facilities and guarantees 475 46Onerous contracts 64 71Sundry provisions 209 243 --------- --------- 830 462 --------- --------- 27. Retirement benefit liabilities The Group's IAS 19 pension surplus across all schemes as at 31st December 2007was £393m (31st December 2006: deficit of £817m). There are net recognisedliabilities of £1,501m (31st December 2006: £1,719m) and unrecognised actuarialgains of £1,894m (31st December 2006: £902m). The net recognised liabilitiescomprised retirement benefit liabilities of £1,537m (31st December 2006:£1,807m) and assets of £36m (31st December 2006: £88m). The Group's IAS 19 pension surplus in respect of the main UK scheme as at 31stDecember 2007 was £668m (31st December 2006: deficit of £475m). Among thereasons for the movement of £1,143m was the increase in AA long-term corporatebond yields which resulted in a higher discount rate of 5.82% (31st December2006: 5.12%), partially offset by lower than expected returns and an increase inthe inflation assumption to 3.45% (31st December 2006: 3.08%). 28. Total shareholders' equity 2007 2006 £m £mCalled up share capital 1,651 1,634Share premium account 56 5,818 --------- ---------Available for sale reserve 154 132Cash flow hedging reserve 26 (230)Capital redemption reserve 384 309Other capital reserve 617 617Currency translation reserve (307) (438) --------- ---------Other reserves 874 390Retained earnings 20,970 12,169Less: Treasury shares (260) (212) --------- ---------Shareholders' equity excluding minority interests 23,291 19,799 --------- ---------Preference shares 4,744 3,414Reserve capital instruments 1,906 1,906Upper tier 2 instruments 586 586Absa minority interests 1,676 1,451Other minority interests 273 234 --------- ---------Minority interests 9,185 7,591 --------- ---------Total shareholders' equity 32,476 27,390 --------- --------- Total shareholders' equity increased £5,086m to £32,476m (2006: 27,390m). Called up share capital comprises 6,600 million (2006: 6,535 million) ordinaryshares of 25p each and 1 million (2006: 1 million) staff shares of £1 each.Called up share capital increased by £17m representing the nominal value ofshares issued to Temasek Holdings, China Development Bank (CDB) and employeesunder share option plans largely offset by a reduction in nominal value arisingfrom share buy-backs. Share premium reduced by £5,762m; the reclassification of£7,223m to retained earnings resulting from the High Court approved cancellationof share premium was partly offset by additional premium arising on the issuanceto CDB and on employee options. The capital redemption reserve increased by £75mrepresenting the nominal value of the share buy-backs. Retained earnings increased by £8,801m. Increases primarily arose from profitattributable to equity holders of the parent of £4,417m, the reclassification ofshare premium of £7,223m and the proceeds of the Temasek issuance in excess ofnominal value of £941m. Reductions primarily arose from external dividends paidof £2,079m and the total cost of share repurchases of £1,802m. Movements in other reserves, except the capital redemption reserve, reflect therelevant amounts recorded in the consolidated statement of recognised income andexpense on page 82. Minority interests increased £1,594m to £9,185m (2006: £7,591m). The increasewas primarily driven by a preference share issuance of £1,322m and an increasein the minority interest in Absa of £225m. 29. Contingent liabilities and commitments 2007 2006 £m £mAcceptances and endorsements 365 287Guarantees and letters of credit pledged as collateral for security 35,692 31,252Other contingent liabilities 9,717 7,880 --------- ---------Contingent liabilities 45,774 39,419 --------- ---------Commitments 192,639 205,504 --------- --------- 30. Legal proceedings Barclays has for some time been party to proceedings, including a class action,in the United States against a number of defendants following the collapse ofEnron; the class action claim is commonly known as the Newby litigation. On 20thJuly 2006 Barclays received an Order from the United States District Court forthe Southern District of Texas Houston Division which dismissed the claimsagainst Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. in the Newbylitigation. On 4th December 2006 the Court stayed Barclays dismissal from theproceedings and allowed the plaintiffs to file a supplemental complaint. On 19thMarch 2007 the United States Court of Appeals for the Fifth Circuit issued itsdecision on an appeal by Barclays and two other financial institutionscontesting a ruling by the District Court allowing the Newby litigation toproceed as a class action. The Court of Appeals held that because no properclaim against Barclays and the other financial institutions had been alleged bythe plaintiffs, the case could not proceed against them. The plaintiffs appliedto the United States Supreme Court for a review of this decision. On 22 January2008, the United States Supreme Court denied the plaintiffs' request for review.Following the Supreme Court's decision, the District Court ordered a furtherbriefing concerning the status of the plaintiffs' claims. Barclays plans to seekthe dismissal of the plaintiffs' claims. Barclays considers that the Enron related claims against it are without meritand is defending them vigorously. It is not possible to estimate Barclayspossible loss in relation to these matters, nor the effect that they might haveupon operating results in any particular financial period. Barclays has been in negotiations with the staff of the US Securities andExchange Commission with respect to a settlement of the Commission'sinvestigations of transactions between Barclays and Enron. Barclays does notexpect that the amount of any settlement with the Commission would have asignificant adverse effect on its financial position or operating results. Like other UK financial services institutions, Barclays faces numerous CountyCourt claims and complaints by customers who allege that its unauthorisedoverdraft charges either contravene the Unfair Terms in Consumer ContractsRegulations 1999 or are unenforceable penalties or both. Pending resolution ofthe test case referred to below (the "test case"), existing and new claims inthe County Courts are stayed, and there is an FSA waiver of the complaintshandling process and a standstill of Financial Ombudsman Service decisions. InJuly 2007, and by agreement with all parties, the OFT launched the test case bycommencing proceedings against seven banks and one building society includingBarclays, the first stage of which seeks declarations on two issues of legalprinciple. The hearing commenced on 17 January 2008. Barclays is defending thetest case vigorously. It is not practicable to estimate Barclays possible lossin relation to these matters, nor the effect that they may have upon operatingresults in any particular financial period. Barclays is engaged in various other litigation proceedings both in the UnitedKingdom and a number of overseas jurisdictions, including the United States,involving claims by and against it which arise in the ordinary course ofbusiness. Barclays does not expect the ultimate resolution of any of theproceedings to which Barclays is party to have a significant adverse effect onthe financial position of the Group and Barclays has not disclosed thecontingent liabilities associated with these claims either because they cannotreasonably be estimated or because such disclosure could be prejudicial to theconduct of the claims. 31. Competition and regulatory matters The scale of regulatory change remains challenging, arising in part from theimplementation of some key European Union (EU) directives. Many changes tofinancial services legislation and regulation have come into force in recentyears and further changes will take place in the near future. Concurrently,there is continuing political and regulatory scrutiny of the operation of theretail banking and consumer credit industries in the UK and elsewhere. Thenature and impact of future changes in policies and regulatory action are notpredictable and beyond the Group's control but could have an impact on theGroup's businesses and earnings.In June 2005 an inquiry into retail banking inall of the then 25 Member States was launched by the European Commission'sDirectorate General for Competition. The inquiry looked at retail banking inEurope generally. In January 2007 the European Commission announced that theinquiry had identified barriers to competition in certain areas of retailbanking, payment cards and payment systems in the EU. The Commission indicatedit will use its powers to address these barriers, and will encourage nationalcompetition authorities to enforce European and national competition laws whereappropriate. Any action taken by the Commission and national competitionauthorities could have an impact on the payment cards and payment systemsbusinesses of Barclays and on its retail banking activities in the EU countriesin which it operates. In September 2005 the UK Office of Fair Trading (OFT) received a super-complaintfrom the Citizens Advice Bureau relating to payment protection insurance (PPI).As a result, the OFT commenced a market study on PPI in April 2006. In October2006, the OFT announced the outcome of the market study and, following a periodof consultation, the OFT referred the PPI market to the UK CompetitionCommission for an in-depth inquiry in February 2007. This inquiry could last forup to two years. Also in October 2006, the UK Financial Services Authority (FSA)published the outcome of its broad industry thematic review of PPI salespractices in which it concluded that some firms fail to treat customers fairly.Barclays has cooperated fully with these investigations and will continue to doso. In April 2006, the OFT commenced a review of the undertakings given followingthe conclusion of the Competition Commission inquiry in 2002 into the supply ofbanking services to small and medium enterprises. Based on the OFT's report, theCompetition Commission issued its final decision on 21st December 2007 anddecided to release the UK's four largest clearing banks (including Barclays)from most of the transitional undertakings given by them in 2002. The OFT has carried out investigations into Visa and MasterCard credit cardinterchange rates. The decision by the OFT in the MasterCard interchange casewas set aside by the Competition Appeals Tribunal in June 2006. The OFT'sinvestigation in the Visa interchange case is at an earlier stage and a secondMasterCard interchange case is ongoing. The outcome is not known but theseinvestigations may have an impact on the consumer credit industry in general andtherefore on Barclays business in this sector. In February 2007 the OFTannounced that it was expanding its investigation into interchange rates toinclude debit cards. In April 2007, the UK consumer interest association known as Which? submitted asuper-complaint to the OFT pursuant to the Enterprise Act 2002. Thesuper-complaint criticises the various ways in which credit card companiescalculate interest charges on credit card accounts. In June 2007, the OFTannounced a new programme of work with the credit card industry and consumerbodies in order to make the costs of credit cards easier for consumers tounderstand. This OFT decision follows the receipt by the OFT of thesuper-complaint from Which? This new work will explore the issues surroundingthe costs of credit for credit cards including purchases, cash advances,introductory offers and payment allocation. The OFT's programme of work isexpected to take six months. The OFT announced the findings of its investigation into the level of late andover-limit fees on credit cards in April 2006, requiring a response from creditcard companies by 31st May 2006. Barclaycard responded by confirming that itwould reduce its late and over-limit fees on credit cards from 1st August 2006. In September 2006, the OFT announced that it had decided to undertake a factfind on the application of its statement on credit card fees to current accountunauthorised overdraft fees. The fact find was completed in March 2007. On 29thMarch 2007, the OFT announced its decision to conduct a formal investigationinto the fairness of bank current account charges. The OFT announced a marketstudy into personal current accounts (PCAs) in the UK on 26th April 2007. Themarket study will look at: (i) whether the provision of "free if in credit" PCAsdelivers sufficiently high levels of transparency and value for customers; (ii)the implications for competition and consumers if there were to be a shift awayfrom "free if in credit" PCAs; (iii) the fairness and impact on consumersgenerally of the incidence, level and consequences of account charges; and (iv)what steps could be taken to improve customers' ability to secure better valuefor money, in particular to help customers make more informed current accountchoices and drive competition. The study will focus on PCAs but will include anexamination of other retail banking products, in particular savings accounts,credit cards, personal loans and mortgages in order to take into account thecompetitive dynamics of UK retail banking. The OFT will publish its interimfindings after the test case (see below). In July 2007, the OFT commenced a test case in the High Court by agreement withBarclays and seven other financial institutions in which the parties seekdeclarations on two legal issues arising from the banks' terms and conditionsrelating to overdraft charges. The test case does not encompass claims fromlocal, medium or larger business customers. The proceedings will run in parallelwith the ongoing OFT dual inquiry into unauthorised overdraft charges and PCAs.Please also refer to the "Legal proceedings" section on page 73. In January 2007, the FSA issued a statement of good practice relating tomortgage exit administration fees. Barclays agreed to charge the fee applicableat the time the customer took out the mortgage, which was one of the optionsrecommended by the FSA. US laws and regulations require compliance with US economic sanctions,administered by the Office of Foreign Assets Control, against designated foreigncountries, nationals and others. HM Treasury regulations similarly requirecompliance with sanctions adopted by the UK government. Barclays has beenconducting an internal review of its conduct with respect to US dollar paymentsinvolving countries, persons or entities subject to these sanctions and has beenreporting to governmental agencies about the results of that review. Barclaysreceived inquiries relating to these sanctions and certain US dollar paymentsprocessed by its New York branch from the New York County District Attorney'sOffice and the US Department of Justice, which, along with other authorities,has been reported to be conducting investigations of sanctions compliance bynon-US financial institutions. Barclays has responded to those inquiries and iscooperating with regulators, the Department of Justice and the DistrictAttorney's Office in connection with their investigations of Barclays conductwith respect to sanctions compliance. Barclays has also been keeping the FSAinformed of the progress of these investigations and Barclays internal review.Barclays review is ongoing. It is currently not possible to predict the ultimateresolution of the issues covered by Barclays review and the investigations,including the timing and potential financial effect of any resolution, whichcould be substantial. Barclays does not expect these matters to have a materialadverse effect on the financial position of the Group, but it is not possible toestimate the effect they might have upon operating results in any particularfinancial period. 32. Market Risk Market risk is the risk that Barclays earnings, capital, or ability to meet itsbusiness objectives, will be adversely affected by changes in the level orvolatility of market rates or prices such as interest rates, credit spreads,commodity prices, equity prices and foreign exchange rates. Barclays Capital's market risk exposure, as measured by average total DailyValue at Risk (DVaR), increased by 13% to £42.0m (2006: £37.1m). Interest rateand credit spread risks were broadly unchanged while commodity DVaR and equityDVaR increased by £8.9m and £3.4m respectively. Diversification across risktypes remained significant, reflecting the broad product mix. Total DVaR as at31st December 2007 was £53.9m (31st December 2006: £41.9m), reflecting theincreased market volatility in the second half of the year. Analysis of Barclays Capital's market risk exposures The daily average, maximum and minimum values of DVaR were calculated as below: DVaR Twelve Months to 31st December 2007 ------------------------------- Average High(1) Low(1) £m £m £mInterest rate risk 20.0 33.3 12.6Credit spread risk 24.9 43.3 14.6Commodity risk 20.2 27.2 14.8Equity risk 11.2 17.6 7.3Foreign exchange risk 4.9 9.6 2.9Diversification effect (39.2) n/a n/a --------- --------- ---------Total DVaR 42.0 59.3 33.1 --------- --------- --------- Twelve Months to 31st December 2006 ------------------------------ Average High(1) Low(1) £m £m £mInterest rate risk 20.1 28.8 12.3Credit spread risk 24.3 33.1 17.9Commodity risk 11.3 21.6 5.7Equity risk 7.8 11.6 5.8Foreign exchange risk 4.0 7.7 1.8Diversification effect (30.4) n/a n/a --------- --------- ---------Total DVaR 37.1 43.2 31.3 --------- --------- --------- (1) The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. Consequently a diversification effect number for the high (and low) DVaR figures would not be meaningful and it is therefore omitted from the above table. 33. Capital Ratios Basel II Basel I Basel IRisk weighted assets: 2007 2007 2006Banking book £m £m £mOn-balance sheet 231,496 197,979Off-balance sheet 32,620 33,821Associated undertakings and joint ventures(1) 1,354 2,072 --------- --------- ---------Total banking book 244,474 265,470 233,872 --------- --------- ---------Trading bookMarket risks 39,812 36,265 30,291Counterparty and settlement risks 41,203 51,741 33,670 --------- --------- ---------Total trading book 81,015 88,006 63,961Operational risk 28,389 --------- --------- ---------Total risk weighted assets 353,878 353,476 297,833 --------- --------- ---------Capital resources:Tier 1Called up share capital 1,651 1,651 1,634Eligible reserves 22,939 22,526 19,608Minority interests(2) 10,551 10,551 7,899Tier 1 notes(3) 899 899 909Less: intangible assets (8,191) (8,191) (7,045)Less: deductions from Tier 1 capital(1) (1,106) (28) - --------- --------- ---------Total qualifying Tier 1 capital 26,743 27,408 23,005 --------- --------- ---------Tier 2 Revaluation reserves 26 26 25Available for sale-equity gains 295 295 221Collectively assessed impairment 440 2,619 2,556allowancesMinority Interests 442 442 451Qualifying subordinated liabilities(4):Undated loan capital 3,191 3,191 3,180Dated loan capital 10,578 10,578 7,603Less: deductions from Tier 2 capital(1) (1,106) (28) - --------- --------- ---------Total qualifying Tier 2 capital 13,866 17,123 14,036 --------- --------- ---------Less: Regulatory deductions:Investments not consolidated for (633) (633) (982)supervisory purposesOther deductions (193) (1,256) (1,348) --------- --------- ---------Total deductions (826) (1,889) (2,330) --------- --------- ---------Total net capital resources 39,783 42,642 34,711 --------- --------- --------- % % %Equity Tier 1 ratio 5.1 5.0 5.3Tier 1 ratio 7.6 7.8 7.7Risk asset ratio 11.2 12.1 11.7 (1) From 1st January 2007, under the FSA's Prudential Sourcebook for Banks,Building Societies and Investment Firms, eligible associates are proportionally,rather than fully, consolidated for regulatory purposes and certain deductionsare made directly from Tiers 1 and 2 rather than being included in regulatorydeductions. (2) Includes reserve capital instruments of £3,908m (31st December 2006: £2,765m). Of this amount, £1,118m was issued during 2007. This issue is classified within subordinated liabilities on the consolidated balance sheet. (3) Tier 1 notes are included in subordinated liabilities in the consolidatedbalance sheet. (4) Subordinated liabilities included in Tier 2 Capital are subject to limits laiddown in the regulatory requirements. Basel I At 31st December 2007, the Tier 1 capital ratio was 7.8% and the risk assetratio was 12.1%. From 31st December 2006, total net capital resources rose£7.9bn and risk weighted assets increased £55.6bn. Tier 1 capital rose £4.4bn, including £2.3bn arising from profits attributableto equity holders net of dividends paid. Minority interests within Tier 1capital increased £2.7bn primarily due to the issuance of reserve capitalinstruments and preference shares. The deduction for goodwill and intangibleassets increased by £1.1bn. Tier 2 capital increased £3.1bn mainly as a resultof an increase of £3.0bn of dated loan capital. Basel II Barclays commenced calculating its risk weighted assets under the new Basel IICapital framework from 1st January 2008. Risk weighted assets (RWAs) calculated on a Basel II basis are broadly in linewith RWAs calculated on a Basel I basis. A reduction in credit and counterpartyRWAs of £31.5bn more than offset the identification of capital equivalent RWAsof £28.4bn attributable to operational risk. The reduced RWAs attributable tocredit risk were mainly driven by recognition of the low risk profile of firstcharge residential mortgages in UK Retail Banking and Absa and the use ofinternal models to assess exposures to counterparty risk in the trading book.These were partially offset by higher counterparty risk weightings in emergingmarkets and greater recognition of undrawn commitments. Compared to Basel I, deductions from Tier 1 and Tier 2 capital under Basel IIinclude additional amounts relating to expected loss and securitisations. Foradvanced portfolios, any excess of expected loss over impairment allowances isdeducted half from Tier 1 and half from Tier 2 capital. Deductions relating tosecuritisation transactions, which are made from total capital under Basel I,are deducted half from Tier 1 and half from Tier 2 capital under Basel II. For portfolios treated under the standardised approach, the inclusion ofcollectively assessed impairment allowances in Tier 2 capital remains the sameunder Basel II. Collectively assessed impairment allowances against exposurestreated under Basel II advanced approaches are not eligible for direct inclusionin Tier 2 capital. 34. Reconciliation of regulatory capital Capital is defined differently for accounting and regulatory purposes. Areconciliation of shareholders' equity for accounting purposes to called upshare capital and eligible reserves for regulatory purposes is set out below: 2007 2006 £m £mShareholders' equity excluding minority interests 23,291 19,799 Available for sale reserve (154) (132)Cash flow hedging reserve (26) 230Adjustments to retained earningsDefined benefit pension scheme 1,053 1,165Additional companies in regulatory consolidationand non-consolidated companies (281) (498)Foreign exchange on RCIs and upper Tier 2 loan stock 478 504Adjustment for own credit (461) -Other adjustments 277 174 -------- --------Called up share capital and eligible reserves for regulatory purposes 24,177 21,242 -------- -------- Under Basel II, called up share capital and eligible reserves for regulatorypurposes included £413m of additional eligible reserves compared to Basel I. 35. Total assets and risk weighted assets Total assets 2007 2006 £m £mUK Banking 161,777 147,576 --------- ---------UK Retail Banking 87,833 81,692Barclays Commercial Bank 73,944 65,884 --------- ---------Barclaycard 22,164 20,082International Retail and Commercial Banking 89,457 68,588 --------- ---------International Retail and Commercial Banking-ex Absa 52,204 38,191International Retail and Commercial Banking-Absa 37,253 30,397 --------- ---------Barclays Capital 839,662 657,922Barclays Global Investors 89,224 80,515Barclays Wealth 18,024 15,022Head office functions and other operations 7,053 7,082 --------- --------- 1,227,361 996,787 --------- --------- Risk weighted assets(1) 2007 2006 £m £mUK Banking 99,836 92,981 --------- ---------UK Retail Banking 45,992 43,020Barclays Commercial Bank 53,844 49,961 --------- ---------Barclaycard 19,929 17,035International Retail and Commercial Banking 53,269 40,810 --------- ---------International Retail and Commercial Banking-ex Absa 29,667 20,082International Retail and Commercial Banking-Absa 23,602 20,728 --------- ---------Barclays Capital 169,124 137,635Barclays Global Investors 1,994 1,375Barclays Wealth 7,692 6,077Head office functions and other operations 1,632 1,920 --------- --------- 353,476 297,833 --------- --------- (1) Risk weighted assets are calculated under Basel I Total assets increased 23% to £1,227.4bn (2006: £996.8bn). Risk weighted assetsincreased 19% to £353.5bn (31st December 2006: £297.8bn). Loans and advances tocustomers that have been securitised increased £4.3bn to £28.7bn (31st December2006: £24.4bn). The increase in risk weighted assets since 2006 reflected a riseof £31.6bn in the banking book and a rise of £24.0bn in the trading book. UK Retail Banking total assets increased 7% to £87.8bn (31st December 2006:£81.7bn). This was mainly attributable to growth in mortgage balances. Riskweighted assets increased by 7% to £46.0bn (31st December 2006: £43.0bn) withgrowth in mortgages partially offset by an increase in securitised balances andother reductions. Barclays Commercial Bank total assets grew 12% to £73.9bn (31st December 2006:£65.9bn) driven by growth across lending products. Risk weighted assetsincreased 8% to £53.8bn (31st December 2006: £50.0bn), reflecting asset growthpartially offset by increased regulatory netting and an increase in securitisedbalances. Barclaycard total assets increased 10% to £22.2bn (31st December 2006: £20.1bn).Risk weighted assets increased 17% to £19.9bn (31st December 2006: £17.0bn),primarily reflecting the increase in total assets, redemption of securitisationtransactions, partially offset by changes to the treatment of regulatoryassociates and the sale of part of the Monument card portfolio. International Retail and Commercial Banking - excluding Absa total assets grew37% to £52.2bn (31st December 2006: £38.2bn). This growth was mainly driven byincreases in retail mortgages and unsecured lending in Western Europe andincreases in unsecured lending in Emerging Markets. Risk weighted assetsincreased 48% to £29.7bn (31st December 2006: £20.1bn), reflecting asset growthand a change in product mix. International Retail and Commercial Banking - Absa total assets increased 23% to£37.3bn (31st December 2006: £30.4bn), primarily driven by increases inmortgages and commercial property finance. Risk weighted assets increased 14% to£23.6bn (31st December 2006: £20.7bn), reflecting balance sheet growth. Barclays Capital total assets rose 28% to £839.7bn (31st December 2006:£657.9bn). Derivative assets increased £109.3bn primarily due to movementsacross a range of market indices. This was accompanied by a correspondingincrease in derivative liabilities. The increase in non-derivative assetsreflects an expansion of the business across a number of asset classes, combinedwith an increase in drawn leveraged loan positions and mortgage-related assets.Risk weighted assets increased 23% to £169.1bn (31st December 2006: £137.6bn)reflecting growth in fixed income, equities and credit derivatives. Barclays Global Investors total assets increased 11% to £89.2bn (31st December2006: £80.5bn), mainly attributable to growth in certain asset managementproducts recognised as investment contracts. The majority of total assetsrelates to asset management products with equal and offsetting balancesreflected within liabilities to customers. Risk weighted assets increased 43% to£2.0bn (31st December 2006: £1.4bn) mainly attributable to overall growth in thebalance sheet and the mix of securities lending activity. Barclays Wealth total assets increased 20% to £18.0bn (31st December 2006:£15.0bn) reflecting strong growth in lending to high net worth, affluent andintermediary clients. Risk weighted assets increased 26% to £7.7bn (31stDecember 2006: £6.1bn) reflecting the increase in lending. Head office functions and other operations total assets remained flat at £7.1bn(31st December 2006: £7.1bn). Risk weighted assets decreased 16% to £1.6bn (31stDecember 2006: £1.9bn). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 2007 2006 £m £mNet movements in available for sale reserve 2 (140)Net movements in cash flow hedging reserve 359 (487)Net movements in currency translation reserve 54 (781)Tax 54 253Other movements 22 25 --------- ---------Amounts included directly in equity 491 (1,130)Profit after tax 5,095 5,195 --------- ---------Total recognised income and expense 5,586 4,065 --------- ---------Attributable to:Equity holders of the parent 4,854 3,682Minority interests 732 383 --------- --------- 5,586 4,065 --------- --------- The consolidated statement of recognised income and expense reflects all itemsof income and expense for the period, including items taken directly to equity.Movements in individual reserves are shown including amounts which relate tominority interests; the impact of such amounts is then reflected in the amountattributable to such interests. Movements in individual reserves are also shownon a pre-tax basis with any related tax recorded on the separate tax line. The available for sale reserve reflects gains or losses arising from the changein fair value of available for sale financial assets except for items recordedin the income statement which are: impairment losses; gains or lossestransferred to the income statement due to fair value hedge accounting; andforeign exchange gains or losses on monetary items such as debt securities. Whenan available for sale asset is impaired or derecognised, the cumulative gain orloss previously recognised in the available for sale reserve is transferred tothe income statement. The transfer of net gains to the income statement,primarily on disposal of assets, was offset by the recognition of net unrealisedgains from changes in fair value. Cash flow hedging aims to minimise exposure to variability in cash flows that isattributable to a particular risk associated with a recognised asset orliability or a highly probable forecast transaction that could affect profit orloss. The portion of the gain or loss on the hedging instrument that is deemedto be an effective hedge is recognised in the cash flow hedging reserve. Thegains and losses deferred in this reserve will be transferred to the incomestatement in the same period or periods during which the hedged item isrecognised in the income statement. The movement in 2007 reflects the transferof net losses to the income statement and the recognition of net unrealisedgains from changes in the fair value of the hedging instruments. Exchange differences arising on the net investments in foreign operations andeffective hedges of net investments are recognised in the currency translationreserve and transferred to the income statement on the disposal of the netinvestment. The movement in 2007 primarily reflects the impact of changes in thevalue of the Euro on net investments partially offset by the impact of changesin the value of the US Dollar on net investments and other currency movements onnet investments which are hedged on a post-tax basis. The Euro and US Dollar netinvestments are economically hedged through Euro-denominated and USDollar-denominated preference share capital, which is not revalued foraccounting purposes. SUMMARY CONSOLIDATED CASH FLOW STATEMENT 2007 2006 £m £mNet cash flow from operating activities (10,747) 10,047Net cash flow from investing activities 10,064 (1,154)Net cash flow from financing activities 3,358 692Effects of exchange rate on cash and cash equivalents (550) 562 --------- ---------Net increase in cash and cash equivalents 2,125 10,147Cash and cash equivalents at beginning of period 30,952 20,805 --------- ---------Cash and cash equivalents at end of period 33,077 30,952 --------- --------- PERFORMANCE MANAGEMENT Economic capital Barclays assesses capital requirements by measuring the Group risk profile usingboth internally and externally developed models. The Group assigns economiccapital primarily within seven risk categories: Credit Risk, Market Risk,Operational Risk, Business Risk, Insurance Risk, Fixed Assets and PrivateEquity. The Group regularly enhances its economic capital methodology and benchmarksoutputs to external reference points. The framework uses default probabilitiesduring average credit conditions, rather than those prevailing at the balancesheet date, thus removing cyclicality from the economic capital calculation.Economic capital for wholesale credit risk includes counterparty risk arising asa result of credit risk on traded market exposures. The framework also adjustseconomic capital to reflect time horizon, correlation of risks and riskconcentrations. Economic capital is allocated on a consistent basis across all of Barclaysbusinesses and risk activities. A single cost of equity is applied to calculatethe cost of risk. Economic capital allocations reflect varying levels of risk. The total average economic capital required by the Group, as determined by riskassessment models and after considering the Group's estimated portfolio effects,is compared with the supply of economic capital to evaluate economic capitalutilisation. Supply of economic capital is calculated as the average availableshareholders' equity after adjustment (as shown under economic capital supply,page 86) and including preference shares. The Group's economic capital calculations now form the basis of the Group'ssubmissions for the Basel II Internal Capital Adequacy Assessment process. Economic capital demand(1) 2007 2006 £m £mUK Banking 6,600 6,000 --------- ---------UK Retail Banking 3,400 3,300Barclays Commercial Bank 3,200 2,700 --------- ---------Barclaycard 2,100 1,950International Retail and Commercial Banking 2,550 1,950 --------- ---------International Retail and Commercial Banking-ex Absa 1,600 1,200International Retail and Commercial Banking-Absa 950 750 --------- ---------Barclays Capital 5,200 3,750Barclays Global Investors 200 150Barclays Wealth 500 400Head office functions and other operations(2) 250 300 --------- ---------Economic Capital requirement (excluding goodwill) 17,400 14,500Average historic goodwill and intangible assets (3) 8,400 7,750 --------- ---------Total economic capital requirement(4) 25,800 22,250 --------- --------- UK Retail Banking economic capital allocation increased £100m to £3,400m (2006:£3,300m), reflecting asset growth in UK mortgages offset by a reduction in consumer lending following methodology enhancements. Barclays Commercial Bank economic capital allocation increased £500m to £3,200m (2006: £2,700m) as a consequence of asset growth and implementation of updated Credit and Operational Risk models. Barclaycard economic capital allocation increased £150m to £2,100m (2006:£1,950m), as a consequence of asset growth, predominantly in secured lending andin Barclaycard International, offset by a reduction in UK cards following thesale of the Monument card portfolio. International Retail and Commercial Banking - excluding Absa economic capitalallocation increased £400m to £1,600m (2006: £1,200m). This was driven bylending growth across Western Europe and Emerging Markets and some creditdeterioration in Africa. International Retail and Commercial Banking - Absaeconomic capital allocation (excluding the risk borne by the minority interest)increased £200m to £950m (2006: £750m), reflecting lending growth in thebusiness bank portfolio. Barclays Capital economic capital increased £1,450m to £5,200m (2006: £3,750m).This was driven by growth in the investment portfolio, exposure to drawnleveraged finance underwriting positions and deterioration in credit quality inthe US. (1) Calculated using a five point average over the year and rounded to the nearest £50m for presentation purposes. (2) Includes Transition Businesses and capital for central functional risks. (3) Average goodwill relates to purchased goodwill and intangible assets frombusiness acquisitions. (4) Total period end economic capital requirement as at 31st December 2007 was£29,650m (31st December 2006: £23,350m). Economic capital supply The capital resources to support economic capital demand comprise adjustedshareholders' equity including preference shares but excluding other minorityinterests. Preference shares have been issued to optimise the long-term capitalbase of the Group. The capital resources to support economic capital are impacted by a number offactors arising from the application of IFRS and are modified in calculatingavailable funds for economic capital. This applies specifically to: • Cash flow hedging reserve - to the extent that the Group undertakes the hedging of future cash flows, shareholders' equity will include gains and losses which will be offset against the gain or loss on the hedged item when it is recognised in the income statement at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity when calculating economic capital. • Available for sale reserve - unrealised gains and losses on available for sale financial investments are included in shareholders' equity until disposal or impairment. Such gains and losses are excluded from shareholders' equity for the purposes of calculating economic capital. • Retirement benefits liability - the Group has recognised a deficit with a consequent reduction in shareholders' equity. This represents a non-cash reduction in shareholders' equity. For the purposes of calculating economic capital, the Group does not reflect in the pension surplus or deficit in shareholders' equity. The average supply of capital to support the economic capital framework is setout below(1): 2007 2006 £m £mShareholders' equity excluding minority interests less goodwill(2) 14,150 11,400Retirement benefits liability 1,150 1,300Cashflow hedging reserve 250 100Available for sale reserve (150) (50)Preference shares 3,700 3,200 -------- --------Available funds for economic capital excluding goodwill 19,100 15,950Average historic goodwill and intangible assets(2) 8,400 7,750 -------- --------Available funds for economic capital including goodwill(3) 27,500 23,700 -------- -------- In addition to those capital resources included in economic capital supply theGroup held other Tier 1 instruments of £4,807m as at 31st December 2007 (2006:£3,674m) consisting of Tier 1 notes of £899m and reserve capital instruments of£3,908m. These notes and instruments form part of our qualifying capital resources forregulatory purposes and provide an additional capital buffer. (1) Averages for the period will not correspond to period-end balances disclosedin the balance sheet. Numbers are rounded to the nearest £50m for presentationalpurposes only. (2) Average goodwill relates to purchased goodwill and intangible assets frombusiness acquisitions. (3) Available funds for economic capital as at 31st December 2007 stood at£29,700m (31st December 2006: £25,150m). Economic profit Economic profit comprises: • Profit after tax and minority interests; less • Capital charge (average shareholders' equity and goodwill excluding minority interests multiplied by the Group cost of capital). The Group cost of capital has been applied at a uniform rate of 9.5%(1). The costs of servicing preference shares are included in minority interests, and sopreference shares are excluded from average shareholders' equity for economicprofit purposes. 2007 2006 £m £mProfit after tax and minority interests 4,417 4,571Addback of amortisation charged on acquired intangible assets(2) 137 83 -------- --------Profit for economic profit purposes 4,554 4,654 -------- --------Average shareholders' equity excluding minority interests (3), (4) 14,150 11,400Adjustment for unrealised loss on cashflow hedge reserve(4) 250 100Adjustment for unrealised gain on available for sale financial investments(4) (150) (50) Add: retirements benefits liability 1,150 1,300 Goodwill and intangible assets arising on acquisitions(4) 8,400 7,750 -------- --------Average shareholders' equity for economic profit purposes(3),(4) 23,800 20,500 -------- --------Capital charge at 9.5% (2,264) (1,950) -------- --------Economic profit 2,290 2,704 -------- -------- (1) The Group's cost of capital has changed from 1st January 2008 to 10.5%. (2) Amortisation charged for purchased intangibles, adjusted for tax and minority interests. (3) Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill and intangible assetsarising on acquisition, but excludes preference shares. (4) Averages for the period will not correspond exactly to period end balancesdisclosed in the balance sheet. Numbers are rounded to the nearest £50m forpresentation purposes only. Economic profit generated by business 2007 2006 £m £mUK Banking 1,272 1,327 -------- --------UK Retail Banking 622 589Barclays Commercial Bank 650 738 -------- --------Barclaycard 183 137International Retail and Commercial Banking 150 493 -------- --------International Retail and Commercial Banking-ex Absa 20 309International Retail and Commercial Banking-Absa 130 184 -------- --------Barclays Capital 1,172 1,181Barclays Global Investors 430 376Barclays Wealth 233 130Head office functions and other operations (470) (315) -------- -------- 2,970 3,329Historic goodwill and intangibles arising on acquisition (800) (739)Variance to average shareholders' funds(excluding minority interest) 120 114 -------- --------Economic profit 2,290 2,704 -------- -------- Economic profit for the Group decreased 15% (£414m) to £2,290m (2006: £2,704m).Gains from business disposals decreased 91% (£295m) to £28m (2006: £323m) andthere was a 16% (£314m) increase in the economic capital charge. UK Retail Banking economic profit increased 6% (£33m) to £622m (2006: £589m) dueto a 9% increase in profit before tax partially offset by a 3% increase in theeconomic capital charge. Barclays Commercial Bank economic profit decreased 12%(£88m) to £650m (2006: £738m), due to an 18% increase in the economic capitalcharge arising from the impact of lending growth and implementation of updatedcredit and operational risk models. Barclaycard economic profit increased 34% (£46m) to £183m (2006: £137m), due toan 18% increase in profit before tax, partially offset by a 4% increase in theeconomic capital charge. International Retail and Commercial Banking - excluding Absa economic profitdecreased 94% (£289m) to £20m (2006: £309m), due to a 53% decrease in profitbefore tax due to the sale of FirstCaribbean International Bank in 2006 and anincrease in the economic capital charge of 33%. The increase in economic capitalcharge reflected the impact of lending growth. International Retail and Commercial Banking - Absa economic profit decreased 29%(£54m) reflecting a 32% increase in the economic capital charge and broadlystable profit before tax in Sterling. Barclays Capital economic profit decreased to £1,172m (2006: £1,181m), due tohigher economic capital charges and minority interests. Barclays Global Investors economic profit increased 14% (£54m) to £430m (2006:£376m) due to a 3% increase in profit before tax, a lower effective tax rate andlower minority interests. Barclays Wealth economic profit increased 79% (£103m) to £233m (2006: £130m),due to a 25% increase in profit before tax and a reduced tax charge, partiallyoffset by an increase in the economic capital charge of 32%, reflecting exposuregrowth in the lending portfolio. Performance relative to the 2004 to 2007 goal period Barclays uses goals to drive performance. At the end of 2003, Barclaysestablished a set of four year performance goals for the period 2004 to 2007inclusive. The primary goal was to achieve top quartile Total Shareholder Return(TSR) relative to a peer group(1) of financial services companies. TSR isdefined as the value created for shareholders through share price appreciation,plus reinvested dividend payments. The peer group is regularly reviewed toensure that it remains aligned to our business mix and the direction and scaleof our ambition. Barclays delivered Total Shareholder Return (TSR) of 20.4% for the goal periodand was positioned 8th within its peer group (third quartile) for the goalperiod commencing 1st January 2004. At the time of setting the TSR goal, we estimated that achieving top quartileTSR would require the achievement of compound annual growth in economic profitin the range of 10% to 13% per annum (£6.5bn to £7.0bn of cumulative economicprofit) over the 2004 to 2007 goal period. Economic profit for 2007 was £2.3bn, which, added to the £6.0bn generated in2004, 2005 and 2006, delivered a cumulative total of £8.3bn for the goal period.Therefore Barclays has delivered 128% of the minimum range and 119% of the upperrange of the cumulative economic profit goal in the goal period. 2008 to 2011 goal period Barclays has established a new set of four year performance goals for the periodfrom 2008 to 2011 inclusive. The primary goal is to achieve compound annualgrowth in economic profit in the range of 5% to 10% (£9.3bn to £10.6bn ofcumulative economic profit) over the 2008 to 2011 goal period. We believe that if we achieve the upper end of the economic profit range, wewill also achieve our goal of top quartile TSR relative to our peer group offinancial services companies. (1) Peer group for 2007 and 2006: Banco Santander, BBVA, BNP Paribas, Citigroup,Deutsche Bank, HBOS, HSBC, JP Morgan Chase, Lloyds TSB, Royal Bank of Scotlandand UBS. In 2007 Banco Santander replaced ABN Amro in the peer group. Risk Tendency As part of its credit risk management system, the Group uses a model-basedmethodology to assess the point-in-time expected loss of credit portfoliosacross different customer categories. The approach is termed Risk Tendency andapplies to credit exposures not already reported as Credit Risk Loans for bothwholesale and retail sectors. Risk Tendency models provide statistical estimatesof average expected loss levels for a rolling 12-month period based on averagesin the ranges of possible losses expected from each of the current portfolios.This contrasts with impairment charges as required under accounting standards,which derive almost entirely from Credit Risk Loans where there is objectiveevidence of actual impairment as at the balance sheet date. Since Risk Tendency and impairment allowances are calculated for different partsof the portfolio, for different purposes and on different bases, Risk Tendencydoes not predict loan impairment. Risk Tendency is provided to present a view ofthe evolution of the scale and quality of the credit portfolios. 2007 2006 £m £mUK Banking 775 790 -------- --------UK Retail Banking 470 500Barclays Commercial Bank 305 290 -------- --------Barclaycard 945 1,135International Retail and Commercial Banking 475 220 -------- --------International Retail and Commercial Banking-ex Absa 220 75International Retail and Commercial Banking-Absa 255 145 -------- --------Barclays Capital 140 95Barclays Wealth 10 10Transition Businesses(1) 10 10 -------- -------- 2,355 2,260 -------- -------- Risk Tendency increased 4% (£95m) to £2,355m (31st December 2006: £2,260m),significantly less than the 23% growth in the Group's loans and advancesbalances. This relatively small rise in Risk Tendency reflected, in particular,the improving profile of the UK unsecured loan book. Other factors influencingRisk Tendency included: methodology changes in Barclaycard; UK Retail Bankingand International Retail and Commercial Banking - Absa; the sale of part of theMonument portfolio; and a maturing credit risk profile in the international cardportfolios. UK Retail Banking Risk Tendency decreased £30m to £470m (31st December 2006:£500m). This reflected an improvement in the credit risk profile in the UKunsecured consumer lending portfolios, partially offset by the impact ofmethodology changes and asset growth. Risk Tendency in Barclays Commercial Bank increased £15m to £305m (31st December2006: £290m). This reflected some growth in loan balances offset by improvementsin the credit risk profile. Barclaycard Risk Tendency decreased £190m to £945m (31st December 2006:£1,135m). This reflected improvement in the credit risk profile of UK cards, thesale of part of the Monument portfolio and methodology changes in UK cards,partially offset by asset growth in the international portfolios. Risk Tendency at International Retail and Commercial Banking - excluding Absaincreased £145m to £220m (31st December 2006: £75m), reflecting an increase tothe risk profile and balance sheet growth in Emerging Markets and WesternEurope. (1) Included within Head office functions and other operations In International Retail and Commercial Banking - Absa, the increase of £110m inRisk Tendency to £255m (31st December 2006: £145m) included a change to themethodology following the introduction of Basel compliant, Probability ofDefault, Exposure at Default and Loss Given Default models. Excluding thischange, Risk Tendency increased £90m, reflecting a weakening of retail creditconditions in South Africa after a series of interest rate rises in 2006 and2007 and balance sheet growth. Risk Tendency in Barclays Capital increased £45m to £140m (31st December 2006:£95m) primarily due to drawn leveraged loan positions. The drawn liquidityfacilities on ABS CDO Super Senior positions are classified as credit risk loansand therefore no Risk Tendency is calculated on them. ADDITIONAL INFORMATION Group reporting changes in 2007 Barclays announced on 19th June 2007 the impact of certain changes in GroupStructure and reporting on the 2006 results. There was no impact on the Groupincome statement or balance sheet. UK Retail Banking. The unsecured lending business, previously managed andreported within Barclaycard and the Barclays Financial Planning business,previously managed and reported within Barclays Wealth are now managed andreported within UK Retail Banking. The changes combine these products withrelated products already offered by UK Retail Banking. In the UK certain UKPremier customers are now managed and reported within Barclays Wealth. Barclaycard. The unsecured lending portfolio, previously managed and reportedwithin Barclaycard, has been transferred and is now managed and reported withinUK Retail Banking. International Retail and Commercial Banking - excluding Absa. A number of highnet worth customers are now managed and reported within Barclays Wealth in orderto better match client profiles to wealth services. Barclays Wealth. In the UK and Western Europe certain Premier and high net worthcustomers are now managed and reported within Barclays Wealth having beenpreviously reported within UK Retail Banking and International Retail andCommercial Banking - excluding Absa. The Barclays Financial Planning business previously managed and reported withinBarclays Wealth, has become a fully integrated part of and is managed andreported within UK Retail Banking. Finally with effect from 1st January 2007Barclays Wealth - closed life assurance activities continues to be managedwithin Barclays Wealth and for reporting purposes has been combined rather thanbeing reported separately. The structure and reporting remains unchanged for Barclays Commercial Bank,International Retail and Commercial Banking- Absa, Barclays Capital, BarclaysGlobal Investors and Head Office Functions and Other Operations. Basis of Preparation There have been no significant changes to the accounting policies described inthe 2006 Annual report. Therefore the information in this announcement has beenprepared using the accounting policies and presentation applied in 2006. Priorperiod presentation has, where appropriate, been restated to conform withcurrent year classification. Future accounting developments Consideration will be given during 2008 to the implications, if any, of thefollowing new and revised standards and International Financial ReportingInterpretations Committee (IFRIC) interpretations as follows: • IFRS 3 - Business Combinations and IAS 27 - Consolidated and Separate Financial Statements are revised standards issued in January 2008. The revised IFRS 3 applies prospectively to business combinations first accounted for in accounting periods beginning on or after 1 July 2009 and the amendments to IAS 27 apply retrospectively to periods beginning on or after 1 July 2009. The main changes in existing practice resulting from the revision to IFRS 3 affect acquisitions that are achieved in stages and acquisitions where less than 100% of the equity is acquired. In addition, acquisition-related costs - such as fees paid to advisers -must be accounted for separately from the business combination, which means that they will be recognised as expenses unless they are directly connected with the issue of debt or equity securities. The revisions to IAS 27 specify that changes in a parent's ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. Until future acquisitions take place that are accounted for in accordance with the revised IFRS 3, the main impact on Barclays will be that, from 2010, gains and losses on transactions with non-controlling interests that do not result in loss of control will no longer be recognised in the income statement but directly in equity. In 2007, gains of £23m and losses of £6m were recognised in income relating to such transactions. •IFRIC 13 - Customer Loyalty Programs addresses accounting by entities that grant loyalty award credits (such as 'points' or travel miles) to customers who buy other goods or services. It requires entities to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations. The Group is considering the implications of this interpretation and any resulting change in accounting policy would be accounted for in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in 2009. •IFRS 8 - Operating Segments was issued in November 2006 and would first be required to be applied to the Group accounting period beginning on 1 January 2009. The standard replaces IAS 14 - Segmental Reporting and would align operating segmental reporting with segments reported to senior management as well as requiring amendments and additions to the existing segmental reporting disclosures. The standard does not change the recognition, measurement or disclosure of specific transactions in the consolidated financial statements. The Group is considering the enhancements that permitted early adoption in 2008 may make to the transparency of the segmental disclosures. •IAS - 1 Presentation of Financial Statements is a revised standard applicable to annual periods beginning on 1 January 2009. The amendments affect the presentation of owner changes in equity and of comprehensive income. They do not change the recognition, measurement or disclosure of specific transactions and events required by other standards. •IAS 23 - Borrowing Costs is a revised standard applicable to annual periods beginning on 1 January 2009. The revision does not impact Barclays. The revision removes the option not to capitalise borrowing costs on qualifying assets, which are assets that take a substantial period of time to get ready for their intended use or sale. • An amendment to IFRS 2 Share-based Payment was issued in January 2008 that clarifies that vesting conditions are service conditions and performance conditions only. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment, which results in the acceleration of charge. The Group is considering the implications of the amendment, particularly to the Sharesave scheme, and any resulting change in accounting policy would be accounted for in accordance with IAS 8 Accounting policies, changes in accounting estimates and errors in 2009. •Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements were issued in February 2008 that require some puttable financial instruments and some financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity. The amendments, which are applicable to annual periods beginning on 1 January 2009, do not impact Barclays. The following IFRIC interpretations issued during 2006 and 2007 which firstapply to accounting periods beginning on or after 1st January 2008 are notexpected to result in any changes to the Group's accounting policies: •IFRIC 11 IFRS 2 - Group and Treasury Share Transactions •IFRIC 12 - Service Concession Arrangements •IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Share capital The Group manages its debt and equity capital actively. The Group's authority tobuy back ordinary shares (up to 980.8 million ordinary shares) was renewed atthe 2007 Annual General Meeting. The Group will seek to renew its authority tobuy back ordinary shares at the 2008 Annual General Meeting to provideadditional flexibility in the management of the Group's capital resources. During 2007 Barclays repurchased in the market 299,547,510 of its ordinaryshares of 25p each at a total cost of £1,793,216,231 in order to minimise thedilutive effect on its existing shareholders of the issuance of a total of336,805,556 Barclays ordinary shares to Temasek Holdings and China DevelopmentBank. Group share schemes The independent trustees of the Group's share schemes may make purchases ofBarclays PLC ordinary shares in the market at any time or times following thisannouncement of the Group's results for the purposes of those schemes' currentand future requirements. The total number of ordinary shares purchased would notbe material in relation to the issued share capital of Barclays PLC. Filings with the SEC The results will be furnished as a Form 6-K to the US Securities and ExchangeCommission as soon as practicable following the publication of these results. Acquisitions On 8th February 2007 Barclays completed the acquisition of IndexchangeInvestment AG. Indexchange is based in Munich and offers exchange traded fundproducts. On 28th February 2007 Barclays completed the acquisition of Nile Bank Limited.Nile Bank is based in Uganda with 18 branches and 228 employees. On 30th March 2007 Barclays completed the acquisition of EquiFirst. EquiFirst isa non-prime wholesale mortgage originator in the United States. On 18th May 2007 Barclays completed the acquisition of Walbrook Group Limited.Walbrook is based in Jersey, Guernsey, Isle of Man and Hong Kong where it serveshigh net worth private clients and corporate customers. Disposals On 4th April 2007 Barclays completed the sale of part of Monument, a credit cardbusiness. On 24th September 2007 Barclays completed the sale of a 50% shareholding inIntelenet Global Services Pvt Ltd. Recent developments On 16th April 2007 Barclays announced the sale of Barclays Global InvestorsJapan Trust & Banking Co., Ltd, a Japanese trust administration and custodyoperation. The sale completed on 31st January 2008. On 5th October 2007, Barclays announced that as at 4th October 2007 not all ofthe conditions relating to its offer for ABN AMRO Holding N.V. were fulfilledand as a result Barclays was withdrawing its offer with immediate effect.Barclays also announced that it was restarting the Barclays PLC share buybackprogramme to minimise the dilutive effect of the issuance of shares to ChinaDevelopment Bank and Temasek Holdings (Private) Limited on existing Barclays PLCshareholders. This programme was subsequently extended to 31st January 2008. On 7th February 2008, Barclays announced the purchase of Discover's UK creditcard business for a consideration of approximately £35m. The consideration issubject to an adjustment mechanism based on the net asset value of the businessat completion. Completion is subject to various conditions, includingcompetition clearance, and is expected to occur during the first half of 2008. Registered office1 Churchill Place, London, E14 5HP, England, United Kingdom. Tel: +44 (0) 207116 1000. Company number: 48839. Websitewww.barclays.com Registrar The Registrar to Barclays PLC, Aspect House, Spencer Road, Lancing, West Sussex,BN99 6DA, England, United Kingdom. Tel: 0871 384 2055 (calls to this number arecharged at 8p per minute if using a BT landline. Other telephony provider costsmay vary) or +44 1214 157 004 from overseas. Listing The principal trading market for Barclays PLC ordinary shares is the LondonStock Exchange. Ordinary shares are also listed on the Tokyo Stock Exchange.Trading on the New York Stock Exchange is in the form of ADSs under the tickersymbol 'BCS'. Each ADS represents four ordinary shares of 25p each and isevidenced by an ADR. The ADR depositary is The Bank of New York whoseinternational telephone number is +1-212-815-3700, whose domestic telephonenumber is 1-888-BNY-ADRS and whose address is The Bank of New York, InvestorRelations, PO Box 11258, Church Street Station, New York, NY 10286-1258. Filings with the SEC Statutory accounts for the year ended 31st December 2007, which also includecertain information required for the joint Annual Report on Form 20-F ofBarclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission(SEC), can be obtained from Corporate Communications, Barclays Bank PLC, 200Park Avenue, New York, NY 10166, United States of America or from the Director,Investor Relations at Barclays registered office address, shown above, once theyhave been published in late March. Once filed with the SEC, copies of the form20-F will also be available from the Barclays Investor Relations website(details below) and from the SEC's website (www.sec.gov). Results timetableEx dividend Date Wednesday, 5th March 2008Dividend Record Date Friday, 7th March 20082008 Annual General Meeting Date Thursday, 24th April 2008Dividend Payment Date Friday, 25th April 20082008 First-half Interim Management Statement* Thursday, 15th May 20082008 Half-yearly Financial Report* Thursday, 7th August 2008 *Note that these announcement dates are provisional and subject to change. Economic data 2007 2006Period end - US$/£ 2.00 1.96Average - US$/£ 2.00 1.84Period end - EUR/£ 1.36 1.49Average - EUR/£ 1.46 1.47Period end - ZAR/£ 13.64 13.71Average - ZAR/£ 14.11 12.47 For further information please contact: Investor Relations Media RelationsMark Merson/John McIvor Alistair Smith/Robin Tozer+44 (0) 20 7116 5752/2929 +44 (0) 20 7116 6132/6586 More information on Barclays can be found on our website at the followingaddress: www.investorrelations.barclays.com APPENDIX 1 ABSA 2007 2006 Rm Rm ---------- ----------Interest and similar income 55,123 37,569Interest expense and similar charges (36,233) (22,682) ---------- ----------Net interest income 18,890 14,887Impairment losses on loans and advances (2,433) (1,573) ---------- ----------Fee and commission income 12,873 11,247Fee and commission expense (1,273) (1,094) ---------- ----------Net fee and commission income 11,600 10,153 ---------- ----------Insurance premium revenue 3,531 3,269Premiums ceded to reinsurers (339) (275) ---------- ----------Net insurance premium income 3,192 2,994 ---------- ----------Gross claims and benefits incurred under insurance contracts 1,847 1,376Reinsurance recoveries (244) (57) ---------- ----------Net claims and benefits paid (1,603) (1,319)Changes in insurance and investment liabilities (489) (748)Gains and losses from banking and trading activities 1,622 1,376Gains and losses from investment activities 1,561 1,891Other operating income 845 672 ---------- ----------Net operating income 33,185 28,333Operating expenses (18,442) (16,089)Non-credit related impairments (58) (75)Indirect taxation (709) (865)Share of profit of associated and joint venture companies 91 113 ---------- ----------Operating profit before income tax 14,067 11,417 ---------- ---------- This appendix summarises the Rand results of Absa Group Limited for the year to31st December 2007 as reported to JSE Limited. Absa Group Limited results Absa Group Limited's operating profit before income tax increased 23% (R2,650m) to R14,067m (2006 R11,417m) reflecting very good performances from RetailBanking, Absa Capital and Absa Corporate and Business Bank. Absa Group Limiteddelivered a return on equity of 27.2% (2006: 27.4%). Key factors impacting theresults included: very strong asset and income growth; the diversification ofearnings in favour of investment banking and commercial banking; an increasedretail credit impairment charge, and the achievement of the Absa - Barclayssynergy target 18 months ahead of schedule. Net operating income grew 17% (R4,852m) to R33,185m (2006: R28,333m). Net interest income grew 27% (R4,003m) to R18,890m (2006: R14,887m) driven bygrowth in loans and advances and deposits at improved margins. Loans andadvances to customers increased 22% from 31st December 2006 driven by growth of23% in mortgages and 23% in credit cards. Non-interest income grew 11% (R1,709m) to R16,728m (2006: R15,019m) driven byincreased transaction volumes in retail banking and Absa Corporate and BusinessBank, as well as advisory fees from Absa Capital. Impairment charges on loans and advances increased 55% (R860m) to R2,433m (2006:R1,573m) from the cyclically low levels of recent years. Arrears in retailportfolios increased driven by interest rate increases in 2006 and 2007.Impairment charges as a percentage of loans and advances was 0.58%, ahead of the0.45% charge in 2006 but within long-term industry averages. Operating expenses increased 15% (R2,353m) to R18,442m, (2006: R16,089m)resulting from increased investment in new distribution outlets and staff inorder to support continued growth in volumes and customers. The cost:incomeratio improved two percentage points from 54% to 52%. Excellent progress was made with the realisation of synergy benefits of R1,428mto date, thus achieving the synergy target of R1.4bn, 18 months ahead ofschedule. APPENDIX 2 Profit before business disposals 2007 2006 £m £mProfit before tax 7,076 7,136 Excluding profit on disposal ofsubsidiaries,associates and joint ventures(1) (28) (323) -------- --------Profit before business disposals 7,048 6,813 -------- --------Tax on profit before business disposals (1,981) (1,941) -------- --------Profit after tax before business disposals 5,067 4,872 -------- --------Profit attributable to minority interests 678 624Profit before business disposalsattributable to equity holders of the parent 4,389 4,248 -------- --------Profit after tax before business disposals 5,067 4,872 -------- -------- £m £mEconomic profit 2,290 2,704Economic profit before business disposals 2,262 2,381 p pEarnings per share 68.9 71.9Earnings per share before business disposals 68.5 66.8Diluted earnings per share 66.7 69.8Diluted earnings per share before business disposals 66.3 64.8 Post-tax return on average shareholder equity 20.3% 24.7%Post-tax return on average shareholderequity before business disposals 20.2% 23.0% (1) Profit on disposals of subsidiaries, associates and joint ventures was £14m(2006: £76m) in Barclays Commercial Bank, £8m (2006: £247m) in InternationalRetail and Commercial Banking - excluding Absa and £6m (2006: £nil) in otherbusiness segments. This information is provided by RNS The company news service from the London Stock Exchange

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