15th Nov 2007 07:03
Barclays PLC15 November 2007 15th November 2007 BARCLAYS PLC OCTOBER YEAR TO DATE TRADING PERFORMANCE AT BARCLAYS CAPITAL AHEAD OF RECORD PRIOR YEAR PERIOD "This announcement briefs stakeholders on the performance of Barclays Capitalduring the first ten months of the year. It continues a pattern of performancecommentary that we have given during the last three months. Today's extensivedisclosure demonstrates the strength and resilience of our performance duringthe year and in particular during the turbulent month of October." John Varley, Group Chief Executive Barclays today issues the following update on its capital markets tradingperformance and exposures: - Net income and profit before tax for the ten months to 31st October2007 ahead of record prior year period - Strength and diversity of income generation enabling absorption ofwrite downs - Significant reduction in exposures through proactive risk management "The diversity of our business, our strong risk management and our focus onexecution and clients has allowed Barclays Capital to deliver year to dateperformance in 2007 ahead of last year's record October year to date profits." Robert E Diamond Jr, President Barclays Capital - October 2007 year to date Barclays Capital's net income and profit before tax for the ten months ended31st October 2007 exceeded the record net income and profits of the equivalentprior year period. Profit before tax of £1.9bn for the period was after bookingcredit, mortgage and leveraged finance related charges and write downs of £0.5bnnet of hedging in the third quarter (reflected in our previous statements to themarket); and an additional £0.8bn net charges and write downs in October. Thecharges and write downs are stated net of a gain of £0.2bn in each of the thirdquarter and October arising from the fair valuation of notes issued by BarclaysCapital. The October charges and write downs reflected the impact of ratingagency downgrades on a broad range of CDOs and the subsequent market downturn. The overall performance reflected the benefit of proactive risk managementthroughout 2007 and Barclays Capital's diverse revenue base, with strong growthacross commodity, equity, currency and interest rate products; and excellentcontributions from continental Europe and Asia and good results in the UKmarkets. Sub Prime ABS Positions Barclays Capital's involvement in the US sub-prime sector comprises liquidityfacilities to CDOs and other structures, now held as ABS CDO Super Seniorexposure; and other exposures consisting of warehouse lines provided tothird-party originators, whole loan purchases, and ABS and CDO tradingpositions. ABS CDO Super Senior Exposure Liquidity facilities to CDOs and other structures primarily held on our bankingbook were principally in support of CDO high grade and mezzanine structuresoriginated by Barclays Capital. The liquidity facilities have now been drawn andBarclays Capital consequently holds ABS CDO super senior exposure. The CDOstructures were originated between 2005 and the first half of 2007, with theolder structures benefiting from better performing collateral. Over half of thecollateral underlying these structures was 2005 or earlier vintages and morethan three quarters was originated prior to the second half of 2006. Prior to October, we used cash flow analysis to estimate impairment for theoriginated high grade and mezzanine ABS CDO positions in the banking book. To dothis, we considered observable data for relevant benchmark instruments, impliedcumulative losses in mortgage pools and the likelihood of events of default inunderlying ABS CDO collateral. For the trading book, we assessed fair value withreference to observable market benchmarks, including the ABX indices. In October, further to the rating agency downgrades and subsequent marketdownturns, we valued the following collateral underlying our ABS CDO supersenior exposures as follows: - all RMBS backed CDO collateral written down to zero, only retainingvaluation in expected interest payments where appropriate - all second lien collateral written down to zero. In October, we also assessed additional impairment on mezzanine transactions inthe banking book using projected cash flows, as calculated for the trading bookand the potential for these structures to hit default triggers by the end of2008. Write downs, charges, hedges and subordination provide protection against losslevels of 65% of sub prime collateral across both high grade and mezzaninetransactions. At 31st October 2007, Barclays Capital's high grade exposure net of hedges andsubordination was £3.8bn (30th June 2007: £5.8bn) after charges and write downsnet of hedges in the third quarter of £0.3bn and a further £0.4bn in October2007. At 31st October 2007, Barclays Capital's mezzanine exposure net of hedgesand subordination was £1.2bn (30th June 2007: £1.6bn) after charges and writedowns net of hedges in the third quarter of £0.1bn and a further £0.3bn inOctober 2007. Other US Sub Prime Exposure Barclays Capital provided secured financing lines to third-party mortgageoriginators in advance of securitisations, and also purchased pools of mortgages("whole loans") for Barclays Capital's own account in anticipation of its ownsecuritisations. At the end of March 2007, we acquired EquiFirst, a mortgageoriginator, who, from that point, originated the large majority of the wholeloans we have acquired. Excluding the whole loans we originated throughEquiFirst, at the beginning of January 2007 our warehouse and whole loanpositions totalled £4.3bn and we had reduced these positions to £0.8bn by 30thJune 2007 and £0.4bn at 31st October 2007. Since acquiring EquiFirst, we have progressively tightened underwritingcriteria, and our EquiFirst mortgage origination has been at an average LTV of82%, with only 4% of origination above a 95% LTV. In addition, 99% of theexposure was first lien. Whole loan inventory is held in a trading book at fairvalue determined with reference to current market parameters for the underlyingmortgage pools. ABS and CDO positions held on the trading book were acquired for market-making,ABS and CDO structuring purposes. These positions, which include ABS bonds, CDOsand sub prime residuals, are valued by reference to observable transactionsincluding the level of the ABX indices and on a pool-by-pool basis, impliedcumulative loss projections. RMBS backed CDOs have been valued consistently tothe ABS CDO super senior exposure as noted above. Whole loan and trading book valuations gave rise to a £0.2bn write down net ofhedges in the third quarter and a further £0.2bn write down net of hedges in themonth of October. At 31st October 2007, Barclays Capital's whole loan andtrading book net exposure was £5.4bn (30th June 2007: £6.0bn). SIVs and SIV-lites Our trading book inventory at 31st October 2007 included £0.2bn of assets fromthe drawdown of SIV-lite liquidity facilities (30th June 2007: £0.7bn). Ourexposure to SIVs was £0.7bn comprising derivative exposures, undrawn CP backstopfacilities and bonds held in our trading book (30th June 2007: £0.9bn). We haveno further undrawn backup liquidity facilities for SIVs or SIV-lites. Cumulativewrite downs on SIVs and SIV-lites to 31st October 2007 were £70m. Leveraged Finance and Own Credit October year to date income was also impacted by reduced demand for leveragedfinance. At 31st October 2007, Barclays Capital had £7.3bn in exposure fromunsold underwriting positions down from a peak exposure of £9.0bn duringSeptember (30th June 2007: £7.3bn), and less than £20m exposure to equitybridges (30th June 2007: £82m). We have performed a detailed analysis of theunsold underwriting positions in the portfolio with reference to both creditquality and observable market transactions. As a result of this exercise, wehave written down the carrying value of the exposures by £190m, which after feesof £130m produced a provision of £60m. The general widening of credit spreads that contributed to the leveraged financewrite-downs also reduced the carrying value of the £55bn traded debt held onBarclays Capital's balance sheet. We have therefore recognised gains of £0.2bnin each of the third quarter and October 2007. Other capital markets business Barclays other business with significant capital markets presence is BarclaysGIobal Investors, which has continued to perform well in the third quarter andin October. Liquidity and Funding Barclays liquidity position remains very strong both for its own paper and paperissued by its sponsored conduits. We have benefited from significant inflows ofdeposits, increased credit lines from counterparties, increased client flowsacross many businesses and continued full funding of our conduits. Barclays exposure to its own conduits through undrawn backstop liquidityfacilities was £19.0bn as at 31st October 2007 (30th June 2007: £21.7bn). TheBarclays-sponsored vehicles are long established and are fully funded through CPissuance. All are fully consolidated on the Barclays balance sheet on anavailable-for-sale basis at fair value. Barclays will provide its normal scheduled trading update on 27th November 2007. Summary of Barclays Capital net charges and write downs £bn Net charges and write downs Comments Q3 2007 Oct 2007ABS CDO Super Senior High Grade (0.3) (0.4) -All RMBS CDO principal valued at zero -All second lien collateral valued at zero -Sub Prime collateral marked down 50% Mezzanine (0.1) (0.3) -As above -Used fair value with impairment horizon to 2008Other US Subprime Whole loans and trading book positions (0.2) (0.2) -Trading book assessed at fair value based on current market parametersSIVs/SIV-lites (0.1) 0.0 -Minimal sub prime exposure in SIVs -No undrawn SIV-lite facilitiesLeveraged Finance/Own Credit 0.2 0.1 -------- ----------Net Charges and WriteDowns in the period (0.5) (0.8) ======== ========== Barclays Capital Trading Update conference call and webcast details The briefing will be available as a live conference call at 08.30 (GMT) onThursday, 15th November 2007. The telephone number for UK callers is 0845 3014070 (+44 (0) 20 8322 2723 for all other locations), with the access code'Barclays Update'. The briefing will also be available as a live audio webcaston the Investor Relations website at: www.investorrelations.barclays.com and arecording will be posted on the website later. For further information please contact Barclays: Investor RelationsMark Merson John McIvor+44 (0) 20 7116 5752 +44 (0) 20 7116 2929 Media RelationsAlistair Smith R Robin Tozer+44 (0) 20 7116 6132 +44 (0) 20 7116 6586 Barclays Capital:Siobhan Loftus Simon Eaton+44 (0) 20 7773 7371 +44 (0) 20 313 42111 Forward Looking Statements This document contains certain forward-looking statements within the meaning ofSection 21E of the US Securities Exchange Act of 1934, as amended, and Section27A of the US Securities Act of 1933, as amended, with respect to certain of theGroup's plans and its current goals and expectations relating to its futurefinancial condition and performance. These forward-looking statements can beidentified by the fact that they do not relate only to historical or currentfacts. Forward-looking statements sometimes use words such as 'aim','anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal','believe', or other words of similar meaning. Examples of forward-lookingstatements include, among others, statements regarding the Group's futurefinancial position, income growth, impairment charges, business strategy,projected levels of growth in the banking and financial markets, projectedcosts, estimates of capital expenditures, and plans and objectives for futureoperations. By their nature, forward-looking statements involve risk anduncertainty because they relate to future events and circumstances, including,but not limited to, the further development of standards and interpretationsunder International Financial Reporting Standards (IFRS) applicable to past,current and future periods, evolving practices with regard to the interpretationand application of standards under IFRS, as well as UK domestic and globaleconomic and business conditions, market related risks such as changes ininterest rates and exchange rates, the policies and actions of governmental andregulatory authorities, changes in legislation, progress in the integration ofAbsa into the Group's business and the achievement of synergy targets related toAbsa, the outcome of pending and future litigation, the success of futureacquisitions and other strategic transactions and the impact of competition - anumber of which factors are beyond the Group's control. As a result, the Group'sactual future results may differ materially from the plans, goals, andexpectations set forth in the Group's forward-looking statements. Any forward-looking statements made by or on behalf of Barclays speak only as ofthe date they are made. Barclays does not undertake to update forward-lookingstatements to reflect any changes in Barclays expectations with regard theretoor any changes in events, conditions or circumstances on which any suchstatement is based. The reader should, however, consult any additionaldisclosures that Barclays has made or may make in documents it has filed or mayfile with the SEC. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Barclays