UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

(Mark One)

 

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

OR

 

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                         

 

Commission file numbers		Barclays PLC		1-09246
		Barclays Bank PLC		1-10257

BARCLAYS PLC

BARCLAYS BANK PLC

(Exact Names of Registrants as Specified in their Charter[s])

ENGLAND

(Jurisdiction of Incorporation or Organization)

1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND

(Address of Principal Executive Offices)

MARIE SMITH, +44 (0)20 7116 2907, MARIE.SMITH@BARCLAYS.COM

1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND

*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Barclays PLC

 

Title of Each Class		Name of Each Exchange On Which Registered
25p ordinary shares		New York Stock Exchange*

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Title of Each Class		Name of Each Exchange On Which Registered
American Depositary Shares, each representing four 25p ordinary shares		New York Stock Exchange
4.375% Fixed Rate Subordinated Notes due 2024		New York Stock Exchange
2.75% Fixed Rate Senior Notes due 2019		New York Stock Exchange
2.00% Fixed Rate Senior Notes due 2018		New York Stock Exchange
3.65% Fixed Rate Senior Notes due 2025		New York Stock Exchange
2.875% Fixed Rate Senior Notes due 2020		New York Stock Exchange
5.25% Fixed Rate Senior Notes due 2045		New York Stock Exchange
3.25% Fixed Rate Senior Notes due 2021		New York Stock Exchange
4.375% Fixed Rate Senior Notes due 2026		New York Stock Exchange
5.20% Fixed Rate Subordinated Notes due 2026		New York Stock Exchange
3.20% Fixed Rate Senior Notes due 2021		New York Stock Exchange
Floating Rate Senior Notes due 2021		New York Stock Exchange
Floating Rate Senior Notes due 2023		New York Stock Exchange

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Title of Each Class		Name of Each Exchange On Which Registered
3.684% Fixed Rate Senior Notes due 2023		New York Stock Exchange
4.337% Fixed Rate Senior Notes due 2028		New York Stock Exchange
4.950% Fixed Rate Senior Notes due 2047		New York Stock Exchange

 

*

Not for trading, but in connection with the registration of American Depositary Shares, pursuant to the requirements to the Securities and Exchange Commission.

Barclays Bank PLC

 

Title of Each Class		Name of Each Exchange On Which Registered
Callable Floating Rate Notes 2035		New York Stock Exchange
Non-Cumulative Callable Dollar Preference Shares, Series 3		New York Stock Exchange*
American Depositary Shares, Series 3, each representing one Non-Cumulative Callable Dollar Preference Share, Series 3		New York Stock Exchange
Non-Cumulative Callable Dollar Preference Shares, Series 5		New York Stock Exchange*
American Depositary Shares, Series 5, each representing one Non-Cumulative Callable Dollar Preference Share, Series 5		New York Stock Exchange
5.140% Lower Tier 2 Notes due October 2020		New York Stock Exchange
iPath® Bloomberg Commodity Index Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Agriculture Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Aluminum Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Cocoa Subindex Total ReturnSM ETN		NYSE Arca

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iPath® Bloomberg Coffee Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Copper Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Cotton Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Energy Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Grains Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Industrial Metals Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Lead Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Livestock Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Natural Gas Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Nickel Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Platinum Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Precious Metals Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Softs Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Sugar Subindex Total ReturnSM ETN		NYSE Arca
iPath® Bloomberg Tin Subindex Total ReturnSM ETN		NYSE Arca
iPath® S&P GSCI® Total Return Index ETN		NYSE Arca
iPath® S&P GSCI® Crude Oil Total Return Index ETN		NYSE Arca
iPath® CBOE S&P 500 BuyWrite IndexSM ETN		NYSE Arca
iPath® MSCI India IndexSM ETN		NYSE Arca
iPath® EUR/USD Exchange Rate ETN		NYSE Arca
iPath® GBP/USD Exchange Rate ETN		NYSE Arca
iPath® JPY/USD Exchange Rate ETN		NYSE Arca
iPath® S&P 500 VIX Short-Term FuturesTM ETN		NYSE Arca

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iPath® S&P 500 VIX Mid-Term FuturesTM ETN		NYSE Arca
iPath® Inverse S&P 500 VIX Short-Term FuturesTM ETN		NYSE Arca
iPath® Long Extended Russell 1000® TR Index ETN		NYSE Arca
iPath® Long Extended Russell 2000® TR Index ETN		NYSE Arca
iPath® Long Enhanced MSCI EAFE® TR Index ETN		NYSE Arca
iPath® Long Enhanced MSCI Emerging Markets Index ETN		NYSE Arca
iPath® Short Enhanced MSCI Emerging Markets Index ETN		NYSE Arca
iPath® Long Extended S&P 500® TR Index ETN		NYSE Arca
iPath® Global Carbon ETN		NYSE Arca
iPath® Optimized Currency Carry ETN		NYSE Arca
iPath® US Treasury Steepener ETN		NASDAQ
iPath® US Treasury Flattener ETN		NASDAQ
iPath® US Treasury 2-year Bull ETN		NASDAQ
iPath® US Treasury 2-year Bear ETN		NASDAQ
iPath® US Treasury 10-year Bull ETN		NASDAQ
iPath® US Treasury 10-year Bear ETN		NASDAQ
iPath® US Treasury Long Bond Bull ETN		NASDAQ
iPath® US Treasury Long Bond Bear ETN		NASDAQ
iPath® Pure Beta Broad Commodity ETN		NYSE Arca
iPath® Pure Beta S&P GSCI®-Weighted ETN		NYSE Arca
iPath® Pure Beta Cocoa ETN		NYSE Arca
iPath® Pure Beta Coffee ETN		NYSE Arca
iPath® Pure Beta Cotton ETN		NYSE Arca

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iPath® Pure Beta Sugar ETN		NYSE Arca
iPath® Pure Beta Aluminum ETN		NYSE Arca
iPath® Pure Beta Copper ETN		NYSE Arca
iPath® Pure Beta Lead ETN		NYSE Arca
iPath® Pure Beta Nickel ETN		NYSE Arca
iPath® Pure Beta Crude Oil ETN		NYSE Arca
iPath® Seasonal Natural Gas ETN		NYSE Arca
iPath® Pure Beta Agriculture ETN		NYSE Arca
iPath® Pure Beta Grains ETN		NYSE Arca
iPath® Pure Beta Softs ETN		NYSE Arca
iPath® Pure Beta Industrial Metals ETN		NYSE Arca
iPath® Pure Beta Energy ETN		NYSE Arca
iPath® Pure Beta Livestock ETN		NYSE Arca
iPath® Pure Beta Precious Metals ETN		NYSE Arca
iPath® US Treasury 5-year Bull ETN		NASDAQ
iPath® US Treasury 5-year Bear ETN		NASDAQ
iPath® S&P 500 Dynamic VIX ETN		NYSE Arca
iPath® Inverse S&P 500 VIX Short-Term FuturesTM ETN (II)		NYSE Arca
iPath® GEMS IndexTM ETN		NYSE Arca
iPath® GEMS Asia 8 ETN		NYSE Arca
iPath® Asian and Gulf Currency Revaluation ETN		NYSE Arca
iPath® S&P MLP ETN		NYSE Arca
iPath® Series B S&P GSCI Crude Oil Total Return Index ETN		NYSE Arca
Barclays ETN+ S&P 500® VEQTOR™ ETN		NYSE Arca

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Barclays ETN+ Shiller CAPETM ETNs		NYSE Arca
Barclays ETN+ Select MLP ETN		NYSE Arca
Barclays ETN+ FI Enhanced Europe 50 ETN		NYSE Arca
Barclays ETN+ FI Enhanced Global High Yield ETN		NYSE Arca
Barclays ETN+ FI Enhanced Europe 50 ETN Series B		NYSE Arca
Barclays Women in Leadership ETN		NYSE Arca
Barclays Return on Disability ETN		NYSE Arca
Barclays Inverse US Treasury Composite ETN		NASDAQ

 

*	Not for trading, but in connection with the registration of American Depositary Shares, pursuant to the requirements to the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of the close of the period covered by the annual report.

 

Barclays PLC		25p ordinary shares			16,804,603,949
Barclays Bank PLC		£1 ordinary shares			2,342,558,515
		£1 preference shares			1,000
		£100 preference shares			20,930
		€100 preference shares			31,856
		$0.25 preference shares			161,000,000
		$100 preference shares			58,133

Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☑    No ☐

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If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.

Yes ☐    No ☑

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes ☑    No ☐

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐    No ☐

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Barclays PLC

 

Large Accelerated Filer ☑		Accelerated Filer ☐		Non-Accelerated Filer ☐

Barclays Bank PLC

 

Large Accelerated Filer ☐		Accelerated Filer ☐		Non-Accelerated Filer ☑

*Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board  ☑

Other ☐

*If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ☐

Item 18 ☐

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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐    No ☑

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐    No ☐

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SEC Form 20-F Cross reference information

 

Form 20-F item number						Page and caption references in this document*
1		Identity of Directors, Senior Management and Advisers				Not applicable
2		Offer Statistics and Expected Timetable				Not applicable
3		Key Information
		A.		Selected financial data		193, 195, 321-322, 447-448
		B.		Capitalization and indebtedness		Not applicable
		C.		Reason for the offer and use of proceeds		Not applicable
		D.		Risk factors		86-96
4		Information on the Company
		A.		History and development of the company		44-46, 188, 233 (note 6), 235 (note 9), 294-295 (note 36), 298-299 (note 38), 306-307 (note 44), 308-316 (note 46), 429, 465-467
		B.		Business overview		v (Market and other data), 182-189, 197-211, 227-230, 231 (note 2)
		C.		Organizational structure		188, 294-295 (note 36), 308-316 (note 46), 429
		D.		Property, plants and equipment		223, 264 (note 21), 266-267 (note 23), 269 (note 25)
4A		Unresolved staff comments				Not applicable
5		Operating and Financial Review and Prospects
		A.		Operating results		vi-x, 107, 149-150, 182-189, 191-211, 231-316
		B.		Liquidity and capital resources		104-107, 121-122, 140, 152, 154-159, 161-177, 182-189, 242-244 (note 15), 281-284 (note 30), 285 (note 31), 299-301 (note 39), 304 (note 43)
		C.		Research and development, patents and licenses, etc.		44
		D.		Trend information		–
		E.		Off-balance sheet arrangements		272 (note 28), 295-298 (note 37), 299-301 (note 39)
		F.		Tabular disclosure of contractual obligations		406-407
		G.		Safe harbor		iv-v (Forward-looking statements)
6		Directors, Senior Management and Employees
		A.		Directors and senior management		3-5, 332-336
		B.		Compensation		51-85, 287-288 (note 34), 289-293 (note 35), 302-304 (note 41), 426, 446 (note r)
		C.		Board practices		6-50, 80-83
		D.		Employees		47, 50 (Permanent employees by region), 199, 200, 203, 207, 208, 210
		E.		Share ownership		51-85, 287-288 (note 34), 302-304 (note 41), 339-341
7		Major Shareholders and Related Party Transactions
		A.		Major shareholders		45, 331-332
		B.		Related party transactions		210, 302-304 (note 41), 426, 446 (note r)
		C.		Interests of experts and counsel		Not applicable

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Form 20-F item number						Page and caption references in this document*
8		Financial Information
		A.		Consolidated statements and other financial information		193-195, 219-316, 428-446
		B.		Significant changes		Not applicable
9		The Offer and Listing
		A.		Offer and listing details		321
		B.		Plan of distribution		Not applicable
		C.		Markets		321
		D.		Selling shareholders		Not applicable
		E.		Dilution		Not applicable
		F.		Expenses of the issue		Not applicable
10		Additional Information
		A.		Share capital		Not applicable
		B.		Memorandum and Articles of Association		43-46, 317-319
		C.		Material contracts		67-68
		D.		Exchange controls		326
		E.		Taxation		323-325
		F.		Dividends and paying assets		Not applicable
		G.		Statement by experts		Not applicable
		H.		Documents on display		326
		I.		Subsidiary information		294-295 (note 36) 308-316 (note 46)
11		Quantitative and Qualitative Disclosure about Market Risk				103, 141-151, 304 (note 43), 373-379
12		Description of Securities Other than Equity Securities
		A.		Debt Securities		Not applicable
		B.		Warrants and Rights		Not applicable
		C.		Other Securities		Not applicable
		D.		American Depositary Shares		321, 327-328
13		Defaults, Dividends Arrearages and Delinquencies				Not applicable
14		Material Modifications to the Rights of Security Holders and Use of Proceeds				Not applicable
15		Controls and Procedures
		A.		Disclosure controls and procedures		332
		B.		Management’s annual report on internal control over financial reporting		41
		C.		Attestation report of the registered public accounting firm		218
		D.		Changes in internal control over financial reporting		41
16A		Audit Committee Financial Expert				11

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16B		Code of Ethics				330
16C		Principal Accountant Fees and Services				17-19, 304 (note 42), 329
16D		Exemptions from the Listing Standards for Audit Committees				Not applicable
16E		Purchases of Equity Securities by the Issuer and Affiliated Purchasers				46, 284 (Share repurchase)
16F		Change in Registrant’s Certifying Accountant				Not applicable
16G		Corporate Governance				330
17		Financial Statements				Not applicable (See Item 8)
18		Financial Statements				Not applicable (See Item 8)
19		Exhibits				Exhibit Index

 

*

Captions have been included only in respect of pages with multiple sections on the same page in order to identify the relevant caption on that page covered by the corresponding Form 20-F item number.

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  Building the bank

  of the future

 

 

						Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Notes

The term Barclays or Group refers to Barclays PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 2016 to the corresponding 12 months of 2015 and balance sheet analysis as at 31 December 2016 with comparatives relating to 31 December 2015. The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of Pounds Sterling respectively; the abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of US Dollars respectively; and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of Euros respectively.

Comparatives have been restated to reflect the implementation of the Group business reorganisation. These restatements were detailed in our Form 6-K filed with the SEC dated 15 April 2016.

The information in this announcement, which was approved by the Board of Directors on 22 February 2017, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015, which included certain information required for the Joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the SEC and which contained an unqualified audit report under Section 495 of the Companies Act 2006 (which did not make any statements under Section 498 of the Companies Act 2006) have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

Barclays is a frequent issuer in the debt capital markets and regularly meets with investors via formal road-shows and other ad hoc meetings. Consistent with its usual practice, Barclays expects that from time to time over the coming quarter it will meet with investors globally to discuss these results and other matters relating to the Group.

Certain non-IFRS measures

Barclays management believes that the non-International Financial Reporting Standards (non-IFRS) measures included in this document provide valuable information to readers of its financial statements because they enable the reader to identify a more consistent basis for comparing the business’ performance between financial periods, and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays management. However, any non-IFRS measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well.

There are a number of key judgement areas, for example impairment calculations, which are based on models and which are subject to ongoing adjustment and modifications. Reported numbers reflect best estimates and judgements at the given point in time.

Notable items as set out on page 197 are considered to be significant items impacting comparability of performance and have been called out for each of the business segments.

Relevant terms that are used in this document but are not defined under applicable regulatory guidance or International Financial Reporting Standards (IFRS) are explained in the Results glossary of non-IFRS performance measures on page 212 and the glossary of terms on pages 449 to 464.

 

 

i

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Key non-IFRS measures included in this document, and the most directly comparable IFRS measures, are:

– Attributable profit/(loss) excluding notable items represents profit after tax excluding notable items less profit attributable to non-controlling interests. The comparable IFRS measure is attributable profit. A reconciliation is presented on pages vi to vii;

– Average tangible shareholders’ equity is calculated as the average equity adjusted to remove the effect of goodwill and intangible assets. The comparable IFRS measure is average equity. A reconciliation is provided on page ix;

– Average allocated tangible equity represents the average tangible equity that is allocated to Barclays Core, and to the businesses. The comparable IFRS measure is average equity. A reconciliation is provided on page ix;

– Average tangible equity is equivalent to average tangible shareholders’ equity;

– Barclays Core results are considered to be non-IFRS because Barclays Core represents the sum of three Operating Segments, each of which is prepared in accordance with IFRS 8; “Operating Segments”: Barclays UK, Barclays International and Head Office. A reconciliation is provided on pages vi to viii;

– Basic earnings per share excluding notable items represents attributable profit excluding all notable items (page 197) divided by the basic weighted average number of shares in issue. The comparable IFRS measure is basic earnings per share. A reconciliation is provided on page 215;

– Core basic earnings per share excluding notable items represents basic earnings per share excluding notable items calculated for Barclays Core. Barclays Core represents the sum of three Operating Segments, each of which is prepared in accordance with IFRS 8, “Operating Segments”: Barclays UK, Barclays International and Head Office. The comparable IFRS measure is basic earnings per share. A reconciliation is provided on page 215;

 

– Cost: income ratio excluding notable items represents the ratio between total operating expenses excluding notable items and total income excluding notable items. The comparable IFRS measure is cost: income ratio. A reconciliation is provided on pages vi to viii;

– Core cost: income ratio excluding notable items represents cost: income ratio excluding notable items calculated for Barclays Core. Barclays Core represents the sum of three Operating Segments, each of which is prepared in accordance with IFRS 8, “Operating Segments”: Barclays UK, Barclays International and Head Office. The comparable IFRS measure is cost: income ratio. A reconciliation is provided on pages vi to viii;

– Total income excluding notable items represents total income excluding the impact of own credit, gain on disposal of Barclays’ share of Visa Europe Limited, revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology and gain on US Lehman acquisition assets. The comparable IFRS measure is total income. A full list of notable items is shown on page 197. A reconciliation is provided on pages vi to viii;

– Net operating income excluding notable items represents net operating income excluding the impact of own credit, gain on disposal of Barclays’ share of Visa Europe Limited, gain on US Lehman acquisition assets and revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology. The comparable IFRS measure is net operating income. A full list of notable items is shown on page 197. A reconciliation is provided on pages vi to viii;

 

ii

---

– Total operating expenses excluding notable items represents total operating expenses excluding the impact of provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange, gain on valuation of a component of the defined retirement benefit liability, impairment of goodwill and other assets relating to businesses being disposed and losses on sale relating to the Spanish, Portuguese and Italian businesses. The comparable IFRS measure is total operating expenses. A full list of notable items is shown on page 197. A reconciliation is provided on pages vi to viii;

– Profit after tax excluding notable items represents profit after tax excluding the post-tax impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, losses on sale relating to the Spanish, Portuguese and Italian businesses, revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology, gain on a valuation of a component of the defined retirement benefit liability, and gain on disposal of Barclays’ share of Visa Europe Limited. The comparable IFRS measure is profit after tax. A reconciliation is provided on pages vi to viii;

– Profit before tax excluding notable items represents profit before tax excluding the impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, excluding gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, losses on sale relating to the Spanish, Portuguese and Italian businesses, revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology, gain on a valuation of a component of the defined retirement benefit liability, and gain on disposal of Barclays’ share of Visa Europe Limited. The comparable IFRS measure is profit before tax. A reconciliation is provided on pages vi to viii;

Return on average allocated tangible equity represents the return on average tangible equity that is allocated to Barclays Core, and to the businesses. The comparable IFRS measure is return on equity. A reconciliation is provided on page ix;

– Attributable profit/(loss) excluding notable items represents attributable profit excluding the post-tax impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, losses on sale relating to the Spanish, Portuguese and Italian businesses, revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology, gain on a valuation of a component of the defined retirement benefit liability, and gain on disposal of Barclays’ share of Visa Europe Limited. The comparable IFRS measure is attributable profit. A full list of notable items is shown on page 197. A reconciliation to IFRS is presented on pages vi to viii;

 

iii

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– Return on average tangible shareholders’ equity excluding notable items represents attributable profit excluding notable items, including an adjustment for the tax credit recorded in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill. The comparable IFRS measure is return on equity. A reconciliation is provided on page 214;

– Return on average tangible shareholders’ equity is calculated as the return on equity adjusted to remove the effect of goodwill and intangible assets. The comparable IFRS measure is return on equity. A reconciliation is provided on page ix;

– Tangible net asset value per share is calculated by dividing shareholders equity, excluding non-controlling interests and other equity instruments, less goodwill and intangible assets, by the number of issued ordinary shares. The components of the calculation have been included on page 215;

– Total operating expenses, excluding conduct and litigation charges, and other notable items represents total operating expenses excluding the impact of impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange, and gain on a valuation of a component of the defined retirement benefit liability. The comparable IFRS measure is total operating expenses. A reconciliation is provided on pages vi to viii;

– Total operating expenses excluding conduct and litigation charges represents total operating expenses excluding the impact of provisions for UK customer redress, and provisions for ongoing investigations and litigation including Foreign Exchange. The comparable IFRS measure is total operating expenses. A reconciliation to IFRS is provided on pages vi to viii; and

– Transitional CET1 ratio according to FSA October 2012. This measure is calculated by taking into account the statement of the Financial Services Authority, the predecessor of the Prudential Regulation Authority, on CRD IV transitional provisions in October 2012, assuming such provisions were applied as at 1 January 2014. This ratio is used as the relevant measure starting 1 January 2014 for purposes of determining whether the automatic write-down trigger (specified as a Transitional CET1 ratio according to FSA October 2012 of less than 7.00%) has occurred under the terms of the Contingent Capital Notes issued by Barclays Bank PLC on November 21, 2012 (CUSIP: 06740L8C2) and April 10, 2013 (CUSIP: 06739FHK0). Please refer to page 155 for a reconciliation of this measure to CRD IV CET1 ratio.

Forward-looking statements

This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to the Group. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as ‘may’, ‘will’, ‘seek’, ‘continue’, ‘aim’, ‘anticipate’, ‘target’, ‘projected’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘achieve’ or other words of similar meaning. Examples of forward-looking statements include, among others, statements or guidance regarding the Group’s future financial position, income growth, assets, impairment charges, provisions, notable items, business strategy, structural reform, capital, leverage and other regulatory ratios, payment of dividends (including dividend pay-out ratios and expected payment strategies), projected levels of growth in the banking and financial markets, projected costs or savings, original and revised commitments and targets in connection with the strategic cost programme and the Group Strategy Update, rundown of assets and businesses within Barclays Non-Core, sell down of the Group’s interest in Barclays Africa Group Limited, estimates of capital expenditures and plans and objectives for future operations, projected employee numbers and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. These may be affected by changes in legislation, the development of standards and interpretations under International Financial Reporting Standards, evolving practices with regard to the interpretation and application of accounting and regulatory standards, the outcome of current and future legal proceedings and regulatory investigations, future levels of conduct provisions, future levels of notable items, the policies and actions of governmental and regulatory authorities, geopolitical risks and the impact of competition. In addition, factors including (but not limited to) the following may have an effect: capital, leverage and other regulatory rules (including with regard to the future structure of the Group) applicable to past, current and future periods; UK, US, Africa, Eurozone and global macroeconomic and business conditions; the effects of continued volatility in credit markets; market related risks such as changes in interest rates and foreign exchange rates; effects of changes in valuation of credit market exposures; changes in valuation of issued securities; volatility in capital markets; changes in credit ratings of any entities within the Group or any securities issued by such entities; the potential for one or more countries exiting the Eurozone; the implications of the results of the 23 June 2016 referendum in the United Kingdom and the disruption that may result in the UK and globally from the withdrawal of the United Kingdom from the European Union; the implementation of the strategic cost programme; and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Group’s control. As a result, the Group’s actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, expectations and guidance set forth in the Group’s forward-looking statements. Additional risks and factors which may impact the Group’s future financial condition and performance are identified in our filings with the SEC which are available on the SEC’s website at www.sec.gov.

Any forward-looking statements made herein speak only as of the date they are made and it should not be assumed that they have been revised or updated in the light of new information or future events. Except as required by the Prudential Regulation Authority, the Financial Conduct Authority, the London Stock Exchange plc (the LSE) or applicable law, Barclays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Barclays’ expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has published or may publish via the Regulatory News Service of the LSE and/or has filed or may file with the SEC.

 

iv

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Subject to our obligations under the applicable laws and regulations of the UK and the US in relation to disclosure and ongoing information, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Market and other data

This document contains information, including statistical data, about certain Barclays markets and its competitive position. Except as otherwise indicated, this information is taken or derived from Datastream and other external sources. Barclays cannot guarantee the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as Barclays.

Uses of Internet addresses

This document contains inactive textual addresses to internet websites operated by us and third parties. Reference to such websites is made for information purposes only, and information found at such websites is not incorporated by reference into this document.

References to Pillar 3 report

This document contains references throughout to Barclays annual risk report, the Pillar 3. Reference to the aforementioned report is made for information purposes only, and information found in this report is not incorporated by reference into this document.

 

v

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Barclays Group results reconciliation for the year ended		31.12.16
		Barclays UK				Barclays International				Head Office				Barclays Core				Barclays Non-Core				Barclays Group
		£m				£m				£m				£m				£m				£m
Total income			7,517				14,995				103				22,615				(1,164	)			21,451
Own credit			-				-				(35	)			(35	)			-				(35	)
Gain on disposal of Barclays’ share of Visa Europe Limited			151				464				-				615				-				615
Total income excluding notable items			7,366				14,531				138				22,035				(1,164	)			20,871
Credit impairment charges and other provisions			(896	)			(1,355	)			-				(2,251	)			(122	)			(2,373	)
Net operating income/(expenses)			6,621				13,640				103				20,364				(1,286	)			19,078
Notable items			151				464				(35	)			580				-				580
Net operating income/(expenses) excluding notable items			6,470				13,176				138				19,784				(1,286	)			18,498
Operating expenses			(3,792	)			(9,129	)			(135	)			(13,056	)			(1,509	)			(14,565	)
UK bank levy			(48	)			(284	)			(2	)			(334	)			(76	)			(410	)
Total operating expenses excluding litigation and conduct, and other notable items			(3,840	)			(9,413	)			(137	)			(13,390	)			(1,585	)			(14,975	)
Litigation and conduct			(1,042	)			(48	)			(27	)			(1,117	)			(246	)			(1,363	)
Provisions for UK customer redress			(1,000	)			-				-				(1,000	)			-				(1,000	)
Litigation and conduct excluding notable items			(42	)			(48	)			(27	)			(117	)			(246	)			(363	)
Total operating expenses			(4,882	)			(9,461	)			(164	)			(14,507	)			(1,831	)			(16,338	)
Notable items			(1,000	)			-				-				(1,000	)			-				(1,000	)
Total operating expenses excluding notable items			(3,882	)			(9,461	)			(164	)			(13,507	)			(1,831	)			(15,338	)
Cost: income ratio			65%				63%				n/a				64%				n/a				76%
Cost: income ratio excluding notable items			53%				65%				n/a				61%				n/a				72%
Other net (expenses)/income			(1	)			32				128				159				331				490
Profit/(loss) before tax			1,738				4,211				67				6,016				(2,786	)			3,230
Notable items			(849	)			464				(35	)			(420	)			-				(420	)
Profit/(loss) before tax excluding notable items			2,587				3,747				102				6,436				(2,786	)			3,650
Attributable profit/(loss)1			828				2,412				110				3,350				(1,916	)			1,623
Notable items			(857	)			451				(25	)			(431	)			-				(431	)
Attributable profit/(loss) excluding notable items1			1,685				1,961				135				3,781				(1,916	)			2,054
Risk weighted assets (£bn) 1			67.5				212.7				53.3				333.5				32.1				365.6

 

1	Attributable profit in respect of the Africa Banking discontinued operation is reported at the Group level only. Allocated tangible equity, RWAs and leverage exposure are reported in Head Office within Core.

 

vi

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Barclays Group results reconciliation for the year ended		31.12.15
			Barclays UK				Barclays International				Head Office				Barclays Core				Barclays Non-Core				Barclays Group
			£m				£m				m				£m				£m				£m
Total income			7,343				13,747				338				21,428				612				22,040
Own credit			-				-				430				430				-				430
Gains on US Lehman acquisition assets			-				496				-				496				-				496
Total income excluding notable items			7,343				13,251				(92)				20,502				612				21,114
Credit impairment charges and other provisions			(706)				(922)				-				(1,628)				(134)				(1,762)
Net operating income			6,637				12,825				338				19,800				478				20,278
Notable items			-				496				430				926				-				926
Net operating income/(expenses) excluding notable items			6,637				12,329				(92)				18,874				478				19,352
Operating expenses			(3,464)				(8,029)				(272)				(11,765)				(1,958)				(13,723)
Gain on valuation of a component of the defined retirement benefit liability			296				133				-				429				-				429
Impairment of goodwill and other assets relating to businesses being disposed																			(96)				(96)
Losses on sale relating to the Spanish, Portuguese and Italian businesses			-				-				-				-				(3)				(3)
Operating expenses excluding notable items			(3,760)				(8,162)				(272)				(12,194)				(1,859)				(14,053)
UK bank levy			(77)				(253)				(8)				(338)				(88)				(426)
Total operating expenses excluding litigation and conduct, and other notable items			(3,837)				(8,415)				(280)				(12,532)				(1,947)				(14,479)
Litigation and conduct			(2,511)				(1,310)				(66)				(3,887)				(500)				(4,387)
Provisions for UK customer redress			(2,431)				(218)				-				(2,649)				(123)				(2,772)
Provisions for ongoing investigations and litigation including Foreign Exchange			-				(984)				(52)				(1,036)				(201)				(1,237)
Litigation and conduct excluding notable items			(80)				(108)				(14)				(202)				(176)				(378)
Total operating expenses			(6,052)				(9,592)				(346)				(15,990)				(2,546)				(18,536)
Notable items			(2,135)				(1,069)				(52)				(3,256)				(423)				(3,679)
Total operating expenses excluding notable items			(3,917)				(8,523)				(294)				(12,734)				(2,123)				(14,857)
Cost: income ratio			82%				70%				n/a				75%				n/a				84%
Cost: income ratio excluding notable items			53%				64%				n/a				62%				n/a				70%
Other net income/(expenses)			-				45				(106)				(61)				(535)				(596)
Losses on sale relating to the Spanish, Portuguese and Italian businesses			-				-				(112)				(112)				(465)				(577)
Other net income/(expenses) excluding notable items			-				45				6				51				(70)				(19)
Profit/(loss) before tax			585				3,278				(114)				3,749				(2,603)				1,146
Notable items			(2,135	)			(573	)			266				(2,442	)			(888	)			(3,330	)
Profit/(loss) before tax excluding notable items			2,720				3,851				(380	)			6,191				(1,715	)			4,476
Attributable (loss)/profit1			(47	)			1,758				11				1,722				(2,418	)			(394	)
Notable items			(2,008	)			(562	)			(187	)			(2,383	)			(707	)			(3,090	)
Attributable profit/(loss) excluding notable items1			1,961				2,320				(176	)			4,105				(1,711	)			2,696
Average allocated tangible equity (£bn) 1			9.3				24.9				2.6				36.8				10.9				47.7
Risk weighted assets (£bn) 1			69.5				194.8				39.7				304.1				54.3				358.4

 

1	Attributable profit in respect of the Africa Banking discontinued operation is reported at the Group level only. Allocated tangible equity, RWAs and leverage exposure are reported in Head Office within Core.

 

vii

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Barclays Group results reconciliation   for the year ended		31.12.14
		Barclays UK				Barclays International				Head Office				Barclays Core				Barclays Non-Core				Barclays Group
		£m				£m				m				£m				£m				£m
Total income			7,436				12,908				276				20,620				1,143				21,763
Own credit			-				-				34				34				-				34
Revision of ESHLA valuation methodology			-				-				-				-				(935	)			(935	)
Gains on US Lehman acquisition assets			-				461				-				461				-				461
Total income excluding notable items			7,436				12,447				242				20,125				2,078				22,203
Credit impairment charges and other provisions			(901	)			(679	)			-				(1,580	)			(241	)			(1,821	)
Net operating income			6,535				12,229				276				19,040				902				19,942
Notable items			-				461				34				495				(935	)			(440	)
Net operating income/(expenses) excluding notable items			6,535				11,768				242				18,545				1,837				20,382
Operating expenses			(4,108	)			(8,170	)			(70	)			(12,348	)			(2,611	)			(14,959	)
UK bank levy			(59	)			(248	)			(9	)			(316	)			(102	)			(418	)
Total operating expenses excluding litigation and conduct, and other notable items			(4,167	)			(8,418	)			(79	)			(12,664	)			(2,713	)			(15,377	)
Litigation and conduct			(1,108	)			(1,333	)			(65	)			(2,506	)			(301	)			(2,807	)
Provisions for UK customer redress			(1,067	)			32				-				(1,035	)			(75	)			(1,110	)
Provisions for ongoing investigations and litigation including Foreign Exchange			-				(1,250	)			-				(1,250	)			-				(1,250	)
Litigation and conduct excluding notable items			(41	)			(115	)			(65	)			(221	)			(226	)			(447	)
Total operating expenses			(5,275	)			(9,751	)			(144	)			(15,170	)			(3,014	)			(18,184	)
Notable items			(1,067	)			(1,218	)			-				(2,285	)			(75	)			(2,360	)
Total operating expenses excluding notable items			(4,208	)			(8,533	)			(144	)			(12,885	)			(2,939	)			(15,824	)
Cost: income ratio			71%				76%				n/a				74%				n/a				84%
Cost: income ratio excluding notable items			57%				69%				n/a				64%				n/a				71%
Other net (expenses)/income			-				52				316				368				(813	)			(445	)
Losses on sale relating to the Spanish, Portuguese and Italian businesses			-				-				315				315				(761	)			(446	)
Other net (expenses)/income excluding notable items			-				52				1				53				(52	)			1
Profit/(loss) before tax			1,260				2,530				448				4,238				(2,925	)			1,313
Notable items			(1,067	)			(757	)			349				(1,475	)			(1,771	)			(3,246	)
Profit/(loss) before tax excluding notable items			2,327				3,287				99				5,713				1,154				4,559
Attributable profit/(loss)1			852				926				374				2,152				(2,659	)			(174	)
Notable items			(855	)			(808	)			260				(1,403	)			(1,550	)			(2,605	)
Attributable profit/(loss) excluding notable items1			1,707				1,734				114				3,555				(1,109	)			2,779
Average allocated tangible equity (£bn) 1			9.1				25.0				(2.7	)			31.4				15.6				47.0
Risk weighted assets (£bn) 1			69.3				201.7				41.8				312.8				89.1				401.9

 

1	Attributable profit in respect of the Africa Banking discontinued operation is reported at the Group level only. Allocated tangible equity, RWAs and leverage exposure are reported in Head Office within Core.

 

viii

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		2016				2015				2014
Average allocated equitya			£bn				£bn				£bn
Barclays UK			13.4				13.7				13.1
Corporate and Investment Bank			23.2				23.1				23.1
Consumer, Cards and Payments			5.0				4.0				4.0
Barclays International			28.2				27.1				27.1
Head Officeb			8.0				3.9				(1.3	)
Barclays Core			49.6				44.7				38.9
Barclays Non-Core			7.8				11.2				16.0
Barclays Group			57.4				55.9				54.9
Effect of Goodwill and Intangibles			£bn				£bn				£bn
Barclays UK			(4.5	)			(4.4	)			(3.9	)
Corporate and Investment Bank			(1.4	)			(1.2	)			(1.2	)
Consumer, Cards and Payments			(1.3	)			(1.0	)			(1.0	)
Barclays International			(2.7	)			(2.2	)			(2.2	)
Head Officeb			(1.4	)			(1.3	)			(1.4	)
Barclays Core			(8.6	)			(7.9	)			(7.6	)
Barclays Non-Core			(0.1	)			(0.3	)			(0.3	)
Barclays Group			(8.7	)			(8.2	)			(7.9	)
Average allocated tangible equityc			£bn				£bn				£bn
Barclays UK			8.9				9.3				9.1
Corporate and Investment Bank			21.9				21.9				22.0
Consumer, Cards and Payments			3.6				3.0				3.0
Barclays International			25.5				24.9				25.0
Head Officeb			6.5				2.6				(2.7	)
Barclays Core			41.0				36.8				31.4
Barclays Non-Core			7.8				10.9				15.6
Barclays Group			48.7				47.7				47.0

 

Notes

a	This table shows the allocation of Group average equity across IFRS and non-IFRS segments

b	Includes the African Banking discontinued operation

c	This table shows average tangible equity for the Group and for the IFRS and non-IFRS reporting segments

 

ix

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		2016				2015				2014
Profit/(loss) attributable to ordinary equity holders of the parent			£m				£m				£m
Barclays UK			857				(33	)			869
Corporate and Investment Bank			1,342				1,180				421
Consumer, Cards and Payments			1,153				620				528
Barclays International			2,495				1,800				949
Head Office			109				11				373
Barclays Core			3,461				1,778				2,191
Barclays Non-Core			(1,899	)			(2,405	)			(2,645	)
Africa Banking discontinued operation			189				302				334
Barclays Group			1,751				(324	)			(120	)
		2016				2015				2014
Average allocated equitya			£bn				£bn				£bn
Barclays UK			13.4				13.7				13.1
Corporate and Investment Bank			23.2				23.1				23.1
Consumer, Cards and Payments			5.0				4.0				4.0
Barclays International			28.2				27.1				27.1
Head Officeb			8.0				3.9				(1.3	)
Barclays Core			49.6				44.7				38.9
Barclays Non-Core			7.8				11.2				16.0
Barclays Group			57.4				55.9				54.9
			2016				2015				2014
Return on average allocated equityc			%				%				%
Barclays UK			6.4%				(0.2%	)			6.6%
Corporate and Investment Bank			5.8%				5.1%				1.8%
Consumer, Cards and Payments			23.1%				15.3%				13.2%
Barclays International			8.8%				6.6%				3.5%
Barclays Core			7.0%				4.0%				5.6%
Barclays Group			3.0%				(0.6%	)			(0.2%	)

 

Notes

a	This table shows the allocation of Group average equity across IFRS and non-IFRS reporting segments

b	Includes the African Banking discontinued operation

c	This table shows return on average equity for the Group and the return on average allocated equity for the IFRS and non-IFRS reporting segments

 

x

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Governance

 

Our corporate governance processes and the role they play in supporting the delivery of our strategy, including reports from the Chairman and each of the Board Committee Chairmen.

 

 

Directors’ report				Page
UK Corporate Governance		§  Index to disclosures		2
Code
Who we are		§   Board of Directors		3
		§   Group Executive Committee		5
		§   Board diversity		5
What we did in 2016		§   Chairman’s introduction		6
		§   Board Audit Committee report		10
		§   Board Risk Committee report		20
		§   Board Reputation Committee report		25
		§   Board Nominations Committee report		29
How we comply				36
Other statutory information				51
People				47
Remuneration report				43

 

                            

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  1

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Governance: Directors’ report

UK Corporate Governance Code - index to disclosures

 

 

 

 

							Page
Leadership		Every company should be headed by an effective board which is collectively responsible for the long-term success of the company.		Board of Directors Composition of the Board			3 to 4 39
		There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision.		Roles on the Board			37
		The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role.		Roles on the Board			37
		As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.		Roles on the Board			37
Effectiveness		The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.		Board of Directors			3 to 4
		There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.		Appointment and re-election of Directors			32
		All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.		Attendance time commitment			38 39
		All directors should receive an induction on joining the board and should regularly update and refresh their skills and knowledge.		Induction, training and development			39
		The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.		Information provided to the Board			40
		The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.		Review of Board and Board Committee effectiveness			33
		All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.		Roles on the Board Appointment and re-election of Directors			37 32
Accountability		The board should present a fair, balanced and understandable assessment of the company’s position and prospects.		Risk management going concern			97 to 114 32
		The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems.		Risk management and internal control			40 to 41
		The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting, risk management and internal control principles, and for maintaining an appropriate relationship with the company’s auditors.		Board Audit Committee report			10 to 19
Remuneration		Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied.		Remuneration report			51 to 85
		There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.		Remuneration report			51 to 85
Relations with shareholders		There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.		Stakeholder engagement			41 to 42
		The board should use general meetings to communicate with investors and to encourage their participation.		Stakeholder engagement			41 to 42

 

2  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Directors’ report

Who we are

Board of Directors

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  3

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Governance: Directors’ report

Who we are

Board of Directors

 

 

 

Note

The composition of the board is shown as at 22 February 2017.

 

Committee membership key
Aud		Board Audit Committee
Nom		Board Nominations Committee
Rem		Board Remuneration Committee
Rep		Board Reputation Committee
Ris		Board Risk Committee
*		Committee Chairman

 

4  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Who we are

Group Executive Committee

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  5

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Governance: Directors’ report

What we did in 2016

Chairman’s introduction

 

 

 

6  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  7

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Governance: Directors’ report

Board activity in 2016

 

 

 

		Strategic Goal		Principal Risks
Strategy formulation and monitoring
§  Debated the potential impact of the EU Referendum and the contingency plans being developed. Following the result of the Referendum, discussed and assessed the implications for the UK, the banking sector and for Barclays, including a presentation from a third party on the political aspects and their potential implications
§  Regularly debated and monitored the progress of Barclays preparations for Structural Reform – see the case study on page 9 for further details
§  Reflected on the position of Barclays Africa in the Barclays Group and its impact on Barclays’ capital position, deciding to sell-down Barclays’ holding to a position where Barclays Africa accounting and regulatory de-consolidation could be achieved
§  Assessed the progress of strategy execution in each of Barclays UK, Barclays International’s investment bank and corporate business and the Cards business, via presentations from the heads of each business
§  Monitored the progress of the run-down of Barclays Non-Core via regular presentations from the heads of the Non-Core business
§  Discussed regular updates from the Group Chief Executive on the progress being made against the Group’s execution priorities and received insights on stakeholder issues (including those arising from customers and clients, employees, regulators and governments) and cultural matters, including results from employee opinion surveys
§  Debated and provided input to management on the formulation of overall Group strategy, including
–  the impact of structural change and the creation of new subsidiary legal entities in the Group
–  the progress of the sell-down of Barclays Africa, including potential options, costs of separation, potential conduct risks and customer impacts
–  the impact of the EU Referendum result, taking into account an assessment of possible political scenarios and the potential impacts on each of Barclays businesses in terms of capital, operations, economics, regulation, clients and customers
–  a strategic approach to costs optimisation
–  constraints and risks to strategy execution, covering economic assumptions; expected regulatory requirements on capital and solvency ratios at Group and subsidiary legal entity level; anticipated changes to accounting rules; investor expectations; and potential impacts for clients and customers
–  potential growth opportunities, covering an assessment of the competitive landscape for Barclays UK, Barclays International and the Cards business; key trends and risks for each business in terms of economics, regulation, customers, employees and technology; near-term focus areas and potential transformational opportunities
Finance, including capital and liquidity
§  Debated and approved the Group’s Medium Term Plan for 2016-2018 and short-term plan for 2016, with a focus on producing increased returns in future
§  Regularly assessed financial performance of the Group and its main businesses via reports from the Group Finance Director
§  Reviewed and approved Barclays’ financial results prior to publication, including approving final and interim dividends
§  Discussed market and investor reaction to Barclays’ strategic and financial results announcements, with insights provided by the Head of Investor Relations
§  Provided input, guidance and advice to senior management on the high-level shape of Barclays 2017-2019 Medium Term Plan and subsequently approved the final plan

 

8  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Strategic Goal		Principal Risks
Governance and risk, including regulatory issues
§  Debated and approved 2016 risk appetite for the Barclays Group
§  Regularly assessed Barclays overall risk profile and emerging risk themes, hearing directly from the Chief Risk Officer and the Chairman of the Board Risk Committee
§  Evaluated Barclays operational and technology capability, including specific updates on cyber-risk capability and the strategy for infrastructure services. Approved Barclays International’s investment bank’s IT and Data Global Strategy
§  Approved the Group’s 2016 Recovery Plan and US Resolution Plan
§  Held specific meetings with representatives of Barclays’ UK and US regulators to hear first-hand about regulatory expectations and their specific views on Barclays
§  Evaluated the status of Barclays’ risk and control environment and the plans in place to enhance the risk and control framework and approved a revised Enterprise Risk Management Framework (ERMF)
§  Considered regular updates from the Group General Counsel on the legal risks facing Barclays
§  Heard regularly from the chairmen of the Board’s principal Board Committees on the matters discussed at Board Committee meetings
§  Received updates from the chairman of Barclays US IHC on matters discussed at its board meetings
§  Heard directly from representatives of the Banking Standards Board on its assessment of the culture in Barclays and the banking sector as a whole
Other, including compensation
§  Reviewed Barclays’ Talent Management strategy and the process for succession planning for key executive positions, hearing directly from the Group HR Director and the Chairman of the Board Nominations Committee
§  Received and debated a presentation from the independent facilitator of the 2016 Board effectiveness review on the outcomes and potential areas of focus for improvement

The above analysis reflects the ERMF that was in place during 2016.

 

		Governance in Action – Preparing for Structural Reform
		Law and regulation in the UK, and associated regulatory rules, require Barclays to separate its retail banking operations into a separate, independent legal entity (known as ‘ring-fencing’). Barclays has an internal Structural Reform Programme in place to implement these required changes in the UK. A new UK banking entity is being established as the ring-fenced bank (Barclays UK) and will serve retail and small business customers, as well as UK wealth and credit card customers. Barclays International will continue to serve corporate, institutional and investment banking clients and will also serve international wealth and credit card customers. A Group Service Company will be established to support the revised operating entity structure.   These structural changes will have a material impact on the way in which Barclays operates in future. Consequently, the progress of the Structural Reform Programme featured heavily on the Board’s agenda during 2016, given the scale of change required and the potential material risks associated with transitioning to the new structure and with the new structure itself. The Board evaluated progress of the Structural Reform Programme at seven of the eight Board meetings held during 2016, including specifically evaluating the impact of structural change as part of the annual Group strategy Board meeting. Specific matters addressed by the Board included:   §   structural Reform design and implementation plans, including evaluating any identified risks and challenges; considering regulatory feedback on the plans and the status of actions arising from regulatory engagement; and agreeing the internal accountability framework   §  assessing the progress being made with establishing the new legal entity for Barclays UK, including any necessary regulatory licencing requirements and preparations for the ring-fence transfer scheme   §   monitoring the creation of the Group Service Company, including assessing its design, its board governance structure, its control and oversight framework and the execution milestones to be achieved		§   debating the potential implications of Structural Reform on Barclays’ pension scheme, both in terms of the potential impact on Barclays and on pension scheme members   §  conducting an assessment of the overall conduct risk considerations associated with Structural Reform, focusing on the potential impacts for clients and customers   §  evaluating the work being conducted to address sort-code migration, covering technology planning and implementation and customer impact considerations.   Separately, during 2016, Barclays’ US businesses were organised under an Intermediate Holding Company (IHC) in order to meet US legal requirements. The IHC became operational from 1 July 2016. The Board was regularly updated on progress of implementation, any risks and challenges and how they were being managed.   Board Committees have supported the Board in overseeing the implementation of Structural Reform on matters that fall directly within their remit. For example, the Board Nominations Committee determined the proposed composition of the boards of the new operating entities and is in the process of identifying and evaluating proposed candidates for appointment to those boards. It also discussed and endorsed a set of Governance Guiding Principles, which will govern the relationship between the parent company and its new operating entities. The Board Risk Committee spends time at each meeting assessing the prospective capital and liquidity impacts of Structural Reform, while the Board Audit Committee has evaluated the potential accounting implications. More information can be found in the individual Board Committee reports on the pages that follow.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  9

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Governance: Directors’ report

What we did in 2016

Board Audit Committee report

 

 

 

Change has continued apace and it has been critical to focus on ensuring that the commitment to strengthening the control environment is maintained throughout this transformational period.		Dear Fellow Shareholders My report to you last year highlighted the significant degree of change that Barclays was facing, driven by its own strategic aims and by the demands of Structural Reform. Change has continued apace and it has been critical for the Committee to focus on ensuring the commitment to strengthening the control environment is maintained throughout this transformational period. Barclays has during 2016 put in place a significantly changed senior management team and my Committee colleagues and I are greatly encouraged by the renewed focus and vigour with which the control environment is being addressed and the sense of personal accountability that we are seeing. A significant development in the fourth quarter of 2016 was the creation of a chief controls office and the appointment of a Chief Controls Officer, which will drive forward the delivery of an enhanced programme designed to strengthen the control environment and remediate any known issues. Although the new controls office structure is in its infancy, I welcome the more strategic approach that is now being taken to embed accountability for a strong control environment into the first line of management. Such is the importance of this programme to Barclays that, for its initial phase, progress on the framework will be reported directly to the full Board. In assessing control issues for disclosure in the Annual Report, the Committee has continued to apply similar definitions to those used for assessing internal financial controls for the purposes of Sarbanes-Oxley. The conclusion we have reached is that there are no control issues that are considered to be a material weakness, which merit specific disclosure. Further details may be found in the Risk Management and Internal Control section on page 40.   Our busy agenda in 2016 continued to include our responsibilities for overseeing the performance and effectiveness of internal and external audit, the main independent assurance mechanisms that serve to protect shareholders’ interests. The Committee also continued to exercise its responsibilities for ensuring the integrity of Barclays’ published financial information by debating and challenging the judgements made by management and the assumptions and estimates on which they are based. The exercise of appropriate judgement in preparing the financial statements is critical in ensuring that Barclays reports to its shareholders in a fair, balanced and transparent way. The report that follows sets out details of the material matters considered by the Committee since my last report.   A significant change that the Committee has been overseeing is the transition to KPMG as Barclays’ statutory auditor, following the audit tender concluded in 2015. I met regularly with the PwC lead audit partner and his KPMG successor during 2016. KPMG has been shadowing the current auditor, PwC, during the 2016 year-end audit and the Committee is already seeing some value from the new perspective provided by KPMG on accounting estimates and policies. You can read more about auditor transition in the case study on page 19.   The introduction in March 2016 of the UK’s Senior Managers Regime allocated to me specific prescribed responsibilities for safeguarding the independence of and overseeing the performance of the internal audit function, including the performance of the Chief Internal Auditor, in line with regulatory requirements. In practice, little has changed in the way in which I fulfil my responsibilities: I continue to hold regular meetings with the Chief Internal Auditor and members of her senior management team to ensure I am aware of current work programmes and any emerging issues and I also agree the Chief Internal Auditor’s objectives and the outcomes of her performance assessment. During 2016, the PRA undertook a review of Barclays Internal Audit (BIA) and made a number of recommendations to increase its effectiveness and the Committee’s monitoring thereof. An action plan has been developed to address these recommendations. The Committee also held a networking event with BIA during 2016, enabling Committee members to meet less formally with senior members of the BIA team.

 

10  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  11

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Governance: Directors’ report

What we did in 2016

Board Audit Committee report

 

 

 

 

Area of focus		Reporting issue		Role of the Committee		Conclusion/action taken
Conduct provisions (see Note 27 to the financial statements).		Barclays makes certain assumptions and estimates, analysis of which underpins provisions made for the costs of customer redress, such as for Payment Protection Insurance (PPI).		§   Regularly analysed the judgements and estimates made with regard to Barclays’ provisioning for PPI claims, taking into account forecasts and assumptions made for PPI complaints and actual claims experience for Barclays and the industry as a whole.   §   Debated the potential impact on the future range of provisions arising from the FCA’s proposed timebar on claims and the expected deadline of June 2019, discussing the levels of uncertainty in the projections.   §   Discussed the potential range of outcomes that might arise from the Plevin case (the 2014 UK Supreme Court ruling in Plevin v Paragon Personal Finance Ltd) and whether any increase in provisions was required.   §   Evaluated proposed additional provisions for PPI and whether the analysis performed by management was consistent with prior periods and reflected known trend data and whether Barclays’ approach was consistent with that taken by industry peers.   §   Assessed provisions for alternative PPI (card protection and payment break plan insurance) and the claims experience compared to the range of reasonable high and low end scenarios that had been determined.		The Committee and management continue to monitor closely any changes in customer or claims management companies’ behaviour in light of the Plevin case and the proposed FCA timebar. Over the course of 2016, having assessed actual claims experience and the potential impact of the proposed timebar and the Plevin case, the Committee agreed to recognise additional provisions of £1000m in 2016, bringing Barclays’ total cumulative provisions against the cost of PPI redress and associated processing costs to £8.4bn, of which £2.0bn is remaining.

 

 

 

12  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Area of focus		Reporting issue		Role of the Committee		Conclusion/action taken
Legal, competition and regulatory provisions (see Notes 27-29 to the financial statements).		Barclays is engaged in various legal, competition and regulatory matters. The extent of the impact on Barclays of these matters cannot always be predicted, but matters can give rise to provisioning for contingent and other liabilities depending on the relevant facts and circumstances. The level of provisioning is subject to management judgement on the basis of legal advice and is therefore an area of focus for the Committee.		§  Evaluated advice on the status of current legal, competition and regulatory matters.   §  Assessed management’s judgements and estimates of the levels of provisions to be taken and the adequacy of those provisions, based on available information and evidence.   §  Considered the adequacy of disclosure, recognising that any decision to set provisions involves significant judgement.		The Committee discussed provisions and utilisation. Having reviewed the information available to determine what was probable and could be reliably estimated, the Committee agreed that no additional provision should be made at the full year for ongoing investigations and litigation.   Further information may be found on pages 270 to 280.
Valuations (see Notes 14-18 to the financial statements).		Barclays exercises judgement in the valuation and disclosure of financial instruments, derivative assets and certain portfolios, particularly where quoted market prices are not available, including the Group’s Education, Social Housing and Local Authority (ESHLA) portfolio.		§  Evaluated reports from Barclays’ Valuations Committee, with particular focus on the restructuring of the ESHLA portfolio and its subsequent de-recognition; a valuation disparity with a third party in respect of a specific long-dated derivative portfolio; and an assessment of the impact of negative interest rates on the valuation of derivatives.   §   Considered proposals from the Valuations Committee to revise the valuations approach for the remaining ESHLA portfolio and to revise the approach to the marking of Own Credit.		The Committee confirmed its agreement to the restructuring and de-recognition of the ESHLA portfolio and concluded that it was a de-recognition event. It noted the lack of progress made in resolving the third-party valuation disparity, which has been outstanding for some time, and satisfied itself on the basis of the information available to it that Barclays’ valuation methodology remains appropriate. It approved a revision to the model used for valuing the remaining ESHLA portfolio recommended by the Valuations Committee.
Impairment (see Note 7 to the financial statements).		Where appropriate, Barclays models potential impairment performance, allowing for certain assumptions and sensitivities, to agree allowances for credit impairment, including agreeing the timing of the recognition of any impairment and estimating the size, particularly where forbearance has been granted.		§  Assessed impairment experience against forecast and whether impairment provisions were appropriate.   §  Evaluated the appropriateness and timing of the impairment taken in connection with Barclays’ exposures to the oil and gas sectors, including the impact of single name losses in the oil and commodities sectors.   §  Debated the adjustment in impairment taken in the Cards business for informal forbearance arrangements and the potential impact of changes in emergence modelling.   §  Considered a report from the Group Impairment Committee on the adequacy of loan impairment allowances as at 31 December 2016, including assessing internal and external trends, methodologies and key management judgements.		The Committee challenged the timing of the oil and gas impairment taken in the half-year results, although confirmed that the provision was adequate. It welcomed the proposal to create a new Group Impairment Committee and enhance the role of the Group Finance function in assessing impairment provisioning. It agreed a post-model adjustment of £250m for impairment in the UK and US Cards businesses during the third quarter of 2016 and obtained clarification on the impairment policy for the Cards business. At the full year, having debated the report from the Group Impairment Committee it confirmed the adequacy of the full year impairment charge of £2.4bn.
Tax (see Note 10 to the financial statements).		Barclays is subject to taxation in a number of jurisdictions globally and makes judgements with regard to provisioning for tax at risk and on the recognition and measurement of deferred tax assets.		§  Evaluated the appropriateness of tax risk provisions to cover existing tax risk.   §  Debated the forecasts and assumptions supporting the recognition and valuation of deferred tax assets.		The Committee confirmed the tax risk provisions for the full year and the treatment of deferred tax assets.

 

 

 

 

 

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Governance: Directors’ report

What we did in 2016

Board Audit Committee report

 

 

 

 

Area of focus		Reporting issue		Role of the Committee		Conclusion/action taken
Long-term viability		The Directors are required to make a statement in the Annual Report as to the long-term viability of Barclays. The Committee provides advice to the Board on the form and content of the statement, including the underlying assumptions.		§   Evaluated at year end a report from management setting out the view of Barclays’ long-term viability. This report was based on Barclays Medium Term Plan (MTP) and covered forecasts for capital, liquidity and leverage, including forecast performance against regulatory targets, outcomes of the stress test of the MTP and forecast capital and liquidity performance against stress hurdle rates, funding and liquidity forecasts and an assessment of global risk themes and the Group’s risk profile.   §   Considered the viability statement in conjunction with Barclays risk statements and strategy/business model disclosures.   §   Addressed specific feedback from investors and other stakeholders on viability statements in general.		Taking into account the assessment by the Board Risk Committee of stress testing results and risk appetite, the Committee agreed to recommend the viability statement to the Board for approval.
Fair, balanced and understandable reporting (including country-by-country reporting and Pillar 3 reporting).		Barclays is required to ensure that its external reporting is fair, balanced and understandable. The Committee undertakes an assessment on behalf of the Board in order to provide the Board with assurance that it can make the statement required by the Code.		§   Assessed, via discussion with and challenge of management, including the Group Chief Executive and Group Finance Director, whether disclosures in Barclays’ published financial statements were fair, balanced and understandable.   §   Evaluated reports from Barclays’ Disclosure Committee on its assessment of the content, accuracy and tone of the disclosures.   §   Established via reports from management that there were no indications of fraud relating to financial reporting matters.   §   Evaluated the outputs of Barclays’ internal control assessments and Sarbanes-Oxley s404 internal control process.   §   Assessed disclosure controls and procedures.   §   Confirmed that management had reported on and evidenced the basis on which representations to the external auditors were made.		Having evaluated all of the available information and the assurances provided by management, the Committee concluded that the processes underlying the preparation of Barclays’ published financial statements, including the 2016 annual report and financial statements, were appropriate in ensuring that those statements were fair, balanced and understandable.   In assessing Barclays’ financial results statements over the course of 2016, the Committee specifically addressed and provided input to management on the disclosure and presentation of:   §   Barclays restated financial results, including the allocations to Barclays UK and Barclays International and the separation of the Cards business.   §   the sell-down of Barclays holding in Barclays Africa and its classification as held for sale.   §   guidance provided to the market on the costs of Structural Reform.   §   the Group Finance Director’s presentations to analysts.   §   alternative performance measures in view of new guidance from the European Securities & Markets Association.   §   core performance and headcount.   §   operational risk capital and guidance on capital levels.   §   the level of segmental reporting.   The Committee recommended to the Board that the 2016 annual report and financial statements are fair, balanced and understandable.

 

 

 

 

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Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Internal control Read more about the Barclays’ internal control and risk management processes on pages 40 and 41		The effectiveness of the overall control environment, including the status of any material control issues and the progress of specific remediation plans.		§   Evaluated and tracked the status of the most material control issues identified by management via regular reports from the Head of Operational Risk and latterly from the Chief Controls Officer.   §   Evaluated the status of specific material control issues and associated remediation plans, including in particular those relating to Security of Secret and Confidential Data; Infrastructure Access Management; Group Resilience; IT Security; Data Governance; Model Risk Management; and Unsupported Infrastructure and Applications, all of which remained open at the end of 2016.   §   Discussed lessons learned from specific control incidents and how these could be applied to Barclays’ business globally, via an enhanced lessons-learned process.   §   Debated any regulatory reports or other feedback received from regulators on Barclays’ overall control environment.   §   Assessed the status of the enhancements being made to Barclays risk and control self-assessment (RCSA) process to support disclosures in Barclays annual report.		The Committee requested enhancements to reporting to make clear where operational risk was outside appetite and the actions being taken. The Committee welcomed the improvements made to the lessons-learned process and proposed that the new Group Controls Committee should play a role in setting standards for lessons-learned exercises and deciding when they should be conducted. The Committee endorsed the work being taken forward, under the leadership of the Chief Controls Officer, to address any feedback from regulators on Barclays’ control environment, noting that the Board would directly oversee the progress being made to address specific regulatory feedback. The Committee also challenged management to ensure that the RCSA process was sufficiently robust in light of some specific control issues that had emerged after certain RCSAs had been completed.
		The effectiveness of the management control approach and control environment in each individual business, including the status of any material control issues and the progress of specific remediation plans.		§   Assessed individual reports from Barclays UK, Barclays International, the Cards business, Barclays’ Non Core operations, Barclays International’s US investment banking operations and Barclays Africa, including questioning directly the heads of those businesses on their management control approach/culture and control environment, including any specific control issues, resilience issues, the status and progress of any remediation plans or workstreams and plans to enhance the control environment.   §   Tracked plans for implementing revised control governance structures in each business to align with changes in Barclays’ organisational structure.   §   Provided feedback on the 2016 control objectives for each member of the Group Executive Committee.		The Committee welcomed the decision by Barclaycard to redirect strategic investment towards enhancing its control environment and to restrict growth in new business while certain control issues, such as fraud levels in the US, were addressed. To make clear the levels of personal accountability expected, the Committee asked for the control objectives for each member of the Group Executive Committee for 2016 to be made more specific, with an emphasis on prioritising control issues.

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  15

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Governance: Directors’ report

What we did in 2016

Board Audit Committee report

 

 

 

 

Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
		The effectiveness of the control environment in the Chief Operating Office (COO) and the status and remediation of any material control issues.		§  Scrutinised on a regular basis the COO control environment, taking the opportunity to directly challenge and question functional leaders, including the Chief Operating Officer on the progress of remediation plans.   §  Debated the clarity of accountability and standards of consistency needed, given decentralisation of the business.   §  Addressed the issue of resilience and associated risk appetite, discussing in particular the impact of change on resilience initiatives.   §  Discussed the impact of the proposed sell-down of Barclays holding in Barclays Africa, including any ongoing support requirements on COO-related material control issues.		The Committee emphasised the need for clear ownership and accountability between the business and COO for technology control issues, which has been addressed via the implementation of the new organisational management structure. In view of the volume of technology and change remediation required, the Committee tasked the Chief Operating Officer with enhancing the processes for self-identification and logging of risk and control issues. The Committee also asked the new Chief Information Officer to conduct a deep dive into Technology control issues, the outputs of which were evaluated by the Committee in the fourth quarter of 2016. The Committee welcomed the improved clarity of the plans to enhance the COO control environment and will receive further regular updates throughout 2017.
		The adequacy of the Group’s arrangements to allow employees to raise concerns in confidence without fear of retaliation and the outcomes of any substantiated cases.		§  Evaluated the results of benchmarking exercise to compare Barclays’ processes and case volumes to 40 peer companies.   §  Tracked the progress of the internal campaign to raise awareness among employees on raising concerns.   §  Monitored the trends in reported and substantiated whistleblowing cases, including any information on any instances of retaliation.		The Committee concluded that Barclays’ processes were appropriate and in line with peers. It noted that the successful internal campaign had generated an increase in the number of whistleblowing reports, all of which were investigated. Volumes of cases remain proportionate to Barclays’ size and footprint. The Committee asked management to provide additional detail in its future reports where any whistleblowing investigation was outstanding for more than six months. In future, as Barclays Whistleblowing Champion, the Chairman of the Committee will make an annual report to the Board on whistleblowing matters.

 

 

 

 

16  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Internal audit		The performance of BIA and delivery of the internal audit plan, including scope of work performed, the level of resources and the methodology and coverage of the internal audit plan.		§   Scrutinised and agreed internal audit plans and deliverables for 2016, including agreeing the areas of focus, such as technology, data, change, execution risk, and the resources required.   §   Monitored delivery of the agreed audit plans, including assessing internal audit resources and attrition levels and any impacts on the plan.   §   Debated audit risk appetite and issue validation.   §   Tracked the levels of unsatisfactory audits, including discussing the time taken to issue audit reports and the reasons for any delays.   §   Discussed BIA’s assessment of the management control approach and control environment in Barclays UK, Barclays International and the COO.   §   Debated with BIA the possibility of auditing culture.   §   Evaluated the outcomes from BIA’s annual self-assessment.   §   Debated feedback received from the PRA on the performance of BIA and discussed the increased regulatory expectations of BIA and the impact on internal audit plans and resources.		The Committee approved an increase in headcount to ensure appropriate audit coverage of technology and change and agreed an interim audit risk appetite level pending recruitment, subject to the delivery of mitigating actions assigned to the Chief Operating Officer. The Committee emphasised to management that it was not content with the number of unsatisfactory audits and considered setting a target for management. It also asked BIA to disclose in its reports the reasons for any delay in issuing audit reports, along with details of any audit work that was deferred or cancelled. In view of the additional expectations placed on BIA, the Committee requested details of internal audit vacancies, business areas and skills sets and encouraged the Chief Internal Auditor to consider internal transfers and other creative solutions to fill resourcing gaps. It agreed with BIA the action plan to address the recommendations arising from the PRA review of BIA’s performance. The Committee confirmed that it was satisfied with the outcomes of the self-assessment of BIA performance, which evidenced that the function generally conforms to the standards set by the Institute of Internal Auditors. It further confirmed that it felt able to reply on the work of BIA in discharging its own responsibilities.
External audit		The work and performance of PwC, including the maintenance of audit quality during the period of transition to a new auditor.		§   Met with key members of the PwC audit team to discuss the 2016 audit plan and agree areas of focus.   §   Assessed regular reports from PwC on the progress of the 2016 audit and any material issues identified, including debating with PwC whether any changes to the audit plan were needed following the UK’s vote to leave the EU.   §   Discussed PwC’s report on certain control areas and the control environment, including a specific report on controls over access to payment systems requested by the Committee.   §   Discussed the draft audit opinion ahead of 2016 year end.		The Committee approved the audit plan and the main areas of focus.   Read more about the Committee’s role in assessing the performance, effectiveness and independence of the external auditor and the quality of the external audit below.

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  17

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Governance: Directors’ report

What we did in 2016

Board Audit Committee report

 

 

 

 

 

 

18 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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During 2016, all engagements where expected fees met or exceeded the above thresholds were evaluated by either the Committee Chairman or the Committee as a whole who, before confirming any approval, assured themselves that there was justifiable reason for engaging the auditor and that its independence and objectivity would not be threatened. No requests to use PwC were declined in 2016 (2015: two), with one request to use KPMG declined (2015: n/a). On a quarterly basis, the Committee scrutinised details of individually approved and pre-approved services undertaken by PwC and KPMG in order to satisfy itself that they posed no risk to independence, either in isolation or on an aggregated basis. For the purposes of the Policy, the Committee has determined that any pre-approved service of a value of under £50,000 is to be regarded as clearly trivial in terms of its impact on Barclays’ financial statements and has required the Group Financial Controller to specifically review and confirm to the Committee that any pre-approved service with a value of £50,000 - £100,000 (or up to £25,000 for tax advisory services) may be regarded as clearly trivial. The Committee undertook a review of pre-approved services at its meeting in December 2016 and satisfied itself that such pre-approved services were clearly trivial in the context of their impact on the financial statements.   The fees paid to PwC for the year ended 31 December 2016 amounted to £49m (2015: £43m), of which £8m (2015: £9m) was payable in respect of non-audit services. Non-audit services represented 20.6% of the statutory audit fee (2015: 24.2%). A breakdown of the fees paid to the auditor for statutory audit and non-audit work can be found in Note 42 on page 304. Of the £8m of non-audit services provided by PwC during 2016, the significant categories of engagement, i.e. services where the fees amounted to more than £500,000, included:   §  audit-related services: additional work to facilitate the transition to KPMG as Barclays’ statutory auditor   §  transaction support: services provided in connection with the sell-down of Barclays’ holding in Barclays Africa, including acting as the reporting accountant on the circular issued to Barclays’ shareholders and providing comfort on associated documentation   §  quality assurance: performed on behalf of Barclays Africa over work conducted by Barclays in connection with the separation arrangements from Barclays.   The fees paid to KPMG for non-audit work during 2016 were £17.3m (2015: £38m). Significant categories of engagement approved in 2016 included:   §  Audit-related services: services provided in connection with minimum regulatory requirements for audits of benchmark interest rate submissions.   The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 As described in this report, Barclays is in compliance with the requirements of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services.						Governance in Action – Statutory auditor transition   A significant activity for the Committee during 2016 has been overseeing the transition of Barclays’ statutory auditor from PwC to KPMG. Following the audit tender that concluded in mid-2015, KPMG will become Barclays statutory auditor with effect from the 2017 financial year onwards. The Committee has undertaken activity to manage the transition period to facilitate a smooth handover of responsibilities.   The Committee has overseen the steps required to enable KPMG to achieve independence by 1 July 2016. This included:   §  assigning a dedicated transition team to support operational activities, including progressing a global master services agreement and local jurisdictional agreements   §  agreeing with KPMG the overall plan to achieve independence and assessing regular reports from KPMG on the progress being made   §  monitoring the orderly termination of non-audit services being provided by KPMG to Barclays that would be prohibited when KPMG becomes statutory auditor   §  requiring KPMG to comply from 1 June 2016 with the provisions of the Group’s policies relating to the statutory auditor, specifically, The Group Policy on the Provision of Services by the Group Statutory Auditor and the Group Policy on Employment of Employees or Workers from the Statutory Auditor, and requiring management to report to the Committee on any services or appointments undertaken in line with these policies   §  accepting a formal independence letter from KPMG. This included a list of ongoing non-audit services that are deemed permissible and which have been approved in accordance with Barclays’ policy and confirmation of KPMG’s compliance with applicable ethics and independence rules.   Once independence was achieved, the Committee oversaw the handover plan and the transition to business as usual. This included:   §  inviting the lead audit partner of KPMG to attend Committee meetings as part of the process of shadowing PwC’s 2016 audit   §  arranging for the lead audit partner of KPMG to attend meetings of the Board Reputation Committee and Board Risk Committee   §  receiving a briefing from KPMG on accounting developments, covering: Impairment and the impact of IFRS9 (Financial Instruments); Valuations; Negative interest rates; Structural Reform; IFRS15 (Revenue from contracts with customers) and IFRS16 (Leases)   §  discussing with KPMG accounting policy interpretations following KPMG’s review of Barclays’ accounting policies   §  assessing regular reports from KPMG on the progress being made with key activities, including building the Barclays’ audit team and gaining an understanding of Barclays’ key processes, systems and controls   §  reviewing the report on KPMG issued by the FRC’s Audit Quality Review team   §  scheduling a planning meeting between the Committee and KPMG for the second quarter of 2017 to discuss the audit strategy and provide input.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  19

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Governance: Directors’ report

What we did in 2016

Board Risk Committee report

 

 

The Committee’s focus during 2016 has been driven by a number of key challenges, including emerging economic and political risks, notably those associated with the EU Referendum and the subsequent vote by the UK to leave the EU .   Dear Fellow Shareholders   The Committee’s focus during 2016 has been driven by a number of key challenges. First, Barclays has been implementing its new strategy and executing its Structural Reform Programme, which has some particular implications in terms of capital and liquidity management across Barclays’ legal entities. Second, there was continued focus on any emerging risks arising in our key markets in the UK, US and South Africa as a consequence of any macroeconomic deterioration or disruption in financial market conditions. Finally, there were the challenges presented by emerging economic and political risks, notably those associated with the EU Referendum and the subsequent vote by the UK to leave the EU.   Considerations for risk appetite for 2016 and the Medium Term Plan (MTP) included credit cycle conditions; the impact of ongoing low commodity prices; a potential slowdown in China; and the likelihood of interest rate rises. Consequently, the recommendation of the risk function, which was endorsed by the Committee, was that a conservative approach to growth should be maintained, with a focus on core products and markets. We expected continued volatility in external conditions and aimed to ensure that the Group was conservatively positioned. Headwinds developed during 2016 with the potential to have a significant first-order impact on Barclays’ businesses, including heightened economic risk in the UK post the EU Referendum; increased geo-political risk following the US presidential election; and the IAS19 position of Barclays’ pension scheme, which is vulnerable to market volatility. Other emerging risks with the potential to impact Barclays include interest rate and credit spread movements; UK property price stress; potential transmission impacts of any slowdown in China; and ongoing volatility in oil prices, which remain low. All of these potential risks continue to be actively managed and the risk profile and actions taken are subject to regular oversight by the Committee. In these circumstances, we were pleased with the capital and leverage performance for 2016, although impairment performance was adverse to plan, primarily as a result of one-off effects reflecting management’s review of impairment modelling in the UK and US Cards businesses.   In early 2016, Barclays appointed a new Chief Risk Officer, CS Venkatakrishnan, an appointment that was recommended to the Board by the Committee. The Committee oversaw the transition, specifically requesting information from the outgoing Chief Risk Officer on the transition plans and handover arrangements and seeking assurance from the new Chief Risk Officer that he had been provided with all of the information needed to enable him to fulfil his responsibilities. The Committee has welcomed the opportunity to work closely with the new Chief Risk Officer during 2016. We have also seen greater emphasis emerge over 2016 on the responsibilities of the first line of defence for		managing risk in their businesses, with the chief executives of each business attending Committee meetings to present directly to the Committee, with the support of their chief risk officers, on the risk profile of their business and how risk is being managed.   My own responsibilities as Chairman of the Committee were re-emphasised during 2016, with the introduction in March 2016 of the UK’s Senior Managers Regime. Under this regulatory regime, I have specific prescribed responsibilities for safeguarding the independence of and overseeing the performance of the risk function, including the performance of the Chief Risk Officer, in line with regulatory requirements. In addition to my regular meetings with the Chief Risk Officer and members of his senior management, I have led the Committee in encouraging the risk function to develop a way of assessing risk management capability, which we have also agreed will be subject to a periodic, external review. The risk function has also been encouraged to develop a way of measuring risk culture across the Group.   During 2016, I continued to liaise closely with the Chairman of the Board Audit Committee, particularly with regard to operational risk issues, where there is some degree of overlap between the remit of the two committees. I also attended a meeting of the risk committee of Barclays US IHC to gain a first-hand insight into the risk issues being addressed by management in that entity. I continued my practice of meeting regularly with other members of senior management and continued to engage with Barclays regulators in the UK and US.   Committee performance The Committee’s performance during 2016 was assessed as part of the independently facilitated annual Board effectiveness review. I am pleased to report that the conclusion of my Board colleagues was that the Committee is regarded as thorough and effective and that the Board has a high degree of confidence in the diligence and coverage of the Committee. The main area identified for improvement was to ensure that the co-operation and collaboration between the Committee and the Board Audit and Board Reputation Committees continues to capture all significant risk issues effectively. I will be working even more closely with my fellow Board Committee chairmen on this over the coming year. You can read more about the outcomes of the Board effectiveness review on pages 33 to 35.   Looking ahead 2017 will be a key year for Barclays in delivering its strategy, as it completes its restructuring and makes significant steps in implementing the new legal entity structure required under Structural Reform. I expect the Committee to focus on strategic risk, with an emphasis on promoting even greater linkages between strategy formulation and risk management, and ensuring that there is appropriate global oversight of risk across the new Group structure.     Tim Breedon Chairman, Board Risk Committee 22 February 2017

 

20  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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The Committee’s work

The significant matters addressed by the Committee during 2016 are described below:

 

Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Risk appetite and stress testing, i.e. the level of risk the Group chooses to take in pursuit of its business objectives, including testing whether the Group’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic stress.		The risk context to MTP, the financial parameters and constraints and mandate and scale limits for specific business risk exposures; the Group’s internal stress testing exercises, including scenario selection and financial constraints, stress testing themes and the results and implications of stress tests, including those run by the Bank of England (BoE).		§  Assessed the risk context for the 2016 MTP, including general economic and financial conditions and how these had been reflected in planning assumptions.   §  Debated the assumptions, parameters and results of the internal stress test of the risk appetite of the 2016 MTP.   §  Discussed and agreed mandate and scale limits for market and credit risk.   §  Approved the parameters for the European Banking Authority stress test.   §  Approved the parameters for BoE stress test scenario expansion.   §  Evaluated the BoE stress test results, including updates on stress testing governance and methodology and assessing potential contingency plan actions.   §  Debated regulatory and market reaction to the BoE stress test results.   §  Considered and approved internal stress test themes and the financial constraints and scenarios for stress testing risk appetite for the 2017 MTP.   §  Regularly monitored the progress of the US IHC in preparing for the Comprehensive Capital Analysis and Review (CCAR) stress test.		The Committee recommended the proposed risk appetite for 2016 to the Board for approval, although asked management to develop a contingency plan with identified triggers and actions that could be implemented if the stress occurred. It also emphasised to management that mandate and scale limits should be set at appropriate levels, reflecting the desire to focus on conservative growth in core products and markets. The Committee approved credit and market risk limits and requested that additional limits were set for market risk in order to enhance monitoring and control. It also asked management to review limits and guidelines and develop a revised framework for single name risk management, which it subsequently considered and approved. The Committee approved the stress test results for submission to the BoE. After evaluating feedback from the BoE on the stress test, the Committee encouraged management to engage with the BoE on specific points where additional clarity on regulatory expectations was desirable.

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  21

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Governance: Directors’ report

What we did in 2016

Board Risk Committee report

 

 

 

 

Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Capital and funding, i.e. having sufficient capital and financial resources to meet the Group’s regulatory requirements and its obligations as they fall due, to maintain its credit rating, to support growth and strategic options.		The trajectory to achieving required regulatory and internal targets and capital and leverage ratios, including the potential impact of Structural Reform and legal entity requirements.		§  Debated on a regular basis, capital performance against plan, tracking the capital trajectory, any challenges and opportunities and regulatory policy developments.   §  Assessed on a regular basis liquidity performance against both internal and regulatory requirements.   §  Regularly monitored capital and funding requirements on a legal entity basis, including evaluating proposed capital and liquidity processes for Barclays UK.   §  Debated with management proposed actions to be taken to restructure the Group’s asset swaps and ESHLA portfolio in order to reduce the impact of market volatility on capital.		The Committee supported the forecast capital and funding trajectory and the actions identified by management to manage the Group’s capital position, including the actions taken to restructure asset swaps and the ESHLA portfolio. The Committee approved the proposed capital and liquidity processes for Barclays UK for submission to the regulator.
Political and economic risk, i.e. the impact on the Group’s risk profile of political and economic developments and macroeconomic conditions.		The potential impact on the Group’s risk profile of political developments, such as the UK’s EU Referendum and the US Presidential election, political and economic risk in South Africa, and weakening macroeconomic conditions, such as disruption and volatility in financial markets.		§  Closely monitored the potential impact of the UK’s EU Referendum on the Group’s risk profile and risk management – see the case study below for further details.   §  Requested an assessment of the potential impact of negative interest rates in the UK on Barclays and on UK banks generally, evaluating the potential impact on risk appetite, on customers and on Barclays’ models.   §  Continued to assess the economic and political situation in South Africa and the potential impact on the Group’s risk profile, including assessing the potential risk of a sovereign credit rating downgrade and the action taken by management to position the business appropriately.   §  Continued to assess Chinese economic metrics and the potential for the global impact of any economic slowdown in China.   §  Discussed the impact of market volatility on Barclays’ pension scheme.   §  Monitored Barclays’ exposures to certain European banks in view of potential specific stresses for individual banks and general economic and political conditions in the Eurozone.		The Committee identified interest rate risk as a potential area of emerging risk and asked management for an assessment of Barclays’ sensitivity to changes in interest rates and inflation, which was presented to the Committee in the fourth quarter. The Committee suggested that the Board was briefed on this subject and a briefing session is planned for 2017.   The Committee satisfied itself that the actions taken to position Barclays’ business in South Africa were appropriate in the context of the identified economic and political risk. It continues to keep the potential impact of a Chinese slowdown under active review and will be updated by management in early 2017 with an assessment of the risk horizon. Given the political and economic uncertainty in Italy that re-emerged in late 2016, the Committee asked management to renew its focus on reducing any redenomination risk arising from Barclays’ operations in Italy.
Specific sector risk, i.e. the Group’s risk profile in sectors showing signs of stress, such as the oil sector.		The Group’s exposures to the oil and commodities sectors in light of the ongoing price weakness and volatility in these sectors during 2016.		§  Continued to regularly assess the Group’s exposures to the oil sector, including how the portfolio was performing and whether this was in line with expectations given the actions that had been taken to manage or restructure Barclays’ exposures.		The Committee satisfied itself that the actions taken by management were appropriate. Given ongoing volatility in this sector it will continue to monitor the portfolio for any further signs of stress that may require additional action.

 

 

22  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Credit risk, i.e. the potential for financial loss if customers fail to fulfil their contractual obligations.		Conditions in the UK housing market, particularly in London and the South East and the Group’s risk appetite for and management of sectors such as the buy-to-let sector, given changes in taxation; levels of UK consumer indebtedness, particularly in the context of the risk of rising interest rates; and the performance of the Cards business, particularly the US Cards business, including levels of impairment.		§   Continued to assess conditions in the UK property market for any signs of stress.   §   Evaluated how management was tracking and responding to rising levels of consumer indebtedness.   §   Scrutinised the performance of the Cards business, including reviewing performance against risk appetite, evaluating the drivers of impairment in the UK and US businesses and assessing actions being taken to ensure that the performance of certain business segments remained within agreed risk appetite.		The Committee continued to encourage management to carry on with its conservative approach to UK mortgage lending, particularly in view of signs of slowdown the market post the EU Referendum. It also encouraged management to continue its close monitoring of overall levels of consumer indebtedness. The Committee challenged the credit performance of certain business segments in the US Cards business and encouraged management to complete the actions that had been identified to improve credit performance. It also emphasised to management the need to strengthen the linkages between business strategy and risk appetite.
Operational risk, i.e. costs arising from human factors, inadequate processes and systems or external events.		The Group’s operational risk capital requirements and any material changes to the Group’s operational risk profile and performance of specific operational risks against agreed risk appetite.		§   Tracked operational risk key indicators via regular reports from the Head of Operational Risk.   §   Evaluated the potential impact of regulatory developments on operational risk capital requirements.   §   Debated specific areas of operational risk, including fraud; transaction operations; technology; payments; and cyber-risk, evaluating the extent of any losses, the overall threat landscape, risk trends and the controls in place, in order to assess the potential impact on operational risk capital requirements.		The Committee focused its attention on the financial and capital impacts of operational risk, with specific attention on key risks that were outside appetite. It encouraged management to implement greater links between the control environment in each business and the operational risk capital allocated to that business. It also emphasised to management that there should be greater co-ordination between the key risks highlighted to the Committee and the operational risk control issues escalated to the Board Audit Committee, which is being addressed via the new chief controls office.
Risk framework and governance		The frameworks, policies and talent and tools in place to support effective risk management and oversight.		§   Evaluated model risk and plans in place to enhance Barclays’ models and modelling capabilities.   §   Tracked the progress of significant risk management projects, including the plans in place to achieve compliance with BCBS239 risk data aggregation principles.   §   Debated any risk management matters raised by Barclays’ regulators and the actions being taken by management to respond.   §   Discussed and endorsed the revised Enterprise Risk Management Framework (ERMF) from the perspective of financial and operational risk.   §   Oversaw the transition and handover to a new Chief Risk Officer.   §   Encouraged management to find ways of assessing risk capability and risk management culture.		The Committee will continue to track the delivery of plans to enhance modelling and will focus on this during 2017 as part of its oversight of the model risk principal risk. The Committee encouraged management to continue to improve risk data quality, including embedding accountability for risk data quality with the business chief risk officers. The Committee will continue to track management’s response to any risk management matters raised by the Group’s regulators.   The Committee was satisfied that the handover to the new Chief Risk Officer was appropriate. The Committee welcomed the development of a risk management capability scorecard and asked for risk management capability to be evaluated by an external third party on a periodic basis, with a view to starting in 2017. It also welcomed the proposal to measure risk culture and asked for this to be fed into the Board Reputation Committee’s overall assessment of Barclays’ culture.
Remuneration		The scope of any risk adjustments to be taken into account by the Board Remuneration Committee when making remuneration decisions for 2016.		§   Debated the Risk function’s view of 2016 performance, making a recommendation to the Board Remuneration Committee on the financial and operational risk factors to be taken into account in remuneration decisions for 2016.		The Committee asked for capital and liquidity on a stressed basis to be taken into account when finalising the risk input to remuneration decisions.

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  23

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Governance: Directors’ report

What we did in 2016

Board Risk Committee report

 

 

 

24  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Directors’ report

What we did in 2016

Board Reputation Committee report

 

 

Achieving and sustaining a culture where all of our people demonstrate consistent behaviours and conduct underpinned by the Barclays’ values is key to delivering high performance for all our stakeholders and, therefore, to our long-term success.      Dear Fellow Shareholders One of the key areas of focus for the Committee during 2016 was encouraging management to develop a way of better understanding and measuring intangible areas such as behaviour and culture. Barclays has a strong and resonant purpose, Helping people achieve their ambitions in the right way, and a well understood set of values, Respect, Integrity, Service, Excellence and Stewardship. This culture is firmly endorsed from the top: achieving and sustaining a culture where all of our people demonstrate consistent behaviours and conduct, underpinned by Barclays’ values, is key to delivering high performance for all our stakeholders and, therefore, to our long-term success.   Our challenge has been how to co-ordinate the efforts to build culture across the Group and obtain assurance that progress is being made. Significant focus was given during 2016 to developing consistent measurement and reporting of culture and you can read about the Committee’s role in this important initiative in the case study on page 28. A similar approach has been taken to developing a set of indicators to allow us to measure progress across the Committee’s other areas of responsibility: conduct, complaints and citizenship.   During 2016, the Committee continued to track the exposure of Barclays, and the financial sector in general, to reputational risks. It also placed a renewed focus on the initiatives under way to build and manage Barclays’ reputation with its key stakeholders. We also continued to exercise oversight of the Barclays’ Compliance function, including approving its annual business plan, budget and resources.   Under the UK’s Senior Manager Regime, which was introduced in March 2016, I have specific responsibilities with regard to safeguarding the independence and integrity of Barclays’ Compliance function and for overseeing its performance, including that of the Head of Compliance. To this end, I regularly meet with the Head of Compliance to receive briefings on the work of Compliance and provide support when necessary. I also meet regularly with other members of senior management, including those in the Corporate Relations, Citizenship and Reputation Risk teams.		This is my first report as Chairman of the Board Reputation Committee and I wish to record my thanks to Sir Michael Rake, who I succeeded as Chairman on 1 January 2016, and to Wendy Lucas-Bull and Frits van Paasschen, who both stepped down from the Committee on their retirement from the Barclays Board during 2016. Mike Ashley and Mary Francis subsequently joined the Committee to ensure we have the right balance of skills and experience and appropriate cross-membership with other Board Committees.   The report on pages 26 to 28 sets out details of the material matters considered by the Committee during 2016.   Committee performance The Committee’s performance during 2016 was assessed as part of the independently facilitated annual Board effectiveness review. I can report that my fellow Board members considered that the Committee has made progress in defining its role and is performing well. The main area identified for improvement was around ensuring that Board members have greater awareness of the Committee’s mandate and core agenda. You can read more about the outcomes of the Board effectiveness review on pages 33 to 35.   Looking ahead Cultural transformation remains firmly on the Committee’s agenda and we will continue to track key indicators and measure the progress being made. This will be increasingly important as Barclays implements its Structural Reform Programme and begins to establish separate legal entities within the Group. My key objective in 2016 was to put the Committee at the centre of Barclays’ drive to be a leader in conduct, culture and reputation - matters at which we have not always excelled in the past. There is still lots to do, but I believe that the leadership and processes that we have now put in place give us a great foundation on which to build.     Sir Gerry Grimstone Chairman, Board Reputation Committee 22 February 2017

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  25

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Governance: Directors’ report

What we did in 2016

Board Reputation Committee report

 

 

 

 

The Committee’s work

The significant matters addressed by the Committee during 2016 are described below:

 

Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Conduct risk		The risk of detriment to customers, clients, market integrity, competition or Barclays from the inappropriate supply of financial services, including instances of wilful or negligent misconduct.		§  Discussed updates from management on conduct risk and requested the development of a dashboard report of conduct indicators to be presented to each meeting.   §  Monitored on a regular basis performance against agreed conduct risk indicators.   §  Debated the indicators that had been developed to measure material conduct risks and issues, including providing feedback on indicators for policy breaches.   §  Discussed with BIA its view of the management of conduct risk across the Group, with particular emphasis on maintaining focus on conduct risk through periods of change.   §  Provided input, via the Committee Chairman, to the scope of BIA’s review of the conduct risk programme.   §  Discussed directly with the senior management of Barclays International and Barclays UK their view of conduct and cultural issues in those businesses and the status of any initiatives in place to strengthen conduct and culture.   §  Confirmed with management that reviews had been undertaken to learn lessons from issues that had arisen at other banks and financial institutions, e.g. sales-based incentive schemes.   §  Tracked the levels of attestation by colleagues globally to The Barclays Way, the Group’s code of conduct.		The Committee requested further focus on product propositions and suitability and updates on product development and controls. In 2017, it will receive a quarterly report on new products. It provided input on the development of the dashboard, including requesting that it incorporates reports from BIA and draws on external data points where available. The Committee reiterated to management the importance of ensuring that the focus on conduct is maintained in those businesses or jurisdictions that Barclays is exiting or where it is reducing its presence. The Committee encouraged management to bring contingent workers into the scope of The Barclays Way training and arrangements are being made for all Committee members to complete the training themselves.
		The scope of any conduct risk adjustments to be taken into account by the Board Remuneration Committee when making remuneration decisions for 2016.		§  Considered the proposed adjustments to be made to the incentive pool from a conduct risk perspective.		The Committee endorsed the methodology used and the resulting adjustments proposed.

 

26  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Area of focus		Matter addressed		Role of the Committee		Conclusion/action taken
Cultural change		The progress being made on embedding of cultural change.		§  Debated reports on the progress being made to effect cultural change across Barclays globally, discussing the measures being taken to define the desired culture and how it would be measured.   §  Requested that a single report of cultural indicators was developed for reporting to each meeting and monitored on a regular basis performance against the agreed indicators.   §  Discussed the status of the actions arising from the Banking Standards Board’s (BSB) 2015 assessment of Barclays, the progress of the 2016 assessment and the resulting 2016 assessment report, asking management for greater co-ordination between the BSB’s work and internal employee surveys.		Read more about the development of the culture measurement framework in the case study on page 28.
Complaints		Ensuring fair outcomes for customers by monitoring volumes of complaints received and the standard and quality of complaints handling processes.		§  Requested the development of a dashboard report of complaints indicators to be presented to each meeting.   §  Monitored on a regular basis performance against agreed complaints indicators.   §  Discussed the way in which complaints are handled and the focus on resolving complaints at first point of contact.   §  Debated imminent industry-wide changes in the way in which reportable complaints are recorded and the potential for reputation risk.		The Committee encouraged management to develop a way of defining and reporting on complaints in the Barclays International’s investment bank and a standard on complaint handling in that business will be issued in the first quarter of 2017. The Committee requested that additional information on the top root causes of complaints was included in future reports.
Citizenship		The status of Barclays’ Citizenship Plan 2016-2018, the Shared Growth Ambition.		§  Debated the targets to be set for the Shared Growth initiatives.   §  Agreed with the proposal to focus activity around the themes of access to employment, to financial and digital empowerment and to financing.   §  Assessed status updates on the progress of the Shared Growth Ambition.   §  Requested the development of a dashboard report of citizenship indicators to be presented to each meeting and monitored on a regular basis performance against agreed indicators.   §  Considered and recommended to the Board for approval Barclays statement under the UK’s Modern Slavery Act, which can be found on Barclays’ website.		The Committee provided feedback on how the Shared Growth Ambition was articulated and requested additional information on the focus areas and metrics and how progress would be measured and reported. Its feedback was incorporated into the plan, which was launched in June 2016.
Reputation risk		Ensuring that Barclays anticipates, identifies and manages reputational issues that may impact it or the industry now or in the future.		§  Monitored current reputation risk issues, including Barclays’ involvement in sensitive sectors such as defence or energy and fossil fuels.   §  Assessed emerging reputational issues, such as climate change and the relaxation of certain sanctions against Iran.   §  Evaluated the measures being taken to proactively build and manage Barclays’ reputation with stakeholders.   §  Assessed external opinion survey results, the trends in indicators and factors influencing the survey results, including the potential impact of the EU Referendum and government leadership changes in the UK and US.   §  Discussed the reputational risks associated with tax and how this was being managed across the Group, including the effectiveness of Barclays’ Tax Principles and Code of Conduct.		The Committee provided feedback on the form and content of the reputation risk reports and how Barclays-specific and systemic risks might be monitored. It approved changes to Barclays’ Sanctions Policy with regard to sanctions with Iran. The Committee requested a regular report setting out a rolling 12-month view of Barclays’ communications campaigns. It also requested and received an update on Barclays’ crisis management plans. It requested and received further information on Barclays’ business in low tax jurisdictions. It asked for and receives regular reports from the Tax Management Oversight Committee on the transactions it has reviewed.

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  27

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Governance: Directors’ report

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The Committee also covered the following matters:   §   discussed the progress of plans to develop the Barclays brand   §   endorsed the 2017 priorities for Barclays Corporate Relations team   §   assessed the revised ERMF from a conduct and reputation risk perspective and recommended it to the Board for approval   §   approved the 2016 Compliance business plan and tracked progress, including updates on resourcing and attrition levels

§   received a report on management’s annual review of the effectiveness of compliance with the Volcker Rule (restrictions on proprietary trading and certain fund investments by banks operating in the US)   §   assessed and discussed a report on the Committee’s performance during 2015   §   approved revisions to its terms of reference and recommended them to the Board for approval.

Read more about Barclays’ risk management on pages 342 to 403.

Governance in Action – measuring cultural progress   A primary area of focus for the Committee in 2016 was providing challenge and support to management in its delivery of cultural change. The Group Executive Committee confirmed conduct, culture and values as one of its execution priorities for 2016, with the aim of monitoring cultural change and bringing together different cultural indicators to form a coherent and consolidated view of culture across Barclays.   Senior representatives from Compliance, Risk, HR and BIA presented to the Committee in early 2016 on the progress of implementing cultural change and proposals for developing a set of key indicators, along with clear governance structures and accountability for monitoring and sustaining cultural progress. The Committee debated and endorsed the following objectives:   §  identify the desired culture end-state and how to measure progress towards achieving it   §  develop a cultural measurement tool that provides simple and consistent reporting relevant to all stakeholders   §  use the insights obtained to drive actions and further embed and sustain the desired values-based culture.   Ten cultural outcomes were identified, firmly linked to Barclays’ values:

For each desired cultural outcome, a set of internal qualitative and quantitative indicators was identified, along with external perception indicators. The indicators proposed were drawn from existing indicators used in the Group, such as the results from Your View (the employee opinion survey), results from Barrett Values Surveys of Barclays’ Executive and Senior Leadership Group, external opinion survey results, BIA reports, performance reviews and indicators relating to risk management and compliance. Assessing these indicators will ensure that ongoing efforts are focused on priority issues and challenges that may impede cultural transformation.   In debating and endorsing the proposed cultural outcomes and indicators, the Committee provided feedback to management. It discussed in particular:   §   how to embed the desired culture across middle-management and whether a targeted action plan was needed for this population   §   how structuring incentives in the right way, based on personal accountability, could help drive the right culture and behaviours   §   whether a more holistic approach was needed to performance reviews, with even more focus on rewarding how things were done, rather than what was achieved   §   that indicators based around the ‘how’ assessments from performance reviews might be incorporated as a measure of success   §   that existing indicators on audit issues and regulatory actions could be incorporated as a measure of success.   Feedback from the Committee was subsequently incorporated into the measurement tool. The Committee also requested the development of a culture dashboard, setting out quarterly performance against the agreed indicators. The first such report was made in September 2016, with a further report in December 2016, allowing the Committee to debate the results and trends and the areas identified for potential deep dive reviews or targeted action. During 2017, the Committee will continue to assess the quarterly indicators, the potential themes emerging and any specific challenges identified at a business and functional level.

Value

Cultural outcomes

Respect

Inclusion

Collaboration

Integrity

Speaking up

Personal accountability

Service

Customer/client centricity

Balanced short and long-term needs

Excellence

Simplicity and efficiency

High performance

Stewardship

Continuous improvement

Strong reputation

 

28  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Directors’ report

What we did in 2016

Board Nominations Committee report

 

 

It is a key part of our role to be satisfied that there are proper processes in place for executive succession.      Dear Fellow Shareholders Following his appointment as Group Chief Executive at the end of 2015, Jes Staley has been building his Group Executive Committee. Board level consideration is required for appointments to the Group Executive Committee and throughout 2016 the Board Nominations Committee continued to embed its oversight of Group Executive Committee succession planning. The Committee was updated on Barclays’ talent and succession strategy and presented with role profiles and outputs from reviews of internal successors to Group Executive Committee roles. It is a key part of our role to be satisfied that there are proper processes in place for executive succession and at our regular meetings we discussed how potential successors are being provided with wider, relevant experience as part of their development.   Another ongoing area of focus for the Committee in 2016 was the composition of our subsidiary boards in light of the legal, regulatory and governance requirements of Structural Reform. A great deal of consideration has been given to ensuring the independence of the board and board committees of Barclays’ strategically significant subsidiaries, while allowing for collaboration between those boards and the Barclays Board. We have deliberated at length on the structure of the subsidiary boards and how they will report into and interact with our Group Board, which must continue to have appropriate oversight to ensure the effective operation of the Group and the protection of shareholder interests. During 2016, we finalised and recommended to the Board a set of Governance Guiding Principles, which document the high level expectations of the relationship that will exist between Barclays and its strategically significant subsidiaries.   The Committee regularly considered the balance of skills, experience and diversity needed on the Board during 2016. We refreshed the Board skills matrix to reflect the future strategy of the Group, identifying the attributes required to further strengthen and enhance the Board’s effectiveness. We conducted searches for new non-executive Directors, approving the appointment of Mary Francis as non-executive Director: Mary brings both financial services experience and significant non-executive directorship experience to the Board. We also considered subsidiary board composition at each of our Committee meetings, with a particular focus on populating the strategically significant subsidiary boards as we continue to embed Structural Reform. It is fair to say that attracting candidates with the skills, experience and qualities we need remains a considerable task: serving on a bank board is not an undertaking that anyone considers lightly and our success in securing the right candidates has been necessarily limited by the challenges they perceive.		When considering Board and Board Committee composition and succession plans diversity remains at the front of our minds. We continued to receive regular updates on diversity and inclusion during 2016 and were pleased to hear that the number of women in senior leadership positions had increased for the third successive year. As a Board we met our target of 25% female representation by 2015 and are progressing towards the target we set ourselves last year of 33% female representation by 2020. Diversity is not just about gender, however, and we are always mindful of diversity in all of its forms, even where we have not set specific targets.   Certain responsibilities for me as Chairman of the Committee have been prescribed by the Senior Managers Regime that was introduced in the UK in March 2016. Under that regime, I am responsible for ensuring that the Committee remains independent and that it performs effectively, fulfilling the responsibilities expected of it by our regulators in terms of overseeing decisions around the structure, size, composition, diversity and performance of the Board. The report that follows describes how these responsibilities have been fulfilled. I would like to take this opportunity to thank my fellow Committee members for their continued support during 2016.   Committee performance The performance of the Committee was assessed as part of the annual Board effectiveness review and I am pleased to report that is was assessed to be performing effectively. An area identified for improvement was around ensuring that there are more regular reports to the Board on the status of recruitment of new non-executive Directors, which I will address. The report on the Board effectiveness review contains more information and can be found on pages 33 to 35.   Looking ahead In 2017 we will continue to support the implementation of the new Group structure, ensuring that we have the right people in place to take Barclays forward. As appropriate, we will continue to make recommendations to the Board to ensure that we remain at the forefront of best practice corporate governance standards.     John McFarlane Chairman, Board Nominations Committee 22 February 2017

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  29

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Governance: Directors’ report

What we did in 2016

Board Nominations Committee report

 

 

 

 

The Committee’s work

The significant matters addressed by the Committee during 2016 are described below:

 

Area of focus		Matter considered		Role of the Committee		Conclusion/action taken
Board and Board Committee composition		The membership of the Board and the current and future composition of the Board and its Committees.		§  Debated a forward-looking plan of the expected skills and experience needed on the Board in the context of future strategic direction.   §  Evaluated the revised Board skills matrix and, in consideration of known and expected changes to the Board, conducted a search for non-executive Directors.   §  Reviewed the membership of Board Committees.   §  Considered and provided input to Board Committee Chairman succession plans.		The Committee approved the revised skills matrix and agreed to conduct a search for new non-executive Directors in line with the requirements identified. It recommended the appointment of Mary Francis to the Board as non-executive Director and she subsequently joined the Board with effect from 1 October 2016. The Committee concluded that additional accounting and auditing experience was needed in order to provide further options for succession to the Board Audit Committee chairmanship over time and a search for potential candidates continues.   Please refer to page 32 for more details of the Board’s approach to the recruitment of new Directors.

 

30  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Area of focus		Matter considered		Role of the Committee		Conclusion/action taken
Executive succession planning and talent management		Group Executive Committee composition and succession following the appointment of the new Group Chief Executive in 2015.   Oversight of Group Chief Executive succession and appointments to key positions.		§  Discussed updates from the Group HR Director on Group Executive Committee succession plans, including assessing emergency cover and the existing talent pipeline.   §  Considered external assessments and benchmarking of internal talent.   §  Debated approval requirements for appointments to the Group Executive Committee and other key positions across the Group.		The Committee requested a presentation of key outputs from the Group Executive Committee offsite meeting on talent. It also asked to receive reports of the executive assessments carried out by an external facilitator. The Committee agreed the approval requirements for key positions, and subsequently approved the appointment of Tim Throsby as President of Barclays International in accordance with those requirements.
Governance implications of Structural Reform and strategically significant subsidiary board composition		The board and board committee composition of strategically significant subsidiaries, including board size, structure and proposed interactions.   The governance principles for the relationship between Barclays and its strategically significant subsidiaries.		§  Finalised Governance Guiding Principles for the Group post-Structural Reform, which set out ultimate decision-making powers, while respecting the rights and responsibilities of the boards of the strategically significant subsidiaries.   §  Debated the required structure and composition of the strategically significant subsidiary boards and board committees in light of regulatory requirements and feedback.   §  Scrutinised the proposed board skills matrix for Barclays UK.   §  Considered candidates for the positions of chairman of Barclays UK and Barclays International.   §  Considered appointments to the Board of, and the associated fees for, the US IHC board.   §  Considered appointments to the Barclays Africa board.		The Committee endorsed and recommended the Governance Guiding Principles to the Board for approval. It agreed the structure of the strategically significant subsidiary boards and commenced a search for non-executive directors, including for the position of chairman of Barclays UK, and agreed the process of the appointing of the chairman of Barclays International. The Committee approved the appointment of Directors to the US IHC board, including agreeing the fees to be paid to them. It also approved appointments to the Barclays Africa board.
Board effectiveness		The progress made against the actions identified in the 2015 Board effectiveness review.   The 2016 effectiveness review of the Board and its Committees.		§  Discussed and agreed the proposed actions to be taken in response to the findings of the 2015 review.   §  Reassessed the status of the actions throughout the year and tracked the progress of the action plan.   §  Confirmed the process to be followed for the 2016 review.		The Committee recommended the proposed action plan and 2016 Board objectives to the Board for approval. The Committee agreed and recommended the process for the 2016 effectiveness review, which proceeded as recommended.
Governance		Changes to the Board’s corporate governance framework following the implementation of the Senior Managers Regime in March 2016.		§  Reviewed updates to Corporate Governance in Barclays and the Charter of Expectations following the implementation of the Senior Managers Regime in order to integrate the requirements into the existing corporate governance framework, applying particular focus to the updated individual role profiles.		Approved and recommended to the Board for approval the updated corporate governance documents and role profiles for key positions on the Board.

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  31

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Governance: Directors’ report

What we did in 2016

Board Nominations Committee report

 

 

 

 

 

 

 

32  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  33

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Governance: Directors’ report

What we did in 2016

Board Nominations Committee report

 

 

 

Review of Board and Board Committee Effectiveness

 

Board priorities				Leveraging Board experience in support of executives				Greater awareness of Board Committee work
2015 findings To ensure that the Board agenda is optimised, including time for ‘blue-sky’ discussion of major risks.				2015 findings To continue to ensure that all non-executive Directors have the opportunity to contribute to strategic debate.				2015 findings To continue to raise awareness across all Board members of the significant issues considered by Board Committees and to continue to refine the remit and scope of the Board Reputation Committee.
Actions taken in 2016 In early 2016 a set of Board objectives was agreed in order to track progress against the Board’s priorities.   Board agendas were updated to allow more time for discussion of strategic options. This was also the focus for the 2016 Board Strategy Offsite. Board dinners were used for more free-ranging discussions, with suggested topics notified to the Directors in advance. No decisions were taken or required as part of these discussions, which were used to inform the broader debate at subsequent Board meetings.				Actions taken in 2016 John McFarlane and Sir Gerry Grimstone took responsibility for ensuring that all non-executive Directors were involved in strategic decision making.   In the course of the year, it was decided that partnering non-executive Directors with members of the Group Executive Committee would not be taken forward. However, the experience of non-executive Directors has been leveraged as appropriate, e.g. the appointments of Steve Thieke and Diane Schueneman to the board of Barclays US IHC. Non-executive Directors continue to make a valuable contribution to the Board and its Committees.				Actions taken in 2016 All Directors have access to Board Committee meeting papers and minutes, and have been reminded that they may attend Board Committee meetings whether or not they are members. Some Directors made use of this option during 2016. Board Committee Chairmen have continued to report to the Board on specific matters discussed at Board Committee meetings.   During 2016 Sir Gerry Grimstone, chairman of the Board Reputation Committee took action to define and focus its role and scope more clearly, including implementing new reporting initiatives such as the development of dashboard reports.
2016 findings Create regular broad-based risk oversight sessions for the Board to allow Directors to look across the risk spectrum.   Schedule a debate on the role of the Board and non-executive Directors and link the conclusions to revised Board objectives to help focus the Board’s agenda over the coming year.				2016 findings The Board effectiveness review reported on positive and constructive relations between the new Board and the new management team.				2016 findings Continue to optimise the information flow between Directors in the run-up to Structural Reform in 2018.   Consider agreeing common values for the Group and the banking subsidiary boards in the new structure.   For 2017 this finding will be renamed as ‘Optimise communication and collaboration between directors, boards and committees.’
Actions to be taken in 2017 We will continue to identify opportunities for more free-ranging discussion of risk, including as part of the annual Board strategy session.   The role of the Group Board and Group non-executive Directors will be reviewed in the context of Structural Reform.				Actions to be taken in 2017 The Board will continue to support and challenge executive management, with particular focus on execution of strategy.				Actions to be taken in 2017 The Chairman will continue to use his meetings with non-executive Directors ahead of Board meetings to ensure that all non-executive Directors are briefed on current issues.   Opportunities for the Board (and, in due course, the banking subsidiary boards) to spend more time together around Board meetings will be identified.   Once the subsidiary boards are established, a common set of values will be agreed to supplement the Governance Guiding Principles that are already in place.

 

 

 

34  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Improvements to the Board appointment process				Director induction				Dealing more strategically with global regulation
2015 findings To continue to assess the skills and experience needed on the Board and to ensure that Board composition is balanced between UK and international members.   To enhance Board succession planning, particularly in respect of key roles.				2015 findings To enhance the Board training and induction programme, with particular focus on the training needs of Board members from outside the financial services sector.				2015 findings To continue to provide opportunities for Board members to provide early input to thinking on major issues and decisions.
Actions taken in 2016 During 2016 a revised Board succession plan and updated skills matrix were presented to the Board Nominations Committee. The plan addresses immediate needs as well as longer-term requirements to take account of the tenure of non-executive Directors. The succession plan included succession to key roles and considered the optimum size of the Board. The future composition of the Board post-Structural Reform has also been considered.   In addition, the Board received updates on executive talent management and succession planning during 2016.				Actions taken in 2016 The Board training programme for 2016 included specific sessions aimed primarily at non-executive Directors without a financial services background. Details of the training programme offered during 2016 can be found on page 39.				Actions taken in 2016 The Board’s agenda during 2016 focused more on strategic issues, including the capital and liquidity impacts of Structural Reform. For a description of the Board’s activity in 2016, including the input provided to management on the formulation of Group strategy and other significant decisions, see page 8 to 9.
2016 findings Continue to refine the Board skills matrix to ensure it aligns with the Group’s strategy and informs the succession plan for key Board roles. Implement more regular reporting to the Board on potential non-executive Directors under consideration.				2016 findings Continue to enhance the Director induction with a focus on providing broader governance training to anyone who has not previously served on a UK plc board.				2016 findings Review reporting arrangements on strategy implementation and review the KPIs or dashboard reports for key initiatives.   For 2017 this finding will be renamed as ‘Optimise reporting to the Board on strategy and execution priorities.’
Actions to be taken in 2017 The Board skills matrix will be kept under review, with separate skills matrices to be agreed with the respective chairmen of the banking subsidiaries. The Group Board succession plan will continue to be reviewed on a regular basis by the Board Nominations Committee and the Chairman will keep current Board members regularly updated on recruitment plans and potential candidates.				Actions to be taken in 2017 The Director induction programme will be reviewed and refreshed to factor in tailored governance training for new Directors. This is also being extended to directors of the new banking subsidiaries.				Actions to be taken in 2017 The form and content of reporting to the Board will be reviewed and refreshed by management to ensure that the Board is provided with appropriate management information on strategy and execution priorities. Specific topics that the Board indicated that it wished to review have been factored into the 2017 Board agenda.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  35

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Governance: Directors’ report

How we comply

    

 

 

 

36  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Board Governance framework

 

 

 

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Governance: Directors’ report

How we comply

    

 

 

Attendance

As members of the Board of Directors we are expected to attend each Board meeting and in 2016 we attended both scheduled and additional Board meetings, as disclosed in the table below. The Chairman met privately with the non-executive Directors ahead of each scheduled Board meeting, and if, owing to exceptional circumstances, a Director was not able to attend a Board meeting they ensured that their views were made known to the Chairman in advance of the meeting.

 

Board attendance		Independent		Scheduled meetings eligible to attend		Scheduled meetings attended		% attendance		Additional meetings eligible to attend		Additional meetings attended		%   attendance
Group Chairman
John McFarlane		On appointment		8		8		100		2		2		100
Executive Directors
Tushar Morzaria		Executive Director		8		8		100		2		2		100
Jes Staley		Executive Director		8		8		100		2		2		100
Non-executive Directors
Mike Ashley		Independent		8		8		100		2		1		50
Tim Breedon		Independent		8		8		100		2		2		100
Mary Francis		Independent		2		2		100		0		0		n/a
Crawford Gillies		Independent		8		8		100		2		2		100
Sir Gerry Grimstone		Senior Independent Director		8		8		100		2		2		100
Reuben Jeffery III†		Independent		8		7		88		2		1		50
Dambisa Moyo		Independent		8		8		100		2		2		100
Diane de Saint Victor†		Independent		8		7		88		2		2		100
Diane Schueneman		Independent		8		8		100		2		2		100
Steve Thieke		Independent		8		8		100		2		2		100
Former Directors
Wendy Lucas-Bull		Non-independent		1		1		100		1		1		100
Frits van Paasschen		Independent		3		3		100		1		1		100
Secretary
Claire Davies				1		1		100		0		0		n/a
Former Secretary
Lawrence Dickinson				7		7		100		2		2		100
† Unable to attend one scheduled meeting owing to prior commitments.

 

		Board Committee cross-membership
						Board Audit Committee		Board Nominations Committee		Board Remunerations Committee		Board Reputation Committee
		Board Risk Committee				3		3		1		1
		Board Reputation Committee				1		2		2
		Board Remuneration Committee				2		2
		Board Nominations Committee				3

 

38 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  39

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Governance: Directors’ report

How we comply

    

 

 

 

40  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Directors’ report

How we comply

        

 

 

 

42  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Directors’ report

Other Statutory Information

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  43

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Governance: Directors’ report

Other statutory information

    

 

 

 

44  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  45

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Governance: Directors’ report

Other Statutory Information

    

 

 

 

46  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: People

    

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  47

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Governance: People

    

    

 

 

 

48  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: People

  

  

 

 

 

50  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Remuneration report

Annual statement from the Chairman of the Board Remuneration Committee

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  51

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Governance: Remuneration report

Annual statement from the Chairman of the Board Remuneration Committee

    

 

 

 

52  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Remuneration report

New Directors’ remuneration policy – at a glance

        

 

 

Introduction

Barclays’ new DRP is subject to shareholder approval at the 2017 AGM on 10 May 2017 and, if approved, is intended to apply immediately, for three years to the date of the 2020 AGM.

What were the key factors taken into account when determining the new DRP?

The Committee considered the Barclays’ remuneration philosophy (adopted in 2015), regulatory developments and its experience of operating the prior DRP when designing the new DRP.

 

		Inputs		Outcomes
		Alignment with Barclays’ remuneration philosophy		§  Attract and retain talent needed to deliver Barclays’ strategy
				§  Align pay with investor interests
				§  Reward sustainable performance
				§  Support Barclays’ Values and culture
				§  Align with risk appetite, risk exposure and conduct expectations
				§  Be clear, transparent and as simple as possible
		Regulatory developments		§  Longer deferral periods:
				–  7 year pro-rata, from year 3 for PRA Senior Managers (including executive Directors)
				–  Extension of clawback periods from 7 to 10 years for PRA Senior Managers (including executive Directors)
				§  Applies for first time for 2017 performance year:
				–  Prohibition on dividend equivalents on deferred shares
				–  Increase to one year (from 6 months) holding period for awards delivered in shares
				–  Requirement that LTIP grants are based on performance over prior year as well as forward-looking performance period
		What are the key changes to the DRP?
		Key changes
		Fixed pay		§  ‘Fixed Pay’ introduced, replacing salary and RBP
				§  Fixed Pay delivered 50% in cash and 50% in shares (subject to 5 year holding period lifting pro-rata)
				§  Fixed Pay will not change during the policy period for either of the current executive Directors
				§  Pension allowance retained at current levels, but limited to 10% of Fixed Pay for new hires
		Variable pay		§  Bonus and LTIP combined for regulatory deferral purposes
		Performance measures		§  Bonus: Financial measures ³ 60%
				§  LTIP: Financial measures ³ 70%
		Delivery		§  Any bonus deferral vests in equal tranches between the third and seventh anniversary of award
				§  LTIP performance is tested at end of 3 year performance period and vests in equal tranches between the third and seventh anniversary of award
		Shareholding requirement		§  Requirement increased to 200% of Total fixed pay (i.e. Fixed Pay plus Pension) within 5 years from their respective date of appointment (from 400% of salary to equivalent of 457% of salary for CEO)
				§  New requirement to hold shares worth 100% of Total fixed pay (or pro-rata thereof) for 2 years post-termination
		Employment contracts		§  For new hires, asymmetry for notice periods removed i.e. 6 months from the Company and 6 months from the Director (from 12 months from the Company and 6 months from the Director)

 

		Full details of the changes to the DRP can be found on page 65. The full DRP is set out on pages 60 to 72.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  53

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Governance: Remuneration report

New Directors’ remuneration policy – at a glance

        

 

 

How will the new DRP be implemented?

The following charts illustrate how the vesting profiles of maximum total compensation for the Group CEO would change from the current policy to the new policy. All share awards are subject to additional holding periods following vesting, during which shares may not be sold or transferred.

 

 

Subject to shareholder approval of the new DRP, the proposed DRP will apply from the 2017 performance year.

How will the executive Directors’ remuneration be structured in 2017?

 

Total fixed pay
			Fixed Pay £000				Pension £000
Jes Staley			2,350				396
Tushar Morzaria			1,650				200

 

Annual bonus

LTIP

Maximum 80% of Total fixed pay

Maximum 120% of Total fixed pay

2017 Performance measures and weighting:

2017-2019 cycle performance measures and weighting:

Profit before tax excluding notable items

22.5%

RoTE excluding notable items

25%

CET1 ratio

22.5%

CET1 ratio as at 31.12.19

25%

Cost:Income ratio excluding notable items

15.0%

Cost:Income ratio excluding notable items

20%

Strategic/non-financial

20.0%

Strategic/non-financial

15%

Personal objectives

20.0%

Risk Scorecard

15%

 

54  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Remuneration report

2016 incentives

    

 

 

This section provides details of how the 2016 total incentive award decisions were made.

2016 pay and performance headlines

The key performance considerations which the Committee took into account in making its remuneration decisions for 2016 are highlighted below:

 

§

Group profit before tax was up 182% at £3,230m (2015: £1,146m)

 

§

Group CET1 ratio was up to 12.4% (2015: 11.4%)

 

§

Core profit before tax was up 60% from 2015 at £6,016m. Excluding notable items Core profit before tax was up 4% to £6,436m (2015: £6,191m), and up 10% excluding the impact of deferral changes made in 2016

 

§

RoTE in our Core businesses increased to 8.4% in 2016 (2015: 4.8%). Excluding notable items, Core RoTE was 9.4% (2015: 11.2%)

 

§

strong execution of the rundown of Non-Core resulting in a reduction in Risk Weighted Assets of £22bn.

The pay outcomes and decisions can be summarised as follows:

 

§

total compensation costs increased 2% to £7,445m (2015: £7,301m) including the impact of the deferral changes. Excluding this impact compensation costs were down 3%

 

§

total incentive awards granted were slightly down at £1,533m (2015: £1,544m)

 

§

the level of incentive pool absorbs the material adverse impact of foreign exchange movements through the year which more than offset the impact of reductions in staff numbers in the year

 

§

the Core compensation to net income ratio improved to (excluding notable items) 32.7% (2015: 34.0%) excluding the impact of deferral changes, increasing slightly to 34.7% including the impact of these changes

 

§

Group compensation to net income ratio (excluding notable items) was 40.2% (2015: 37.7%) driven by Non-Core income reduction as it runs down

 

§

Corporate and Investment Bank (CIB) front office incentive awards were also slightly down at £875m (2015: £884m). Excluding the impact of deferral changes made in 2016, CIB compensation to net income ratio (excluding notable items) was 39.2% (2015: 40.3%)

 

§

there has been continued strong differentiation on the basis of individual performance to allow the Group to more effectively manage compensation costs.

2016 total incentive award decisions

The Committee’s 2016 incentives decisions took full consideration of financial and non-financial performance and also the material repositioning of incentives undertaken since 2010. Since 2010, the Group incentive pool has declined steadily, from £3,484m in 2010 to £1,533m in 2016 – a decrease of 56% over six years.

 

 

Notes

a.	Part of the reduction in incentive pools in 2014 was due to the introduction of RBP.

b.	The 2015 Group incentive pool has been restated from £1,669m to reflect the treatment of Africa Banking as a discontinued operation. The 2010 – 2014 Group incentive pools have not been restated.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  55

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Governance: Remuneration report

2016 incentives

 

 

Total incentive awards granted – current year

 

			Barclays Group
			Year ended 31.12.16 £m				Year ended 31.12.15 £m				% change
Incentive awards granted
Bonus pool			1,459				1,453				0
Commissions and other incentivesa			74				91				19
Total incentive awards granted			1,533				1,544				1
Proportion of bonus pool that is deferred %			30				46
Reconciliation of incentive awards granted to income statement charge:
Less: deferred bonuses granted but not charged in current year			(300	)			(665	)			55
Add: current year charges for deferred bonuses from previous years			690				856				19
Otherb			(26	)			26
Income statement charge for performance costsc			1,897				1,761				(8	)
Total compensation costsd,e			7,445				7,301				(2	)
Total compensation costs before the impact of deferral changesd,e			7,050				7,301				3

Notes

a	Awards included in 2015 as commitments are now reflected in Bonus pool for consistency with 2016.

b	Difference between incentive awards granted and Income Statement charge for commissions and other incentives.

c	Includes the £395m impact of changes to deferral arrangements.

d	2015 total compensation costs have been adjusted to exclude the impact of a £429m gain on valuation of a component of the defined benefit liability.

e	In addition £212m of Group compensation (2015: £236m) was capitalised as internally generated software.

Changes to deferral arrangements

From 2016 onwards, costs in relation to deferred bonuses are expensed from the performance year in respect of which they are granted. Approximately 33% of deferred bonus costs will be taken in the year of performance, being the year prior to granting (previously 0%). This acceleration of future cost immediately improves the link between in-year performance costs and the size of the incentive pool.

The relationship between in-year performance costs and changes in the incentive pool will be further improved through a change to harmonise the deferral approach for all staff across the Group, creating internal consistency. Historically, we have applied deferral levels significantly higher than those required by our regulators for bonus payments made specifically to senior staff in our Investment Bank, making them defer 100% of incentive awards over at least three years, with nothing paid at all in the year in which the performance is delivered. This meant that any change to the Investment Bank pool in incentive awards to those staff had limited impact on the in-year performance costs recognised in our accounts. This approach also put us out of step with peer practice where deferral levels are typically lower. Our new Group deferral approach ensures that all staff will defer at least what is required by our regulators, while all of our highest paid staff will continue to defer more than is required to preserve the strong alignment to future Group performance. This change means that any change in incentive awards will now have a direct and immediate impact on performance costs for the year when the charge is made.

The alignment of deferral levels across the Group also helps from a global competitive perspective given the differences in approach being adopted by the different regulatory regimes. The differences have widened given the recent changes in the UK e.g. the increase in deferral duration to seven years for PRA Senior Managers and to five years for many other MRTs (from three years previously). Harmonising our deferral approach makes the delivery less uncompetitive outside the UK while importantly maintaining our responsibility to all our stakeholders.

Impact of deferral changes

 

			Barclays Group
Barclays Group			Year ended 31.12.16 %				Year ended 31.12.15 %
Compensation costs as a % of net income (excluding notable items)
Before impact of deferral changes			38.1				37.7
After impact of deferral changes			40.2				37.7
Barclays Core			%				%
Compensation costs as a % of net income (excluding notable items)
Before impact of deferral changes			32.7				34.0
After impact of deferral changes			34.7				34.0

 

56  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Remuneration report

Remuneration policy for all employees

 

 

This section sets out Barclays’ remuneration policy for all employees, explaining the philosophy underlying the structure of remuneration packages, and how this links remuneration to the achievement of sustained high performance and long-term value creation.

Remuneration philosophy

In October 2015, the Committee formally adopted a revised, simplified remuneration philosophy which articulates Barclays’ overarching remuneration approach and is set out below.

 

Barclays’ remuneration philosophy
Attract and retain talent needed to deliver Barclays’ strategy		Long-term success depends on the talent of our employees. This means attracting and retaining an appropriate range of talent to deliver against our strategy, and paying the right amount for that talent
Align pay with investor interests		Ensure employees’ interests are aligned with those of investors (equity and debt holders), both in structure and the appropriate balance of returns
Reward sustainable performance		Sustainable performance means making a positive contribution to stakeholders, in both the short and longer term, playing a valuable role in society
Support Barclays’ Values and culture		Results must be achieved in a manner consistent with our Values. Our Values and culture should drive the way that business is conducted
Align with risk appetite, risk exposure and conduct expectations		Designed to reward employees for achieving results in line with the Bank’s risk appetite and conduct expectations
Be clear, transparent and as simple as possible		All employees and stakeholders should understand how we reward our employees. Remuneration structures should be as simple as possible so that everyone can understand how they work and the behaviours they reward

Culture and remuneration

Barclays’ remuneration philosophy links remuneration to achieving sustained high performance and creating long-term value. Our remuneration philosophy applies to all employees globally across Barclays and aims to reinforce our belief that effective performance management is critical to enabling the delivery of our business strategy in line with our Values. Employees who adhere to the Barclays’ Values and contribute to Barclays’ success are rewarded accordingly.

This is achieved by basing performance assessment on clear standards of delivery and behaviour, and starts with employees aligning their objectives (‘what’ they will deliver) to business and team goals in order to support the delivery of the business strategy and good customer outcomes. Behavioural expectations (‘how’ people will achieve their objectives) are set in the context of our Values.

Individual performance is assessed against both financial and non-financial criteria. Other factors are also taken into consideration within the overall performance assessment, including core job responsibilities, behaviours towards risk and control, colleague and stakeholder feedback as well as input from the Risk and Compliance functions, where appropriate.

Through our performance management approach we emphasise the equal importance of both ‘what’ an individual has delivered as well as ‘how’ they have achieved this, encouraging balanced consideration of each dimension. Both of these elements are assessed and rated independently of each other. In 2016 we eliminated the requirement to have an overall rating which should allow for more robust and reflective conversations between managers and team members on the individual components of performance.

A key part of the performance management philosophy promotes ongoing quality dialogue throughout the year. This helps manage performance messages effectively and allows for more timely recognition as well as appropriate coaching and support where needed.

By linking individual performance assessment to Barclays’ strategy and our Values and, in turn, to remuneration decisions, a clear alignment between what we are striving to achieve, how we go about this, and ultimately, how we recognise this in individual financial terms is achieved.

Risk, conduct and remuneration

Another key feature of our remuneration philosophy is the alignment of remuneration with our risk appetite and with the conduct expectations of Barclays, our regulators and stakeholders. The Committee takes risk and conduct events very seriously and ensures that there are appropriate adjustments to individual remuneration and, where necessary, the incentive pool.

The Remuneration Review Panel, which reports to the Committee, supports the Committee in this process. The Panel is chaired by the Chief Risk Officer and includes senior representatives from the key control functions of Risk, Compliance, Internal Audit, Legal and HR as well as the CEOs of Barclays UK and Barclays International. It sets the policy and processes for assessing compensation adjustments for risk and conduct events.

We have robust processes for considering risk and conduct as part of individual performance management processes with outcomes reflected in individual remuneration decisions. Line managers have primary accountability for ensuring the risk and conduct issues are considered when assessing performance and making remuneration decisions. In addition, there is a secondary review by the control functions for individuals involved in significant failures of risk management, conduct issues, regulatory actions or other major incidents which impact either the Group or business to ensure these issues are also considered. When considering individual responsibility, a variety of factors are taken into account such as whether an individual was directly responsible or whether the individual, by virtue of seniority, could be deemed indirectly responsible, including staff who drive the Group’s culture and set its strategy.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  57

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Governance: Remuneration report

Remuneration policy for all employees

 

 

Actions which may be taken where risk management and conduct falls below required standards include:

 

Adjustment		Current year annual bonuses are adjusted downwards where individuals are found to be responsible (either directly or indirectly) in a risk or misconduct event.
Malus		Deferred unvested bonuses from prior years are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil) at its discretion. Events which may lead the Committee to do this include, but are not limited to, employee misconduct or a material failure of risk management.
Clawback		Clawback applies to any variable remuneration awarded to a PRA Material Risk Taker (MRT) on or after 1 January 2015 in respect of years for which they are a MRT. Barclays may apply clawback if, at any time during the seven year period from the date on which variable remuneration is awarded to a MRT: (i) there is reasonable evidence of employee misbehaviour or material error, and/or (ii) the firm or the business unit suffers a material failure of risk management, taking account of the individual’s proximity to and responsibility for that incident.   Clawback may be extended to 10 years for PRA Senior Managers where there are outstanding internal or regulatory investigations at the end of the 7 year clawback period.

Where possible, an adjustment will be made to current year annual bonus, before the application of malus and then clawback.

In addition to reductions to individuals’ bonuses, the Committee considers and makes collective adjustments to the incentive pool for specific material risk and conduct events. In 2016, the impact of these collective adjustments, resulting from both the direct financial impact on performance and the additional adjustments applied by the Committee, is a reduction of £150m.

We have also adjusted the incentive pool to take account of an assessment of a wide range of future risks including conduct, non-financial factors that can support the delivery of a strong risk environment, control and conduct culture and other factors including reputation, impact on customers, markets and other stakeholders.

Remuneration levels

Barclays is a long-standing supporter of the Living Wage. As an accredited Living Wage employer, Barclays commits to ensure that all permanent UK employees and those UK employees of third party contractors who provide services to us at our sites, are paid at least the current London or UK Living Wage. This is a commitment which we have also extended to all our UK employed apprentices.

Barclays is also fully committed to addressing pay inequality. Barclays’ work in this area is illustrated by recent union pay deals and the repositioning of the incentive pools over recent years. Over the past few years, we have consciously redirected the bonus pool funding, providing proportionally more to junior employees.

For UK employees, average Total Compensation (fixed pay plus bonus) for Managing Directors has reduced materially since 2010 (broadly in line with the reduction in the incentive pool). Over the same period, junior populations have been protected and have seen small increases in Total Compensation despite a challenging business environment. Similarly, salaries have been consciously increased for those within lower corporate grades within the UK. The UK pay deal which was in place for the 2014-2016 period provided non-management populations (primarily outside of the Investment Bank) with a 7.5% merit increase over the three-year period. A new three-year pay deal with Unite was reached in January 2017 which commits for the non-management population to a 7.5% merit increase over the 2017-2019 period and also commits to a minimum increase of 10% for the most junior graded employees.

Remuneration structure

The remuneration structure for employees is closely aligned with that for executive Directors, set out in detail in the DRP which is at pages 60 to 72 of this report and for which shareholder approval is being sought at the 2017 AGM. The primary exception being that the executive Directors participate in the Barclays’ LTIP.

Employees receive salary, pension and other benefits and are eligible to be considered for an annual bonus. Employees in some customer-facing businesses participate in formulaic incentive plans including plans which have good customer outcomes as the primary performance measure. The plans also recognise how results have been achieved in line with Barclays’ Values. Some senior employees also receive RBP. For executive Directors, under the new DRP, salary and RBP are replaced by Fixed Pay. Remuneration of MRTs is subject to the 2:1 maximum ratio of variable to total fixed pay. A total of 1,561 (2015: 1,523) individuals were MRTs in 2016.

The remuneration of employees engaged in control functions is determined independently from the business they support and within the parameters of the incentive pool allocated to them by the Committee.

 

58  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Fixed remuneration

Salary		Salaries reflect individuals’ skills and experience and are reviewed annually in the context of annual performance assessment. They are increased where justified by role change, increased responsibility or a change in the appropriate market rate.   Salaries may also be increased in line with local statutory requirements and in line with union and works council commitments.
Role Based Pay (RBP)		A small number of senior employees receive a class of fixed pay called RBP to recognise the seniority, breadth and depth of their role.
Pension and benefits		The provision of a competitive package of benefits is important to attracting and retaining the talented staff needed to deliver Barclays’ strategy. Employees have access to a range of country-specific company-funded benefits, including pension schemes, healthcare, life assurance and Barclays’ share plans as well as other voluntary employee funded benefits. The cost of providing these benefits is defined and controlled.

Variable remuneration

 

Annual bonus		Annual bonuses incentivise and reward the achievement of Group, business and individual objectives, and reward employees for demonstrating individual behaviours in line with Barclays’ Values.
		The ability to recognise performance through variable remuneration enables the Group to control its cost base flexibly and to react to events and market circumstances. Bonuses remain a key feature of remuneration practice in the highly competitive and mobile market for talent in the financial services sector. The Committee is careful to control the proportion of variable to fixed remuneration paid to individuals.
		From 2016, the typical deferral structures are:

		For MRTs:						For non-MRTs:
		Incentive award		Amount deferred				Incentive award		Amount deferred
		< £500,000		40% of total award				Up to £65,000		0%
		£500,000 to £1,000,000		60% of total award				> £65,000		Graduated level of deferral
		³ £1,000,000		60% up to £1,000,000 100% above £1,000,000

		Deferred bonuses are generally delivered in equal portions as deferred cash and deferred shares subject to the rules of the deferred cash and share plans (as amended from time to time) and continued service. From 2016, deferred bonuses are subject to either a 3, 5 or 7 year deferral period in line with regulatory requirements.
Share plans		Alignment of senior employees with shareholders is achieved through deferral of incentive pay. We also encourage wider employee shareholding through the all-employee share plans. 82% of the global employee population (excluding Africa) is eligible to participate.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  59

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Governance: Remuneration report

Directors’ remuneration policy

    

 

 

This section sets out the proposed new Barclays’ forward-looking remuneration policy for Directors, which has evolved from the existing policy and explains each element of remuneration and how it operates. The policy described in this section is intended to apply for three years beginning on the date of the 2017 AGM, subject to shareholder approval.   The existing policy can be found on pages 100 to 110 of the 2013 Annual Report or at home.barclays/annualreport.

Remuneration policy for executive Directors

 

Element and purpose		Operation		Maximum value and performance measures
A. Fixed pay
Fixed Pay To reward skills and experience appropriate for the breadth and depth of the role and to provide the basis for a competitive remuneration package		Fixed Pay is determined with reference to market practice and historical market data (on which the Committee receives independent advice), and reflects the individual’s experience and role.   Executive Directors’ total compensation is benchmarked against comparable roles in the following banks: Bank of America, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JP Morgan Chase & Co, Lloyds, Morgan Stanley, Standard Chartered and UBS. The Committee may amend the list of comparator companies to ensure it remains relevant to Barclays or if circumstances make this necessary (for example, as a result of takeovers or mergers).   50% of Fixed Pay is delivered in cash (paid monthly), and 50% is delivered in shares. The shares are delivered quarterly and are subject to a holding period with restrictions lifting over five years (20% each year). As the executive Directors beneficially own the shares, they will be entitled to any dividends paid on those shares.   Malus and clawback provisions do not apply to Fixed Pay.		Fixed Pay for executive Directors is set within the benchmark range determined by the Committee taking into account their experience and performance.   The maximum Fixed Pay is £2,350,000 for Jes Staley (Group Chief Executive) and £1,650,000 for Tushar Morzaria (Group Finance Director).   These amounts are fixed and will not change during the policy period for these individuals.   There are no performance measures.
Pension To enable executive Directors to build long-term retirement savings		Executive Directors receive an annual cash allowance in lieu of participation in a pension arrangement.		The maximum annual cash allowance is £396,000 for Jes Staley (Group Chief Executive) and £200,000 for Tushar Morzaria (Group Finance Director).   These amounts are fixed and will not change during the policy period for these individuals.
Benefits To provide a competitive and cost effective benefits package appropriate to the role and location		Executive Directors’ benefits provision includes, but is not restricted to, private medical cover, annual health check, life and ill health income protection, car cash allowance, and use of a Company vehicle and driver when required for business purposes.   In addition to the above, if an executive Director were to relocate, additional support would be provided for a defined and limited period of time in line with Barclays’ general employee mobility policy including, but not restricted to, the provision of temporary accommodation, tax advice, home leave related costs, payment of removal costs and relocation flights for the executive Director, spouse and children. Barclays will pay the executive Director’s tax on the relocation costs but will not tax equalise and will also not pay the tax on any other employment income.		The maximum value of the benefit is determined by the nature of the benefit itself and costs of provision may depend on external factors, e.g. insurance costs.

 

60  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Remuneration policy for executive Directors continued

 

 

Element and purpose		Operation		Maximum value and performance measures
B. Variable pay
Annual bonus To reward delivery of short-term financial targets set each year, the individual performance of the executive Directors in achieving those targets, and their contribution to delivering Barclays’ strategic objectives   Delivery in part in shares with a holding period increases alignment with shareholders. Deferred bonuses encourage longer term focus and retention		Determination of annual bonus Individual bonuses are discretionary and decisions are based on the Committee’s judgement of executive Directors’ performance in the year, measured against Group and personal objectives.   Delivery structure Annual bonuses are delivered as a combination of cash and shares, a proportion of which may be deferred and/or subject to a holding period.   Deferral proportions and vesting profiles will be structured so that, in combination with any LTIP award, the proportion of variable pay that is deferred is no less than that required by regulations.   Deferred bonuses are granted by the Committee (or an authorised sub-committee) at its discretion, subject to the relevant plan rules as amended from time to time.   Dividend equivalents, in the form of additional shares, are payable on the vested deferred bonus shares, equal to the dividends paid or payable between the award date and the relevant release date. If dividend equivalents are not permissible under regulations, the number of deferred bonus shares to be awarded will be based on a share price discounted by reference to an expected dividend yield over the vesting period. In such circumstances, the Committee has discretion to reduce (not increase) the number of shares that vest if actual dividends paid over the period are materially lower than the original dividend assumption.   A notional discount may be applied to the deferred bonus awards for the purposes of calculating the 2:1 cap to the extent this is permitted by regulations (currently a discount is permitted on up to 25% of variable pay where the conditions for applying such a discount are met).   Operation of risk and conduct adjustment, malus and clawback Any bonus awarded will reflect appropriate consideration in relation to Group risk and conduct events. Individual bonus decisions may also reflect appropriate reductions in relation to specific risk and conduct events. Any bonus is also subject to malus and clawback provisions.   The malus provisions enable the Committee to reduce the amount of unvested bonus (including to nil) prior to the unvested bonus vesting in specified circumstances, including, but not limited to:   §   a participant deliberately misleading Barclays, the market and/or shareholders in relation to the financial performance of the Barclays Group   §    a participant causing harm to Barclays’ reputation or where his/her actions have amounted to misconduct, incompetence or negligence   §   a material restatement of the financial statements of the Barclays Group or any subsidiary, or the Group or any business unit suffering a material downturn in its financial performance   §  a material failure of risk management in the Barclays Group   §  a significant deterioration in the financial health of the Barclays Group		The maximum annual bonus opportunity is 80% of Total fixed pay. For these purposes Total fixed pay is Fixed Pay plus Pension.   The performance measures by which any executive Director’s bonus is assessed include financial and non-financial measures which also include risk-related measures and personal objectives. In making its assessment of any bonus, the Committee will consider financial factors to guide at least 60% of the bonus opportunity. Any bonus is discretionary and any amount may be awarded from zero to the maximum value.   The Committee has the discretion to vary the measures and their respective weightings within each category. The measures and weightings will be disclosed annually as part of the Annual report on Directors’ remuneration.

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  61

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Governance: Remuneration report

Directors’ remuneration policy

        

 

 

Remuneration policy for executive Directors continued

 

 

Element and purpose		Operation		Maximum value and performance measures
B. Variable pay continued
		The clawback provisions enable amounts to be recovered after they have vested (for a period of seven years from grant/ten years in specified circumstances e.g. where a relevant investigation is ongoing at the end of the initial seven year period) in circumstances where (i) a participant’s actions or omissions have amounted to misbehaviour and material error and/or (ii) Barclays or the relevant business unit has suffered a material failure of risk management.   Timing of receipt Non-deferred cash components of any bonus are paid following the performance year to which they relate, normally in March. Non-deferred share bonuses are also awarded normally in March and are subject to a holding period (after the payment of tax) in line with regulations and with release no faster than permitted by regulations (currently minimum of six months, increasing to one year for the 2017 performance year).   Deferred share bonuses are structured so that no deferred shares vest faster than permitted by regulations (currently in five equal tranches with the first vesting on or around the third anniversary of grant and the last tranche vesting on or around the seventh anniversary of grant). Vesting is also subject to the provisions of the plan rules including employment and the malus and clawback provisions (as explained above). Any shares that vest are subject to an additional holding period (after payment of tax) in line with regulations and with release no faster than permitted by regulations (currently minimum of six months, increasing to one year for the 2017 performance year).

 

62  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Remuneration policy for executive Directors continued

 

 

Element and purpose		Operation		Maximum value and performance measures
B. Variable pay continued
Long Term Incentive Plan (LTIP) award To reward execution of Barclays’ strategy over a multi-year period   Long-term performance measurement, deferral and holding periods encourage a long-term view and align executive Directors’ interests with those of shareholders. Malus and clawback provisions discourage excessive risk-taking and inappropriate behaviours		Determination of LTIP award LTIP awards are made by the Committee following discussion of recommendations made by the Chairman (for the Group Chief Executive’s LTIP award) and by the Group Chief Executive (for other executive Directors’ LTIP awards) based on satisfactory performance over the prior year.   Delivery structure LTIP awards are granted subject to the plan rules and are satisfied in Barclays’ shares (although they may be satisfied in other instruments as may be required by regulation).   LTIP awards are structured so that when combined with the annual bonus the proportion of variable pay that is deferred is no less than that required by regulations.   For each award, forward-looking performance measures are set at grant and there is no retesting allowed of those conditions. The Committee has, within the parameters set out opposite, the flexibility to vary the weighting of performance measures and calibration for each award prior to its grant.   The Committee has discretion, and in line with the plan rules approved by shareholders, in exceptional circumstances to amend targets, measures, or the number of awards if an event happens (for example, a major transaction) that, in the opinion of the Committee, causes the original targets or measures to be no longer appropriate or such adjustment to be reasonable. The Committee also has the discretion to reduce the vesting of any award, including to nil, if it deems that the outcome is not consistent with performance delivered.   Dividend equivalents, in the form of additional shares, are payable on the vested deferred shares, equal to the dividends paid or payable between the award date and the relevant release date. If dividend equivalents are not permissible under regulations, the number of shares to be awarded will be based on a share price discounted by reference to an expected dividend yield over the vesting period. In such circumstances, the Committee has discretion to reduce (not increase) the number of shares that vest if actual dividends paid over the period are materially lower than the original dividend assumption.   A notional discount may be applied to LTIP awards for the purposes of calculating the 2:1 cap to the extent this is permitted by regulations (currently a discount is permitted on up to 25% of variable pay where the conditions for applying such a discount are met).   Operation of malus and clawback The achievement of performance measures determines the extent to which LTIP awards will vest. Awards are also subject to malus during the vesting period and clawback for a period of seven years (10 years in specific circumstances) from the date of award which enables the Committee to reduce the vesting level of awards (including to nil). This is explained further in the annual bonus paragraphs above.   Timing of receipt Barclays LTIP awards are structured so that no award vests before the third anniversary of grant and an award vests no faster than permitted by regulations (currently in five equal tranches with the first tranche vesting on or around the third anniversary of grant and the last tranche vesting on or around the seventh anniversary of the grant date). Any shares that vest are subject to an additional holding period (after payment of tax) in line with regulations, with restrictions lifting no faster than permitted by regulations (currently minimum of six months, increasing to one year for the 2017 performance year).		The maximum annual LTIP award is 120% of Total fixed pay. For these purposes Total fixed pay is Fixed Pay plus Pension.   Vesting is dependent on performance measures and service.   Forward-looking performance measures will be based on financial performance and other long-term strategic measures. The Committee has discretion to change the weightings but financial measures will be at least 70% of the total opportunity. Measures and weightings will be set in advance of each grant. The threshold and maximum level of performance for each financial performance measure will be disclosed annually as part of the Annual report on Directors’ remuneration. Straight-line vesting applies between threshold and maximum for the financial measures and weightings with no more than 25% vesting at threshold performance.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  63

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Governance: Remuneration report

Directors’ remuneration policy

        

 

 

Remuneration policy for executive Directors continued

 

 

Element and purpose		Operation		Maximum value and performance measures
C. Other
All employee share plans To provide an opportunity for executive Directors to voluntarily invest in the Company through UK HMRC employee tax advantaged share schemes		Executive Directors are entitled to participate in:   (i)  Barclays Sharesave under which they can make monthly savings over a period of three or five years linked to the grant of an option over Barclays’ shares which can be at a discount of up to 20% on the share price set at the start.   (ii)  Barclays Sharepurchase under which they can make contributions (monthly or lump sum) out of pre-tax pay (if based in the United Kingdom) which are used to acquire Barclays’ shares.		(i)  Savings between £5 and the maximum set by Barclays (which will be no more than the HMRC maximum) per month. There are no performance measures.   (ii)  Contributions of between £10 and the maximum set by Barclays (which will be no more than the HMRC maximum) per tax year which Barclays may match up to HMRC maximum (current match is £600). There are no performance measures.
Previous legacy awards To honour existing awards and payments		Awards granted and/or payments agreed at a time where a previous policy, approved by shareholders, was in place, may be released and/or paid in accordance with such previous policy notwithstanding that such awards and/or payments may not be in line with the new policy described above.		In line with existing arrangements.
Shareholding requirement To further enhance the alignment of shareholders’ and executive Directors’ interests in long-term value creation		Executive Directors must build up a shareholding of 200% of Total fixed pay (i.e. Fixed Pay plus Pension) within five years from the date of appointment as executive Director. They have a reasonable period to build up to this requirement again if it is not met because of a significant share price depreciation.   Executive Directors must also continue to hold a shareholding for two years post-termination as follows:   (i)  if the executive Director has been employed for more than five years: 100% of Total fixed pay; or   (ii)  if the executive Director has been employed for less than five years: either   (a) grow their holding to the pro-rated requirement if the pro-rated requirement has not been met. Directors would only be allowed to sell shares to pay for tax liabilities which crystallise when deferred awards vest on or after termination; or   (b) if the pro-rated requirement has been exceeded, executive Directors would be allowed to sell shares above this requirement and also sell shares to pay for tax liabilities which crystallise when deferred awards vest on or after termination.   Shares that count towards the requirement are beneficially owned shares including any vested share awards subject only to holding periods (including vested LTIPs, vested deferred share bonuses, Fixed Pay shares, and RBP shares). Shares from unvested deferred share bonuses and unvested LTIPs do not count towards the requirement.		Barclays’ shares worth a minimum of 200% of Total fixed pay must be held within five years plus a shareholding of 100% of Total fixed pay (or pro-rata thereof) for two years post termination.
Outside appointments To encourage self-development and allow for the introduction of external insight and practice		Executive Directors may accept one non-executive Director board appointment in another listed company.   The Chairman’s approval must be sought before accepting an appointment. Fees may be retained by the executive Director. Neither of the executive Directors currently hold an outside appointment.		Not applicable.

 

64  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Notes to the table on pages 60 to 64

Performance measures and targets

The Committee select financial performance measures which are fundamental to delivery against the Bank’s strategy and are considered to be the most important financial measures used by the executive Directors to oversee the direction of the business. The non-financial performance measures and sources of data are chosen to represent key indicators of sustainable performance that are robustly monitored and reported on to management. The measures are determined in consultation with major shareholders.

Financial targets are set to be stretching but achievable and are aligned to enhancing shareholder value. In respect of the LTIP, the financial measures, weightings and targets will be disclosed at the start of the relevant performance period. In respect of the annual bonus, the financial measures and weightings will be disclosed at the start of the relevant performance year. The Committee is of the opinion that the financial targets for the annual bonus are commercially sensitive in respect of the Company and that it would be detrimental to disclose details at the start of the relevant performance year. Performance against the targets will be disclosed at the end of the relevant peformance year in that year’s remuneration report, subject to commercial sensitivity no longer remaining.

The existing Balanced Scorecard has evolved into a ‘Performance Measurement’ framework which better reflects progress towards our strategic and non-financial goals. Enhancements to the available sources of management information and reporting, ranging from internal dashboards to external third party measures, allows for a more holistic view of sustainable business performance, rather than focusing on a few narrowly defined targets. The evaluation will focus on key performance measures (many continuing from the Balanced Scorecard), with a detailed retrospective disclosure on progress throughout the period against each category, together with supporting rationale for payments.

Changes in remuneration policy for 2017

The following table provides a summary of the changes to the DRP for 2017:

 

Element		Change				Rationale for change
Fixed Pay		§		Consolidate salary and RBP into a single ‘Fixed Pay’ element (delivered 50% in cash and 50% in shares subject to a 5 year holding period lifting pro-rata).		§		Simplicity, transparency.
		§		Fixed Pay will not change during the policy period for either of the current executive Directors.
Pension		§		Continue pension allowance as a separate allowance:		§		Supports simplified approach to fixed pay.
				–  for existing executive Directors, amount unchanged but fixed for the duration of this policy
				–  for new hires, pension allowance limited to 10% of Fixed Pay.
Variable pay		§		Combine annual bonus and LTIP for deferral purposes, while retaining maximum variable at 200% of Total fixed pay and 60:40 split between maximum LTIP and annual bonus.		§		Mitigates the global competitive impact of longer deferral periods and holding periods under the PRA Remuneration Rules and the EBA Guidelines on sound remuneration policies
		§		Performance measures		§		Simplicity, transparency.
				–  Bonus: financial performance measures at least 60%.
				–  LTIP: financial performance measures at least 70%.
		§		Dividends		§		Recreates shareholder alignment lost through regulatory dividend prohibition.
				–  Where regulatory constraints prevent dividend alignment, use discounted share price to calculate number of shares under award.
				–  Committee has discretion to reduce the number of shares that vest if actual dividends paid are materially lower than original dividend assumption.
Shareholding   requirement		§		Increase requirement to 200% of Total fixed pay (i.e. Fixed Pay plus Pension) from 400% of Salary.		§		Longer and stronger shareholder alignment (equivalent to 457% of salary for CEO).
		§		Introduce shareholding requirement of 2 years post
				termination of 100% of Total fixed pay (or pro-rata thereof).
Employment   contracts		§		For new hires, 6 months’ notice from the Company and 6 months’ notice from the executive Director.		§		Remove asymmetry for notice periods.
						§		Alignment between the employee and the
								Company.
Leavers		§		Apply eligible leaver treatment to deferred bonus and LTIP awards from 5 years (except for termination for gross misconduct). Ability to apply malus for the full vesting period maintained.		§		Partially mitigates the global competitive impact of longer deferral periods (increasing from 3 years to 7 years) and holding periods under the PRA Remuneration Rules and the EBA Guidelines respectively.
		§		Pro-ration of LTIP for eligible leavers retained but based on 4 year performance period, i.e. includes assessment period prior to grant.		§		Alignment to the EBA Guidelines for performance assessment prior to award.
		§		Clawback extended to 10 years in specific circumstances.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  65

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Governance: Remuneration report

Directors’ remuneration policy

    

 

 

Differences between the remuneration policy of the executive Directors and the policy for all employees of the Barclays Group

The structure of remuneration packages for executive Directors is closely aligned with that for the broader employee population. Employees receive salary, pension and benefits and are eligible to be considered for a bonus and to participate in all-employee share plans. The broader employee population typically does not have a contractual limit on the quantum of remuneration and does not receive RBP which is paid only to some, but not all, MRTs and other senior employees. Under the new DRP, executive Directors do not receive RBP.

As with executive Directors, variable pay for the broader employee population is performance based. Variable pay for executive Directors and the broader employee population are subject to deferral requirements. Executive Directors and other MRTs are subject to deferral at a minimum rate of 40% (for variable pay of less than £500,000) or 60% (for variable pay between £500,000 and £1,000,000) or 60% up to £1,000,000 and 100% above £1,000,000 (for variable pay of more than £1,000,000). For non-MRTs, bonuses in excess of £65,000 are currently subject to a graduated level of deferral. The terms of deferred bonus awards for executive Directors and the wider employee population are broadly the same, in particular the vesting of all deferred bonuses (subject to service and malus conditions).

The broader employee population does not currently participate in the Barclays LTIP.

How shareholder views and broader employee pay are taken into account by the Committee in setting policy and making remuneration decisions

We recognise that remuneration is an area of particular interest to shareholders and that in setting and considering changes to remuneration it is critical that we listen to and take into account their views. Accordingly, a series of meetings are held each year with major shareholders and shareholder representative groups. The Committee Chairman attends these meetings, accompanied by senior Barclays’ employees (including the Group Reward and Performance Director and the Company Secretary). The Committee notes that shareholder views on some matters are not always unanimous, but values the insight and engagement that these interactions provide, including the expression of sometimes different views. This engagement is meaningful and helpful to the Committee in its work and contributes directly to the decisions made by the Committee. Shareholders’ feedback has been incorporated into the new DRP.

The Committee takes account of the pay and employment conditions of the broader employee base when it considers the remuneration of the executive Directors. The Committee receives and reviews analyses of summary remuneration proposals for employees across all of the Group’s businesses. When the Committee considers executive Directors’ remuneration, it therefore makes that consideration in the context of a detailed understanding of remuneration for the broader employee population to ensure consistency throughout the Group.

 

66  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Executive Directors’ policy on recruitment

Barclays operates in a highly specialised sector and many of its competitors for talent are outside of the United Kingdom. The Committee’s approach to remuneration on recruitment is to pay no more than is necessary to attract the best candidates to the role.

Approval of the remuneration packages offered on appointment to any new executive Director is a specific requirement of the Committee’s Terms of Reference. The terms of such packages must be approved by the Committee in consultation with the Chairman and (except for the terms of his own remuneration) the Group Chief Executive.

Any new executive Director’s package would include the same elements as those of the existing executive Directors, as shown below.

 

Element of remuneration		Commentary		Maximum value
Fixed Pay		Determined by experience, market practice, market conditions and ability to recruit.		As determined by the Committee with reference to these factors. Fixed Pay will only exceed amounts paid to current executive Directors, as considered reasonable by the Committee, by reference to these factors.   If on appointment Fixed Pay is equal to or greater than maximum stated for the relevant role in the policy (for current executive Director), no changes are allowed over the policy period.   If on appointment Fixed Pay is at a level below the maximum stated for the relevant role in the policy (for current executive Director), the Committee retains the discretion to realign Fixed Pay over a transitional period which may mean that annual Fixed Pay increases for the new appointee are required up to such maximum amounts.
Pension		In line with policy.		10% of Fixed Pay.
Benefits		In line with policy.		In line with policy.
Annual Bonus		In line with policy.		80% of Total fixed pay.
Long Term Incentive Plan		In line with policy.		120% of Total fixed pay.
Buy-out		The Committee can consider buying out forfeited bonus opportunity or incentive awards that the new executive Director has forfeited as a result of accepting the appointment with Barclays, subject to proof of forfeiture where applicable.		The value of any buy-out is not included within the maximum incentive levels above since it relates to a buy-out of forfeited bonus opportunity or incentive awards from a previous employer.
		As required by the PRA Remuneration Rules, any award made to compensate for forfeited remuneration from the new executive Director’s previous employment may not be more generous than, and must mirror as far as possible the expected value, timing and form of delivery of, the terms of the forfeited remuneration and must be in the best long-term interests of Barclays. Barclays’ deferral policy shall however apply as a minimum to any buy-out of annual bonus opportunity.

Where a senior executive is promoted to the Board, his or her existing contractual commitments agreed prior to his or her appointment may still be honoured in accordance with the terms of the relevant commitment including vesting of any pre-existing deferred bonus or long-term incentive awards.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  67

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Governance: Remuneration report

Directors’ remuneration policy

    

 

 

Executive Directors policy on payment for loss of office (including or following a takeover)

The Committee’s approach to payments in the event of termination is to take account of the individual circumstances including the reason for termination, individual performance, contractual obligations and the terms of the deferred bonus plans and LTIPs in which the executive Director participates.

Provisions relating to executive Directors’ termination

 

Standard provision		Policy		Details
Notice periods in executive Directors’ service contracts		For existing executive Directors. twelve months’ notice from the Company and six months’ notice from the executive Director.   For new executive Director hires, six months’ notice from the Company and six months’ notice from the executive Director.		Executive Directors may be required to work during the notice period or may be placed on garden leave or, if not required to work the full notice period, may be provided with pay in lieu of notice (subject to mitigation where relevant).
Pay during notice period or payment in lieu of notice per service contracts		Fixed Pay payable and continuation of pension and other contractual benefits while an employee during notice period.		Fixed Pay delivered in cash is payable in phased instalments (or lump sum) and subject to mitigation if paid in instalments and executive Director obtains alternative employment during the notice period or while on garden leave.   Fixed Pay delivered in shares is delivered on the next quarterly delivery date and is pro-rated for the number of days from the start of the relevant quarter to the termination date. Where Barclays elects to terminate the employment with immediate effect by making a payment in lieu of notice, the executive Director will not receive any shares that would otherwise have been payable during the period for which the payment in lieu is made (unless required otherwise by regulations or local law).   In the event of termination for gross misconduct neither notice nor payment in lieu of notice is given.
Treatment of annual bonus on termination		No automatic entitlement to bonus on termination, but may be considered at the Committee’s discretion, pro-rated for service, and subject to performance measures being met. No bonus would be payable in the case of gross misconduct or resignation.
Treatment of unvested deferred bonus awards		In the case of death or if the executive Director is an ‘eligible leaver’ the executive Director would continue to be eligible to be considered for unvested portions of deferred awards, subject to the rules of the relevant plan, unless the Committee determines otherwise in exceptional circumstances. ‘Eligible leaver’ is defined as leaving due to injury, disability or ill health, retirement, redundancy, the business or company which employs the executive Director ceasing to be part of the Group or the employer terminating employment, other than in circumstances which amount to gross misconduct or dismissal for cause. In addition, the Committee will apply its discretion to treat resignation on or after the fifth anniversary of the date of grant as ‘eligible leaver’ status. Outstanding deferred bonus awards would lapse if the executive Director leaves by reason of resignation prior to fifth anniversary, is terminated for gross misconduct or cause, or is otherwise not designated an ‘eligible leaver’.   Deferred awards are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil) and once vested are subject to clawback provisions (as described above).   In the event of a takeover or other major corporate event, the Committee has absolute discretion to determine whether all outstanding awards would vest early or whether they should continue in the same or revised form following the change of control. The Committee may also determine that participants may exchange existing awards for awards over shares in an acquiring company with the agreement of that company.		In an ‘eligible leaver’ situation, deferred bonus awards may be considered for release in full on the scheduled release dates unless the Committee determines otherwise in exceptional circumstances. After release, the shares are subject to an additional holding period in line with regulations (currently minimum of six months, increasing to one year for the 2017 performance year).

 

68  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Provisions relating to executive Directors’ termination continued

 

Standard provision		Policy		Details
Treatment of unvested awards under the LTIP		In the case of death or if the executive Director is an ‘eligible leaver’ the executive Director would continue to be entitled to be considered for an award. ‘Eligible leaver’ is defined as leaving due to injury, disability or ill health, retirement, redundancy, the business or company which employs the executive Director ceasing to be part of the Group or for any other reason if the Committee decides at its discretion. In addition, the Committee will apply its discretion to treat resignation on or after the fifth anniversary of the date of grant as ‘eligible leaver’ status. Outstanding unvested awards under the LTIP would lapse if the executive Director leaves by reason of resignation prior to fifth anniversary, is terminated for gross misconduct, or is otherwise not designated an ‘eligible leaver’.   Awards are subject to malus provisions which enable the Committee to reduce the vesting level of awards (including to nil) and once vested, awards are subject to clawback provisions (as described above).   In the event of a takeover or other major corporate event (but excluding an internal reorganisation of the Group), the Committee has absolute discretion to determine whether all outstanding awards vest subject to the achievement of any performance conditions. The Committee has discretion to apply a pro-rata reduction to reflect the unexpired part of the vesting period. The Committee may also determine that participants may exchange awards for awards over shares in an acquiring company with the agreement of that company. In the event of an internal reorganisation, the Committee may determine that outstanding awards will be exchanged for equivalent awards in another company.		In an ‘eligible leaver’ situation, awards may be considered for release on the scheduled release dates, pro-rated for time (over the whole performance period, including the assessment period prior to grant for awards granted on or after 10 May 2017) and performance, subject to the Committee’s discretion to determine otherwise in exceptional circumstances, in accordance with the plan rules, as amended from time to time. After release, the shares (net of deductions for tax) are subject to an additional holding period (currently minimum of six months, increasing to one year for the 2017 performance year).
Repatriation		Except in the case of gross misconduct or resignation, where an executive Director has been relocated at the commencement of employment, the Company may pay for the executive Director’s repatriation costs in line with Barclays’ general employee mobility policy including temporary accommodation, payment of removal costs and relocation flights for the executive Director, spouse and children. The Company will pay the executive Director’s tax on the relocation costs but will not tax equalise and will also not pay tax on his or her other income relating to the termination of employment.
Other		Except in the case of gross misconduct or resignation, the Company may pay for the executive Director’s legal fees and tax advice relating to the termination of employment and provide outplacement services. The Company may pay the executive Director’s tax on these particular costs.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  69

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Governance: Remuneration report

Directors’ remuneration policy

    

 

 

Illustrative scenarios for executive Directors’ remuneration

The charts below show the potential value of the current executive Directors’ 2017 total remuneration under the new DRP in three scenarios: ‘Minimum’ (i.e. Fixed Pay, Pension and benefits), ‘Maximum’ (i.e. Fixed Pay, Pension and benefits and the maximum variable pay that may be awarded) and ‘Mid-point’ (i.e. Fixed Pay, Pension and benefits and 50% of the maximum variable pay that may be awarded). For the purposes of these charts, the value of benefits is based on an estimated annual value for 2017. The scenarios do not reflect share price movement between award and vesting.

A significant proportion of the potential remuneration of the executive Directors is variable and is therefore performance-related. It is also subject to deferral, additional holiding periods, malus and clawback.

 

Total remuneration opportunity: Group Chief Executive (£000)				Total remuneration opportunity: Group Finance Director (£000)

In the above illustrative scenarios, benefits include regular contractual benefits. Additional ad hoc benefits may arise, for example, overseas relocation of executive Directors, but will always be provided in line with the DRP.

 

70  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Remuneration policy for non-executive Directors

This section provides details of the remuneration policy for the Chairman and non-executive Directors.

 

Element and purpose		Operation		Maximum value
Fees Reflect individual responsibilities and membership of Board Committees and are set to attract non-executive Directors who have relevant skills and experience to oversee the implementation of our strategy   Fees are set at a level which reflects the role, responsibilities and time commitment which are expected from the Chairman, Deputy Chairman and non-executive Directors		The Chairman and Deputy Chairman are paid an all-inclusive fee for all Board responsibilities. The Chairman has a minimum time commitment equivalent to at least 80% of a full-time role. The other non-executive Directors receive a basic Board fee, with additional fees payable where individuals serve as a member or Chairman of a Committee of the Board.   Fees are reviewed each year by the Board as a whole.   £30,000 (Chairman: £100,000) after tax and national insurance contributions per annum of each non-executive Director’s basic fee is used to purchase Barclays’ shares which are retained on the non-executive Director’s behalf until they retire from the Board.   Some non-executive Directors may also receive fees as directors of subsidiary companies of Barclays PLC. In the case of certain subsidiary appointments, such additional remuneration is approved by the Board Nominations Committee.		Fees are reviewed against those for non-executive Directors in companies of similar size and complexity. Other than in exceptional circumstances, fees will not increase by more than 20% above the current fee levels during this policy period (basic fees last increased in 2011).
Benefits		The Chairman is provided with private medical cover subject to the terms of the Barclays’ scheme rules from time to time, and is provided with the use of a Company vehicle and driver when required for business purposes.   Benefits which are minor in nature and in any event do not exceed a cost of £500 may be provided to non-executive Directors in specific circumstances.   Non-executive Directors are not eligible to join Barclays’ pension plans.
Expenses		The Chairman and non-executive Directors are reimbursed for any reasonable and appropriate expenses incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays.
Bonus and share plans		The Chairman is required to be eligible to participate in HMRC employee tax advantaged share schemes, due to his 80% of a full-role time commitment, but has opted not to participate. The Chairman is not eligible to participate in any other Barclays’ cash, share or long-term incentive plans.   All other non-executive Directors are not eligible to participate in Barclays’ cash, share or long-term incentive plans.
Notice and termination provisions		Each non-executive Director’s appointment is for an initial six year term, renewable at Barclays’ discretion for a single term of three years thereafter and subject to annual re-election by shareholders.   Notice period Chairman: twelve months from the Company (six months from the Chairman). Non-executive Directors: six months from the Company (six months from the non-executive Director).   Termination payment policy The Chairman’s appointment may be terminated by Barclays on 12 months’ notice or immediately in which case 12 months’ fees and contractual benefits are payable in instalments at the times they would have been received had the appointment continued, but subject to mitigation if he or she were to obtain alternative employment. There are similar termination provisions for non-executive Directors based on 6 months’ fees. No continuing payments of fees (or benefits) are due if a non-executive Director is not re-elected by shareholders at the Barclays AGM.

In accordance with the policy table above, any new Chairman and Deputy Chairman would be paid an all-inclusive fee only and any new non-executive Director would be paid a basic fee for their appointment as a non-executive Director, plus fees for their participation on and/or chairing of any Board committees, time apportioned in the first year as necessary. No sign-on payments are offered to non-executive Directors.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  71

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Governance: Remuneration report

Directors’ remuneration policy

        

 

 

Service contracts and letters of appointment

All executive Directors have a service contract whereas all non-executive Directors have a letter of appointment. Copies of the service contracts and letters of appointment respectively are available for inspection at the Company’s registered office. The dates of the current Directors’ service contracts and letters of appointment are shown in the table below.

 

		Effective date
Chairman
John McFarlane		1 January 2015 (non-executive Director), 24 April 2015 (Chairman)
Executive Directors
Jes Staley		1 December 2015
Tushar Morzaria		15 October 2013
Non-executive Directors
Michael Ashley		18 September 2013
Tim Breedon		1 November 2012
Mary Francis		1 October 2016
Crawford Gillies		1 May 2014
Sir Gerry Grimstone		1 January 2016
Reuben Jeffery III		16 July 2009
Dambisa Moyo		1 May 2010
Diane de Saint Victor		1 March 2013
Diane Schueneman		25 June 2015
Steve Thieke		7 January 2014

All Directors are put forward for re-election at each AGM, unless they have indicated that they will not seek re-election at the AGM.

Discretion

In addition to the various operational discretions that the Committee can exercise in the performance of its duties (including those discretions set out in the Company’s share plans), the Committee reserves the right to make either minor or administrative amendments to the policy to benefit its operation or to make more material amendments in order to comply with new laws, regulations and/or regulatory guidance. The Committee would only exercise this right if it believed it was in the best interests of the Company to do so and where it is not possible, practicable or proportionate to seek or await shareholder approval in General Meeting.

 

72  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Remuneration report

Annual report on Directors’ remuneration

        

 

 

This section explains how our Directors’ remuneration policy was implemented during 2016.

Executive Directors

Executive Directors: Single total figure for 2016 remuneration (audited)

The following table shows a single total figure for 2016 remuneration in respect of qualifying service for each executive Director together with comparative figures for 2015.

 

			Salary £000								Role Based Pay £000								Taxable benefits £000									Annual bonus £000											LTIP £000								Pension £000							£000 Total
			2016				2015				2016				2015				2016				2015							2016					2015				2016				2015				2016				2015					2016					2015
Jes Staleya			1,200				100				1,150				96				169				48							1,318					–				–				–				396				33					4,233					277
Tushar Morzaria			800				800				750				750				44				82							854					701				1,008				–				200				200					3,656					2,533

Note

a	The 2015 figures for Jes Staley relate to the period from 1 December 2015 when he joined the Board as Group Chief Executive.

Additional information in respect of each element of pay for the executive Directors (audited)

Salary

Jes Staley has been paid a salary of £1,200,000 per annum since his appointment to the Group Chief Executive role on 1 December 2015. Tushar Morzaria was paid a salary of £800,000 per annum as Group Finance Director.

Role Based Pay (RBP)

Executive Directors received RBP which was delivered quarterly in shares, subject to a holding period with restrictions lifting over five years (20% each year). The value shown is of shares at the date awarded.

Taxable benefits

Taxable benefits include private medical cover, life and ill health income protection, tax advice, relocation, car allowance, the use of a company vehicle and driver when required for business purposes and other benefits that are considered minor in nature.

Annual bonus

Annual bonuses are discretionary and are typically awarded in Q1 following the financial year to which they relate. The Committee considered each of the executive Directors’ performance against the financial (50% weighting) and Balanced Scorecard (35% weighting) performance measures which had been set to reflect strategic priorities for 2016. Performance against their individual personal objectives (15% weighting) is assessed on an individual basis.

2016 annual bonus outcomes

Financial (50% weighting)

The approach taken to assessing financial performance against each of the financial measures is based on a straight-line outcome between 25% for threshold performance and 100% applicable to each measure for achievement of maximum performance.

The formulaic outcome from 2016 performance against the financial measures gave a total of 29% out of 50% being payable attributable to those measures. A summary of the assessment is provided in the following table.

 

Financial   performance measure		Weighting		Threshold 25%		Maximum 100%		2016             Actual		2016               Outcome
Profit before tax (excluding notable items)		20%		£3.45bn		£4.20bn		£3.65bn		9%
Costs (excluding notable items)		10%		£14.6bn		£13.7bn		£15.3bn		0%
CET1 ratio		20%		11.1%		11.6%		12.4%		20%
Total Financial		50%								29%

When reflecting upon the appropriate 2016 bonus, the Committee considered the impact of the deferral changes on the formulaic outcomes against the financial measures. In particular, the Committee noted that while the decision to accelerate the deferral charges would improve the Group’s operational flexibility going into 2017 and beyond, it would also lead to a lower 2016 bonus outcome than could have been justified absent the changes. However, on balance, the Committee felt that the overall outcomes were appropriate particularly given the on-going focus to rebalance towards improving shareholder returns.

Balanced Scorecard (35% weighting)

Progress in relation to each of the 5Cs of the Balanced Scorecard was assessed by the Committee. The Committee took a similar approach as for 2015 i.e. based on a three-point scale in relation to each measure, with 0% to 2% for ‘below’ target, 3% or 4% for a ‘met’ target, and 5% to 7% for ‘above’ target progress against a particular Balanced Scorecard component.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  73

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Governance: Remuneration report

Annual report on Directors’ remuneration

    

 

 

Based on this approach to assessing performance against 2016 Balanced Scorecard milestones, the Committee agreed a 18% outcome out of a maximum of 35%. A summary of the assessment is provided in the following table.

 

Balanced Scorecard – 5 Cs			Weighting			Metric			2016 Target				2016 Actual			2016   Outcome out   of maximum   7% for each ‘C’
Customer and Client			7%			PCB, Barclaycard and Africa Banking weighted average ranking of RNPS v peer sets Client Franchise Risk			4th				4th			4%
									6th				5th
Colleague			7%			Sustained engagement of colleagues’ score			77-79%				75%			3%
						% women in senior leadership			24%				24%
Citizenship			7%			Citizenship Plan – initiatives on track or ahead			Plan targets				8/10			5%
Conduct			7%			Conduct Reputation (YouGov Survey)			5.5-5.6/10				5.4/10			2%
Companyb			7%			Return on tangible equityc			4.8%				4.4%
						Cost:Income ratioc			70%				72%			4%
						CET1 ratio			11.3%				12.4%
Total Balanced Scorecard			35%													18%

Note

a	Company metrics have been updated to reflect the 1 March 2016 strategy announcement.

b	Excluding notable items.

c	Cost: Income ratio expressed as total operating expenses of the Group, including Africa, divided by the total income of these businesses.

Individual outcomes including assessment of personal objectives

Performance against each of the executive Directors’ individual personal objectives (15% weighting overall) was assessed by the Committee on an individual basis.

(i) Jes Staley

A summary of the assessment for Jes Staley against his specific performance measures is provided in the following table.

 

Performance measure					Weighting			Outcome
Financial		See table on page 73			50%			29%
Balanced Scorecard – 5Cs		See table above			35%			18%
Personal objectives		Judgemental assessment – see below			15%			13%
Total					100%			60%
Final outcome approved by the Remuneration Committee								60%

The Committee assessed Jes Staley’s performance against his 2016 personal objectives (as set out on page 97 of the 2015 Annual Report) and concluded that Jes Staley had delivered a very strong performance throughout the year. By the end of 2016, a clear new strategy was firmly embedded and a new Core organisational structure consistent with structural reform has been implemented. The Core businesses have performed well, delivering improved profitability and cost income efficiency. At the same time significant progress has been made in exiting the Non-Core businesses. Jes Staley has demonstrated strong leadership, strengthened the management team and has instilled a more effective performance ethic and culture within the organisation. Given his strong personal performance, the Committee judged that 13% of a maximum of 15% attributable to individual objectives was appropriate.

In aggregate, the performance assessment for Jes Staley resulted in an overall formulaic outcome of 60% of maximum bonus opportunity being achieved. The resulting 2016 bonus is £1,318,000 of which 70% is deferred under the Share Value Plan and will vest in five equal tranches from the third to seventh anniversary (subject to the rules of the Share Value Plan as amended from tiem to time).

(ii) Tushar Morzaria

A summary of the assessment for Tushar Morzaria against his specific performance measures is provided in the following table.

 

Performance measure					Weighting			Outcome
Financial		See table on page 73			50%			29%
Balanced Scorecard – 5Cs		See table above			35%			18%
Personal objectives		Judgemental assessment – see below			15%			14%
Total					100%			61%
Final outcome approved by the Remuneration Committee								61%

The Committee assessed Tushar Morzaria’s performance against his 2016 personal objectives (as set out on page 97 of the 2015 Annual Report) and concluded that Tushar Morzaria had delivered an outstanding performance in 2016. In doing so, the Committee noted the role provided by Tushar Morzaria in reshaping the business and in particular, recognised his contribution in the significant progress in exiting Non-Core, resulting in a reduction of 22bn in Risk Weighted Assets and his focus in delivering an organisation with a significantly higher CET1 ratio and lower Cost:Income ratio. In doing so, it was also noted that Tushar Morzaria has continued to develop very strong working relationships with shareholders, investors and regulators, while also improving the performance delivery within the Finance Functions. Given his exceptional personal performance during 2016, the Committee judged that 14% of a maximum 15% attributable to individual objectives was appropriate.

In aggregate, the performance assessment for Tushar Morzaria resulted in an overall formulaic outcome of 61% of maximum bonus opportunity being achieved. The resulting 2016 bonus is £854,000 of which 60% is deferred under the Share Value Plan and will vest in five equal tranches from the third to seventh anniversary (subject to the rules of the Share Value Plan as amended from time to time).

All shares (whether deferred or not) are subject to a further six month holding period from the point of release. 2016 bonuses are subject to clawback provisions and, additionally, unvested deferred 2016 bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil).

 

74  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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LTIP

The LTIP amount included in Tushar Morzaria’s 2016 single total figure is the value of the amount scheduled to be released in relation to the LTIP award granted in 2014 in respect of performance period 2014-2016 (by reference to Q4 average share price). As Jes Staley was not a participant in this cycle, the LTIP figure in the single figure table is zero for him. Release is dependent on, among other things, performance over the period from 1 January 2014 to 31 December 2016. Straight line vesting applied between the threshold and maximum points in respect of the RoRWA and loan loss rate measures. The performance achieved against the performance targets is as follows.

 

Performance measure

Weighting

Threshold

Maximum vesting

Actual

% of award vesting

Return on risk weighted assets (RoRWA)

50%

23% of award vests for average annual RoRWA of 1.08%

Average annual RoRWA of 1.52%

0.33%

0%

Loan loss rate

20%

7% of award vests for average annual loan loss rate of 70bps

Average annual loan loss rate of 55bps or below

50bps

20%

Balanced Scorecard

30%

Performance against the Balanced Scorecard was assessed by the Committee to determine the percentage of the award that may vest between 0% and 30%. Each of the 5Cs in the Balanced Scorecard has equal weighting.

See below

14%

Total

34%

A summary of the Committee’s assessment against the Balanced Scorecard performance measure over the three year performance period is provided below.

 

Category		Performance				Vesting out of             maximum 6% for each ‘C’
Customer and Client		§		Relationship Net Promoter Score performance against peers was 4th during the period. Across key product categories, notably UK current accounts and UK credit cards, Barclays’ scores have improved with more customers advocating our brands.		3%
		§		Client Franchise Rank remained stable at 5th rank throughout the period, a positive result given the shift in strategy to focus on geographies and businesses of strength in the Investment Bank.
Colleague		§		Continued improvement in the female representation across our senior leadership, rising from 22% in 2014 to 24% at the end of 2016.		3%
		§		Colleague engagement improved from 72% in 2014 to 75% overall in 2016, a positive result in the light of the change the organisation has undergone over the period.
Citizenship		§		Continuing on from the successful Citizenship Plan, which closed 2015 with 10 out of 11 initiatives on or ahead of target, Barclays Group (ex Africa) exceeded objectives on all 6 initiatives in the first year of the Shared Growth Ambition.		4%
		§		Africa also delivered strong performance on investment in education and SME financing, both of which were on track for 2016. Two objectives were off-track due to external challenges which impacted the delivery of planned employability and financial inclusion interventions (although foundations are now established which will enable strong 2017 momentum).
Conduct		§		Conduct reputation, as measured by the YouGov survey, remained at or below 5.4 over the period.		1%
		§		However, new conduct items and costs have reduced.
Company		§		The CET1 ratio has strengthened significantly over the period, to 12.4% at the end of 2016.		3%
		§		However, returns excluding notable items (both RoE and RoTE) were below target through much of the period.
Total						14%

The LTIP award is also subject to a discretionary underpin whereby the Committee must be satisfied with the underlying financial health of the Group based on profit before tax. The Committee was satisfied that this underpin was met, and accordingly determined that the award should be considered for release to the extent of 34% of the maximum number of shares under the total award. The shares are scheduled to be released in March 2017. After release, the shares are subject to an additional two year holding period.

Pension

Executive Directors are paid cash in lieu of pension contributions. The cash allowance in 2016 was 33% of salary for Jes Staley and 25% of salary for Tushar Morzaria. No other benefits were received by the executive Directors from any Barclays pension plans.

Executive Directors: other LTIP awards

The Directors’ remuneration reporting regulations require inclusion in the single total figure of only the value of the LTIP awards whose last year of performance ends in the relevant financial year and whose vesting outcome is known. For 2016, this is the award to Tushar Morzaria under the 2014-2016 LTIP cycle and further details are set out on page 75. This section sets out other LTIP cycles in which the executive Directors participate, the outcome of which remains dependent on future performance.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  75

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Governance: Remuneration report

Annual report on Directors’ remuneration

 

 

LTIP awards to be granted during 2017

The Committee decided to make an award under the 2017-2019 LTIP cycle to Jes Staley and Tushar Morzaria with a face value at grant of 120% of their respective Total fixed pay at 31 December 2016.

The 2017-2019 LTIP award will be subject to the following forward-looking performance measures.

 

Performance measure		Weighting		Threshold		Maximum vesting
Return on tangible equity (RoTE) excluding notable items		25%		6.25% of award vests for average RoTE excluding notable items of 7.5%		Average RoTE excluding notable items of 9.5%
CET1 ratio as at 31 December 2019		25%		CETI ratio must remain at or above an acceptable level for any of this element to vest. The threshold will be reviewed and set annually based on market conditions and regulatory requirements (11% on 31 December 2017) 6.25% of award vests for CET1 ratio 100 basis points above the mandatory distribution restrictions hurdle (MDRH)		CET1 ratio 200 basis points above the MDRH
Cost:Income ratio excluding notable items		20%		5% of award vests for average Cost:Income ratio of 63%		Average Cost:Income ratio of 58%
Risk Scorecard		15%		The Risk Scorecard captures a range of risks and is aligned with the annual incentive risk adjustment framework agreed with the PRA. The current framework measures performance against three broad categories – Capital and Liquidity, Control Environment and Conduct – using a combination of quantitative and qualitative metrics. The framework may be updated from time to time in line with the Group’s risk strategy. Specific targets within each of the categories are deemed to be commercially sensitive. Retrospective disclosure of performance will be made in the 2019 Remuneration report.
Strategic / Non-financial measures		15%		§   The existing Balanced Scorecard has evolved into a ‘Performance Measurement’ framework in line with the objective of delivering a simplified Barclays through the strategic actions announced in March 2016. The evaluation will focus on key performance measures (many continuing from the Balanced Scorecard), with a detailed retrospective narrative on progress throughout the period against each category.
				§   Performance against the Strategic/Non-financial Measures will be assessed by the Committee to determine the percentage of the award that may vest between 0% and 15%. The measures are organised around 3 main categories: Customer & Client, Colleague and Citizenship. Each of the three main categories has equal weighting. Measures will likely include, but not be limited to, the following:
				–   Customer & Client: NPS for consumer businesses, Client rankings and market shares for the Corporate and Investment Bank, complaints performance and volume of lending provided to customers and clients.
				–   Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable engagement survey scores and conduct and culture measures.
				–   Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities and external benchmarks and surveys.

Straight line vesting applies between the threshold and maximum points in respect of the financial measures.

The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.

Outstanding LTIP awards

(i) LTIP awards granted during 2015

The performance measures for the awards made under the 2015-2017 LTIP cycle are shown below.

 

Performance measure		Weighting		Threshold		Maximum vesting
Net generated equitya		30%		7.5% of award vests for Net Generated Equity of £1,363m		Net Generated Equity of £1,844m
Core return on risk weighted assets (RoRWA) excluding own credit		20%		5% of award vests for average annual Core RoRWA of 1.34%		Average annual Core RoRWA of 1.81%
Non-Core drag on return on equity (RoE) excluding notable items		10%		2.5% of award vests for Non-Core drag on RoE of –4.02%		Non-Core drag on RoE of –2.97%
Loan loss rate		10%		2.5% of award vests for average annual loan loss rate of 70bps		Average annual loan loss rate of 55bps or below
Balanced Scorecard		30%		Performance against the Balanced Scorecard is assessed by the Committee to determine the percentage of the award that may vest between 0% and 30%. Each of the 5Cs in the Balanced Scorecard has equal weighting. The targets within each of the 5Cs are deemed to be commercially sensitive. However, retrospective disclosure of the targets and performance against them will be made in the 2017 Remuneration report subject to commercial sensitivity no longer remaining.

Note

a	Net generated equity is a metric which converts changes in the CET1 ratio into an absolute capital equivalent measure. For remuneration purposes, net generated equity will exclude inorganic actions such as rights issues, as determined by the Committee.

Straight line vesting applies between the threshold and maximum points in respect of the financial and risk measures. The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.

 

76  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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(ii) LTIP awards granted during 2016

An award was made to Tushar Morzaria on 14 March 2016 under the 2016-2018 LTIP cycle at a share price on the date of grant of £1.6535, in accordance with our Directors’ remuneration policy. This is the price used to calculate the face value below. Jes Staley was not eligible for a grant under the 2016-2018 LTIP cycle.

 

			% of fixed pay				Number of shares				Face value at grant				Performance period
Tushar Morzaria			120%				1,270,033				£2,100,000				2016-2018

The performance measures for the 2016-2018 LTIP awards are as follows:

 

Performance measure		Weighting		Threshold		Maximum vesting
Return on tangible equity (RoTE) excluding notable items		25%		6.25% of award vests for average RoTE of 7.5%		Average RoTE of 10.0%
				CET1 ratio must remain at or above an acceptable level for any of this element to vest.
				The threshold will be reviewed and set annually based on market conditions and regulatory requirements (11% on 31 December 2017)
CET1 ratio as at 31 December 2018		25%		6.25% of award vests for CET1 ratio of 11.6%		CET1 ratio of 12.7%
Cost:Income ratio excluding notable items		20%		5% of award vests for average Cost:Income ratio of 66%		Average Cost:Income ratio of 58%
Risk Scorecard		15%		Performance against the Risk Scorecard is assessed by the Committee, with input from the Group Risk function, Board Risk Committee and Board Reputation Committee as appropriate, to determine the percentage of the award that may vest between 0% and 15%. The Risk Scorecard measures performance against three broad categories – Risk Profile (including Conduct), Control Environment and Risk Capability – using a combination of quantitative and qualitative metrics. Specific targets within each of the categories are deemed to be commercially sensitive. Retrospective disclosure of performance will be made in the 2018 Remuneration report subject to commercial sensitivity no longer remaining.
Balanced Scorecard		15%		Performance against the Balanced Scorecard is assessed by the Committee to determine the percentage of the award that may vest between 0% and 15%. Each of the 5Cs in the Balanced Scorecard has equal weighting. Assessment will be made against progress towards the 2018 targets.

Straight line vesting applies between the threshold and maximum points in respect of the financial and risk measures. The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.

Executive Directors: Statement of implementation of remuneration policy in 2017

The executive Directors’ package for 2017, in line with the new DRP, will be implemented with effect from the 2017 AGM as follows:

 

		Jes Staley		Tushar Morzaria		Comments
Fixed Pay		£2,350,000		£1,650,000		‘Fixed Pay’ replaces Salary and Role Based Pay. Fixed Pay delivered 50% in cash and 50% in shares (subject to 5 year holding period lifting pro rata)   No change in ‘Fixed Pay’ from 2016 for Jes Staley   Fixed Pay has increased to £1,650k from £1,550k for Tushar Morzaria
Pension		£396,000		£200,000		No change from 2016
Maximum Bonus		80% of Total Fixed Paya		80% of Total Fixed Paya		Total variable opportunity unchanged Bonus and LTIP combined for regulatory deferral purposes
Maximum LTIP		120% of Total Fixed Paya		120% of Total Fixed Paya

Note:

a	Total Fixed Pay is defined as Fixed Pay plus Pension

In considering the appropriate level of Tushar Morzaria’s Total fixed pay (Fixed Pay plus Pension), the Committee took account of the time he has been in role without any increase (over three years), his strong performance and importance to the organisation, and industry market rates for the role. The Committee concluded that an increase of 5.7%, being less than the increase paid to UK employees over the same period, was warranted but agreed that the executive Directors would not be eligible for any further increase in the next three years (i.e. during the new policy period).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  77

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Governance: Remuneration report

Annual report on Directors’ remuneration

    

 

 

Clawback and malus

Barclays may apply clawback if at any time during the seven year period from the date on which any variable remuneration is awarded: (i) there is reasonable evidence of individual misbehaviour or material error, and/or (ii) the firm suffers a material failure of risk management, taking account of the individual’s proximity to, and responsibility for, that incident. For variable remuneration awards granted to executive Directors in respect of 2016 onwards, the clawback period may be extended to 10 years in circumstances where the Company or a regulatory authority has commenced an investigation which could potentially lead to the application of clawback.

Malus provisions will continue to apply to unvested deferred awards.

Deferral

A 7 year deferral period (with no vesting prior to the third anniversary of award, and vesting in equal tranches between the third and seventh year) will apply to any 2017 deferred variable remuneration awarded to the executive Directors.

2017 Annual bonus performance measures

Performance measures with appropriately stretching targets have been selected to cover a range of financial and non-financial goals that support the key strategic objectives of the Company. The performance measures and weightings are shown below.

 

Financial (60% weighting)   A performance target range has been set for each financial measure.		§  Profit before tax excluding notable items (22.5% weighting)   §  Cost:Income ratio excluding notable items (15% weighting)   §  CET1 ratio (22.5% weighting)
Strategic/Non-financial (20% weighting)		§  The existing Balanced Scorecard has evolved into a ‘Performance Measurement’ framework in line with the objective of delivering a simplified Barclays through the strategic actions announced in March 2016. Enhancements to the available sources of management information and reporting, ranging from internal dashboards to external third party measures, allows for a more holistic view of sustainable business performance, rather than focusing on a few narrowly defined targets. The evaluation will focus on key performance measures (many continuing from the Balanced Scorecard), with a detailed retrospective narrative on progress throughout the period against each category.   §  Performance against the Strategic/Non-financial Measures will be assessed by the Committee to determine the percentage of the award that may vest between 0% and 20%. The measures are organised around 3 main categories: Customer & Client, Colleague and Citizenship. Each of the three main categories has equal weighting. Measures will likely include, but not be limited to, the following:   –  Customer & Client: NPS for consumer businesses, Client rankings and market shares for the Corporate and Investment Bank, complaints performance and volume of lending provided to customers and clients.   –  Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable engagement survey scores and conduct and culture measures.   –  Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities and external benchmarks and surveys.
Personal (20% weighting)		The executive Directors have the following joint personal objectives for 2017:   §  Deliver on 2017 financial commitments including continued improvement in RoTE, the Cost:Income ratio and continued build-up of our capital base (CET1 ratio)   §  Exit Non-Core and ensure successful reintegration of remaining assets / businesses into Core   §  Achieve the sell-down of Barclays Africa Group Ltd to obtain regulatory deconsolidation   §  Ensure successful implementation of the 2017 Structural Reform programme, including creation of the Service Company and establishment of subsidiary Boards for Barclays UK and Barclays InternationaI   §  Identify and implement as far as possible in 2017 a structural solution to ensure continued access to the single market in Europe   §  Manage risk and control effectively and make continued progress in resolving legacy conduct and litigation matters.   In addition, individual personal objectives for 2017 are as follows:   Jes Staley:   §  Make continued progress towards a high performing culture in line with our Values while also strengthening employee engagement   §  Improve customer and client satisfaction while reducing the number of overall complaints   §  Strengthen succession planning pipeline for Group and Business Unit/Functional Executive Committees and continue to improve percentage of women in senior leadership positions.   Tushar Morzaria:   §  Demonstrate effective management of external relationships and reputation   §  Continue to strengthen team performance, talent pipeline and employee engagement in Group Finance, Tax and Treasury.

Detailed calibration of the Financial and Strategic targets is commercially sensitive and it is not appropriate to disclose this information externally on a prospective basis. Disclosure of achievement will be made in the 2017 Annual Report subject to the targets no longer being commercially sensitive. The Committee may exercise its discretion to amend the formulaic outcome of assessment against the targets. Any exercise of discretion will be disclosed and explained.

 

78  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Performance graph and table

The performance graph below illustrates the performance of Barclays over the financial years from 2009 to 2016 in terms of total shareholder return compared with that of the companies comprising the FTSE 100 index. The index has been selected because it represents a cross-section of leading UK companies.

 

In addition, the table below provides a summary of the total remuneration of the relevant Group Chief Executive over the same period as the previous graph. For the purpose of calculating the value of the remuneration of the Group Chief Executive, data has been collated on a basis consistent with the ‘single figure’ methodology.

 

Year			2009				2010				2011				2012				2012				2013				2014				2015				2015				2015				2016
Group Chief Executive			John Varley				John Varley				Bob  Diamond				Bob  Diamonda				Antony  Jenkinsb				Antony  Jenkins				Antony  Jenkins				Antony  Jenkinsb				John  McFarlanec				Jes  Staleyd				Jes  Staley
Group Chief Executive single figure of total remuneration £000s			2,050				4,567				11,070e				1,892				529				1,602				5,467f				3,399				305				277				4,233
Annual bonus against maximum opportunity %			0%				100%				80%				0%				0%				0%				57%				48%				N/A				N/A				60%
Long-term incentive vesting against maximum opportunity %			50%				16%				N/Ag				0%				N/Ag				N/Ag				30%				39%				N/Ag				N/Ag				N/Ag

Notes

a	Bob Diamond left the Board on 3 July 2012.

b	Antony Jenkins became Group Chief Executive on 30 August 2012 and left the Board on 16 July 2015.

c	John McFarlane was Executive Chairman from 17 July 2015 to 30 November 2015. His fees, which remained unchanged, have been pro-rated for his time in the position. He was not eligible to receive a bonus or LTIP.

d	Jes Staley became Group Chief Executive on 1 December 2015.

e	This figure includes £5,745k tax equalisation as set out in the 2011 Remuneration report. Bob Diamond was tax equalised on tax above the UK rate where that could not be offset by a double tax treaty.

f	Antony Jenkins’ 2014 pay is higher than in earlier years since he declined a bonus in 2012 and 2013 and did not have LTIP vesting in those years.

g	Not a participant in a long-term incentive award which vested in the period.

Percentage change in Group Chief Executive’s remuneration

The table below shows how the percentage change in the Group Chief Executive’s salary, benefits and bonus between 2015 and 2016 compares with the percentage change in the average of each of those components of pay for UK based employees.

 

Fixed Pay

Benefits

Annual bonus

Group Chief Executivea

0%

118%b

N/Ac

Average based on UK employeesd

3.6%

No change

(0.1)%

Notes

a	The 2015 figures for the Group Chief Executive are based on the Group Chief Executive, Jes Staley, and are annualised in order to provide a meaningful comparison of the year on year change in remuneration for the Group Chief Executive and UK based employees.

b	The percentage increase in benefits for the Group Chief Executive arises primarily as a result of relocation provided in 2016.

c	The Group Chief Executive did not receive an annual bonus in 2015.

d	Certain populations were excluded to enable a meaningful like for like comparison.

We have chosen UK based employees as the comparator group as it is the most representative group for pay structure comparisons.

Relative importance of spend on pay

A year on year comparison of Group compensation costs and distributions to shareholders is shown below.

 

Note

a	2015 Group compensation costs have been adjusted to exclude the impact of £429m gain on valuation of a component of the defined benefit liability.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  79

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Governance: Remuneration report

Annual report on Directors’ remuneration

 

 

Chairman and non-executive Directors

Remuneration for non-executive Directors reflects their responsibilities and time commitment and the level of fees paid to non-executive Directors of comparable major UK companies.

Chairman and non-executive Directors: Single total figure for 2016 fees (audited)

 

			Fees								Benefits								Total
			2016 £000				2015 £000				2016 £000				2015 £000				2016 £000				2015 £000
Chairman
John McFarlanea			800				628				1				11				801				639
Sir David Walkerb			–				285				–				6				–				291
Non-executive Directors
Mike Ashley			207				207				–				–				207				207
Tim Breedon			220				232				–				–				220				232
Mary Francisc			29				–				–				–				29				–
Crawford Gillies			195				178				–				–				195				178
Sir Gerry Grimstoned			250				–				–				–				250				–
Reuben Jeffery III			120				135				–				–				120				135
Wendy Lucas-Bulle			64				358				–				–				64				358
Dambisa Moyo			135				152				–				–				135				152
Frits van Paasschenf			35				88				–				–				35				88
Diane de Saint Victor			118				135				–				–				118				135
Diane Schuenemangh			232				74				–				–				232				74
Steve Thiekeh			221				184				–				–				221				184
Sir Michael Rakei			–				250				–				–				–				250
Sir John Sunderlandj			–				60				–				–				–				60
Total			2,626				2,966				1				17				2,627				2,983

Non-executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays.

The Chairman is provided with private medical cover and the use of a company vehicle and driver when required for business purposes.

Notes

a	John McFarlane joined the Board as a non-executive Director with effect from 1 January 2015 and as Chairman from 24 April 2015. The 2015 total includes non-executive Director fees of £78,000 for the period from 1 January 2015 to 24 April 2015.

b	Sir David Walker retired from the Board with effect from 23 April 2015.

c	Mary Francis joined the Board as a non-executive Director with effect from 1 October 2016.

d	Sir Gerry Grimstone joined the Board as a non-executive Director from 1 January 2016 and succeeded Sir Michael Rake as Senior Independent Director and Deputy Chairman with effect from 1 January 2016.

e	Wendy Lucas-Bull retired from the Board with effect from 1 March 2016. Figures include fees received by Wendy Lucas-Bull for her role as Chairman of Barclays Africa Group Limited.

f	Frits van Paasschen retired from the Board with effect from 28 April 2016.

g	Diane Schueneman joined the Board as a non-executive Director with effect from 25 June 2015.

h

Diane Schueneman and Steve Thieke both served in 2016 on the US Governance Review Board, which was an advisory board set up as the forerunner of the board of our US intermediate holding company which was established during 2016. They each subsequently joined the board of the US intermediate holding company on its formation. The 2015 figures for Diane Schueneman and Steve Thieke included fees of $37,500 and $75,000 respectively for their roles on the US Governance Review Board. The 2016 figures include fees of $138,000 and $150,000 respectively for their roles on the US Governance Review Board and the board of the US intermediate holding company. In addition, Steve Thieke waived fees of $63,000.

i	Sir Michael Rake retired from the Board with effect from 31 December 2015.

j	Sir John Sunderland retired from the Board with effect from 23 April 2015.

Chairman and non-executive Directors: Statement of implementation of remuneration policy in 2017

2017 fees, subject to annual review in line with policy, for the Chairman and non-executive Directors are shown below.

 

			1 January 2017 £000				1 January 2016 £000				Percentage Increase
Chairmana			800				800				0
Deputy Chairmana			250				250				0
Board member			80				80				0
Additional responsibilities
Senior Independent Director			30				30				0
Chairman of Board Audit or Board Remuneration Committee			70				70				0
Chairman of Board Risk Committee			70				60				17
Chairman of Board Reputation Committee			50				50				0
Membership of Board Audit or Board Remuneration Committee			30				30				0
Membership of Board Reputation or Board Risk Committee			25				25				0
Membership of Board Nominations Committee			15				15				0

Notes

a	The Chairman and Deputy Chairman do not receive any other additional responsibility fees in addition to the Chairman and Deputy Chairman fees respectively.

b	The basic fee payable to non-executive Directors was last increased in May 2011. Some revisions have been made to the additional fees payable to Board Committee Chairman to reflect time commitment and responsibilities.

 

80  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Payments to former Directors

Former Group Chief Executive: Antony Jenkins

Antony Jenkins continued to receive base salary, RBP, benefits and pension allowance until 7 July 2016 (the Termination Date). Full details of his eligibility to variable pay were disclosed in the 2015 Directors’ Remuneration report (page 101 of the 2015 Annual Report).

Former Group Finance Director: Chris Lucas

In 2016, Chris Lucas continued to be eligible to receive life assurance cover, private medical cover and payments under the Executive Income Protection Plan (EIPP). Full details of his eligibility under the EIPP were disclosed in the 2013 Directors’ Remuneration report (page 115 of the 2013 Annual Report). Chris Lucas did not receive any other payment or benefit in 2016.

Directors’ shareholdings and share interests

Executive Directors’ shareholdings and share interests (audited)

The chart below shows the value of Barclays’ shares held beneficially by Jes Staley and Tushar Morzaria as at 21 February 2017 that count towards the shareholding requirement of, as a minimum, Barclays’ shares worth four times salary. The current executive Directors have five years from their respective date of appointment to meet this requirement. At close of business on 21 February 2017, the market value of Barclays ordinary shares was £2,375m.

 

Interests in Barclays PLC Shares (audited)

The table below shows shares owned beneficially by all the Directors and shares over which executive Directors hold awards which are subject to either deferral terms or performance measures. The shares shown below, that are subject to performance measures, are based on the maximum number of shares that may be released.

 

							Unvested								Total as at 31 December 2016 (or date of retirement from the Board, if earlier)
			Owned outright				Subject to performance measures				Not subject to performance measures								Total as at 21 February 2017
Executive Directors
Jes Staley			4,243,848				–				–				4,243,848				4,243,848
Tushar Morzaria			1,466,204				3,474,246				578,391				5,518,841				5,518,841
Chairman
John McFarlane			46,852				–				–				46,852				46,852
Non-executive Directors
Mike Ashley			65,290				–				–				65,290				65,290
Tim Breedon			29,755				–				–				29,755				29,755
Mary Francisa			7,600				–				–				7,600				7,600
Crawford Gillies			70,208				–				–				70,208				70,208
Sir Gerry Grimstone			103,288				–				–				103,288				103,288
Reuben Jeffery III			200,196				–				–				200,196				200,196
Wendy Lucas-Bullb			15,672				–				–				15,672				–
Dambisa Moyo			51,192				–				–				51,192				51,192
Frits van Paasschenc			23,681				–				–				23,681				–
Diane de Saint Victor			36,691				–				–				36,691				36,691
Diane Schueneman			16,004				–				–				16,004				16,004
Steve Thieke			55,073				–				–				55,073				55,073

Notes

a	Mary Francis joined the Board as a non-executive Director with effect from 1 October 2016.

b	Wendy Lucas-Bull retired from the Board as a non-executive Director with effect from 1 March 2016.

c	Frits van Paasschen retired from the Board as a non-executive Director with effect from 28 April 2016.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  81

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Governance: Remuneration report

Annual report on Directors’ remuneration

        

 

 

Barclays Board Remuneration Committee

The Board Remuneration Committee is responsible for overseeing Barclays’ remuneration as described in more detail below.

Terms of Reference

The role of the Committee is to:

 

§

set the overarching principles and parameters of remuneration policy across the Group

 

§

consider and approve the remuneration arrangements of (i) the Chairman, (ii) the executive Directors, (iii) members of the Barclays Group Executive Committee and any other senior executives specified by the Committee from time to time, and (iv) all other Group employees whose total annual compensation exceeds an amount determined by the Committee from time to time (currently £2m)

 

§

exercise oversight for remuneration issues.

The Committee considers all aspects of the design and operation of remuneration policy to ensure a coherent approach is taken in respect of all employees. In discharging this responsibility the Committee seeks to ensure that the policy assesses, among other things, the impact of pay arrangements on culture and all elements of risk management. The Committee also approves incentive pools for all major businesses and functions, regularly reviews the design and provision of retirement benefits, and considers and approves measures designed to promote the alignment of the interests of shareholders and employees. The Committee and its members work as necessary with other Board Committees, and is authorised to select and appoint its own advisers as required.

The Terms of Reference can be found at home.barclays/corporategovernance or from the Company Secretary on request.

Chairman and members

The Chairman and members of the Committee are as follows:

 

§

Crawford Gillies, Committee member since 1 May 2014 and Chairman since 24 April 2015

 

§

Tim Breedon, Committee member since 1 December 2012

 

§

Mary Francis, Committee member since 1 November 2016

 

§

Dambisa Moyo, Committee member since 1 September 2015.

Former member

Steve Thieke left the Committee on 1 March 2016 having been a Committee member since 6 February 2014.

All current members are considered independent by the Board.

Remuneration Committee attendance in 2016

 

			Number of meetings eligible to attend				Number of                 meetings attended
Crawford Gillies			9				9
Tim Breedon			9				8
Mary Francis			2				2
Dambisa Moyo			9				9
Steve Thieke			3				3

The performance of the Committee is reviewed each year as part of the Board Effectiveness Review. The December 2016 review concluded that Board members have full confidence in the effectiveness and thoroughness of the Committee. Full details of the Board Effectiveness review can be found on page 33.

Advisers to the Remuneration Committee

Until February 2016, the Committee was advised by Willis Towers Watson. The Committee is satisfied that the advice provided by Willis Towers Watson to the Committee was independent and objective. Willis Towers Watson is a signatory to, and its appointment as adviser to the Committee was conditional on adherence to, the voluntary UK Code of Conduct for executive remuneration consultants.

During the rest of 2016, the Committee decided not to engage an independent adviser but Willis Towers Watson continued to provide the Committee with market data on compensation when considering incentive levels and remuneration packages.

Fees for the Committee work were charged on a time/cost basis and Willis Towers Watson was paid a total of £48,000 (excluding VAT) in fees for its advice to the Committee in 2016 relating to the executive Directors (either exclusively or along with other employees within the Committee’s Terms of Reference).

Willis Towers Watson also provides pensions advice, advice on health and benefits provision, assistance and technology support for employee surveys and performance management, and remuneration data to the Group. Willis Towers Watson also provides pensions advice and administration services to the Barclays Bank UK Retirement Fund.

In the course of its deliberations, the Committee also considers the views of the Group Chief Executive, Group Human Resources Director and the Group Reward and Performance Director. The Group Finance Director and Chief Risk Officer provide regular updates on Group and business financial performance and the Group’s risk profile respectively.

No Barclays’ employee or Director participates in discussions with, or decisions of, the Committee relating to his or her own remuneration. No other advisers provided significant services to the Committee in the year.

 

82  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Remuneration Committee activities in 2016

The following provides a summary of the Committee’s activities during 2016 and at the January and February 2017 meetings at which 2016 remuneration decisions were finalised.

 

Meeting		Fixed and variable pay issues				Governance, risk and other matters
January 2016		§		2015 incentive funding proposals		§		Finance and Risk updates
February 2016 (Two meetings)		§		Approved executive Directors’ and senior executives’ 2016 fixed pay		§		Approved 2015 Remuneration report
		§		Approved 2016 executive Directors’ annual bonus performance measures		§		Finance and Risk updates including ex ante risk adjustment
		§		Approved Group fixed pay budgets for 2016		§		Appointment of Committee independent adviser
		§		Approved final 2015 incentive funding		§		Updates on headcount and employee attrition
		§		Approved proposals for executive Directors’ and senior executives’ 2015 bonuses and 2016 LTIP awards for executive Directors		§		Consideration of the outcomes of the 2015 Committee effectiveness review
June 2016		§		Barclays’ deferral approach		§		Review of Directors’ remuneration policy
		§		Impact of corporate restructuring on executive Director and Group Executive Committee members’ remuneration		§		Update on Structural Reform
July 2016						§		Review of Barclays broader remuneration philosophy
						§		Review of Directors’ remuneration policy
September 2016 (joint meeting with Nominations Committee)		§		Approved Tim Throsby’s appointment and remuneration arrangements
October 2016						§		Review of Directors’ remuneration policy
November 2016		§		2016 incentive funding projections including risk adjustments		§   §   §   §		Annual review of Committee Terms of Reference   Finance and Risk updates   Updates on headcount and employee attrition   2016 payround shareholder engagement planning
		§		2017 LTIP performance measures
December 2016		§		Initial considerations on senior executives’ 2016 bonuses and 2017 fixed pay		§   §   §		Review of draft Directors’ remuneration policy   Finance and Risk updates   Updates on headcount and employee attrition
		§		2017 LTIP performance measures
		§		2016 incentive funding proposals including risk adjustments
January 2017		§		2016 incentive funding proposals including risk adjustments		§		Finance and Risk updates
		§		2016 bonus proposals for senior executives
		§		Barclays’ deferral approach
February 2017		§		Approved executive Directors’ and senior executives’ 2017 fixed pay		§   §   §		Approved 2016 Remuneration report   Finance and Risk updates   Updates on headcount and employee attrition
		§		Approved 2017 executive Directors’ annual bonus performance measures
		§		Approved Group fixed pay budgets for 2017
		§		Approved final 2016 incentive funding including risk adjustments
		§		Approved proposals for executive Directors’ and senior executives’ 2016 bonuses and 2017 LTIP awards for executive Directors

Regular items: market and stakeholder updates including PRA/FCA, US Federal Reserve and other regulatory matters; updates from Remuneration Review Panel meetings; operation of the Committee’s Control Framework on hiring, retention and termination; and LTIP performance updates.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  83

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Governance: Remuneration report

Annual report on Directors’ remuneration

 

 

Statement of voting at Annual General Meeting

The table below shows the voting result in respect of our remuneration arrangements at the AGM held on 28 April 2016 and the last policy vote at the AGM held on 24 April 2014:

 

		For % of votes cast Number		Against % of votes cast Number		Withheld Number
Advisory vote on the 2015 Remuneration report		93.60%		6.40%
		11,351,168,552		776,042,467		83,768,745
Binding vote on the Directors’ remuneration policy		93.21%		6.79%
		9,936,116,114		723,914,712		154,598,278

 

84  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Governance: Remuneration report

Additional remuneration disclosures

    

 

 

This section contains voluntary disclosures about levels of remuneration for our eight most highly paid senior executive officers, levels of remuneration of employees in the Barclays Group and outstanding share plan and LTIP awards for our executive Directors.

2016 total remuneration of the eight highest paid senior executive officers below Board level

The table below shows remuneration for the eight highest paid senior executive officers below Board level who were Key Management Personnel in 2016.

Eight highest paid senior executive officers below Board level

 

			1 2016 £000				2 2016 £000				3 2016 £000				4 2016 £000				5 2016 £000				6 2016 £000				7 2016 £000				8 2016 £000
Fixed Pay (salary and RBP)			1,813				1,500				1,974				1,925				1,250				1,300				1,170				1,049
Current year cash bonus			200				200				200				200				200				190				198				105
Current year share bonus			200				200				200				200				200				190				198				105
Deferred cash bonus			2,233				1,125				813				825				375				285				297				158
Deferred share bonus			2,233				1,125				813				825				375				285				297				158
Total remuneration			6,679				4,150				4,000				3,975				2,400				2,250				2,160				1,575

Total remuneration of the employees in the Barclays Group

The table below shows the number of employees in the Barclays Group in 2015 and 2016 in bands by reference to total remuneration. Total remuneration comprises salary, RBP, other allowances, bonus and the value at award of LTIP awards.

Total remuneration of the employees in the Barclays Group

 

							Number of employees
			2016				2015				2015
Remuneration band							Constant currency				Actual
£0 to £25,000			33,989				38,457				39,720
£25,001 to £50,000			22,927				25,220				25,153
£50,001 to £100,000			17,063				18,869				18,885
£100,001 to £250,000			9,098				10,047				9,210
£250,001, to £500,000			2,093				2,367				2,181
£500,001 to £1,000,000			771				879				740
£1,000,001 to £2,500,000			307				309				264
£2,500,001 to £5,000,000			46				51				50
Above £5m			11				9				5

Barclays is a global business. Of those employees earning above £1m in total remuneration for 2016 in the table above, 63% are based in the US, 32% in the UK, and 5% in the rest of the world.

The number of employees paid above £1m is slightly down year on year on a constant currency basis (364 in 2016 vs. 369 in 2015).

Outstanding share plan and LTIP awards (audited)

 

Plan

Number of shares under award at 1 January 2016 (maximum)

Number of shares awarded in year (maximum)

Market price on award date

Number of shares released

Market price on release date

Number of shares under award at 31 December 2016 (maximum)

Value of release £000

End of performance period or first scheduled release date

Last scheduled release date

Jes Staley

Share Value Plan 2015

896,450

–

£2.34

896,450

£1.65

–

1,479

–

–

Tushar Morzaria

Barclays LTIP 2014-2016

1,375,811

–

£2.31

–

–

1,375,811

–

31/12/2016

08/03/2017

Barclays LTIP 2015-2017

828,402

–

£2.54

–

–

828,402

–

31/12/2017

05/03/2018

Barclays LTIP 2016-2018

–

1,270,033

£1.65

–

–

1,270,033

–

31/12/2018

04/03/2019

Share Value Plan 2013

322,440

–

£2.51

243,616

£1.65

78,824

402

17/03/2014

05/03/2018

Share Value Plan 2014

206,372

–

£2.31

103,186

£1.65

103,186

170

16/03/2015

08/03/2017

Share Value Plan 2015

213,017

–

£2.54

71,005

£1.65

142,012

117

14/03/2016

05/03/2018

Share Value Plan 2016

–

254,369

£1.65

–

–

254,369

–

06/03/2017

04/03/2019

The interests shown in the table above are the maximum number of Barclays’ shares that may be received under each plan. Executive Directors do not pay for any share plan or LTIP awards. No shares lapsed during 2016.

Jes Staley received 19,846 dividend equivalent shares from SVP awards released in 2016 and Tushar Morzaria received 27,503 dividend equivalent shares from SVP awards released in 2016.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  85

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Risk review

 

The management of risk is a critical underpinning to the execution of Barclays’ strategy. The material risks and uncertainties the Group faces across its business and portfolios are key areas of management focus.				For a more detailed breakdown of our Risk Management approach please see pages 98 to 114.

 

Material existing and emerging risks						Annual Report
Insight into the level of risk across our business and portfolios, the material existing and emerging risks and uncertainties we face and the key areas of management focus.		§		Material existing and emerging risks potentially impacting more than one Principal Risk		89
		§		Credit risk		91
		§		Market risk		93
		§		Treasury and capital risk		93
		§		Operational risk		94
		§		Model risk		95
		§		Conduct risk		95
		§		Reputation risk		96
		§		Legal risk		96
Risk management
Overview of Barclays’ approach to risk management. A detailed overview together with more specific information on policies that the Group determines to be of particular significance in the current operating environment can be found in Barclays PLC 2016 Pillar 3 Report or at Barclays.com.		§		Risk management strategy		98
		§		Credit risk management		101
		§		Management of credit risk mitigation techniques and counterparty credit risk		102
		§		Market risk management		103
		§		Management of securitisation exposures		n/a
		§		Treasury and capital risk management		104
		§		Operational risk management		109
		§		Model risk management		111
		§		Conduct risk management		112
		§		Reputation risk management		113
		§		Legal risk management		114
Risk performance
Credit risk:		§		Credit risk overview		118
The risk of suffering financial loss should the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations.		§		Analysis of the balance sheet		118
		§		Analysis of maximum exposure and collateral and other credit enhancement held		119
		§		The Group’s approach to manage and represent credit quality		121
		§		Analysis of the concentration of credit risk		123
		§		Exposure to Eurozone countries		124
		§		Loans and advances to customers and banks		127
		§		Analysis of specific portfolios and asset types		128
		§		Analysis of problem loans		132
		§		Forebearance		134
		§		Impairment		138
Market risk:		§		Market risk overview and measures in the Group		143
The risk of a reduction to earnings or capital due to volatility of the trading book positions or an inability to hedge the banking book balance sheet.		§		Balance sheet view of trading and banking books		144
		§		Traded market risk		145
		§		Business scenario stresses		146
		§		Review of regulatory measures		146
		§		Capital requirements for market risk		n/a
		§		Non-traded market risk		147
		§		Economic capital		148
		§		Foreign exchange risk		149
		§		Pension risk review		150
Funding risk – Capital:		§		Capital risk overview and regulatory minimum capital and leverage requirements		154
The risk that the Group is unable to maintain appropriate capital ratios.		§		Capital resources		155
		§		Risk weighted assets		157
		§		Leverage ratio and exposures		158
Funding risk – Liquidity:		§		Liquidity risk overview and stress testing		161
The risk that the firm, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.		§		Liquidity pool		163
		§		Funding structure and funding relationships		164
		§		Deposit funding		165
		§		Wholesale funding Group		166
		§		Term financing		168
		§		Encumbrance		168
		§		Credit ratings		172
		§		Liquidity management at BAGL Group		173
		§		Contractual maturity of financial assets and liabilities		173

 

86   |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk performance continued				Annual Report
Operational risk: The risk of direct or indirect impacts resulting from human factors, inadequate or failed internal processes and systems or external events.		§  Operational risk overview §  Summary of performance in the period §  Operation risk profile		179    179    179
Conduct risk: The risk that detriment is caused to our customers, clients, counterparties or Barclays and its employees because of inappropriate judgement in the execution of our business activities.		§  Conduct risk overview §  Summary of performance §  Conduct reputation measure		181    181    181
Supervision and regulation: The Group’s operations, including its overseas offices, subsidiaries and associates, are subject to a significant body of rules and regulations that are a condition for authorisation to conduct banking and financial services business.		§  Supervision of the Group		182
		§  Global regulatory developments		183
		§  Regulation in the EU and UK		183
		§  Regulation in the United States		186
		§  Regulatory developments in the US		187
		§  Structural reform developments		188

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  87

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Risk review

Material existing and emerging risks

    

 

 

 

88 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Material existing and emerging risks

Material existing and emerging risks to the Group’s future performance

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F | 89

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Risk review

Material existing and emerging risks

Material existing and emerging risks to the Group’s future performance

 

 

 

90 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F | 91

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Risk review

Material existing and emerging risks

Material existing and emerging risks to the Group’s future performance

 

 

 

92 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F | 93

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Risk review

Material existing and emerging risks

Material existing and emerging risks to the Group’s future performance

 

 

 

94  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  95

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Risk review

Material existing and emerging risks

Material existing and emerging risks to the Group’s future performance

 

 

 

96 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk management

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  97

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Risk review

Risk management

Barclays’ risk management strategy

 

 

 

98  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  99

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Risk review

Risk management

Barclays’ risk management strategy

 

 

 

100  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk management

Credit risk management

 

 

 

Board oversight and flow of risk related information

Organisation and structure

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  101

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Risk review

Risk management

Credit risk management

 

 

 

102  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk management

Market risk management

 

 

 

Organisation and structure

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  103

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Risk review

Risk management

Treasury and capital risk management

 

 

 

Organisation and structure

 

 

 

104  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  105

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Risk review

Risk management

Treasury and capital risk management

 

 

 

106  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  107

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Risk review

Risk management

Treasury and capital risk management

 

 

 

108  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk management

Operational risk management

 

 

 

Organisation and structure

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  109

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Risk review

Risk management

Operational risk management

 

 

 

110  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk management

Model risk management

 

 

 

Organisation and structure

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  111

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Risk review

Risk management

Conduct risk management

 

 

 

Organisation and structure

 

 

112  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk management

Reputation risk management

 

 

 

Organisation and structure

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  113

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Risk review

Risk management

Legal risk

 

 

 

Organisation and structure

 

 

114  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

        

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  115

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Risk review

Risk performance

Credit risk

 

 

 

116  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Summary of Contents				Page
§  Credit risk overview and summary of performance §  Analysis of the balance sheet §  The Group’s maximum exposure and collateral and other credit enhancements held §  The Group’s approach to manage and represent credit quality     –  Asset credit quality     –  Debt securities     –  Balance sheet credit quality				118 118 119   121 121 121 122		Credit risk represents a significant risk to the Group and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with clients.   This section provides a macro view of the Group’s credit exposures.
§  Analysis of the concentration of credit risk     –  Geographic concentrations     –  Group exposures to specific countries     –  Industrial concentrations				123 123 124 125		The Group reviews and monitors risk concentrations in a variety of ways to ensure the continuation of a diversified portfolio operating within agreed appetites.   This sections outlines performance against key concentration risks at a macro Group level.
§  Loans and advances to customers and banks §  Analysis of specific portfolios and asset types     –  Secured home loans     –  Credit cards, overdrafts, and unsecured loans     –  Exposure to UK Commercial Real Estate				127 128 128 129 131		In addition to Group-wide concentrations, Credit Risk monitors exposure performance across a range of specific portfolios where the risk profile is considered to be heightened.   This section provides a more detailed analysis of these exposures and notes on how certain aspects of the risk profile are mitigated on an ongoing basis.
§  Analysis of problem loans     –  Age analysis of loans and advances that are past due but         not impaired     –  Analysis of loans and advances assessed as impaired     –  Potential credit risk loans     –  Impaired loans     –  Forbearance				132 132   133 132 134 134		The Group monitors exposures to assets where there is a heightened likelihood of default and assets where an actual default has occurred.   This section outlines the exposure to assets that have been classified as impaired analysing the exposures between business units and by key product types.   The Group, from time to time, agrees to the suspension of certain aspects of customer/client credit agreements, generally during temporary periods of financial difficulties where the Group is confident that the customer/client will be able to remedy the suspension.   During this time, customer/client assets are separately monitored to ensure that remedies are completed.   This section outlines the Group’s current exposure to assets with this treatment.
§  Impairment      –  Impairment allowances      –  Management adjustments to models for impairment §  Analysis of debt securities §  Analysis of derivatives				138 138 138 139 139		The Group holds impairment provisions on the balance sheet as a result of the raising of a charge against profit for incurred losses in the lending book. An impairment allowance may either be identified or unidentified and individual or collective.   This section outlines the movements in allowance for impairment by asset class exposure, material management adjustments to model output, analysis of debt securities and derivatives.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  117

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Risk review

Risk performance

Credit risk

 

 

 

118  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Maximum exposure and effects of collateral and other credit enhancements (audited)
			Maximum				Netting				Collateral								Risk				Net
			exposure				and set-off				Cash				Non-cash				transfer				exposure
As at 31 December 2016			£m				£m				£m				£m				£m				£m
On-balance sheet:
Cash and balances at central banks			102,353				–				–				–				–				102,353
Items in the course of collection from other banks			1,467				–				–				–				–				1,467
Trading portfolio assets:
Debt securities			38,789				–				–				–				–				38,789
Traded loans			2,975				–				–				(270	)			–				2,705
Total trading portfolio assets			41,764				–				–				(270	)			–				41,494
Financial assets designated at fair value:
Loans and advances			10,519				–				(17	)			(4,107	)			(432	)			5,963
Debt securities			70				–				–				–				–				70
Reverse repurchase agreements			63,162				–				(688	)			(62,233	)			–				241
Other financial assets			262				–				–				–				–				262
Total financial assets designated at fair value			74,013				–				(705	)			(66,340	)			(432	)			6,536
Derivative financial instruments			346,626				(273,602	)			(41,641	)			(8,282	)			(5,205	)			17,896
Loans and advances to banks			43,251				–				(4	)			(4,896	)			(22	)			38,329
Loans and advances to customers:
Home loans			144,765				–				(184	)			(143,912	)			–				669
Credit cards, unsecured and other retail lending			57,808				–				(235	)			(5,258	)			(95	)			52,220
Corporate loans			190,211				(8,622	)			(320	)			(52,029	)			(5,087	)			124,153
Total loans and advances to customers			392,784				(8,622	)			(739	)			(201,199	)			(5,182	)			177,042
Reverse repurchase agreements and other similar secured lending			13,454				–				(79	)			(13,242	)			–				133
Financial investments - debt securities			62,879				–				–				(533	)			(1,286	)			61,060
Other assets			1,205				–				–				–				–				1,205
Total on-balance sheet			1,079,796				(282,224	)			(43,168	)			(294,762	)			(12,127	)			447,515
Off-balance sheet:
Contingent Liabilities			19,908				–				(247	)			(1,403	)			(130	)			18,128
Documentary credits and other short-term trade-related transactions			1,005				–				(24	)			(18	)			(3	)			960
Forward starting reverse repurchase agreements			24				–				–				(24	)			–				–
Standby facilities, credit lines and other commitments			302,657				–				(321	)			(26,524	)			(1,704	)			274,108
Total off-balance sheet			323,594				–				(592	)			(27,969	)			(1,837	)			293,196
Total			1,403,390				(282,224	)			(43,760	)			(322,731	)			(13,964	)			740,711

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  119

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Risk review

Risk performance

Credit risk

 

 

Maximum exposure and effects of collateral and other credit enhancements (audited)
			Maximum				Netting				Collateral								Risk				Net
			exposure				and set-off				Cash				Non-cash				transfer				exposure
As at 31 December 2015			£m				£m				£m				£m				£m				£m
On-balance sheet:
Cash and balances at central banks			49,711				–				–				–				–				49,711
Items in the course of collection from other banks			1,011				–				–				–				–				1,011
Trading portfolio assets:
Debt securities			45,576				–				–				–				–				45,576
Traded loans			2,474				–				–				(607	)			(1	)			1,866
Total trading portfolio assets			48,050				–				–				(607	)			(1	)			47,442
Financial assets designated at fair value:
Loans and advances			17,913				–				(21	)			(5,850	)			(515	)			11,527
Debt securities			1,383				–				–				–				–				1,383
Reverse repurchase agreements			49,513				–				(315	)			(49,027	)			–				171
Other financial assets			375				–				–				–				–				375
Total financial assets designated at fair value			69,184				–				(336	)			(54,877	)			(515	)			13,456
Derivative financial instruments			327,709				(259,582	)			(34,918	)			(7,484	)			(5,529	)			20,196
Loans and advances to banks			41,349				–				(4	)			(4,072	)			(64	)			37,209
Loans and advances to customers:
Home loans			155,863				–				(221	)			(154,355	)			(634	)			653
Credit cards, unsecured and other retail lending			67,840				(12	)			(1,076	)			(14,512	)			(1,761	)			50,479
Corporate loans			175,514				(8,399	)			(593	)			(45,788	)			(4,401	)			116,333
Total loans and advances to customers			399,217				(8,411	)			(1,890	)			(214,655	)			(6,796	)			167,465
Reverse repurchase agreements and other similar secured lending			28,187				–				(166	)			(27,619	)			–				402
Financial investments - debt securities			89,278				–				–				(832	)			(811	)			87,635
Other assets			1,410				–				–				–				–				1,410
Total on-balance sheet			1,055,106				(267,993	)			(37,314	)			(310,146	)			(13,716	)			425,937
Off-balance sheet:
Contingent liabilities			20,576				–				(604	)			(1,408	)			(104	)			18,460
Documentary credits and other short-term trade-related transactions			845				–				(33	)			(57	)			(3	)			752
Forward starting reverse repurchase agreements			93				–				–				(91	)			–				2
Standby facilities, credit lines and other commitments			281,369				–				(313	)			(24,156	)			(662	)			256,238
Total off-balance sheet			302,883				–				(950	)			(25,712	)			(769	)			275,452
Total			1,357,989				(267,993	)			(38,264	)			(335,858	)			(14,485	)			701,389

 

120  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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The Group’s approach to management and representation of credit quality

Asset credit quality

All loans and advances are categorised as either ‘neither past due nor impaired’, ‘past due but not impaired’, or ‘past due and impaired’, which includes restructured loans. For the purposes of the disclosures in the balance sheet credit quality section below and the analysis of loans and advances and impairment section (page 138):

 

§

loans neither past due nor impaired consist predominantly of wholesale and retail loans that are performing. These loans, although unimpaired may carry an unidentified impairment

 

§

a loan is considered past due and classified as Higher risk when the borrower has failed to make a payment when due under the terms of the loan contract

 

§

loans on forbearance programmes, as defined on page 134, are categorised as Higher risk

 

§

the impairment allowance includes allowances against financial assets that have been individually impaired and those subject to collective impairment.

The Group uses the following internal measures to determine credit quality for loans that are performing:

 

Default Grade			Wholesale lending Probability of default				Credit Quality Description
1-3			0.0-0.05%				Strong
4-5			0.05-0.15%
6-8			0.15-0.30%
9-11			0.30-0.60%
12-14			0.60-2.15%				Satisfactory
15-19			2.15-11.35%
20 - 21			11.35%+				Higher risk

For retail clients, a range of analytical tools is used to derive the probability of default of clients at inception and on an ongoing basis.

For loans that are performing, these descriptions can be summarised as follows:

Strong: there is a very high likelihood of the asset being recovered in full.

Satisfactory: while there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Group, the asset may not be collateralised, or may relate to retail facilities, such as credit card balances and unsecured loans, which have been classified as satisfactory, regardless of the fact that the output of internal grading models may have indicated a strong or high classification. At the lower end of this grade there are customers that are being more carefully monitored, for example, corporate customers which are indicating some evidence of deterioration, home loans with a high loan to value, and unsecured retail loans operating outside normal product guidelines.

Higher risk: there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency. There may also be doubts over the value of collateral or security provided. However, the borrower or counterparty is continuing to make payments when due and is expected to settle all outstanding amounts of principal and interest.

Loans that are past due are monitored closely, with impairment allowances raised as appropriate and in line with the Group’s impairment policies. These loans are all considered Higher risk for the purpose of this analysis of credit quality.

Debt securities

For assets held at fair value, the carrying value on the balance sheet will include, among other things, the credit risk of the issuer. Most listed and some unlisted securities are rated by external rating agencies. The Group mainly uses external credit ratings provided by Standard & Poor’s, Fitch or Moody’s. Where such ratings are not available or are not current, the Group will use its own internal ratings for the securities.

Balance sheet credit quality

The following tables present the credit quality of Group assets exposed to credit risk.

Overview

As at 31 December 2016, the ratio of the Group’s assets classified as strong remained broadly stable at 86% (2015: 85%) of total assets exposed to credit risk.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  121

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Risk review

Risk performance

Credit risk

 

 

Further analysis of debt securities by issuer and issuer type and netting and collateral arrangements on derivative financial instruments is presented on pages 139 and 140 respectively.

 

Balance sheet credit quality (audited)
As at 31 December 2016			Strong (including investment grade) £m				Satisfactory (BB+ to B) £m				Higher risk (B- and below) £m				Maximum exposure to credit risk £m				Strong (including investment grade) %				Satisfactory (BB+ to B) %				Higher risk (B- and below) %				Maximum exposure to credit risk %
Cash and balances at central banks			102,353				–				–				102,353				100				–				–				100
Items in the course of collection from other banks			1,328				130				9				1,467				91				9				–				100
Trading portfolio assets:
Debt securities			37,037				1,344				408				38,789				96				3				1				100
Traded loans			594				1,977				404				2,975				20				66				14				100
Total trading portfolio assets			37,631				3,321				812				41,764				90				8				2				100
Financial assets designated at fair value:
Loans and advances			9,692				533				294				10,519				92				5				3				100
Debt securities			59				11				–				70				84				16				–				100
Reverse repurchase agreements			53,151				9,999				12				63,162				84				16				–				100
Other financial assets			244				18				–				262				93				7				–				100
Total financial assets designated at fair value			63,146				10,561				306				74,013				85				14				1				100
Derivative financial instruments			330,737				14,963				926				346,626				95				5				–				100
Loans and advances to banks			39,159				3,830				262				43,251				91				9				–				100
Loans and advances to customers:
Home loans			136,922				2,589				5,254				144,765				95				1				4				100
Credit cards, unsecured and other retail lending			5,343				50,685				1,780				57,808				9				88				3				100
Corporate loans			140,414				37,170				12,627				190,211				74				19				7				100
Total loans and advances to customers			282,679				90,444				19,661				392,784				72				23				5				100
Reverse repurchase agreements and other similar secured lending			9,364				4,090				–				13,454				70				30				–				100
Financial investments – debt securities			62,842				30				7				62,879				100				–				–				100
Other assets			1,085				117				3				1,205				90				10				–				100
Total assets			930,324				127,486				21,986				1,079,796				86				12				2				100
Balance sheet credit quality (audited)
As at 31 December 2015			Strong (including investment grade) £m				Satisfactory (BB+ to B) £m				Higher risk (B- and below) £m				Maximum exposure to credit risk £m				Strong (including investment grade) %				Satisfactory (BB+ to B) %				Higher risk (B- and below) %				Maximum exposure to credit risk %
Cash and balances at central banks			49,711				–				–				49,711				100				–				–				100
Items in the course of collection from other banks			922				62				27				1,011				91				6				3				100
Trading portfolio assets:
Debt securities			43,118				2,217				241				45,576				95				5				–				100
Traded loans			329				1,880				265				2,474				13				76				11				100
Total trading portfolio assets			43,447				4,097				506				48,050				90				9				1				100
Financial assets designated at fair value:
Loans and advances			16,751				790				372				17,913				94				4				2				100
Debt securities			1,378				3				2				1,383				100				–				–				100
Reverse repurchase agreements			41,145				8,352				16				49,513				83				17				–				100
Other financial assets			313				62				–				375				83				17				–				100
Total financial assets designated at fair value			59,587				9,207				390				69,184				86				13				1				100
Derivative financial instruments			313,114				13,270				1,325				327,709				96				4				–				100
Loans and advances to banks			39,059				1,163				1,127				41,349				94				3				3				100
Loans and advances to customers:
Home loans			139,252				9,704				6,907				155,863				89				6				5				100
Credit cards, unsecured and other retail lending			12,347				51,294				4,199				67,840				18				76				6				100
Corporate loans			125,743				39,600				10,171				175,514				72				22				6				100
Total loans and advances to customers			277,342				100,598				21,277				399,217				70				25				5				100
Reverse repurchase agreements and other similar secured lending			23,040				5,147				–				28,187				82				18				–				100
Financial investments – debt securities			88,536				632				110				89,278				99				1				–				100
Other assets			1,142				233				35				1,410				81				17				2				100
Total assets			895,900				134,409				24,797				1,055,106				85				13				2				100

 

122  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Analysis of the concentration of credit risk

A concentration of credit risk exists when a number of counterparties are located in a geographical region or are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Group implements limits on concentrations in order to mitigate the risk. The analyses of credit risk concentrations presented below are based on the location of the counterparty or customer or the industry in which they are engaged. Further detail on the Group’s policies with regard to managing concentration risk is presented on page 370.

Geographic concentrations

As at 31 December 2016, the geographic concentration of the Group’s assets remained broadly consistent with 2015. Exposure is concentrated in the UK 41% (2015: 40%), in the Americas 33% (2015: 31%) and Europe 21% (2015: 20%). The decrease of £58bn in Africa and the Middle East is due to the reclassification of BAGL balances now held for sale.

Information on exposures to Eurozone countries is presented on page 124.

 

Credit risk concentrations by geography (audited)
As at 31 December 2016			United Kingdom £m				Europe £m				Americas £m				Africa and Middle East £m				Asia £m				Total £m
On-balance sheet:
Cash and balances at central banks			30,485				40,439				24,859				77				6,493				102,353
Items in the course of collection from other banks			969				498				–				–				–				1,467
Trading portfolio assets			8,981				9,171				19,848				435				3,329				41,764
Financial assets designated at fair value			25,821				10,244				33,181				733				4,034				74,013
Derivative financial instruments			108,559				107,337				105,129				1,493				24,108				346,626
Loans and advances to banks			7,458				12,674				16,894				1,778				4,447				43,251
Loans and advances to customers			253,752				47,050				81,045				3,089				7,848				392,784
Reverse repurchase agreements and other similar secured lending			218				309				11,439				92				1,396				13,454
Financial Investments - debt securities			18,126				27,763				12,030				251				4,709				62,879
Other assets			987				–				137				10				71				1,205
Total on-balance sheet			455,356				255,485				304,562				7,958				56,435				1,079,796
Off-balance sheet:
Contingent liabilities			8,268				3,275				6,910				702				753				19,908
Documentary credits and other short-term trade related transactions			915				9				–				40				41				1,005
Forward starting reverse repurchase agreements			14				1				5				2				2				24
Standby facilities, credit lines and other commitments			106,413				35,475				156,072				1,692				3,005				302,657
Total off-balance sheet			115,610				38,760				162,987				2,436				3,801				323,594
Total			570,966				294,245				467,549				10,394				60,236				1,403,390
Credit risk concentrations by geography (audited)
As at 31 December 2015			United Kingdom £m				Europe £m				Americas £m				Africa and Middle East £m				Asia £m				Total £m
On-balance sheet:
Cash and balances at central banks			14,061				19,094				13,288				2,055				1,213				49,711
Items in the course of collection from other banks			543				72				–				396				–				1,011
Trading portfolio assets			7,150				10,012				23,641				2,111				5,136				48,050
Financial assets designated at fair value			22,991				5,562				35,910				3,039				1,682				69,184
Derivative financial instruments			99,658				103,498				101,592				3,054				19,907				327,709
Loans and advances to banks			10,733				9,918				13,078				2,900				4,720				41,349
Loans and advances to customers			239,086				47,372				69,803				33,461				9,495				399,217
Reverse repurchase agreements and other similar secured lending			5,905				4,361				15,684				915				1,322				28,187
Financial investments - debt securities			20,509				40,344				20,520				3,999				3,906				89,278
Other assets			868				4				131				314				93				1,410
Total on-balance sheet			421,504				240,237				293,647				52,244				47,474				1,055,106
Off-balance sheet:
Contingent liabilities			9,543				3,020				5,047				2,505				461				20,576
Documentary credits and other short-term trade related transactions			594				58				–				193				–				845
Forward starting reverse repurchase agreements			9				5				65				–				14				93
Standby facilities, credit lines and other commitments			104,797				34,370				125,456				13,600				3,146				281,369
Total off-balance sheet			114,943				37,453				130,568				16,298				3,621				302,883
Total			536,447				277,690				424,215				68,542				51,095				1,357,989

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  123

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Risk review

Risk performance

Credit risk

 

 

Exposures to Eurozone countries

The following table shows Barclays most significant current exposure (above £4bn net on-balance sheet exposure) to Eurozone countries.

Basis of preparation

The Group presents the direct balance sheet exposure to credit and market risk by country, with the totals reflecting allowance for impairment, netting and cash collateral held where appropriate.

The net on-balance sheet exposure includes:

 

§

Loans and advances held at amortised cost, net of impairment. Settlement balances and cash collateral are excluded from this analysis

 

§

Trading assets and liabilities are presented by issuer type on a net basis. Where liability positions exceed asset positions by issuer type, exposures are presented as nil

 

§

Derivative assets and liabilities are presented by counterparty type on a net basis. Cash collateral held is then added to give a net credit exposure. Where liability positions and collateral held exceed asset positions by counterparty type, exposures are presented as nil

 

§

Financial investments – debt securities principally relating to investments in government bonds and other debt securities

 

§

Other assets held for sale. Businesses held for sale with European exposures are included within the Financial institutions category

The analysis excludes financial assets not subject to credit risk

 

§

Equity securities held for trading, as financial investments or designated at fair value, and traded commodities

 

§

Reverse repurchase agreements measured at amortised cost and at fair value which are materially fully collateralised

Gross exposure reflects total exposures before the effects of economic hedging by way of trading portfolio liabilities, derivative liabilities and cash collateral, but after taking into account impairment allowances and IFRS netting.

The Italian home loans of £9.7bn (2015: £9.5bn) are secured on residential property with average balance weighted marked to market LTVs of 61.8% (2015: 60.6%) and CRL coverage of 36% (2015: 31%). 90 days arrear and gross charge-off rates remained stable at 1.2% (2015: 1.2%) and 0.8% (2015: 0.7%) respectively.

 

Net exposure by country and counterparty
			Sovereign £m				Financial institutions £m				Corporate £m				Home loans £m				Other retail lending £m				Net on-balance sheet exposure £m				Gross on-balance sheet exposure £m				Contingent liabilities and commitments £m
As at 31 December 2016
Italy			2,668				299				763				9,741				331				13,802				18,580				2,835
Germany			5,250				3,399				1,379				8				2,967				13,003				47,964				13,362
France			3,708				6,886				1,160				736				139				12,629				41,056				6,565
Ireland			6				2,230				1,855				30				9				4,130				6,474				2,735
Total			11,632				12,814				5,157				10,515				3,446				43,564				114,074				25,497
As at 31 December 2015
Italy			1,708				2,283				1,039				9,505				675				15,210				20,586				2,701
Germany			7,494				3,621				1,602				9				2,313				15,039				50,930				8,029
France			7,426				4,967				805				1,472				152				14,822				43,427				7,436
Ireland			9				2,824				1,282				37				51				4,203				7,454				2,673
Total			16,637				13,695				4,728				11,023				3,191				49,274				122,397				20,839

 

124  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Industry concentrations

The concentration of the Group’s assets by industry remained broadly consistent year on year. As at 31 December 2016, total assets concentrated towards banks and other financial institutions was 43% (2015: 42%), predominantly within derivative financial instruments. The proportion of the overall balance concentrated towards governments and central banks remained stable at 14% (2015: 12%) and home loans at 11% (2015: 12%).

 

Credit risk concentrations by industry (audited)
As at 31 December 2016			Banks £m				Other financial insti- tutions £m				Manu- facturing £m				Const- ruction and property £m				Govern- ment and central bank £m				Energy and water £m				Wholesale and retail distribu- tion and leisure £m				Business and other services £m				Home loans £m				Cards, unsecured loans and other personal lending £m				Other £m				Total £m
On-balance sheet:
Cash and balances at central banks			–				–				–				–				102,353				–				–				–				–				–				–				102,353
Items in the course of collection from other banks			1,467				–				–				–				–				–				–				–				–				–				–				1,467
Trading portfolio assets			2,231				7,998				1,625				565				21,047				3,733				324				2,972				257				–				1,012				41,764
Financial assets designated at fair value			14,714				49,783				3				5,699				856				5				33				2,811				33				2				74				74,013
Derivative financial instruments			182,664				139,066				2,913				3,488				6,547				4,585				810				3,392				–				–				3,161				346,626
Loans and advances to banks			38,932				–				–				–				4,319				–				–				–				–				–				–				43,251
Loans and advances to customers			–				91,812				12,337				24,200				12,028				7,384				12,967				21,838				144,765				56,730				8,723				392,784
Reverse repurchase agreements and other similar secured lending			2,596				10,568				–				38				252				–				–				–				–				–				–				13,454
Financial investments - debt securities			12,842				4,877				–				–				44,263				–				43				807				–				–				47				62,879
Other assets			975				205				–				–				25				–				–				–				–				–				–				1,205
Total on-balance sheet			256,421				304,309				16,878				33,990				191,690				15,707				14,177				31,820				145,055				56,732				13,017				1,079,796
Off-balance sheet:
Contingent liabilities			1,484				4,232				3,387				707				8				2,649				1,032				4,847				40				531				991				19,908
Documentary credits and other short-term trade related transactions			433				–				377				–				–				–				157				38				–				–				–				1,005
Forward starting reverse repurchase agreements			5				19				–				–				–				–				–				–				–				–				–				24
Standby facilities, credit lines and other commitments			1,016				29,310				38,829				11,876				400				29,699				14,741				26,359				9,610				126,708				14,109				302,657
Total off-balance sheet			2,938				33,561				42,593				12,583				408				32,348				15,930				31,244				9,650				127,239				15,100				323,594
Total			259,359				337,870				59,471				46,573				192,098				48,055				30,107				63,064				154,705				183,971				28,117				1,403,390

Other risks being monitored include exposures to the oil and gas sector. Net on-balance sheet exposure to the oil and gas sector was £4.2bn (2015: £4.4bn), with contingent liabilities and commitments to this sector of £16.0bn (2015: £13.8bn). Impairment charges were £94m (2015: £106m). The ratio of the Group’s net total exposures classified as strong or satisfactory was 93% (2015: 97%) of the total net exposure to credit risk to this sector.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  125

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Risk review

Risk performance

Credit risk

 

 

Credit risk concentrations by industry (audited)
As at 31 December 2015			Banks £m				Other financial insti- tutions £m				Manu- facturing £m				Const- ruction and property £m				Govern- ment and central bank £m				Energy and water £m				Wholesale and retail distribu- tion and leisure £m				Business and other services £m				Home loans £m				Cards, unsecured loans and other personal lending £m				Other £m				Total £m
On-balance sheet:
Cash and balances at central banks			–				–				–				–				49,711				–				–				–				–				–				–				49,711
Items in the course of collection from other banks			1,011				–				–				–				–				–				–				–				–				–				–				1,011
Trading portfolio assets			1,897				11,826				970				538				25,797				2,554				315				2,727				550				–				876				48,050
Financial assets designated at fair value			14,015				35,109				104				8,642				7,380				33				191				3,402				229				–				79				69,184
Derivative financial instruments			185,782				114,727				2,701				2,940				6,113				4,538				1,063				5,346				–				–				4,499				327,709
Loans and advances to banks			36,829				–				–				–				4,520				–				–				–				–				–				–				41,349
Loans and advances to customers			–				80,729				12,297				23,519				5,940				7,743				13,830				25,728				155,863				60,162				13,406				399,217
Reverse repurchase agreements and other similar secured lending			8,676				18,022				–				1,011				305				–				35				138				–				–				–				28,187
Financial investments - debt securities			9,745				6,114				68				43				67,645				182				107				5,134				–				–				240				89,278
Other assets			312				1,077				–				–				20				–				–				–				–				–				1				1,410
Total on-balance sheet			258,267				267,604				16,140				36,693				167,431				15,050				15,541				42,475				156,642				60,162				19,101				1,055,106
Off-balance sheet:
Contingent liabilities			1,152				4,698				3,142				958				9				3,073				1,301				4,645				100				548				950				20,576
Documentary credits and other short-term trade related transactions			378				17				142				1				–				3				129				50				–				123				2				845
Forward starting reverse repurchase agreements			78				15				–				–				–				–				–				–				–				–				–				93
Standby facilities, credit lines and other commitments			946				31,152				35,865				11,337				871				26,217				15,054				23,180				11,708				111,988				13,051				281,369
Total off-balance sheet			2,554				35,882				39,149				12,296				880				29,293				16,484				27,875				11,808				112,659				14,003				302,883
Total			260,821				303,486				55,289				48,989				168,311				44,343				32,025				70,350				168,450				172,821				33,104				1,357,989

 

126 | Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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As the principal source of credit risk to the Group, loans and advances to customers and banks is analysed in detail below:

 

Analysis of loans and advances and impairment to customers and banks
As at 31 December 2016			Gross L&A £m				Impairment allowance £m				L&A net of impairment £m				Credit risk loans £m				CRLs % of gross L&A %				Loan impairment chargesa £m				Loan loss rates bps
Barclays UK			155,729				1,519				154,210				2,044				1.3				866				56
Barclays International			33,485				1,492				31,993				1,249				3.7				1,085				324
Barclays Core			189,214				3,011				186,203				3,293				1.7				1,951				103
Barclays Non-Core			10,319				385				9,934				838				8.1				102				99
Total Group retail			199,533				3,396				196,137				4,131				2.1				2,053				103
Barclays UK			15,204				282				14,922				591				3.9				30				20
Barclays International			180,102				748				179,354				1,470				0.8				258				14
Barclays Core			199,716				1,030				198,686				2,061				1.0				288				14
Barclays Non-Core			41,406				194				41,212				299				0.7				11				3
Total Group wholesale			241,122				1,224				239,898				2,360				1.0				299				12
Total loans and advances at amortised cost			440,655				4,620				436,035				6,491				1.5				2,352				53
Traded loans			2,975				n/a				2,975				n/a
Loans and advances designated at fair value			10,519				n/a				10,519				n/a
Loans and advances held at fair value			13,494				n/a				13,494				n/a
Total loans and advances			454,149				4,620				449,529				6,491
As at 31 December 2015
Barclays UK			153,539				1,556				151,983				2,238				1.5				682				44
Barclays International			26,041				896				25,145				863				3.3				714				274
Head Office			–				–				–				–				–				–				–
Barclays Core			179,580				2,452				177,128				3,101				1.7				1,396				78
Barclays Non-Core			12,588				465				12,123				936				7.4				139				110
Total Group retail			192,168				2,917				189,251				4,037				2.1				1,535				80
Barclays UK			16,400				312				16,088				636				3.9				24				15
Barclays International			159,776				617				159,159				1,331				0.8				201				13
Head Office			5,767				–				5,767				–				–				–				–
Barclays Core			181,943				929				181,014				1,967				1.1				225				12
Barclays Non-Core			39,979				336				39,643				441				1.1				(16	)			(4	)
Total Group wholesale			221,922				1,265				220,657				2,408				1.1				209				9
Total loans and advances at amortised costb			414,090				4,182				409,908				6,445				1.6				1,744				42
BAGL loans and advances at amortised cost			31,397				739				30,658				1,372
Traded loans			2,474				n/a				2,474				n/a
Loans and advances designated at fair value			17,913				n/a				17,913				n/a
Loans and advances held at fair value			20,387				n/a				20,387				n/a
Total loans and advances			465,874				4,921				460,953				7,817

Total loans and advances decreased by £11.4bn to £449.5bn driven by a £31bn decrease due to the reclassification of BAGL balances to held for sale and £9bn from the exit of other assets in Non-Core. This was offset by lending of £20bn driven by volume growth and foreign currency movements due to the appreciation of average US Dollar and Euro against Sterling. There was also a net £9bn increase in settlement and cash collateral balances.

Credit risk loans (CRLs) and the ratio of CRLs to gross loans and advances excluding BAGL balances now held for sale remained stable at £6.5bn (2015: £6.4bn) and 1.5% (2015: 1.6%) respectively.

Loan impairment charges increased £0.6bn to £2.4bn primarily due to increased charges following the management review of impairment modelling for UK and US cards portfolios and the impairment of a number of single name exposures. Overall, this resulted in an 11bps increase in the loan loss rate to 53bps.

Notes

a	Excluding impairment charges on available for sale investments and reverse repurchase agreements.

b	Excluding BAGL balances now held for sale.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  127

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Risk review

Risk performance

Credit risk

 

 

Analysis of specific portfolios and asset types

This section provides an analysis of principal portfolios and businesses in the retail and wholesale segments. In particular, home loans, credit cards, overdrafts and unsecured loans are covered for retail segments. In addition, this section details exposures to UK commercial real estate.

Secured home loans

The UK home loans portfolio comprises first lien home loans and accounts for 98%^a (2015: 98%) of the Group’s Core home loan balances and 91% (2015: 90%) of the Group’s total home loan balances. Italy home loans accounts for 100% (2015: 91%) of the Group’s Non-Core home loan balances and 7% (2015: 7%) of the Group’s total home loan balances.

 

Home loans principal portfoliosb
			Barclays UK
As at 31 December			2016				2015
Gross loans and advances (£m)			129,136				127,750
>90 day arrears, excluding recovery book (%)			0.2				0.2
Non-performing proportion of outstanding balances (%)			0.6				0.7
Annualised gross charge-off rates (%)			0.3				0.3
Recovery book proportion of outstanding balances (%)			0.4				0.4
Recovery book impairment coverage ratio (%)			9.1				10.1

Barclays UK: Portfolio performance remained steady reflecting the continuing low base rate environment, house price appreciation and steady economic conditions. Non-performing proportion of outstanding balances and recovery book impairment coverage reduced due to a reduction in repossession stock.

Within the UK home loans portfolio:

 

§

owner-occupied interest-only home loans comprised 31% (2015: 32%) of total balances. The average balance weighted LTV on these loans reduced to 41.7% (2015: 44.7%) as house prices have improved across core regions, and >90 day arrears excluding recovery book remained steady at 0.2% (2015: 0.2%)

 

§

buy-to-let home loans comprised 9% (2015: 9%) of total balances. The average balance weighted LTV reduced to 52.6% (2015: 54.6%), and >90 day arrears excluding recovery book reduced to 0.1% (2015: 0.2%).

 

Home loans principal portfolios – distribution of balances by LTVc
			Distribution of balances								Impairment coverage ratio								Non-performing proportion of outstanding balances								Non-performing balances impairment coverage ratio								Recovery book proportion of outstanding balances								Recovery book impairment coverage ratio
As at 31 December			2016 %				2015 %				2016 %				2015 %				2016 %				2015 %				2016 %				2015 %				2016 %				2015 %				2016 %				2015 %
Barclays UK
<=75%			91.8				92.1				0.1				0.1				0.6				0.6				4.2				4.7				0.4				0.4				5.9				6.8
>75% and <=80%			3.5				3.4				0.2				0.2				0.6				1.0				17.1				13.5				0.4				0.8				22.1				15.7
>80% and <=85%			2.1				2.1				0.2				0.3				0.8				1.0				20.4				16.7				0.6				0.7				25.0				21.4
>85% and <=90%			1.3				1.4				0.3				0.3				0.7				1.3				23.0				15.7				0.6				1.0				25.4				17.8
>90% and <=95%			0.8				0.6				0.4				0.6				1.1				1.8				28.3				25.7				0.8				1.5				33.7				28.2
>95% and <=100%			0.3				0.2				0.7				1.3				1.9				4.0				23.4				25.4				1.5				3.5				27.0				27.9
>100%			0.2				0.2				3.1				3.4				5.7				7.0				38.6				35.6				5.0				5.6				40.9				41.2

 

Home loans principal portfolios – Average LTV
			Barclays UK
As at 31 December			2016				2015
Portfolio marked to market LTV (%):
Balance weighted			47.7				49.2
Valuation weighted			35.6				37.3
Performing balances (%):
Balance weighted			47.3				48.8
Valuation weighted			35.5				37.3
Non-performing balances (%):
Balance weighted			52.5				56.5
Valuation weighted			41.7				45.1
For >100% LTVs:
Balances (£m)			239				310
Marked to market collateral (£m)			210				260
Average LTV: balance weighted (%)			118.4				123.0
Average LTV: valuation weighted (%)			113.1				118.5
% of balances in recovery book			5.0				5.6

Notes

a	Remaining balance includes Wealth portfolio.

b	Gross loans and advances include loans and advances to customers and banks. Risk metrics based on exposures to customers only.

c	Portfolio marked to market based on the most updated valuation including recovery book balances. Updated valuations reflect the application of the latest house price index available in the country as at 31 December 2016.

 

128  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Balance weighted LTV in the UK reduced to 47.7% (2015: 49.2%) due to an increase in average house prices across core regions.

The house price appreciation resulted in a 23% reduction in home loans that have LTV >100% to £239m (2015: £310m).

 

Home loans principal portfolios – new lending
			Barclays UK
As at 31 December			2016				2015
New home loan bookings (£m)			19,885				18,812
New home loans proportion above 85% LTV (%)			8.6				8.2
Average LTV on new home loans: balance weighted (%)			63.4				63.9
Average LTV on new home loans: valuation weighted (%)			54.4				55.0

Barclays UK: New lending in 2016 increased by 6%, reflecting a steady risk profile against the backdrop of heightened market activity. Average balance weighted LTV on new lending remained broadly stable at 63.4% (2015: 63.9%).

Credit cards and unsecured loans

The principal portfolios listed below accounted for 94% (2015: 92%) of the Group’s total credit cards and unsecured loans.

 

Credit cards and unsecured loans principal portfolios
			Gross  loans and advances £m	a			30 day arrears, excluding recovery book %				90 day arrears, excluding recovery book %				Annualised gross charge-off rates %				Recovery book proportion of outstanding balances %				Recovery book impairment coverage ratio %
As at 31 December 2016
Barclays UK
UK cardsb			17,833				1.9				0.9				5.5				3.0				83.8
UK personal loans			6,076				2.1				0.9				3.1				4.7				77.2
Barclays International
US cardsb			23,915				2.6				1.3				4.5				2.4				83.6
Barclays Partner Finance			4,041				1.5				0.6				2.5				2.6				81.5
Germany cards			1,812				2.6				1.0				3.7				2.7				79.0
As at 31 December 2015
Barclays UK
UK cardsb			18,502				2.3				1.2				5.2				3.6				82.6
UK personal loans			5,476				1.9				0.8				3.0				7.5				73.9
Barclays International
US cardsb			16,699				2.2				1.1				3.9				2.0				84.8
Barclays Partner Financec			3,986				1.5				0.6				2.4				2.5				82.2
Germany cards			1,419				2.3				1.0				3.8				2.7				81.2

UK cards: Gross loans and advances decreased 4% to £17.8bn primarily due to reduced loans and advances to banks. Annualised gross charge-off rates increased due to accelerated asset sales in the latter half of the year and accelerated charge-off of informal arrangements stock. The recovery book impairment coverage ratio increased reflecting the impact of increased flow into charge-off.

UK personal loans: 30 day arrears increased to 2.1% (2015: 1.9%) and 90 day arrears increased to 0.9% (2015: 0.8%) partially driven by portfolio growth and an increased level of operational delinquency from new customer acquisitions. The recovery book proportion of outstanding balances reduced to 4.7% (2015: 7.5%) due to an asset sale that also resulted in an increase in the recovery book impairment coverage ratio to 77.2% (2015: 73.9%).

US cards: Gross loans and advances increased 43% to £23.9bn due to portfolio growth, new acquisitions and appreciation of USD against GBP. Increased arrears and charge-off rate were driven by a change in portfolio mix, volume growth and the appreciation of average USD against GBP.

Barclays Partner Finance: Portfolio arrears and charge-off rates remained broadly steady during 2016.

Germany cards: Loans and advances were 28% higher mainly due to a combination of the appreciation of EUR against GBP and portfolio growth. 90 day arrears and charge off rates remained stable, while the recovery book coverage ratio reduced slightly reflecting favourable recovery expectations.

 

 

Notes

a	Gross loans and advances include loans and advances to customers and banks. Risk metrics based on exposures to customers.

b

For UK and US cards, outstanding recovery book balances for acquired portfolios recognised at fair value (which have no related impairment allowance) have been excluded from the recovery book impairment coverage ratio. Losses have been recognised where related to additional spend from acquired accounts in the period post acquisition.

c	2015 figures for recovery book coverage ratio restated from 85.2% to 82.2% to reflect more granular allocation of management adjustments to the recovery book.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  129

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Risk review

Risk performance

Credit risk

 

 

Wholesale loans and advances at amortised cost

 

Analysis of wholesale loans and advances at amortised cost
			Gross L&A £m				Impairment allowance £m				L&A net of impairment £m				Credit risk loans £m				CRLs % of gross L&A %				Loan impairment charges £m				Loan loss rates bps
As at 31 December 2016
Banks			35,979				–				35,979				–				–				–				–
Other financial institutions			91,673				14				91,659				89				0.1				6				1
Manufacturing			12,373				130				12,243				226				1.8				37				30
Construction			3,418				40				3,378				58				1.7				5				15
Property			20,541				137				20,404				464				2.3				27				13
Government and central bank			15,847				–				15,847				–				–				–				–
Energy and water			7,569				181				7,388				348				4.6				102				135
Wholesale and retail distribution and leisure			12,995				169				12,826				258				2.0				38				29
Business and other services			21,210				284				20,926				331				1.6				54				25
Home loansa			5,497				48				5,449				190				3.5				9				16
Cards, unsecured loans and other personal lendinga			5,329				129				5,200				207				3.9				6				11
Other			8,691				92				8,599				189				2.2				15				17
Total wholesale loans and advances at amortised cost			241,122				1,224				239,898				2,360				1.0				299				12
As at 31 December 2015
Banks			32,824				–				32,824				–				–				–				–
Other financial institutions			78,766				28				78,738				63				0.1				4				1
Manufacturing			10,107				114				9,993				183				1.8				17				17
Construction			3,358				44				3,314				54				1.6				4				12
Property			18,444				217				18,227				713				3.9				34				18
Government and central bank			9,686				–				9,686				–				–				–				–
Energy and water			7,370				120				7,250				296				4.0				101				137
Wholesale and retail distribution and leisure			12,542				195				12,347				287				2.3				7				6
Business and other services			23,403				261				23,142				341				1.5				23				10
Home loansa			5,769				26				5,743				159				2.8				–				–
Cards, unsecured loans and other personal lendinga			8,894				107				8,787				166				1.9				2				2
Other			10,759				153				10,606				146				1.4				17				16
Total wholesale loans and advances at amortised cost			221,922				1,265				220,657				2,408				1.1				209				9
BAGL loans and advances at amortised cost			13,985				200				13,785				513				3.7
Total wholesale loans and advances at amortised cost			235,907				1,465				234,442				2,921				1.2

Excluding BAGL balances:

 

§

Wholesale loans and advances increased by £19bn to £241bn (2015: £222bn) due to increased lending of £11bn driven by volume growth and foreign currency movements due to the appreciation of average US Dollar and Euro against Sterling, £8bn due to the reclassification of ESHLA loans now recognised at amortised cost and a net £9bn increase in settlement and cash collateral balances, offset by £9bn from the exit of assets in Non-Core.

 

§

CRLs remained stable at £2.4bn (2015: £2.4bn).

 

§

Loan impairment charges increased to £299m (2015: £209m) from a number of single name exposures. The loan loss rates increased to 12bps (2015: 9bps).

 

 

Note

a	Included in the above analysis are Wealth and Private Banking exposures measured on an individual customer exposure basis.

 

130  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Exposure to UK commercial real estate (CRE)

The UK CRE portfolio includes property investment, development, trading and house builders but excludes social housing and contractors.

 

UK CRE summarya
As at 31 December			2016				2015
UK CRE loans and advances (£m)			11,227				10,690
Past due balances (£m)			83				152
Balances past due as % of UK CRE balances (%)			0.7				1.4
Impairment allowances (£m)			58				79
Past due coverage ratio (%)			69.9				52.0
Total collateral (£m)			23,225				21,858
Twelve months ended 31 December
Impairment (credit)/charge (£m)			(2)				3

 

Maturity analysis of exposure to UK CRE
			Contractual maturity of UK CRE loans and advances at amortised cost
As at 31 December			Past due balances £m				Not more than six months £m				Over six months but not more than one year £m				Over one year but not more than two years £m				Over two years but not more than five years £m				Over five years but not more than ten years £m				Over ten years £m				Total loans and advances £m
2016			83				774				668				1,200				6,318				700				1,484				11,227
2015			152				784				744				929				5,678				852				1,551				10,690

Total exposure to UK commercial real estate following the 2015 restatement rose moderately from £10.7bn to £11.2bn primarily in medium-term deals. Past due balances fell to £83m from £152m due to favourable recovery activity and a selective approach to new deals in this sector.

 

UK CRE LTV analysis
			Balances								Balances as proportion of total
As at 31 December			2016 £m				2015 £m				2016 £m				2015 £m
Group
<=75%			7,884				7,208				70				68
>75% and <=100%			102				244				1				2
>100% and <=125%			15				109				–				1
>125%			60				18				1				–
Unassessed balancesb			2,286				2,370				20				22
Unsecured balancesc			880				741				8				7
Total			11,227				10,690				100				100

 

 

Notes

a	Based on the most recent valuation assessment, 2015 year end numbers have been restated following closer alignment of industry classifications between corporate banking and business lending.

b	Corporate Banking balances under £1m.

c	Unsecured balances primarily relate to working capital facilities agreed to CRE companies.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  131

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Risk review

Risk performance

Credit risk

 

 

Analysis of problem loans

Loans that are past due or assessed as impaired within this section are reflected in the balance sheet credit quality tables on page 122 as being Higher Risk.

Age analysis of loans and advances that are past due but not impaired (audited)

The following table presents an age analysis of loans and advances that are past due but not impaired. Loans that are past due but not impaired consist predominantly of wholesale loans that are past due but individually assessed as not being impaired. These loans although individually assessed as unimpaired, may carry an unidentified impairment provision.

 

Loans and advances past due but not impaired (audited)
			Past due up to 1 month £m				Past due 1-2 months £m				Past due 2-3 months £m				Past due 3-6 months £m				Past due 6 months and over £m				Total £m
As at 31 December 2016
Loans and advances designated at fair value			29				8				18				–				16				71
Home loans			1				–				–				33				31				65
Credit cards, unsecured and other retail lending			2				–				2				11				77				92
Corporate loans			6,962				1,235				149				178				354				8,878
Total			6,994				1,243				169				222				478				9,106
As at 31 December 2015
Loans and advances designated at fair value			70				14				–				–				209				293
Home loans			22				8				6				24				80				140
Credit cards, unsecured and other retail lending			288				14				15				93				120				530
Corporate loans			5,862				897				207				226				280				7,472
Total			6,242				933				228				343				689				8,435

Corporate loans past due up to 1 month increased £1.1bn to £7.0bn primarily driven by the appreciation of average USD against GBP.

Analysis of loans and advances assessed as impaired (audited)

The following table presents an analysis of loans and advances into those collectively or individually assessed as impaired. The table includes an age analysis for loans and advances collectively assessed as impaired.

Loans that are collectively assessed as impaired consist predominantly of retail loans that are one day or more past due for which a collective allowance is raised. Wholesale loans that are past due, individually assessed as unimpaired, but which carry an unidentified impairment provision, are excluded from this category.

Loans that are individually assessed as impaired consist predominantly of wholesale loans that are past due and for which an individual allowance has been raised.

Home loans, unsecured loans and credit card receivables that are subject to forbearance in the retail portfolios are included within the collectively assessed for impairment category. Where wholesale loans under forbearance have been impaired, these form part of individually assessed impaired loans.

 

Loans and advances assessed as impaired (audited)
			Past due up to 1 month £m				Past due 1-2 months £m				Past due 2-3 months £m				Past due 3-6 months £m			Past due 6 months and over £m		Total collectively assessed £m		Individually assessed for impairment £m			Total £m
As at 31 December 2016
Home loans			2,866				795				201				298			452		4,612		820			5,432
Credit cards, unsecured and other retail lending			1,135				354				250				516			1,702		3,957		492			4,449
Corporate loans			288				53				35				72			131		579		1,580			2,159
Total			4,289				1,202				486				886			2,285		9,148		2,892			12,040
As at 31 December 2015
Home loans			3,672				1,036				278				364			812		6,162		648			6,810
Credit cards, unsecured and other retail lending			1,241				691				284				541			1,792		4,549		964			5,513
Corporate loans			251				76				45				76			96		544		1,786			2,330
Total			5,164				1,803				607				981			2,700		11,255		3,398			14,653

The decrease in loans collectively assessed as impaired to £9.1bn (2015: £11.3bn) predominantly relates to BAGL balances now held for sale.

 

132  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Potential credit risk loans (PCRLs) and coverage ratios

The Group reports potentially and actually impaired loans as PCRLs. PCRLs comprise two categories of loans: credit risk loans (CRLs) and potential problem loans (PPLs).

CRLs comprise three classes of loans:

§

impaired loans: comprises loans where an individually identified impairment allowance has been raised. This category also includes all retail loans that have been transferred to a recovery book. See page 134 for further analysis of impaired loans

 

§

accruing past due 90 days or more: comprises loans that are 90 days or more past due with respect to principal or interest

 

§

impaired and restructured loans: comprises loans not included above where, for economic or legal reasons related to the debtor’s financial difficulties, a concession has been granted to the debtor that would not otherwise be considered. For information on restructured loans refer to disclosures on forbearance on pages 134 to 137.

PPLs are loans that are currently complying with repayment terms but where serious doubt exists as to the ability of the borrower to continue to comply with such terms in the near future. If the credit quality of wholesale loan on a watchlist deteriorates to the highest category, or a retail loan deteriorates to delinquency cycle 2 (typically when past due 60 to 90 days), consideration is given to including it within the PPL category.

 

Potential credit risk loans and coverage ratios by business
			CRLs								PPLs								PCRLs
As at 31 December			2016 £m				2015 £m				2016 £m				2015 £m				2016 £m				2015 £m
Barclays UK			2,044				2,238				310				382				2,354				2,620
Barclays International			1,249				863				192				117				1,441				980
Barclays Core			3,293				3,101				502				499				3,795				3,600
Barclays Non-Core			838				936				11				26				849				962
Total retail			4,131				4,037				513				525				4,644				4,562
Barclays UK			591				637				94				127				685				764
Barclays International			1,470				1,330				1,530				877				3,000				2,207
Barclays Core			2,061				1,967				1,624				1,004				3,685				2,971
Barclays Non-Core			299				441				59				122				358				563
Total wholesale			2,360				2,408				1,683				1,126				4,043				3,534
Total retail and wholesale			6,491				6,445				2,196				1,651				8,687				8,096
BAGL			–				1,372				–				399				–				1,771
Group total			6,491				7,817				2,196				2,050				8,687				9,867
			Impairment allowance								CRL coverage								PCRL coverage
As at 31 December			2016 £m				2015 £m				2016 %				2015 %				2016 %				2015 %
Barclays UK			1,519				1,556				74.3				69.5				64.5				59.4
Barclays International			1,492				897				119.5				103.9				103.5				91.5
Barclays Core			3,011				2,453				91.4				79.1				79.3				68.1
Barclays Non-Core			385				464				45.9				49.6				45.3				48.2
Total retail			3,396				2,917				82.2				72.3				73.1				63.9
Barclays UK			282				312				47.7				49.0				41.2				40.8
Barclays International			748				617				50.9				46.4				24.9				28.0
Barclays Core			1,030				929				50.0				47.2				28.0				31.3
Barclays Non-Core			194				336				64.9				76.2				54.2				59.7
Total wholesale			1,224				1,265				51.9				52.5				30.3				35.8
Total retail and wholesale			4,620				4,182				71.2				64.9				53.2				51.7
BAGL			–				739				–				53.9				–				41.7
Group total			4,620				4,921				71.2				63.0				53.2				49.9

 

§

Excluding BAGL balances, CRLs remained stable at £6.5bn (2015: £6.4bn) with the Group’s CRL coverage ratio increasing to 71% (2015: 65%) mainly within retail portfolios.

 

§

The CRL coverage ratio for retail portfolios increased to 82% (2015: 72%) primarily due to increased impairment allowances following the management review of the UK and US cards portfolio impairment modelling.

 

§

PPLs increased to £2.2bn (2015: £1.7bn) primarily within Barclays International wholesale portfolios. The increase was driven by exposures within the Corporate and Investment bank across a number of industries.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  133

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Risk review

Risk performance

Credit risk

 

 

Impaired loans

The following table represents an analysis of impaired loans in line with the disclosure recommended by the Enhanced Disclosure Taskforce. Impaired loans are a subcomponent of CRLs (defined on page 133) and comprise loans where an individually identified impairment allowance has been raised. This category also includes all retail loans that have been transferred to a recovery book. For the majority of products, transfer to a recovery book occurs for loans that are past due over 6 months unless a forbearance agreement is agreed. Earlier transfer points may occur depending on specific circumstances. Impaired loans may include loans that are still performing, fully collateralised loans or where indebtedness has already been written down to the expected realisable value.

 

Movement in impaired loans
			At beginning of year £m				Classified as impaired during the year £m				Transferred to not impaired during the year £m				Repayments £m				Amounts written off £m				Acquisitions and disposals £m				Exchange and other adjustments £m	a			Balance at 31 December £m
2016
Home loans			1,337				308				(150	)			(171	)			(19	)			–				(165	)			1,140
Credit cards, unsecured and other retail lending			2,200				1,761				(17	)			(136	)			(1,605	)			(92	)			(407	)			1,704
Corporate loans			2,098				984				(427	)			(220	)			(331	)			(15	)			(319	)			1,770
Total impaired loans			5,635				3,053				(594	)			(527	)			(1,955	)			(107	)			(891	)			4,614
2015
Home loans			1,503				602				(192	)			(272	)			(97	)			–				(207	)			1,337
Credit cards, unsecured and other retail lending			2,613				2,226				(112	)			(269	)			(1,873	)			–				(385	)			2,200
Corporate loans			2,683				1,032				(558	)			(208	)			(333	)			(43	)			(475	)			2,098
Total impaired loans			6,799				3,860				(862	)			(749	)			(2,303	)			(43	)			(1,067	)			5,635
Forbearance
Forbearance measures consist of concessions towards a debtor that is experiencing or about to experience difficulties in meeting their financial commitments (“financial difficulties”).
Analysis of forbearance programmes
											Balances								Impairment allowance								Impairment coverage
As at 31 December											2016 £m				2015 £m				2016 £m				2015 £m				2016 %				2015 %
Barclays UK											926				1,036				237				191				25.6				18.4
Barclays International											243				185				57				46				23.5				24.9
Barclays Core											1,169				1,221				294				237				25.1				19.4
Barclays Non-Core											211				247				9				20				4.3				8.1
Total retail											1,380				1,468				303				257				22.0				17.5
Barclays UK											589				412				62				32				10.5				7.8
Barclays International											2,044				1,333				257				196				12.6				14.7
Barclays Core											2,633				1,745				319				228				12.1				13.1
Barclays Non-Core											269				459				50				146				18.5				31.8
Total wholesale											2,902				2,204				369				374				12.7				17.0
Group totalb											4,282				3,672				672				631				15.7				17.2

Balances on forbearance programmes increased 17% driven by an increase in forborne loans in Barclays International.

Retail balances on forbearance programmes reduced 6% to £1.4bn and reflected a decrease in Barclays UK and Barclays Non-Core offset by an increase in Barclays International portfolios.

 

§

Barclays UK: The reduction was driven by UK cards portfolio, where balances on forbearance plans are lower due to the application of an updated entry criteria, as well as asset sales.

 

§

Barclays International: The increase in US cards forbearance was in line with portfolio growth and appreciation of the US Dollar against Sterling.

Wholesale balances on forbearance increased by 32% to £2.9bn due to an increase in the Barclays Core portfolio where forbearance programmes increased mainly in performing segments of the corporate portfolio due to a change in methodology, extending the previously narrow scope of forbearance in relation to adjustment on non-enforcement of convenants. This change has been applied consistently across the corporate portfolio with the increase primarily at the higher end of the corporate portfolio where there is a greater tendency for exposure to be under covenants.

 

 

Notes

a	Exchange and other adjustments for 2016 includes the reclassification of £1,015m related to BAGL balances now held for sale offset by currency movements due to the appreciation of average US Dollar and Euro against Sterling.

b	Excludes BAGL balances now held for sale.

 

134  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Retail forbearance programmes

Forbearance on the Group’s principal retail portfolios in the US and UK is presented below. The principal portfolios listed below account for 73% (2015: 76%) of total retail forbearance balances.

 

Analysis of key portfolios in forbearance programmes
		Balances on forbearance programmes																				Marked				Marked				Impairment
										Of which:												to market				to market				allowances				Total
														Past due of which:								LTV of				LTV of				marked				balances on
																						forbearance				forbearance				against				forbearance
						% of gross												91 or				balances:				balances:				balances on				programmes
						loans and								1-90 days				more days				balance				valuation				forbearance				coverage
		Total				advances				Up-to-date				past due				past due				weighted				weighted				programmes				ratio
			£m				%				£m				£m				£m				%				%				£m				%
As at 31 December 2016
Barclays UK
UK home loans			390				0.3				188				149				53				44.7				31.3				3				0.8
UK cards			337				1.9				255				59				23				n/a				n/a				185				54.9
UK personal loans			94				1.5				58				26				10				n/a				n/a				38				40.4
Barclays International
US cards			186				0.8				139				35				12				n/a				n/a				38				20.4
As at 31 December 2015
Barclays UK
UK home loans			445				0.3				211				177				57				48.0				34.1				4				0.8
UK cards			448				2.4				414				31				3				n/a				n/a				159				35.5
UK personal loans			85				1.6				60				22				3				n/a				n/a				21				24.6
Barclays International
US cards			133				0.8				92				30				11				n/a				n/a				30				22.7

 

§

UK home loans: Balances under forbearance decreased by 12% to £390m, principally due to fewer customers requiring forbearance in a stable macroeconomic environment. Total past due balances reduced by 14% to £202m in line with falling total balances under forbearance.

 

§

UK cards: Balances on forbearance plans have reduced due to an updated entry criteria, as well as asset sales. The forbearance impairment coverage ratio has increased due to implementation of updated impairment methodology.

 

§

UK personal loans: Increased forbearance coverage ratio reflects the changes in methodology to align with the impairment policy.

 

§

US cards: Balances are higher in line with portfolio growth while the balances in arrears remain stable. Past-due balances as a proportion of total balances have reduced, which reflects in the lower forbearance impairment coverage ratio.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  135

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Risk review

Risk performance

Credit risk

 

 

Forbearance by type
			Barclays UK																										Barclays International
			UK home loans								UK cards								UK personal loans										US cards
As at 31 December			2016 £m				2015 £m				2016 £m				2015 £m				2016 £m				2015 £m						2016 £m				2015 £m
Payment concession			96				103				45				21				–				–						–				–
Interest only conversion			84				94				–				–				–				–						–				–
Term extension			210				248				–				–				16				6						–				–
Fully amortising			–				–				–				–				65				79						97				69
Repayment plana			–				–				218				427				13				–						89				64
Interest rate concession			–				–				74				–				–				–						–				–
Total			390				445				337				448				94				85						186				133
Payment concessions in UK cards increased to £45m (2015: £21m), including an additional £31m identified in second half of the year following a review of policy adherence. These balances have been appropriately provisioned.
Repayment plan balances in UK cards decreased to £218m (2015: £427m) driven by an asset sale and the continued reduction in new repayment plan volumes. Following review of policy adherence, additional interest rate concession for UK cards (£74m) and repayment plan for UK personal loans (£13m) were identified in the year.
Wholesale forbearance programmes
The tables below detail balance information for wholesale forbearance cases.
Analysis of wholesale balances in forbearance programmesb
		Balances on forbearance programmes																										Impairment
										Of which:																		allowances				Total
			Total balances £m				% of gross loans and advances %				Performing balances £m				Impaired up-to-date balances £m				Balances between 1 and 90 days past due £m				Balances 91 days or more past due £m						marked against balances on forbearance programmes £m				balances on forbearance programmes coverage ratio %
As at 31 December 2016
Barclays UK			589				3.9				187				93				78				231						62				10.5
Barclays International			2,044				1.1				1,285				567				33				159						257				12.6
Total Barclays Core			2,633				1.3				1,472				660				111				390						319				12.1
Barclays Non-Core			269				0.6				57				44				25				143						50				18.6
Total			2,902				1.2				1,529				704				136				533						369				12.7
As at 31 December 2015
Barclays UK			412				2.5				153				48				30				181						32				7.8
Barclays International			1,333				0.8				614				423				61				235						196				14.7
Total Barclays Core			1,745				1.0				767				471				91				416						228				13.1
Barclays Non-Core			459				1.1				118				101				5				235						146				31.8
Total			2,204				1.0				885				572				96				651						374				17.0

 

 

 

Notes

a	Repayment plan represents a reduction to the minimum payment due requirements and interest rate.

b	2015 figures restated due to restructuring of portfolio from Barclays International to Non-Core Figures exclude BAGL balances now held for sale.

 

136  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Wholesale forbearance reporting split by exposure class
			Corporate £m				Personal and trusts £m				Other £m				Total £m
As at 31 December 2016
Restructure: reduced contractual cash flows			32				–				–				32
Restructure: maturity date extension			411				107				–				518
Restructure: changed cash flow profile (other than extension)			346				1				–				347
Restructure: payment other than cash			10				–				–				10
Change in security			7				–				–				7
Adjustments or non-enforcement of covenants			1,242				155				–				1,397
Other (e.g. capital repayment holiday; restructure pending)			438				153				–				591
Total			2,486				416				–				2,902
As at 31 December 2015
Restructure: reduced contractual cash flows			155				–				–				155
Restructure: maturity date extension			563				23				62				648
Restructure: changed cash flow profile (other than extension)			250				1				–				251
Restructure: payment other than cash			12				–				–				12
Change in security			7				1				–				8
Adjustments or non-enforcement of covenants			295				92				–				387
Other (e.g. capital repayment holiday; restructure pending)			535				208				–				743
Total			1,817				325				62				2,204
Wholesale forbearance reporting split by business unit
			Barclays UK £m				Barclays International £m				Barclays Non-Core £m				Total £m
As at 31 December 2016
Restructure: reduced contractual cash flows			3				29				–				32
Restructure: maturity date extension			114				316				88				518
Restructure: changed cash flow profile (other than extension)			180				164				3				347
Restructure: payment other than cash			–				10				–				10
Change in security			1				6				–				7
Adjustments or non-enforcements of covenants			132				1,212				53				1,397
Other (e.g. capital repayment holiday; restructure pending)			159				307				125				591
Total			589				2,044				269				2,902
As at 31 December 2015
Restructure: reduced contractual cash flows			1				130				24				155
Restructure: maturity date extension			77				287				284				648
Restructure: changed cash flow profile (other than extension)			51				199				1				251
Restructure: payment other than cash			–				12				–				12
Change in security			1				7				–				8
Adjustments or non-enforcements of covenants			71				260				56				387
Other (e.g. capital repayment holiday; restructure pending)			211				438				94				743
Total			412				1,333				459				2,204
Wholesale forbearance flows in 2016
															£m
As at 1 January 2016															2,204
Added to forbearance															1,811
Removed from forbearance (credit improvement)															(383	)
Fully or partially repaid and other movements															(442	)
Written off/moved to recovery book															(288	)
As at 31 December 2016															2,902

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  137

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Risk review

Risk performance

Credit risk

 

 

Impairment

Impairment allowances

Impairment allowances decreased 6% to £4,620m primarily due to the reclassification of BAGL balances now held for sale, partially offset by the impact of a management review of impairment modelling within the credit cards portfolios and increases within Barclays International due to volume growth, the appreciation of average US Dollar and Euro against Sterling and increased impairment for a number of single name exposures.

 

Movements in allowance for impairment by asset class (audited)
			At beginning of year £m				Acquisitions and disposals £m				Unwind of discount £m				Exchange and other adjustmentsa £m				Amounts written off £m				Recoveries £m				Amounts charged to income statement £m				Balance at 31 December £m
2016
Home loans			518				(3	)			(5	)			(108	)			(23	)			–				88				467
Credit cards, unsecured and other retail lending			3,394				(2	)			(70	)			(709	)			(1,806	)			296				1,957				3,060
Corporate loans			1,009				–				–				81				(364	)			69				298				1,093
Total impairment allowance			4,921				(5	)			(75	)			(736	)			(2,193	)			365				2,343				4,620
2015
Home loans			547				–				(32	)			(64	)			(94	)			7				154				518
Credit cards, unsecured and other retail lending			3,345				–				(105	)			(170	)			(1,848	)			301				1,871				3,394
Corporate loans			1,563				–				(12	)			(383	)			(335	)			92				84				1,009
Total impairment allowance			5,455				–				(149	)			(617	)			(2,277	)			400				2,109				4,921

Management adjustments to models for impairment

Management adjustments to models for impairment are applied in order to factor in certain conditions or changes in policy that are not incorporated into the relevant impairment models, or to ensure that the impairment allowance reflects all known facts and circumstances at the period end. Adjustments typically increase the model derived impairment allowance. Where applicable, management adjustments are reviewed and incorporated into future model development.

Management adjustments to models of more than £10m with respect to impairment allowance in our principal portfolios are presented below.

 

Principal portfolios that have management adjustments greater than £10m
			2016								2015
As at 31 December			Total management adjustments to impairment stock, including forbearance £m				Proportion of total impairment stock %				Total management adjustments to impairment stock, including forbearance £m				Proportion of total impairment stock %
Barclays UK
UK cards			312				34				147				17
UK home loans			70				69				68				67
UK business lending			69				33				67				36
Barclays International
US cards			278				24				58				9
Corporate Banking			71				14				116				25
Barclays Partner Finance			59				37				41				28
Germany cards			29				23				20				21

During 2016, the models were aligned to a strengthened Retail Impairment Policy, following which adjustments were reviewed.

UK and US cards: Higher provisions held pending full implementation of newly developed and independently approved models with enhanced methodology following an impairment policy revision in Q316.

UK home loans: To capture the potential impact from an increase in the house price to earnings ratio, change in the impairment methodology and increased coverage on interest-only loans maturing in the next five years.

UK business lending: To align to impairment policy requirements, potential impact from commercial property price deterioration and the susceptibility of minimum debt service customers to interest rate rises not currently captured in models.

Corporate Banking: Reflects release against single names in the oil and gas sector.

Barclays Partner Finance: Due to increased risk in the secured motor portfolio along with adjustments on account of impairment methodology.

Germany cards: To align to impairment methodology and increased cover on forbearance programme.

Note

a	Exchange and other adjustments for 2016 primarily includes the reclassification of £762m related to BAGL now held for sale offset by currency movements due to the appreciation of average US Dollar and Euro against Sterling.

 

138  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Analysis of debt securities

Debt securities include government securities held as part of the Group’s treasury management portfolio for liquidity and regulatory purposes, and are for use on a continuing basis in the activities of the Group.

The following tables provide an analysis of debt securities held by the Group for trading and investment purposes by issuer type, and where the Group held government securities exceeding 10% of shareholders’ equity.

Further information on the credit quality of debt securities is presented on pages 121 to 122. Further disclosure on sovereign exposures in the Eurozone is presented on page 124

 

Debt securities
			2016								2015
As at 31 December			£m				%				£m				%
Of which issued by:
Governments and other public bodies			64,852				63.7				96,537				70.9
Corporate and other issuers			28,284				27.8				26,166				19.2
US agency			6,208				6.1				8,927				6.6
Mortgage and asset backed securities			2,372				2.3				4,009				2.9
Bank and building society certificates of deposit			23				0.1				598				0.4
Total			101,739				100.0				136,237				100.0
Government securities
As at 31 December											2016 Fair value £m				2015 Fair value £m
United Kingdom											20,145				22,372
United States											16,284				26,119

Analysis of derivatives (audited)

The tables below set out the fair values of the derivative assets together with the value of those assets subject to enforceable counterparty netting arrangements for which the Group holds offsetting liabilities and eligible collateral.

 

Derivative assets
			2016												2015
As at 31 December			Balance sheet assets £m				Counterparty netting £m				Net exposure £m				Balance sheet assets £m				Counterparty netting £m				Net exposure £m
Foreign exchange			79,744				59,040				20,704				54,936				40,301				14,635
Interest rate			228,652				185,723				42,929				231,426				190,513				40,913
Credit derivatives			16,273				12,891				3,382				18,181				14,110				4,071
Equity and stock index			17,089				12,603				4,486				13,799				8,358				5,441
Commodity derivatives			4,868				3,345				1,523				9,367				6,300				3,067
Total derivative assets			346,626				273,602				73,024				327,709				259,582				68,127
Cash collateral held											41,641												34,918
Net exposure less collateral											31,383												33,209

Derivative asset exposures would be £315bn (2015: £295bn) lower than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty or for which the Group holds cash collateral. Similarly, derivative liabilities would be £317bn (2015: £295bn) lower reflecting counterparty netting and collateral placed. In addition, non-cash collateral of £8bn (2015: £7bn) was held in respect of derivative assets. The Group received collateral from clients in support of over the counter derivative transactions. These transactions are generally undertaken under International Swaps and Derivative Association (ISDA) agreements governed by either UK or New York law.

Exposure relating to derivatives, repurchase agreements, reverse repurchase agreements, stock borrowing and loan transactions is calculated using internal PRA approved models. These are used as the basis to assess both regulatory capital and capital appetite and are managed on a daily basis. The methodology encompasses all relevant factors to enable the current value to be calculated and the future value to be estimated, for example, current market rates, market volatility and legal documentation (including collateral rights).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  139

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Credit risk

 

 

The table below sets out the fair value and notional amounts of OTC derivative instruments by type of collateral arrangement.

 

Derivatives by collateral arrangement
			2016												2015
			Notional  contract  amount  £m				Fair value								Notional contract amount £m				Fair value
							Assets £m				Liabilities £m								Assets £m				Liabilities £m
Unilateral in favour of Barclays
Foreign exchange			17,713				607				(274)				15,645				242				(308)
Interest rate			6,666				1,017				(60)				4,365				846				(65)
Credit derivatives			174				3				(2)				277				2				(7)
Equity and stock index			390				3				(147)				303				4				(146)
Commodity derivatives			753				33				(26)				905				150				(30)
Total unilateral in favour of Barclays			25,696				1,663				(509)				21,495				1,244				(556)
Unilateral in favour of counterparty
Foreign exchange			20,837				786				(2,549)				50,343				810				(2,107)
Interest rate			108,915				3,795				(5,979)				121,231				4,436				(6,981)
Credit derivatives			152				3				(7)				140				3				(1)
Equity and stock index			1,121				312				(49)				827				100				(83)
Commodity derivatives			1,231				67				(66)				74				–				(3)
Total unilateral in favour of counterparty			132,256				4,963				(8,650)				172,615				5,349				(9,175)
Bilateral arrangement
Foreign exchange			3,772,477				70,464				(68,788)				2,878,125				46,831				(50,899)
Interest rate			7,335,641				187,155				(179,650)				7,315,345				197,900				(188,293)
Credit derivatives			608,859				11,422				(9,994)				663,090				13,617				(11,985)
Equity and stock index			192,448				6,146				(9,692)				144,108				4,991				(8,297)
Commodity derivatives			11,766				1,318				(1,442)				36,794				3,164				(3,104)
Total bilateral arrangement			11,921,191				276,505				(269,566)				11,037,462				266,503				(262,578)
Uncollateralised derivatives
Foreign exchange			363,921				7,490				(6,287)				271,819				7,008				(5,424)
Interest rate			184,362				5,723				(2,459)				193,565				6,091				(2,907)
Credit derivatives			5,872				383				(510)				7,881				467				(700)
Equity and stock index			13,706				2,558				(3,385)				6,672				2,204				(3,075)
Commodity derivatives			16,389				504				(748)				13,347				1,733				(1,667)
Total uncollateralised derivatives			584,250				16,658				(13,389)				493,284				17,503				(13,773)
Total OTC derivative assets/(liabilities)			12,663,393				299,789				(292,114)				11,724,856				290,599				(286,082)

 

140  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Market risk

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  141

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Risk performance

Market risk

 

 

Summary of Contents				Page
§  Overview of Market Risk and Summary of Performance in the Period				143		Outlines key measures used to summarise the market risk profile of the bank such as Value at Risk (VaR) and Annual Earnings at Risk (AEaR). A distinction is made between management and regulatory measures.
§  Balance sheet view of trading and banking books				144		Provides a Group-wide overview of where assets and liabilities on the Group’s balance sheet are managed within regulatory traded and non-traded books.
Traded Market Risk §  Review of Management Measures     –  The daily average, maximum and minimum values of         management VaR     –  Business scenario stresses §  Review of Regulatory Measures     –  Analysis of Regulatory VaR, SVaR, IRC and Comprehensive Risk         Measure     –  Breakdown of the major regulatory risk measures by portfolio.				145     146   146 146		The Group discloses details on management measures of market risk. Total management VaR includes all trading positions and is presented on a diversified basis by risk factor.   This section also outlines stress scenarios including macroeconomic conditions modelled as part of the Group’s risk management framework.   Group’s regulatory measures of market risk under the approved internal models approach are also disclosed.   As part of this year’s disclosure, both 1-day and 10-day VaR have been included.
Non-Traded Market Risk §  Overview §  Net Interest Income Sensitivity     –  by business unit     –  by currency §  Economic Capital by Business Unit §  Analysis of Equity Sensitivity §  Volatility of the available for sale portfolio in the liquidity pool §  Foreign Exchange Risk     –  Transactional foreign currency exposure     –  Translational foreign exchange exposure     –  Functional currency of operations. §  Pension Risk Review     –  Assets and liabilities     –  IAS19 position     –  Risk measurement				147 147     148 148 149 149 149 149 150 150 150 151 151		A description of the non-traded market risk framework is provided.   The Group discloses a sensitivity analysis on pre-tax net interest income for non-trading financial assets and liabilities. The analysis is carried out by Business Unit and currency.   The Group measures some non-traded market risks, in particular prepayment, recruitment and residual risk using an Economic Capital methodology.   The Group discloses the overall impact of a parallel shift in interest rates on retained earnings, available for sale and cash flow hedges.   The Group measures the volatility of the value of the available for sale instruments in the liquidity pool through non-traded market risk VaR.   The Group discloses the two sources of foreign exchange risk that it is exposed to.   A review focusing on the UK retirement fund, which represents majority of the Group’s total retirement benefit obligation.

 

142  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Market risk

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  143

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Risk review

Risk performance

Market risk

 

 

Balance sheet view of trading and banking books

As defined by regulatory rules, a trading book consists of positions held for trading intent or to hedge elements of the trading book. Trading intent must be evidenced in the basis of the strategies, policies and procedures set up by the firm to manage the position or portfolio. The table below provides a Group-wide overview of where assets and liabilities on the Group’s balance sheet are managed within regulatory traded and non-traded books.

The balance sheet split by trading book and banking books is shown on an IFRS accounting scope of consolidation. The reconciliation between the accounting and regulatory scope of consolidation is shown in the Barclays PLC 2016 Pillar 3 Report.

 

Balance sheet split by trading and banking books
As at 31 December 2016			Banking book £m	a			Trading book £m				Total £m
Cash and balances at central banks			102,353				–				102,353
Items in course of collection from other banks			1,467				–				1,467
Trading portfolio assets			1,160				79,080				80,240
Financial assets designated at fair value			10,475				68,133				78,608
Derivative financial instruments			1,551				345,075				346,626
Financial investments			63,317				–				63,317
Loans and advances to banks			42,288				963				43,251
Loans and advances to customers			373,156				19,628				392,784
Reverse repurchase agreements and other similar secured lending			13,454				–				13,454
Prepayments, accrued income and other assets			2,893				–				2,893
Investments in associates and joint ventures			684				–				684
Property, plant and equipment			2,825				–				2,825
Goodwill and intangible assets			7,726				–				7,726
Current tax assets			561				–				561
Deferred tax assets			4,869				–				4,869
Retirement benefit assets			14				–				14
Assets included in disposal groups classified as held for saleb			64,139				7,315				71,454
Total assets			692,932				520,194				1,213,126
Deposits from banks			46,905				1,309				48,214
Items in course of collection due to other banks			636				–				636
Customer accounts			408,434				14,744				423,178
Repurchase agreements and other similar secured borrowing			19,760				–				19,760
Trading portfolio liabilities			–				34,687				34,687
Financial liabilities designated at fair value:			5,059				90,972				96,031
Derivative financial instruments			883				339,604				340,487
Debt securities in issue			75,932				–				75,932
Subordinated liabilities			23,383				–				23,383
Accruals, deferred income and other liabilities			8,830				41				8,871
Provisions			4,134				–				4,134
Current tax liabilities			737				–				737
Deferred tax liabilities			29				–				29
Retirement benefit liabilities			390				–				390
Liabilities included in disposal groups classified as held for saleb			60,703				4,589				65,292
Total liabilities			655,815				485,946				1,141,761

Included within the trading book are assets and liabilities which are included in the market risk regulatory measures. For more information on these measures (VaR, SVaR, IRC and APR) see the risk management section on page 146.

 

Notes

a

The primary risk factors for banking book assets and liabilities are interest rates and to a lesser extent, foreign exchange rates. Credit spreads and equity prices will also be factors where the Group holds debt and equity securities respectively, either as financial assets designated at fair value (see Note 15) or as available for sale (see Note 17).

b	Including BAGL.

 

144  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Traded market risk review

Review of management measures

The following disclosures provide details on management measures of market risk. See the risk management section on page 89 for more detail on management measures and the differences when compared to regulatory measures.

The table below shows the total Management VaR on a diversified basis by risk factor. Total Management VaR includes all trading positions in Barclays International, Non-Core, BAGL and Head Office.

Limits are applied against each risk factor VaR as well as total Management VaR, which are then cascaded further by risk managers to each business.

 

The daily average, maximum and minimum values of management VaRa
Management VaR (95%) (audited)
			2016												2015
For the year ended 31 December			Average  £m				High £m	b			Low £m	b			Average  £m				High £m	b			Low £m	b
Credit risk			16				24				9				11				17				8
Interest rate risk			7				13				4				6				14				4
Equity risk			7				11				4				8				18				4
Basis risk			5				9				3				3				4				2
Spread risk			3				5				2				3				6				2
Foreign exchange risk			3				5				2				3				6				1
Commodity risk			2				4				1				2				3				1
Inflation risk			2				3				2				3				5				2
Diversification effectb			(24)				n/a				n/a				(22)				n/a				n/a
Total management VaR			21				29				13				17				25				12

Average Credit Risk VaR increased by £5m to £16m (2015: £11m) primarily due to the underlying volatile movements to credit spreads given own credit contribution.

Average Basis VaR increased by £2m to £5m (2015: £3m) primarily due to a combination of structural changes in the cross currency markets that led to higher volatility and higher client activity in G10 cross currency basis.

Average Equity VaR decreased by £1m to £7m (2015: £8m) reflecting reduced cash portfolio activities and a more conservative risk profile maintained in the derivatives portfolio.

Average Foreign Exchange Risk VaR was stable as a result of maintaining a conservative risk profile in the derivatives portfolio.

Group Management VaR^a (£m)

 

The daily VaR chart illustrates an average increasing trend in 2016. Intermittent VaR increases were due to increased client flow in periods of heightened volatility in specific markets and subsequent risk management of the position.

 

Notes

a	Including BAGL.

b

Diversification effects recognise that forecast losses from different assets or businesses are unlikely to occur concurrently, hence the expected aggregate loss is lower than the sum of the expected losses from each area. Historic correlations between losses are taken into account in making these assessments. The high and low VaR figures reported for each category did not necessarily occur on the same day as the high and low VaR reported as a whole. Consequently a diversification effect balance for the high and low VaR figures would not be meaningful and is therefore omitted from the above table.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  145

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Risk review

Risk performance

Market risk

 

 

Business Scenario Stresses

As part of the Group’s risk management framework the performance of the trading business in hypothetical scenarios characterised by severe macroeconomic conditions is modelled. Up to seven global scenarios are modelled on a regular basis, for example, a sharp deterioration in liquidity, a slowdown in the global economy, terrorist attacks, global recession, and a sharp increase in economic growth.

In 2016, the scenario analyses showed that the largest market risk related impacts would be due to a severe deterioration in market liquidity and global recession.

Review of regulatory measures

The following disclosures provide details on regulatory measures of Market risk. See the Barclays Pillar 3 Report for more detail on regulatory measures and the differences when compared to management measures.

The Group’s market risk capital requirement comprises two elements:

 

§

the market risk of trading book positions booked to legal entities that are measured under a PRA approved internal models approach, including Regulatory VaR, Stressed Value at Risk (SVaR), Incremental Risk Charge (IRC), and Comprehensive Risk Measure as required

 

§

trading book positions that do not meet the conditions for inclusion within the approved internal models approach. The capital requirement for these positions is calculated using standardised rules

The table below summarises the regulatory market risk measures, under the internal models approach. See Table ‘Market risk own funds requirements’ in the Barclays 2016 Pillar 3 Report for a breakdown of capital requirements by approach.

 

Analysis of Regulatory VaR, SVaR, IRC and Comprehensive Risk Measure
			Year-end £m				Avg. £m				Max £m				Min £m
As at 31 December 2016
Regulatory VaR (1-day)			33				26				34				18
Regulatory VaR (10-day)a			105				84				108				57
SVaR (1-day)			65				56				75				34
SVaR (10-day)a			205				178				236				109
IRC			154				155				238				112
Comprehensive Risk Measure			2				5				12				2
As at 31 December 2015
Regulatory VaR (1-day)			26				28				46				20
Regulatory VaR (10-day)a			82				89				145				63
SVaR (1-day)			44				54				68				38
SVaR (10-day)a			139				171				215				120
IRC			129				142				254				59
Comprehensive Risk Measure			12				15				27				11

Overall, there was an increase in average IRC in 2016, with no significant movements in other internal model components:

 

§

Regulatory VaR/SVaR: Remained broadly stable year on year.

 

§

IRC: Increased primarily due to positional increases in the third quarter of 2016.

 

§

Comprehensive Risk Measure: Reduced as a result of further reductions in a specific legacy portfolio.

 

Breakdown of the major regulatory risk measures by portfolio
As at 31 December 2016			Macro £m				Equities £m				Credit £m				Barclays International Treasury £m	b			Banking £m	b			Group Treasury £m				Barclays Non-Core £m
Regulatory VaR (1-day)			14				12				6				14				12				5				6
Regulatory VaR (10-day)			44				38				20				45				40				15				21
SVaR (1-day)			22				43				7				30				18				9				22
SVaR (10-day)			69				137				24				95				58				30				69
IRC			220				8				146				196				25				10				18
Comprehensive Risk Measure			–				–				–				–				–				–				2

 

The table above shows the primary portfolios which drove the trading businesses’ modelled capital requirement as at 31 December 2016. The stand-alone portfolio results diversify at the total level and are not necessarily additive. Regulatory VaR, SVaR, IRC and Comprehensive Risk Measure in the prior table show the diversified results at a Group level.

Notes

a	The 10 day VaR is based on scaling of 1 day VaR model output. More information about Regulatory and Stressed VaR methodology is available in the Barclays PLC 2016 Pillar 3 Report.

b

In the fourth quarter, the Client Capital Management (CCM) portfolio was split into Barclays International Treasury, Banking and Agency Derivative Services (ADS) and Financing. For the purposes of the disclosures, only material portfolios (Barclays International Treasury and Banking) have been included.

 

146  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Non-traded market risk

Overview

The non-traded market risk framework covers exposures in the banking book, mostly consisting of exposures relating to accrual accounted and available for sale instruments. The potential volatility of the net interest income of the bank is measured by an Annual Earnings at Risk (AEaR) metric that is monitored regularly and reported to Senior Management and the Board Risk Committee as part of the limit monitoring framework.

Net interest income sensitivity

The table below shows a sensitivity analysis on pre-tax net interest income for non-trading financial assets and financial liabilities, including the effect of any hedging. The sensitivity has been measured using the Annual Earnings at Risk (AEaR) methodology as described in the Barclays Pillar 3 Report. Note that this metric assumes an instantaneous parallel change to interest rate forward curves. The model floors shocked market rates at zero; changes in net interest income sensitivity are only observed where forward rates are greater than zero. The main model assumptions are: (i) one year time horizon; (ii) balance sheet is held constant; (iii) balances are adjusted for assumed behavioural profiles (i.e. considers that customers may remortgage before the contractual maturity); and (iv) behavioural assumptions are kept unchanged in all rate scenarios.

 

Net interest income sensitivity (AEaR) by business unita,b (audited)
		Barclays UK £m				Barclays International £m				Barclays Non-Core £m				Total £m
As at 31 December 2016
+25bps			5				16				1				22
-25bps			(130	)			(90	)			–				(220	)
As at 31 December 2015
+25bps			16				21				5				42
-25bps			(50	)			(41	)			–				(91	)

The income sensitivity to falling rates has increased compared to 2015 as a result of the lower GBP rate environment and subsequent deposit re-pricing.

 

Net interest income sensitivity (AEaR) by currencyc
As at 31 December 2016			+25 basis points £m				-25 basis points £m
GBP			9				(215	)
USD			3				(5	)
EUR			7				1
Other currencies			3				(1	)
Total			22				(220	)
As percentage of net interest income			0.21%				(2.09%	)

 

 

 

Notes

a	The investment banking part of Barclays International has been excluded.

b	Excludes Treasury operations, which are driven by the Group’s investments in the liquidity pool, which are risk managed using VaR measures described on page 149. Treasury’s net interest income sensitivity (AEaR) sensitivity to a +25/-25bps move is £(39)m / £36m respectively.

c	Includes Barclays UK, Barclays International (excluding investment banking) and Non-Core sensitivity. Treasury excluded.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  147

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Risk review

Risk performance

Market risk

 

 

Economic Capital by business unit

Barclays measures some non-traded market risks using an economic capital (EC) methodology. EC is predominantly calculated using a daily VaR model scaled to a 99% confidence interval. A 99.98% confidence interval, as previously reported, is considered to be a very extreme shock i.e. a 1 in 5000 event. A 99% confidence interval is considered more appropriate and also aligns to other regulatory submissions. For more information on definitions of prepayment, recruitment and residual risk, and on how EC is used to manage market risk, see the treasury and capital risk management section on page 372.

 

Economic Capital by business unit
			Barclays UK £m				Barclays International £m	a			Barclays Non-Core £m	b			Total £m
As at 31 December 2016
Prepayment risk			27				8				–				35
Recruitment risk			18				1				1				20
Residual risk			1				23				12				36
Total			46				32				13				91
As at 31 December 2015
Prepayment risk			20				7				–				27
Recruitment risk			39				4				4				47
Residual risk			2				26				3				31
Total			61				37				7				105

Total Economic Capital decreased by £14m to £91m (2015: £105m), mainly driven by recruitment risk in Barclays UK which decreased by £21m due to a reduction in market rates and volatility.

Analysis of equity sensitivity

The equity sensitivity table below measures the overall impact of a +/ - 25bps movement in interest rates on retained earnings, available for sale and cash flow hedge reserves. This data is captured using a DV01 metric which is an indicator of the shift in value for a 1 basis point movement in the yield curve.

 

Analysis of equity sensitivity (audited)
			2016								2015
As at 31 December			+25 basis points £m				-25 basis points £m				+25 basis points £m				-25 basis points £m
Net interest income			22				(220	)			42				(91	)
Taxation effects on the above			(7	)			66				(13	)			27
Effect on profit for the year			15				(154	)			29				(64	)
As percentage of net profit after tax			0.54%				(5.45%	)			4.72%				(10.22%	)
Effect on profit for the year (per above)			15				(154	)			29				(64	)
Available for sale reserve			(154	)			114				(180	)			248
Cash flow hedge reserve			(732	)			692				(754	)			694
Taxation effects on the above			222				(202	)			280				(283	)
Effect on equity			(649	)			450				(625	)			595
As percentage of equity			(0.91%	)			0.63%				(0.95%	)			0.90%

In relation to the net interest income sensitivity table on page 147, the impact of a 25bps movement in rates is largely driven by Barclays UK.

The change in available for sale reserve sensitivities was driven by a reduction in interest rate risk in the liquidity pool during the year. Movements in the available for sale reserve would impact CRD IV fully loaded CET1 capital, however the movement in the cash flow hedge reserve would not impact CET1 capital.

 

 

 

Notes

a	Residual risk for Barclays International includes Barclays Bank Delaware products to align with the NII disclosure. Prior period restated on the same basis for consistency.

b	Only retail exposures within Non-Core are captured in this measure.

 

148  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Volatility of the available for sale portfolio in the liquidity pool

Changes in value of available for sale exposures flow directly through capital via the available for sale reserve. The volatility of the value of the available for sale investments in the liquidity pool is captured and managed through a value measure rather than an earning measure, i.e. the Non-traded market risk VaR.

Although the underlying methodology to calculate the non-traded VaR is identical to the one used in traded management VaR, the two measures are not directly comparable. The non-traded VaR represents the volatility to capital driven by the available for sale exposures. These exposures are in the banking book and do not meet the criteria for trading book treatment.

Volatility of the AFS portfolio in Liquidity Pool

 

 

Analysis of volatility of the available for sale portfolio in the liquidity pool
			2016												2015
For the year ended 31 December			Average £m				High £m				Low £m				Average £m				High £m				Low £m
Non-traded market Value at Risk (daily, 95%)			40				46				32				42				49				37

The Non-traded VaR is mainly driven by volatility of interest rates in developed markets in the chart above. The sharp reduction in available for sale VaR at the end of September was driven by a reduction in outright interest rate risk taken in the liquidity pool, which was re-established in early October.

Foreign exchange risk

The Group is exposed to two sources of foreign exchange risk.

a) Transactional foreign currency exposure

Transactional foreign exchange exposures represent exposure on banking assets and liabilities, denominated in currencies other than the functional currency of the transacting entity.

The Group’s risk management policies prevent the holding of significant open positions in foreign currencies outside the trading portfolio managed by Barclays International which is monitored through VaR.

Banking book transactional foreign exchange risk outside of Barclays International is monitored on a daily basis by the Market Risk function and minimised by the businesses.

b) Translational foreign exchange exposure

The Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies, principally USD, EUR and ZAR. Changes in the GBP value of the net investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET1 capital.

The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements by using the CET1 capital movements to broadly match the revaluation of the Group’s foreign currency RWA exposures.

The economic hedges primarily represent the USD and EUR preference shares and Additional Tier 1 (AT1) instruments that are held as equity, accounted for at historic cost under IFRS and do not qualify as hedges for accounting purposes.

 

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Risk review

Risk performance

Market risk

 

 

Functional currency of operations (audited)
		Foreign currency net investments £m				Borrowings which hedge the net investments £m				Derivatives which hedge the net investments £m				Structural currency exposures pre-economic hedges £m				Economic hedges £m				Remaining structural currency exposures £m
As at 31 December 2016
USD			29,460				(12,769	)			–				16,691				(7,898	)			8,793
EUR			2,121				(363	)			–				1,758				(2,053	)			(295	)
ZAR			3,679				–				(2,571	)			1,108				–				1,108
JPY			438				(209	)			(224	)			5				–				5
Other			2,793				–				(1,318	)			1,475				–				1,475
Total			38,491				(13,341	)			(4,113	)			21,037				(9,951	)			11,086
As at 31 December 2015
USD			24,712				(8,839	)			(1,158	)			14,715				(7,008	)			7,707
EUR			2,002				(630	)			(14	)			1,358				(1,764	)			(406	)
ZAR			3,201				(4	)			(99	)			3,098				–				3,098
JPY			383				(168	)			(205	)			10				–				10
Other			2,927				–				(1,294	)			1,633				–				1,633
Total			33,225				(9,641	)			(2,770	)			20,814				(8,772	)			12,042

During 2016, total structural currency exposure net of hedging instruments decreased by £1.0bn to £11.1bn (2015: £12.0bn). The decrease was broadly driven by an increase in ZAR hedges following Barclays announcement to reduce the Group’s interest in BAGL. Foreign currency net investments increased by £5.3bn to £38.5bn (2015: £33.2bn) driven predominantly by the appreciation of US Dollar against Sterling. The hedges associated with these investments increased by £5.0bn to £17.5bn (2015: £12.4bn).

Pension risk review

The UK Retirement Fund (UKRF) represents approximately 96% (2015: 92%) of the Group’s total retirement benefit obligations globally. As such, this risk review section focuses exclusively on the UKRF. The UKRF is closed to new entrants, and there is no new final salary benefit being accrued. Existing active members accrue a combination of a cash balance benefit and a defined contribution element.

Pension risk arises as the estimated market value of the pension fund assets may decline, investment returns may reduce or the estimated value of the pension liabilities may increase.

See the Barclays PLC 2016 Pillar 3 Report for more information on how pension risk is managed.

Assets

The Trustee Board of the UKRF defines its overall long-term investment strategy with investments across a broad range of asset classes. This ensures an appropriate mix of return seeking assets as well as liability matching assets to better match future pension obligations. The main market risks within the asset portfolio are against interest rates and equities. The split of scheme assets is shown within Note 35. The fair value of the UKRF assets was £31.8bn as at 31 December 2016.

 

150  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Liabilities

The UKRF retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS19 basis these cash flows are sensitive to changes in the expected long-term price inflation rate (RPI) and the discount rate (AA corporate bond yield curve):

 

§

An increase in long-term expected inflation corresponds to an increase in liabilities

 

§

A decrease in the discount rate corresponds to an increase in liabilities

Pension risk is generated through the Group’s defined benefit schemes and this risk is set to reduce over time as our main defined benefit scheme is closed to new entrants. The chart below outlines the shape of the UKRF’s liability cash flow profile (as at 31 December 2016) that takes account of future inflation indexing of payments to beneficiaries, with the majority of the cash flows (approximately 83%) falling between 0 and 40 years, peaking within the 11 to 20 year band and reducing thereafter. The shape may vary depending on changes in inflation expectation and mortality.

For more detail on the UKRF’s financial and demographic assumptions see Note 35 Pensions and post retirement benefits.

 

Proportion of liability cash flows		Net IAS19 Position

The graph above shows the UKRF’s net IAS19 pension position for each quarter-end for the past two years. The volatility shown by the fluctuation in the net IAS19 pension position is reflective of the movements observed in the market.

In Q2 2016, the UKRF IAS19 position deteriorated as the AA discount rate moved lower, driven by both a decrease in long-dated government bond yields as well as tightening in credit spreads.

During H2 2016, this trend continued driven by the outcome of the EU Referendum in June as well as the Bank of England’s announcement on quantitative easing in August. These events drove significant market moves adversely affecting the UKRF AA discount rate. For example, the market index IBOXX £-Corp AA yield was 53bps lower between June and September.

Gilt yields reverted higher in the months following September which was also reflected in higher AA discount rate. As a result, the net IAS19 position reverted close to zero as at 31 December 2016.

Please see Note 35 for the sensitivity of the UKRF to change in key assumptions.

Risk measurement

In line with Barclays’ risk management framework, the assets and liabilities of the UKRF are modelled within a VaR framework to show the volatility of the pension positions on a total portfolio level. This ensures that the risks, diversification and liability matching characteristics of the UKRF obligations and investments are adequately captured. VaR is measured and monitored on a monthly basis. Risks are reviewed and reported regularly at forums including Market Risk Committee, Group Risk Committee, Pensions Management Group and Pension Executive Board. The VaR model takes into account the valuation of the liabilities based on an IAS19 basis (see Note 35). The Trustee receives quarterly VaR measures on a funding basis.

The pension liability is also sensitive to post-retirement mortality assumptions which are also reviewed regularly. See Note 35 for more details.

In addition, the impact of pension risk to the Group is taken into account as part of stress testing process. Stress testing is performed internally on at least an annual basis. The UKRF exposure is included as part of the regulatory stress tests.

Barclays defined benefit pension schemes affects capital in two ways:

 

§

An IAS19 deficit is treated as a liability on the Group’s balance sheet. Movement in a deficit due to remeasurements, including actuarial losses, are recognised immediately through Other Comprehensive Income and as such reduces shareholders’ equity and CET1 capital. An IAS19 surplus is treated as an asset on the balance sheet and increases shareholders’ equity, however is deducted for the purposes of determining CET1 capital.

 

§

In the Group’s statutory balance sheet, an IAS19 surplus or deficit is partially offset by a deferred tax liability or asset respectively. These may or may not be recognised for calculating CET1 capital depending on the overall deferred tax position of the Group at the particular time.

 

§

Pension risk is taken into account in the Pillar 2A capital assessment undertaken by the PRA at least annually. The Pillar 2A requirement forms part of the Group’s overall regulatory minimum requirement for CET1 capital, Tier 1 capital and total capital. More detail on minimum regulatory requirements can be found in the Funding Risk – Capital section on page 152.

 

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Risk review

Risk performance

Funding risk – Capital

 

 

Analysis of capital risk   Capital risk is the risk that the Group has insufficient capital resources to (i) meet minimum regulatory requirements in all jurisdictions; (ii) support its credit rating; and (iii) support its business strategy.   This section details Barclays’ capital position providing information on both capital resources and capital requirements. It also provides details of the leverage ratio and exposures.   Key metrics   12.4%

Fully loaded Common Equity Tier 1 ratio   The fully loaded CRD IV CET1 ratio increased to 12.4% (2015: 11.4%) reflecting an increase in CET1 capital of £4.5bn to £45.2bn, despite RWAs increasing by £7bn to £366bn.   The increase in CET1 capital was largely driven by profits of £2.1bn generated in the period, after absorbing the impact of notable items. Other favourable movements included the currency translation reserve as a result of the appreciation of all major currencies against Sterling.   The increase in RWAs was principally due to the appreciation of South African Rand, US Dollar and Euro against Sterling and business growth, which more than offset RWA reductions in Non-Core.

4.6%                  Leverage ratio   The leverage ratio increased to 4.6% (2015: 4.5%) driven by a £5.8bn increase in fully loaded Tier 1 capital to £52.0bn partially offset by an increase in the leverage exposure of £97bn to £1,125bn.   Total IFRS assets increased 8% to £1,213bn from 2015 contributing to the 9% increase in the leverage exposure.

    

 

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Summary of Contents		Page
§  Capital risk overview and summary of performance   §  Regulatory minimum capital and leverage requirements   –  Capital   –  Leverage		154		Capital risk is the risk that the Group has insufficient capital resources to (i) meet minimum regulatory requirements in all jurisdictions; (ii) support its credit rating; and (iii) support its business strategy.   This section details Barclays’ capital position providing information on both capital resources and capital requirements. It also provides details of the leverage ratio and exposures.
§  Analysis of capital resources –  Capital ratios –  Capital resources –  Movement in CET1 capital		155		This section outlines the Group’s capital ratios, capital composition, and provides information on significant movements in CET1 capital during the year.
§  Analysis of risk weighted assets		157		This section outlines risk weighted assets by risk type, business and macro drivers.
–  Risk weighted assets by risk type and business
–  Movement analysis of risk weighted assets
§  Analysis of leverage ratio and exposures –  Leverage ratio and exposures		158		This section outlines the Group’s leverage ratios, leverage exposure composition, and provides information on significant movements in the IFRS and leverage balance sheet.

 

 

 

 

 

 

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Risk review

Risk performance

Funding risk – Capital

 

 

 

154  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Capital Resources

The CRR and Capital Requirements Directive (CRD) implemented Basel III within the EU (collectively known as CRD IV) on 1 January 2014. The rules are supplemented by Regulatory Technical Standards and the PRA’s rulebook, including the implementation of transitional rules. However, rules and guidance are still subject to change as certain aspects of CRD IV are dependent on final technical standards and clarifications to be issued by the EBA and adopted by the European Commission and the PRA.

 

Capital ratios
As at 31 December			2016			2015
Fully Loaded CET1a,b			12.4%			11.4%
PRA Transitional Tier 1c,d			15.6%			14.7%
PRA Transitional Total Capitalc,d			19.6%			18.6%
Capital resources (audited)
As at 31 December			2016  £m			2015  £m
Shareholders’ equity (excluding non-controlling interests) per the balance sheet			64,873			59,810
Less: other equity instruments (recognised as AT1 capital)			(6,449)			(5,305)
Adjustment to retained earnings for foreseeable dividends			(388)			(631)
Minority interests (amount allowed in consolidated CET1)			1,825			950
Other regulatory adjustments and deductions
Additional value adjustments (PVA)			(1,571)			(1,602)
Goodwill and intangible assets			(9,054)			(8,234)
Deferred tax assets that rely on future profitability excluding temporary differences			(494)			(855)
Fair value reserves related to gains or losses on cash flow hedges			(2,104)			(1,231)
Excess of expected losses over impairment			(1,294)			(1,365)
Gains or losses on liabilities at fair value resulting from own credit			86			127
Defined benefit pension fund assets			(38)			(689)
Direct and indirect holdings by an institution of own CET1 instruments			(50)			(57)
Deferred tax assets arising from temporary differences (amount above 10% threshold)			(183)			–
Other regulatory adjustments			45			(177)
Fully loaded CET1 capital			45,204			40,741
Additional Tier 1 (AT1) capital
Capital instruments and the related share premium accounts			6,449			5,305
Qualifying AT1 capital (including minority interests) issued by subsidiaries			5,445			6,718
Other regulatory adjustments and deductions			(130)			(130)
Transitional AT1 capitale			11,764			11,893
PRA transitional Tier 1 capital			56,968			52,634
Tier 2 (T2) capital
Capital instruments and the related share premium accounts			3,769			1,757
Qualifying Tier 2 capital (including minority interests) issued by subsidiaries			11,366			12,389
Other regulatory adjustments and deductions			(257)			(253)
PRA transitional total regulatory capital			71,846			66,527

 

 

 

 

 

Notes

a	The transitional regulatory adjustments to CET1 capital are no longer applicable resulting in CET1 capital on a fully loaded basis being equal to that on a transitional basis.

b

The CRD IV CET1 ratio (FSA October 2012 transitional statement) as applicable to Barclays’ Tier 2 Contingent Capital Notes was 13.7% based on £50.0bn of transitional CRD IV CET 1 capital and £366bn RWAs. The transitional CET1 ratio according to the FSA October 2012 transitional statement would be 13.7%. This is calculated as CET1 capital as adjusted for the transitional relief (£50.0bn), divided by CRD IV RWAs. The following transitional relief items are added back to CET1 capital: Goodwill and Intangibles (£3.6bn), Deferred tax asset (£0.2bn), Expected losses over impairment (£0.5bn), Excess minority interest (£0.2bn) and Deferred tax assets arising from temporary differences (amount above 10% threshold) (£0.2bn).

c	The PRA transitional capital is based on the PRA Rulebook and accompanying supervisory statements.

d

As at 31 December 2016, Barclays’ fully loaded Tier 1 capital was £51,993m, and the fully loaded Tier 1 ratio was 14.2%. Fully loaded total regulatory capital was £67,772m and the fully loaded total capital ratio was 18.5%. The fully loaded Tier 1 capital and total capital measures are calculated without applying the transitional provisions set out in CRD IV and assessing compliance of AT1 and Tier 2 instruments against the relevant criteria in CRD IV.

e

Of the £11.8bn transitional AT1 capital, fully loaded AT1 capital used for the leverage ratio comprises the £6.4bn capital instruments and related share premium accounts, £0.5bn qualifying minority interests and £0.1bn capital deductions. It excludes legacy Tier 1 capital instruments issued by subsidiaries that are subject to grandfathering.

 

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Risk review

Risk performance

Funding risk – Capital

 

 

Movement in CET1 capital
		2016   £m
Opening balance as at 1 January		40,741
Profit for the period attributable to equity holders		2,080
Own credit		(41)
Dividends paid and foreseen		(843)
Increase in retained regulatory capital generated from earnings		1,196
Net impact of share awards		535
Available for sale reserves		(391)
Currency translation reserves		3,674
Other reserves		(778)
Increase in other qualifying reserves		3,040
Retirement benefit reserve		(988)
Defined benefit pension fund asset deduction		651
Net impact of pensions		(337)
Minority interests		875
Additional value adjustments (PVA)		31
Goodwill and intangible assets		(820)
Deferred tax assets that rely on future profitability excluding those arising from temporary differences		361
Excess of expected loss over impairment		71
Direct and indirect holdings by an institution of own CET1 instruments		7
Deferred tax assets arising from temporary differences (amount above 10% threshold)		(183)
Other regulatory adjustments		222
Increase in regulatory capital due to adjustments and deductions		564
Closing balance as at 31 December		45,204

The CET1 ratio improved to 12.4% (2015: 11.4%) primarily driven by an increase in CET1 capital of £4.5bn to £45.2bn as a result of profits of £2.1bn generated in the year, after absorbing the impact of notable items. Regulatory capital generated from earnings after absorbing the impact of own credit and dividends paid and foreseen increased CET1 capital by £1.2bn. Other significant movements in the year were:

 

§

a £3.0bn increase in other qualifying reserves including a £3.7bn increase in the currency translation reserves as US Dollar, Euro and South African Rand strengthened against Sterling; partially offset by a £0.4bn decrease as a result of preference share redemptions and a £0.4bn decrease in available for sale reserves;

 

§

a £0.3bn decrease, net of tax, as a result of movements relating to pensions. There was a £1.0bn decrease in the retirement benefit reserve largely due to the UKRF, which is the Group’s main pension scheme, moving from a £0.8bn surplus in December 2015 to a £27m deficit in December 2016. The decrease in reserves was partially offset by the removal of a £0.7bn capital deduction for the UKRF asset in December 2015;

 

§

a £0.9bn increase in minority interests following the sale of 12.2% of BAGL’s issued share capital was partially offset by £0.3bn higher capital deductions.

Transitional AT1 capital remained largely flat in the period as redemptions and repurchases of £1.3bn of CRD IV end point non qualifying preference shares, tier one notes and reserve capital instruments were offset by the issuance of $1.5bn of end point qualifying AT1 capital instruments.

 

156  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk weighted assets

 

Risk weighted assets (RWAs) by risk type and business
			Credit risk								Counterparty credit riska,b												Market risk												Operational risk				Total RWAs
As at 31 December 2016			Std £m				IRB £m				Std £m				IRB £m				Settlement Risk £m				CVA £m				Std £m				IMA £m				£m				£m
Barclays UK			5,592				49,591				47				–				–				–				–				–				12,293				67,523
Barclays International			53,201				82,327				13,515				13,706				30				3,581				9,343				9,460				27,538				212,701
Head Officec			9,048				27,122				77				1,157				–				927				482				2,323				12,156				53,292
Barclays Core			67,841				159,040				13,639				14,863				30				4,508				9,825				11,783				51,987				333,516
Barclays Non-Core			4,714				9,945				1,043				6,081				37				2,235				477				2,928				4,673				32,133
Barclays Group			72,555				168,985				14,682				20,944				67				6,743				10,302				14,711				56,660				365,649
As at 31 December 2015
Barclays UK			6,562				50,763				26				–				–				–				–				–				12,174				69,525
Barclays International			45,892				77,275				10,463				11,055				516				3,406				8,373				10,196				27,657				194,833
Head Officec			8,291				20,156				54				538				8				382				399				1,903				8,003				39,734
Barclays Core			60,745				148,194				10,543				11,593				524				3,788				8,772				12,099				47,834				304,092
Barclays Non-Core			8,704				12,797				1,653				9,430				1				7,480				1,714				3,679				8,826				54,284
Barclays Group			69,449				160,991				12,196				21,023				525				11,268				10,486				15,778				56,660				358,376
Movement analysis of risk weighted assets
Risk weighted assets																							Credit risk  £bn				Counterparty credit risk £bn	a,b			Market risk  £bn				Operational risk £bn				Total  RWAs    £bn
As at 1 January 2016																							230.4				45.0				26.3				56.7				358.4
Book size																							0.8				1.2				(0.6)				–				1.4
Acquisitions and disposals																							(6.4)				(0.2	)			–				–				(6.6)
Book quality																							(0.5)				(0.4	)			0.6				–				(0.3)
Model updates																							(2.9)				(2.0	)			(0.3)				–				(5.2)
Methodology and policy																							1.1				(1.2	)			(1.0)				–				(1.1)
Foreign exchange movementd																							19.0				–				–				–				19.0
As at 31 December 2016																							241.5				42.4				25.0				56.7				365.6

RWAs increased £7.2bn to £365.6bn, driven by:

 

§

book size increased RWAs by £1.4bn primarily due to an increase in trading activity in Barclays International and business growth in corporate and consumer lending partially offset by securitisation transactions

 

§

acquisitions and disposals decreased RWAs by £6.6bn primarily due to the rundown of Non-Core portfolios, including the sale of Portuguese and Italian businesses

 

§

model updates decreased RWAs by £5.2bn primarily driven by model changes in Barclays UK mortgages following formal approval

 

§

methodology and Policy decreased RWAs by £1.1bn primarily driven by the effect of collateral modelling for mismatched FX collateral on average CVA and a new treatment for sovereign exposures partly offset by modelled wholesale recalibration

 

§

foreign exchange movements increased RWAs by £19.0bn primarily driven by the appreciation of South African Rand, US Dollar and Euro against Sterling.

 

 

 

 

 

 

Notes

a	RWAs in relation to default fund contributions are included in counterparty credit risk.

b	RWAs in relation to credit valuation adjustment (CVA) are included in counterparty credit risk.

c	Includes Africa Banking discontinued operations.

d	Foreign exchange movement does not include FX for modelled counterparty risk or modelled market risk.

 

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Risk review

Risk performance

Funding risk – Capital

 

 

Leverage ratio and exposures

At 31 December 2016, Barclays’ leverage ratio was 4.6% (2015: 4.5%) and the average leverage ratio was 4.3%, which exceeds the transitional minimum requirement for Barclays of 3.175% and expected end point minimum requirement of 3.5%.

The impact of the PRA rule modification to allow firms to exclude qualifying central bank claims from the calculation of the leverage exposure measure would have resulted in an average leverage ratio of 4.5% and a leverage ratio at 31 December 2016 of 5.0%.

 

Leverage exposure
			As at      31.12.16  £bn				As at  31.12.15  £bn
Accounting assets
Derivative financial instruments			347				328
Cash collateral			67				62
Reverse repurchase agreements and other similar secured lending			13				28
Financial assets designated at fair valuea			79				77
Loans and advances and other assets			707				625
Total IFRS assets			1,213				1,120
Regulatory consolidation adjustments			(6)				(10)
Derivatives adjustments
Derivatives netting			(313)				(293)
Adjustments to cash collateral			(50)				(46)
Net written credit protection			12				15
Potential Future Exposure (PFE) on derivatives			136				129
Total derivatives adjustments			(215)				(195)
Securities financing transactions (SFTs) adjustments			29				16
Regulatory deductions and other adjustments			(15)				(14)
Weighted off-balance sheet commitments			119				111
Total leverage exposure			1,125				1,028
Fully loaded CET1 capital			45.2				40.7
Fully loaded AT1 capital			6.8				5.4
Fully loaded Tier 1 capital			52.0				46.2
Leverage ratio			4.6%				4.5%

The leverage ratio increased to 4.6% (2015: 4.5%) primarily driven by a £5.8bn increase in fully loaded Tier 1 capital to £52.0bn (December 2015: £46.2bn), partially offset by an increase in the leverage exposure of £97bn to £1,125bn (2015: £1,028bn):

 

§

the IFRS asset increase was mainly driven by loans and advances and other assets which increased £82bn to £707bn. The increase was primarily due to the appreciation of major currencies against Sterling, an increase in liquidity pool assets, and lending growth in Barclays UK and Barclays International. This was partially offset by the rundown and exit of Non-Core assets

 

§

SFT adjustments increased by £13bn to £29bn, primarily as a result of a change in treatment of securities pre-positioned for use against undrawn central bank lending facilities

 

§

PFE on derivatives increased by £7bn to £136bn primarily driven by the appreciation of major currencies against Sterling, partially offset by compression activity, sale of positions and maturity of trades

 

§

weighted off-balance sheet commitments increased by £8bn to £119bn primarily driven by the appreciation of major currencies against Sterling.

The average leverage exposure measure for Q4 2016 was £1,206bn resulting in an average leverage ratio of 4.3%. The CET1 capital held against the 0.175% transitional G-SII ALRB was £2bn. The impact of the CCLB is currently nil.

The difference between the average leverage ratio and the leverage ratio was primarily driven by higher positions in October and November within trading portfolio assets, reverse repurchase agreements and settlements balances.

 

 

 

 

Note

a	Included within financial assets designated at fair value are reverse repurchase agreements designated at fair value of £63bn (2015: £50bn).

 

158  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

 

Analysis of liquidity risk   Liquidity risk is the risk that a firm, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.   This section details the Group’s liquidity risk profile and provides information on the way the Group manages that risk.   Key metrics   131% LCR The Group strengthened its liquidity position during the year, increasing its surplus to internal and regulatory requirements   £12bn Term Issuance The Group maintains access to stable and diverse sources of funding across customer deposits and wholesale debt

 

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		Summary of Contents		Page
		§  Liquidity risk overview and summary of performance §  Liquidity risk stress testing     –  Liquidity Risk appetite     –  Liquidity regulation     –  Internal and regulatory stress tests		161 161 161 162 163		The risk that the firm, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.   This section provides an overview of the Group’s liquidity risk.
		§  Liquidity pool     –  Composition of the liquidity pool     –  Liquidity pool by currency     –  Management of the group liquidity pool     –  Contingent liability		164 164 164 164 165		The liquidity pool is held unencumbered and is not used to support payment or clearing requirements. The liquidity pool is intended to offset stress outflows, and comprises cash and unencumbered assets.
		§  Funding structure and funding relationships     –  Deposit funding     –  Behavioural Maturity Profile     –  Wholesale funding     –  Term financing		165 165 166 166 168		The basis for sound liquidity risk management is a solid funding structure that reduces the probability of a liquidity stress leading to an inability to meet funding obligations as they fall due.
		§  Encumbrance     –  On-balance sheet     –  Off-balance sheet     –  Repurchase agreements and reverse repurchase         agreements		168 169 169 171		Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. Barclays funds a portion of trading portfolio assets and other securities via repurchase agreements and other similar borrowing, and pledges a portion of customer loans and advances as collateral in securitisation, covered bond and other similar secured structures.
		§  Credit ratings     –  Contractual credit rating downgrade exposure		172 172		In addition to monitoring and managing key metrics related to the financial strength of the Group, Barclays solicits independent credit ratings.   These ratings assess the creditworthiness of the Group, its subsidiaries and branches and are based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings, funding, asset quality, liquidity, accounting and governance.
		§  Liquidity management at BAGL Group		173		Liquidity risk is managed separately at BAGL Group due to local currency, funding and regulatory requirements.
		§  Contractual maturity of financial assets and liabilities		174		Provides details on the contractual maturity of all financial instruments and other assets and liabilities.

 

160  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  161

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Key LRA assumptions include:
For the year ended 31 December 2016
Drivers of Liquidity Risk		LRA Specific Stress – Key Assumptions
Wholesale Secured and Unsecured Funding Risk		§   Zero rollover of maturing wholesale unsecured funding §   Loss of repo capacity on non-extremely liquid repos at contractual maturity date §   Withdrawal of contractual buyback obligations, excess client futures margin, PB client cash and overlifts §   Haircuts applied to the market value of marketable assets held in the liquidity buffer
Retail and Corporate Funding Risk		§   Retail and Corporate deposit outflows as counterparties seek to diversify their deposit balances
Intra-day Liquidity Risk		§   Liquidity held against intra-day requirements for the settlement of cash and securities under a stress
Intra-Group Liquidity Risk		§   Liquidity support for material subsidiaries. Surplus liquidity held within certain subsidiaries is not taken as a benefit to the wider Group.
Cross-Currency Liquidity Risk		§   Currency liquidity cash flows at contractual maturity for physically settled FX forwards and cross currency swaps
Off-Balance Sheet Liquidity Risk		§   Drawdown on committed facilities based on facility and counterparty type §   Collateral outflows due to a 2 notch credit rating downgrade §   Increase in the Group’s initial margin requirement across all major exchanges §   Variation margin outflows from collateralised risk positions §   Outflow of collateral owing but not called §   Loss of internal sources of funding within the Prime Brokerage synthetics business
Franchise-Viability Risk		§   Liquidity held in order to meet outflows that are non-contractual in nature, but are necessary in order to support the firm’s ongoing franchise (e.g. debt buybacks)
Funding Concentration Risk		§   Liquidity held against largest wholesale funding counterparty refusing to roll
Management Actions		§   Specifically defined actions that raise liquidity or mitigate cash outflows that would be conducted in a manner so as not to increase market volatility, whilst maintaining all core franchises

Liquidity regulation    

The Group monitors its position against the CRD IV Delegated Act Liquidity Coverage Ratio (LCR) and the Basel III Net Stable Funding Ratio (NSFR).

The LCR is designed to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it holds sufficient High Quality Liquid Assets to survive an acute stress scenario lasting for 30 days. The NSFR has a time horizon of 12 months and has been developed to promote a sustainable maturity structure of assets and liabilities.

The CRD IV LCR became effective on 1 October 2015, with a minimum ratio requirement in the UK of 80% as at 31 December 2016; this will increase to 90% on 1 January 2017 and then to 100% on 1 January 2018. As of 31 December 2016, the Group reported a CRD IV LCR of 131% (2015: 133%).

In October 2014, the BCBS published a final standard for the NSFR with the minimum requirement to be introduced in January 2018 at 100% on an ongoing basis. On 23 November 2016 the European Commission published draft amendments to the Capital Requirements Regulation (CRR) including its proposed implementation of NSFR in the EU. This proposal makes a number of changes from Basel NSFR, particularly in the treatment of derivative and secured financing transactions. Barclays is in the process of assessing the impact of these changes on its NSFR ratio, and notes that NSFR is not proposed to be a binding regulation in the EU until two years after the European legislation is finalised. We remain above 100% well ahead of implementation timelines, based on a conservative interpretation of the Basel rule.

 

162  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Comparing internal and regulatory liquidity stress tests

The LRA stress scenarios and the CRD IV LCR are all broadly comparable short-term stress scenarios in which the adequacy of defined liquidity resources is assessed against contractual and contingent stress outflows. The CRD IV LCR stress tests provide an independent assessment of the Group’s liquidity risk profile.

 

Stress Test		Barclays LRA		CRD IV LCR
Time Horizon		30 to 90 days		30 days
Calculation		Liquid assets to net cash outflows		Liquid assets to net cash outflows

As at 31 December 2016, the Group held eligible liquid assets in excess of 100% of stress requirements for all three short-term LRA scenarios and the CRD IV LCR requirement.

 

Compliance with internal and regulatory stress tests
As at 31 December 2016			Barclays’ LRA (30 day Barclays- specific requirement £bn	)a, b			CRD IV LCRb £bn
Eligible liquidity buffer			173				166
Net stress outflows			(144	)			(127	)
Surplus			29				39
Liquidity pool as a percentage of anticipated net outflows as at 31 December 2016			120%				131%
Liquidity pool as a percentage of anticipated net outflows as at 31 December 2015			131%				133%

The Group plans to maintain its surplus to the internal and regulatory stress requirements at an efficient level, while considering risks to market funding conditions and its liquidity position. The continuous reassessment of these risks may lead to appropriate actions being taken with respect to sizing of the liquidity pool.

 

 

 

 

Notes

a

Of the three stress scenarios monitored as part of the LRA, the 30-day Barclays-specific scenario results in the lowest ratio at 120% (December 2015: 131%). This compares to 134% (December 2015: 144%) under the 90-day market-wide scenario, and 144% (December 2015: 133%) under the 30-day combined scenario.

b	Includes BAGL.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  163

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Liquidity pool

The Group liquidity pool as at 31 December 2016 was £165bn (2015: £145bn). During 2016, the month-end liquidity pool ranged from £132bn to £175bn (2015: £142bn to £168bn), and the month-end average balance was £153bn (2015: £155bn). The liquidity pool is held unencumbered and is not used to support payment or clearing requirements. Such requirements are treated as part of our regular business funding. The liquidity pool is intended to offset stress outflows, and comprises the following cash and unencumbered assets.

 

Composition of the Group liquidity pool as at 31 December 2016
			Liquidity pool £bn				Liquidity pool of which CRD IV LCR eligible												2015 Liquidity pool £bn
							Cash £bn				Level 1 £bn				Level 2A £bn
Cash and deposits with central banksa			103				101				–				–				48
Government bondsb
AAA to AA-			34				–				34				–
A+ to A-			3				–				3				–
BBB+ to BBB-			1				–				1				–
Other LCR Ineligible Government bonds			1				–				–				–
Total government bonds			39				–				38				–				75
Other
Government Guaranteed Issuers, PSEs and GSEs			12				–				9				3
International Organisations and MDBs			6				–				7				–
Covered bonds			1				–				1				–
Corporate bonds			–				–				–				–
Other			4				–				–				–
Total Other			23				–				17				3				22
Total as at 31 December 2016			165				101				55				3
Total as at 31 December 2015			145				45				87				8
The Group liquidity pool is well diversified by major currencies and the Group monitors LRA stress scenarios for major currencies.
Liquidity pool by currency
			USD £bn				EUR £bn				GBP £bn				Other £bn				Total £bn
Liquidity pool as at 31 December 2016			44				36				49				36				165
Liquidity pool as at 31 December 2015			41				33				46				25				145

Management of the Group liquidity pool

The composition of the liquidity pool is subject to limits set by the Board, Treasury Committee and the independent credit risk and market risk functions. In addition, the investment of the liquidity pool is monitored for concentration risk by issuer, currency and asset type. Given the incremental returns generated by these highly liquid assets, the risk and reward profile is continuously managed.

The Group manages the liquidity pool on a centralised basis. As at 31 December 2016, 91% of the liquidity pool was located in Barclays Bank PLC (2015: 94%) and was available to meet liquidity needs across the Group. The residual liquidity pool is held predominantly within Barclays Capital Inc. (BCI). The portion of the liquidity pool outside of Barclays Bank PLC is held against entity-specific stressed outflows and regulatory requirements. To the extent the use of this portion of the liquidity pool is restricted due to regulatory requirements, it is assumed to be unavailable to the rest of the Group.

 

 

Notes

a	Of which over 98% (2015: over 97%) was placed with the Bank of England, US Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank.

b	Of which over 90% (2015: over 92%) are comprised of UK, US, Japanese, French, German, Danish, Swiss and Dutch securities.

 

164  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Contingent liquidity

In addition to the Group liquidity pool, the Group has access to other unencumbered assets which provide a source of contingent liquidity. While these are not relied on in the Group’s LRA, a portion of these assets may be monetised in a stress to generate liquidity through use as collateral for secured funding or through outright sale.

In either a Barclays-specific or market-wide liquidity stress, liquidity available via market sources could be severely disrupted. In circumstances where market liquidity is unavailable or available only at heavily discounted prices, the Group could generate liquidity via central bank facilities. The Group maintains a significant amount of collateral pre-positioned at central banks and available to raise funding.

For more detail on the Group’s other unencumbered assets see page 168.

Funding structure and funding relationships

The basis for sound liquidity risk management is a solid funding structure that reduces the probability of a liquidity stress leading to an inability to meet funding obligations as they fall due. The Group’s overall funding strategy is to develop a diversified funding base (geographically, by type and by counterparty) and maintain access to a variety of alternative funding sources, to provide protection against unexpected fluctuations, while minimising the cost of funding.

Within this, the Group aims to align the sources and uses of funding. As such, retail and commercial customer loans and advances are largely funded by customer deposits, with the surplus funding the liquidity pool. Other assets, together with other loans and advances and unencumbered assets, are funded by long-term wholesale debt and equity.

The majority of reverse repurchase agreements are matched by repurchase agreements. The liquidity pool is predominantly funded through wholesale markets. These funding relationships are summarised below:

 

Assets			2016 £bn				2015 £bn					Liabilities			2016 £bn				2015 £bn
Loans and advances to customersa			326				336					Customer accountsa			374				374
Group liquidity pool			165				145					< 1 Year wholesale funding			70				54
												> 1 Year wholesale funding			88				88
Other assets			185				135					Equity and other liabilities			151				104
Reverse repurchase agreements and other similar secured lendingb			190				178					Repurchase agreements and other similar secured borrowingb			190				178
Derivative financial instrumentsb			347				326					Derivative financial instrumentsb			340				322
Total assets			1,213				1,120					Total liabilities			1,213				1,120

Deposit funding

 

Deposit funding (audited)
			2016												2015
Funding of loans and advances to customers As at 31 December 2016			Loans and advances to customers £bn				Customer deposits £bn				Loan to deposit ratio %				Loan to deposit ratio %
Barclays UK			167				189				–				–
Barclays International			98				152				–				–
Non-Core			19				–				–				–
Total Barclays UK, Barclays International and Non-Corec			284				341				83%				86%
Barclays International, Head Office and Non-Cored			109				82
Total			393				423				93%				95%

Total Barclays UK, Barclays International and Non-Core^c are largely funded by customer deposits. The loan to deposit ratio for these businesses was 83% (2015: 86%). The customer deposits in excess of loans and advances are primarily used to fund liquidity buffer requirements for these businesses. The loan to deposit ratio for the Group was 93% (2015: 95%).

As at 31 December 2016, £139bn (2015: £129bn) of total customer deposits were insured through the UK Financial Services Compensation Scheme (FSCS) and other similar schemes. In addition to these customer deposits, there were £4bn (2015: £4bn) of other liabilities insured by governments.

Notes

a	Excluding cash collateral and settlement balances.

b	Comprised of reverse repurchase agreements that provide financing to customers collateralised by highly liquid securities on a short-term basis or are used to settle short-term inventory positions and repo financing of trading portfolio assets.

c	Excluding investment banking businesses.

d	Including investment banking businesses.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  165

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Although, contractually, current accounts are repayable on demand and savings accounts at short notice, the Group’s broad base of customers, numerically and by depositor type, helps protect against unexpected fluctuations in balances. Such accounts form a stable funding base for the Group’s operations and liquidity needs. The Group assesses the behavioural maturity of both customer assets and liabilities to identify structural balance sheet funding gaps. Customer behaviour is determined by quantitative modelling combined with qualitative assessment taking into account for historical experience, current customer composition, and macroeconomic projections. These behavioural profiles represent our forward looking expectation of the run-off profile. The relatively low cash outflow within one year demonstrates that customer funding remains broadly matched with customer assets from a behavioural perspective.

 

Behavioural maturity profile
															Behavioural maturity profile cash outflow/(inflow)
			Loans and advances to customers £bn				Customer deposits £bn				Customer funding surplus/ (deficit) £bn				Not more than one year £bn				Over one year but not more than five years £bn				More than five years £bn
As at 31 December 2016
Barclays UK			167				189				22				(2	)			(19	)			43
Barclays International			98				152				54				3				17				34
Barclays Non-Core			19				–				(19	)			(1	)			(6	)			(12	)
Total			284				341				57				–				(8	)			65
As at 31 December 2015
Barclays UK			166				176				10				(4	)			(26	)			40
Barclays International			88				135				47				11				18				18
Africa (discontinued)			29				29				–				1				–				(1	)
Barclays Non-Core			17				8				(9	)			1				(1	)			(9	)
Total			300				348				48				9				(9	)			48

Wholesale funding Group

Wholesale funding relationships are summarised below:

 

Assets			2016 £bn				2015 £bn					Liabilities			2016 £bn				2015 £bn
Trading portfolio assets			33				28					Repurchase agreements			75				70
Reverse repurchase agreements			42				42								–				–
Reverse repurchase agreements			35				34					Trading portfolio liabilities			35				34
Derivative financial instruments			347				326					Derivative financial instruments			340				322
Liquidity pool			108				97					Less than 1 year wholesale debt			70				54
Other assetsa			109				103					Greater than 1 year wholesale debt and equity			154				150

Repurchase agreements fund reverse repurchase agreements and trading portfolio assets. Trading portfolio liabilities are settled by the remainder of reverse repurchase agreements (see Note 19 Offsetting financial assets and financial liabilities for further detail on netting).

Derivative liabilities and assets are largely matched. A substantial proportion of balance sheet derivative positions qualify for counterparty netting and the remaining portions are largely offset once netted against cash collateral received and paid.

Wholesale debt, along with the surplus of customer deposits to loans and advances to customers, is used to fund the liquidity pool. Term wholesale debt and equity largely fund other assets.

 

 

 

Note

a	Predominantly available for sale investments, financial assets designated at fair value and loans and advances to banks funded by greater than one year wholesale debt and equity and trading portfolio assets partially.

 

166  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Composition of wholesale funding^a

The Group maintains access to a variety of sources of wholesale funds in major currencies, including those available from term investors across a variety of distribution channels and geographies, money markets, and repo markets. The Group has direct access to US, European and Asian capital markets through its global investment banking operations and long-term investors through its clients worldwide, and is an active participant in money markets. As a result, wholesale funding is well diversified by product, maturity, geography and major currency.

As at 31 December 2016, the Group’s total wholesale funding outstanding (excluding repurchase agreements) was £158bn (December 2015: £142bn). £70bn (December 2015: £54bn) of wholesale funding matures in less than one year, of which £22bn (December 2015: £14bn)^b relates to term funding.

As at 31 December 2016, outstanding wholesale funding comprised £26bn (December 2015: £25bn) of secured funding and £132bn (December 2015: £117bn) of unsecured funding.

As the Group progresses to a Single Point of Entry resolution model, Barclays continues to issue debt capital and term senior unsecured funding from Barclays PLC, the holding company, replacing maturing debt in Barclays Bank PLC.

 

Maturity profile of wholesale fundingb
			<1 month £bn				1-3 months £bn				3-6 months £bn				6-12 months £bn				<1 year £bn				1-2 years £bn				2-3 years £bn				3-4 years £bn				4-5 years £bn				>5 years £bn				Total £bn
Barclays PLC
Senior unsecured (Public benchmark)			–				–				–				–				–				0.9				1.6				1.1				4.5				7.9				16.0
Senior unsecured (Privately placed)			–				–				–				–				–				0.1				–				–				0.2				0.5				0.8
Subordinated liabilities			–				–				–				–				–				–				–				1.1				–				2.7				3.8
Barclays Bank PLC
Deposits from banks			9.2				4.3				1.7				1.1				16.3				0.2				–				0.3				–				–				16.8
Certificates of deposit and commercial paper			0.3				5.2				5.6				10.9				22.0				0.7				1.1				0.5				0.5				0.3				25.1
Asset backed commercial paper			3.7				3.1				0.7				–				7.5				–				–				–				–				–				7.5
Senior unsecured (Public benchmark)			1.7				0.6				1.6				–				3.9				–				2.7				0.7				0.7				1.1				9.1
Senior unsecured (Privately placed)c			0.6				1.5				3.6				3.5				9.2				7.3				5.5				3.2				1.6				10.0				36.8
Covered bonds			–				1.8				1.6				1.5				4.9				1.0				1.8				–				1.0				3.7				12.4
Asset backed securities			–				0.6				1.0				0.6				2.2				0.7				1.4				0.4				–				0.7				5.4
Subordinated liabilities			–				–				–				1.3				1.3				3.2				0.1				1.0				5.5				8.5				19.6
Otherd			1.1				0.2				0.6				1.1				3.0				0.2				0.2				0.3				0.1				0.7				4.5
Total as at 31 December 2016			16.6				17.3				16.4				20.0				70.3				14.3				14.4				8.6				14.1				36.1				157.8
Of which secured			3.7				5.6				3.4				2.3				15.0				1.8				3.2				0.4				1.0				4.4				25.8
Of which unsecured			12.9				11.7				13.0				17.7				55.3				12.5				11.2				8.2				13.1				31.7				132.0
Total as at 31 December 2015			15.8				15.3				8.6				13.8				53.5				16.5				12.6				13.7				8.3				37.3				141.9
Of which secured			4.2				3.9				1.6				0.3				10.0				5.1				2.4				2.8				0.5				4.5				25.3
Of which unsecured			11.6				11.4				7.0				13.5				43.5				11.4				10.2				10.9				7.8				32.8				116.6

Outstanding wholesale funding includes £37.6bn (December 2015: £35.1bn) of privately placed senior unsecured notes in issue. These notes are issued through a variety of distribution channels including intermediaries and private banks. Although not a requirement, the liquidity pool exceeded wholesale funding maturing in less than one year by £95bn (December 2015: £91bn).

 

 

 

Notes

a

The composition of wholesale funds comprises the balance sheet reported deposits from banks, financial liabilities at fair value, debt securities in issue and subordinated liabilities, excluding cash collateral and settlement balances and collateral swaps. Included within deposits from banks are £4.5bn of liabilities drawn in the European Central Bank’s facilities.

b	Term funding maturities comprise public benchmark and privately placed senior unsecured notes, covered bonds/asset-backed securities (ABS) and subordinated debt where the original maturity of the instrument was more than 1 year.

c	Includes structured notes of £30.8bn, £7.7bn of which matures within one year.

d	Primarily comprised of fair value deposits of £3.0bn and secured financing transactions of physical gold of £0.5bn.

 

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Currency composition of wholesale debt

As at 31 December 2016, the proportion of wholesale funding by major currencies was as follows:

 

Currency composition of wholesale funding
			USD %				EUR %				GBP %				Other %
Deposits from banks			22				44				30				4
Certificates of deposits and commercial paper			44				48				7				1
Asset backed commercial paper			89				8				3				–
Senior unsecured (public benchmark)			51				25				16				8
Senior unsecured (privately placed)			48				25				11				16
Covered bonds/ABS			30				42				28				–
Subordinated liabilities			53				28				19				–
Total as at 31 December 2016			48				32				16				4
Total as at 31 December 2015			38				31				23				8

To manage cross-currency refinancing risk the Group manages foreign exchange cash flow limits, which limit risk at specific maturities. The composition of wholesale funding is materially unchanged.

Term financing

The Group issued £12.1bn equivalent of capital and senior unsecured debt from the holding company of which £8.6bn equivalent and £0.7bn equivalent in public and private senior unsecured debt respectively, and £2.8bn of capital instruments. In the same period £7.4bn of Barclays Bank PLC capital and senior unsecured debt was bought back or called.

The Group has £21.2bn of term funding maturing in 2017 and £13.2bn in 2018.

The Group expect to continue issuing public wholesale debt in 2017 from Barclays PLC, in order to ensure compliance with new prospective loss absorbency requirements and to maintain a stable and diverse funding base by type, currency and distribution channel.

Encumbrance

Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. Barclays funds a portion of trading portfolio assets and other securities via repurchase agreements and other similar borrowing, and pledges a portion of customer loans and advances as collateral in securitisation, covered bond and other similar secured structures. Barclays monitors the mix of secured and unsecured funding sources within the Group’s funding plan and seeks to efficiently utilise available collateral to raise secured funding and meet other collateral requirements.

Encumbered assets have been defined consistently with the Group’s reporting requirements under Article 100 of the Capital Requirements Regulation (CRR). Securities and commodities assets are considered encumbered when they have been pledged or used to secure, collateralise or credit enhance a transaction which impacts their transferability and free use. This includes external repurchase or other similar agreements with market counterparts.

Excluding assets positioned at central banks, as at 31 December 2016, £168bn (December 2015: £157bn) of the Group’s assets were encumbered, primarily due to cash collateral posted, firm financing of trading portfolio assets and other securities and funding secured against loans and advances to customers.

Assets may also be encumbered under secured funding arrangements with central banks. In advance of such encumbrance, assets are often positioned with central banks to facilitate efficient future draw down. £63bn (December 2015: £88bn) of on-balance sheet assets were positioned at the central banks, consisting of encumbered assets and collateral pre-positioned and available for use in secured financing transactions.

£277bn (December 2015: £212bn) of on and off-balance sheet assets not positioned at the central bank were identified as readily available and available for use in secured financing transactions. Additionally, they include cash and securities held in the Group liquidity pool as well as unencumbered assets which provide a source of contingent liquidity. While these additional assets are not relied upon in the Group’s LRA, a portion of these assets may be monetised to generate liquidity through use as collateral for secured funding or through outright sale. Loans and advances to customers are only classified as readily available if they are already in a form, such that, they can be used to raise funding without further management actions. This includes excess collateral already in secured funding vehicles.

£231bn (December 2015: £208bn) of assets not positioned at the central bank were identified as available as collateral. These assets are not subject to any restrictions on their ability to secure funding, to be offered as collateral, or to be sold to reduce potential future funding requirements, but are not immediately available in the normal course of business in their current form. They primarily consist of loans and advances which would be suitable for use in secured funding structures but are conservatively classified as not readily available because they are not in transferable form.

Not available as collateral consists of assets that cannot be pledged or used as security for funding due to restrictions that prevent their pledge or use as security for funding in the normal course of business.

Derivatives and reverse repo assets relate specifically to derivatives, reverse repurchase agreements and other similar secured lending. These are shown separately as these on-balance sheet assets cannot be pledged. However, these assets can give rise to the receipt of non-cash assets which are held off-balance sheet, and can be used to raise secured funding or meet additional funding requirements.

In addition, £406bn (December 2015: £265bn) of the total £466bn (December 2015: £306bn) securities accepted as collateral, and held off-balance sheet, were on-pledged, the significant majority of which related to matched-book activity where reverse repurchase agreements are matched by repurchase agreements entered into to facilitate client activity. The remainder relates primarily to reverse repurchases used to settle trading portfolio liabilities as well as collateral posted against derivatives margin requirements.

 

168  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Asset encumbrance

Assets encumbered as a result of transactions with counterparties other than  central banks

Other assets (comprising assets encumbered at the central banks and unencumbered assets)

Assets

Assets not positioned at the central banks

On-balance sheet As at 31 December 2016

Assets £bn

As a result of covered bonds £bn

As a result of securitis- ations £bn

Other £bn

Total £bn

positioned at the central banks £bn

b

Readily available assets £bn

Available as collateral £bn

Not available as collateral £bn

Derivatives and Reverse repos £bn

Total £bn

Cash and balances at central banks

102.4

–

–

–

–

–

102.4

–

–

–

102.4

Trading portfolio assets

80.2

–

–

51.2

51.2

–

29.0

–

–

–

29.0

Financial assets at fair value

78.6

–

–

3.2

3.2

–

1.5

10.7

–

63.2

75.4

Derivative financial instruments

346.6

–

–

–

–

–

–

–

–

346.6

346.6

Loans and advances – banksa

20.2

–

–

–

–

–

10.1

9.0

1.1

–

20.2

Loans and advances – customersa

325.7

16.5

6.2

8.0

30.7

63.0

23.8

208.2

–

–

295.0

Cash collateral

68.8

–

–

68.8

68.8

–

–

–

–

–

–

Settlement balances

21.3

–

–

–

–

–

–

–

21.3

–

21.3

Financial investments

63.3

–

–

13.6

13.6

–

49.3

0.4

–

–

49.7

Reverse repurchase agreements

13.5

–

–

–

–

–

–

–

–

13.5

13.5

Non-current assets held for sale

6.4

–

–

–

–

–

1.2

3.1

2.1

–

6.4

Other Financial Assets

21.0

–

–

–

–

–

–

–

21.0

–

21.0

Total on-balance sheet

1,148.0

16.5

6.2

144.8

167.5

63.0

217.3

231.4

45.5

423.3

980.5

Off-balance sheet

Collateral received £bn

Collateral received of which on- pledged £bn

Readily available assets £bn

Available as collateral £bn

Not available as collateral £bn

Fair value of securities accepted as collateral

466.2

405.5

59.7

–

1.0

Total unencumbered collateral

–

–

277.0

231.4

46.5

 

 

 

 

 

Notes

a	Excluding cash collateral and settlement balances.

b	Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 40 to the financial statements page 301.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  169

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Asset encumbrance

Assets encumbered as a result of transactions with counterparties other than central banks

Other assets (comprising assets encumbered at the central banks and unencumbered assets)

Assets

Assets not positioned at the central banks

On-balance sheet As at 31 December 2015

Assets £bn

As a result of covered bonds £bn

As a result of securitis- ations £bn

Other £bn

Total £bn

positioned at the central banks £bn

b

Readily available assets £bn

Available as collateral £bn

Not available as collateral £bn

Derivatives and Reverse repos £bn

Total £bn

Cash and balances at central banks

47.9

–

–

–

–

–

47.9

–

–

–

47.9

Trading portfolio assets

74.8

–

–

49.1

49.1

–

25.7

–

–

–

25.7

Financial assets at fair value

72.5

–

–

2.5

2.5

–

3.2

17.7

1.3

47.8

70.0

Derivative financial instruments

325.5

–

–

–

–

–

–

–

–

325.5

325.5

Loans and advances – banksa

19.6

–

–

–

–

–

7.9

10.2

1.5

–

19.6

Loans and advances – customersa

307.3

16.4

5.9

8.0

30.3

86.4

14.8

175.8

–

–

277.0

Cash collateral

62.6

–

–

62.6

62.6

–

–

–

–

–

–

Settlement balances

20.4

–

–

–

–

–

–

–

20.4

–

20.4

Financial investments

87.0

–

–

12.2

12.2

–

72.2

1.0

1.6

–

74.8

Reverse repurchase agreements

28.2

–

–

–

–

–

–

–

–

28.2

28.2

Non-current assets held for sale

7.3

–

–

–

–

1.9

1.2

3.2

1.0

–

7.3

Other Financial Assets

19.9

–

–

–

–

–

–

–

19.9

–

19.9

Total on-balance sheet

1,073.0

16.4

5.9

134.4

156.7

88.3

172.9

207.9

45.7

401.5

916.3

Off-balance sheet

Collateral received £bn

Collateral received of which on- pledged £bn

Readily available assets £bn

Available as collateral £bn

Not available as collateral £bn

Fair value of securities accepted as collateral

305.9

265.4

39.0

–

1.5

Total unencumbered collateral

–

–

211.9

207.9

47.2

 

 

 

 

 

 

Notes

a	Excluding cash collateral and settlement balances.

b	Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 40 to the financial statements page 301.

 

170  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Repurchase agreements and reverse repurchase agreements

Barclays enters into repurchase and other similar secured borrowing agreements to finance its trading portfolio assets. The majority of reverse repurchase agreements are matched by offsetting repurchase agreements entered into to facilitate client activity. The remainder are used to settle trading portfolio liabilities.

Due to the high quality of collateral provided against secured financing transactions, the liquidity risk associated with this activity is significantly lower than unsecured financing transactions. Nonetheless, Barclays manages to gross and net secured mismatch limits to limit refinancing risk under a severe stress scenario and a portion of the Group’s liquidity pool is held against stress outflows on these positions. The Group secured mismatch limits are calibrated based on market capacity, liquidity characteristics of the collateral and risk appetite.

The cash value of repurchase and reverse repurchase transactions will typically differ from the market value of the collateral against which these transactions are secured by an amount referred to as a haircut (or over-collateralisation). Typical haircut levels vary depending on the quality of the collateral that underlies these transactions. For transactions secured against extremely liquid fixed income collateral, lenders demand relatively small haircuts (typically ranging from 0-2%). For transactions secured against less liquid collateral, haircuts vary by asset class (typically ranging from 5-10% for corporate bonds and other less liquid collateral).

As at 31 December 2016, the significant majority of repurchase activity related to matched-book activity. The Group may face refinancing risk on the net maturity mismatch for matched-book activity.

 

Net matched-book activitya,b
Negative number represents the cash value of the net repurchase agreement (net liability)							Less than  one month  £bn				One month  to three  months  £bn			Over three    months    £bn
As at 31 December 2016
Extremely Liquid Fixed Incomec							(21.8)				11.6			10.7
Liquid Fixed Income							(0.4)				0.8			(0.7)
Equities							6.1				(0.5)			(9.6)
Less liquid Fixed Income							0.6				(0.2)			(1.3)
Total							(15.5)				11.7			(0.9)
As at 31 December 2015
Extremely Liquid Fixed Income							(12.9)				7.3			5.6
Liquid Fixed Income							0.3				0.6			(0.9)
Equities							7.0				(1.5)			(5.5)
Less liquid Fixed Income							1.6				(0.4)			(1.2)
Total							(4.0)				6.0			(2.0)
The residual repurchase agreement activity is the firm-financing component and reflects Barclays funding of a portion of its trading portfolio assets. The primary risk related to firm-financing activity is the inability to roll-over transactions as they mature. However, 44% (2015: 50%) of firm-financing activity was secured against extremely liquid fixed income assets.
Firm financing repurchase agreementsa,b
			Less than   one month £bn				One month to three months £bn				Over three months £bn			Total   £bn
As at 31st December 2016
Extremely Liquid Fixed Incomec			28.3				7.1				1.1			36.5
Liquid Fixed Income			2.8				0.8				1.2			4.8
Highly liquid			13.2				8.9				14.0			36.1
Less liquid			1.9				0.8				2.6			5.3
Total			46.2				17.6				18.9			82.7
As at 31st December 2015
Extremely Liquid Fixed Income			28.8				8.3				0.3			37.4
Liquid Fixed Income			2.0				0.6				1.1			3.7
Highly liquid			10.9				6.3				10.2			27.4
Less liquid			2.7				1.1				1.9			5.7
Total			44.4				16.3				13.5			74.2

 

 

 

Notes

a	Includes collateral swaps.

b	Includes financing positions for prime brokerage clients which are reported as customer payables/receivables on balance sheet.

c	Extremely liquid fixed income is defined as very highly rated sovereigns and agencies, typically rated AA+ or better. It excludes liquid fixed income, equities and other less liquid collateral.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  171

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Credit ratings

In addition to monitoring and managing key metrics related to the financial strength of the Group, Barclays solicits independent credit ratings by Standard & Poor’s (S&P), Moody’s and Fitch, as well as Rating and Investment Information (R&I). These ratings assess the creditworthiness of the Group, its subsidiaries and branches and are based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings, funding, asset quality, liquidity, accounting and governance.

 

Credit ratings
As at 31 December 2016		Standard & Poor’s				Moody’s				Fitch
Barclays Bank PLC
Long-term		A- (Negative)				A1 (Negative)				A (Stable)
Short-term		A-2				P-1				F1
Stand-alone ratinga		bbb+				Baa2				a
Barclays PLC
Long-term		BBB (Negative)				Baa2 (Negative)				A (Stable)
Short-term		A-2				P-3				F1

During the year, Barclays’ ratings outlooks for Moody’s and S&P were changed to Negative from Stable following the outcome of the EU referendum in June 2016. The rating actions were part of a wider set of actions which saw the two agencies place several UK banks on negative outlooks whilst affirming the ratings. The ratings continue to carry a stable outlook with Fitch.

In December 2016 Moody’s upgraded senior long-term ratings for both Barclays Bank PLC and Barclays PLC by one notch reflecting the continued build-up of loss absorbing capacity at Barclays PLC which would provide additional protection for Barclays Bank PLC’s depositors and senior unsecured creditors, and Barclays PLC’s senior unsecured creditors in a failure scenario. The negative outlooks assigned in June remained in place as the rating agency’s assessment of Barclays’ stand-alone credit strength was unaffected by the rating action.

S&P and Fitch affirmed Barclays’ ratings in July and December 2016 respectively as part of their periodic reviews.

Barclays also solicits issuer ratings from R&I for local issuance purposes in Japan and the ratings of A- for Barclays PLC and A for Barclays Bank PLC were affirmed in July 2016 with stable outlooks.

 

Contractual credit rating downgrade exposure (incremental cash outflow)
		Incremental cash outflow
			One-notch downgrade £bn				Two-notch downgrade £bn
As at 31 December 2016
Securitisation derivatives			(2	)			(1	)
Contingent liabilities			–				–
Derivatives margining			(1	)			–
Liquidity facilities			(1	)			–
Total contractual funding or margin requirements			(4	)			(1	)
As at 31 December 2015
Securitisation derivatives			(2	)			(1	)
Contingent liabilities			(1	)			–
Derivatives margining			–				–
Liquidity facilities			(1	)			(1	)
Total contractual funding or margin requirements			(4	)			(2	)

 

 

 

 

 

 

 

Note

a	Refers to Standard & Poor’s Stand-Alone Credit Profile (SACP), Moody’s Baseline Credit Assessment (BCA) and Fitch’s Viability Rating (VR).

 

172  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Liquidity management at BAGL Group (audited)

Liquidity risk is managed separately at BAGL Group due to local currency, funding and regulatory requirements.

In addition to the Group liquidity pool, as at 31 December 2016, BAGL Group held £10.6bn (2015: £6.0bn) of liquidity pool assets against BAGL-specific anticipated stressed outflows. The liquidity pool consists of central bank deposits, government bonds, treasury bills and notes, and coins. Absa Bank successfully applied for a Committed Liquidity Facility from the South African Reserve Bank, which is included in the liquidity pool from January 2016.

The BAGL loan to deposit ratio as at 31 December 2016 was 107% (2015: 102%).

Additional information on liquidity management at BAGL can be found in the Barclays Africa Group Annual Report.

Contractual maturity of financial assets and liabilities (audited)

The table below provides detail on the contractual maturity of all financial instruments and other assets and liabilities. Derivatives (other than those designated in a hedging relationship) and trading portfolio assets and liabilities are included in the ‘on demand’ column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity since they are not held for settlement according to such maturity and will frequently be settled before contractual maturity at fair value. Derivatives designated in a hedging relationship are included according to their contractual maturity.

Financial assets designated at fair value in respect of linked liabilities to customers under investment contracts have been included in other assets and other liabilities as the Group is not exposed to liquidity risk arising from them; any request for funds from creditors would be met by simultaneously liquidating or transferring the related investment.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  173

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Contractual maturity of financial assets and liabilities (including BAGL) (audited)
As at 31 December 2016			On demand £m				Not more than three months £m				Over three months but not more than six months £m				Over six months but not more than nine months £m				Over nine months but not more than one year £m				Over one year but not more than two years £m				Over two years but not more than three years £m				Over three years but not more than five years £m				Over five years but not more than ten years £m				Over ten years £m				Total   £m
Assets
Cash and balances at central banks			102,031				322				–				–				–				–				–				–				–				–				102,353
Items in the course of collection from other banks			1,467				–				–				–				–				–				–				–				–				–				1,467
Trading portfolio assets			80,240				–				–				–				–				–				–				–				–				–				80,240
Financial assets designated at fair value			15,558				43,270				5,518				2,376				2,081				686				90				129				771				8,129				78,608
Derivative financial instruments			345,625				5				400				5				2				14				168				175				123				109				346,626
Loans and advances to banks			4,858				34,346				2,753				480				133				412				236				20				13				–				43,251
Loans and advances to customers			26,929				85,993				7,522				6,310				8,245				29,326				25,602				44,776				48,233				109,848				392,784
Reverse repurchase agreements and other similar secured lending			7,043				3,678				892				144				905				792				–				–				–				–				13,454
Available for sale financial investments			40				1,015				3,064				741				2,666				10,127				9,031				15,148				12,768				8,717				63,317
Other financial assets			–				1,128				–				–				–				77				–				–				–				–				1,205
Total financial assets			583,791				169,757				20,149				10,056				14,032				41,434				35,127				60,248				61,908				126,803				1,123,305
Other assetsa																																											89,821
Total assets																																											1,213,126
Liabilities
Deposits from banks			5,906				39,610				1,120				672				351				193				13				328				21				–				48,214
Items in the course of collection due to other banks			636				–				–				–				–				–				–				–				–				–				636
Customer accounts			317,963				86,081				5,305				3,023				4,528				2,836				1,262				1,043				441				696				423,178
Repurchase agreements and other similar secured borrowing			5,480				9,235				1,934				917				1,326				311				–				83				474				–				19,760
Trading portfolio liabilities			34,687				–				–				–				–				–				–				–				–				–				34,687
Financial liabilities designated at fair value			15,285				41,583				3,970				4,112				1,827				7,540				5,762				5,773				3,588				6,591				96,031
Derivative financial instruments			339,646				4				–				–				2				10				34				46				75				670				340,487
Debt securities in issue			27				16,731				11,713				5,902				6,867				3,166				8,069				9,186				10,152				4,119				75,932
Subordinated liabilities			–				8				–				–				1,317				3,230				56				7,487				6,575				4,710				23,383
Other financial liabilities			–				3,198				–				–				–				1,189				–				–				–				–				4,387
Total financial liabilities			719,630				196,450				24,042				14,626				16,218				18,475				15,196				23,946				21,326				16,786				1,066,695
Other liabilitiesa																																											75,066
Total liabilities																																											1,141,761
Cumulative liquidity gap			(135,839	)			(162,532	)			(166,425	)			(170,995	)			(173,181	)			(150,222	)			(130,291	)			(93,989	)			(53,407	)			56,610				71,365

 

 

Note

a	As at 31 December 2016, other assets includes balances of £71,454m (2015: £7,364m) and other liabilities includes balances of £65,292m (2015: £5,997m) relating to amounts held for sale. Please refer to Note 44 for details.

 

174  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Contractual maturity of financial assets and liabilities (including BAGL) (audited)
As at 31 December 2015			On demand £m				Not more than three months £m				Over three months but not more than six months £m				Over six months but not more than nine months £m				Over nine months but not more than one year £m				Over one year but not more than two years £m				Over two years but not more than three years £m				Over three years but not more than five years £m				Over five years but not more than ten years £m				Over ten years £m				Total £m
Assets
Cash and balances at central banks			49,580				131				–				–				–				–				–				–				–				–				49,711
Items in the course of collection from other banks			631				380				–				–				–				–				–				–				–				–				1,011
Trading portfolio assets			77,348				–				–				–				–				–				–				–				–				–				77,348
Financial assets designated at fair valuea			30,667				21,966				1,722				1,372				583				1,021				587				424				867				16,172				75,381
Derivative financial instruments			326,772				28				3				1				53				328				61				257				147				59				327,709
Loans and advances to banks			5,354				31,539				1,954				366				468				588				991				43				12				34				41,349
Loans and advances to customers			29,117				76,337				13,935				7,084				12,332				27,616				27,318				48,707				50,737				106,034				399,217
Reverse repurchase agreements and other similar secured lendinga			12,171				12,089				3,296				292				205				74				35				1				24				–				28,187
Available for sale financial investments			467				2,396				1,792				4,936				2,088				11,537				14,659				17,898				21,445				13,049				90,267
Other financial assets			–				1,304				–				–				–				100				–				–				–				–				1,404
Total financial assets			532,107				146,170				22,702				14,051				15,729				41,264				43,651				67,330				73,232				135,348				1,091,584
Other assets			–				–				–				–				–				–				–				–				–				–				28,428
Total assets			–				–				–				–				–				–				–				–				–				–				1,120,012
Liabilities
Deposits from banks			5,717				38,720				1,355				540				335				97				9				67				236				4				47,080
Items in the course of collection due to other banks			1,013				–				–				–				–				–				–				–				–				–				1,013
Customer accounts			312,921				80,114				7,605				4,253				5,304				2,845				912				1,654				622				2,012				418,242
Repurchase agreements and other similar secured borrowinga			5,729				11,683				3,479				1,975				876				843				52				–				398				–				25,035
Trading portfolio liabilities			33,967				–				–				–				–				–				–				–				–				–				33,967
Financial liabilities designated at fair valuea			20,051				32,453				3,152				3,470				2,317				6,093				5,458				7,446				4,139				5,533				90,112
Derivative financial instruments			323,786				80				92				49				49				42				13				57				70				14				324,252
Debt securities in issue			50				14,270				5,615				4,322				4,469				10,164				4,797				13,037				10,028				2,398				69,150
Subordinated liabilities			2				–				–				9				28				1,254				2,994				2,194				8,741				6,245				21,467
Other financial liabilities			–				2,685				–				–				–				1,075				–				–				–				–				3,760
Total financial liabilities			703,236				180,005				21,298				14,618				13,378				22,413				14,235				24,455				24,234				16,206				1,034,078
Other liabilities			–				–				–				–				–				–				–				–				–				–				20,070
Total liabilities			–				–				–				–				–				–				–				–				–				–				1,054,148
Cumulative liquidity gap			(171,129	)			(204,964	)			(203,560	)			(204,127	)			(201,776	)			(182,925	)			(153,509	)			(110,634	)			(61,636	)			57,506				65,864

Expected maturity dates do not differ significantly from the contract dates, except for:

 

§

trading portfolio assets and liabilities and derivative financial instruments, which may not be held to maturity as part of the Group’s trading strategies

 

§

retail deposits, which are included within customer accounts, are repayable on demand or at short notice on a contractual basis. In practice, these instruments form a stable base for the Group’s operations and liquidity needs because of the broad base of customers – both numerically and by depositor type (see Behavioural maturity profile on page 166; and

 

§

financial assets designated at fair value held in respect of linked liabilities, which are managed with the associated liabilities.

Note

a	The On demand and Not more than three months categories for 2015 have been adjusted by £37bn for financial assets and £25bn for financial liabilities to better reflect the contractual maturity of both Reverse repurchase agreements and Repurchase agreements measured at amortised cost and fair value.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  175

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Contractual maturity of financial liabilities on an undiscounted basis (audited)

The table below presents the cash flows payable by the Group under financial liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows of all financial liabilities (i.e. nominal values).

The balances in the below table do not agree directly to the balances in the consolidated balance sheet as the table incorporates all cash flows, on an undiscounted basis, related to both principal as well as those associated with all future coupon payments.

Derivative financial instruments held for trading and trading portfolio liabilities are included in the on demand column at their fair value.

Financial liabilities designated at fair value in respect of linked liabilities under investment contracts have been excluded from this analysis as the Group is not exposed to liquidity risk arising from them.

 

Contractual maturity of financial liabilities – undiscounteda (including BAGL) (audited)
			On demand £m				Not more than three months £m				Over three months but not more than six months £m				Over six months but not more than one year £m				Over one year but not more than three years £m				Over three years but not more than five years £m				Over five years but not more than ten years £m				Over ten years £m				Total £m
As at 31 December 2016
Deposits from banks			5,906				39,617				1,122				1,025				207				328				21				–				48,226
Items in the course of collection due to other banks			636				–				–				–				–				–				–				–				636
Customer accounts			317,963				86,101				5,325				7,565				4,266				1,120				1,403				1,013				424,756
Repurchase agreements and other similar secured lending			5,480				9,249				1,939				2,253				312				83				474				–				19,790
Trading portfolio liabilities			34,687				–				–				–				–				–				–				–				34,687
Financial liabilities designated at fair value			15,285				41,599				3,986				5,979				13,445				5,899				3,900				8,443				98,536
Derivative financial instruments			339,646				4				–				2				44				48				84				1,086				340,914
Debt securities in issue			27				17,126				11,894				13,285				12,915				10,505				12,282				6,054				84,088
Subordinated liabilities			–				398				680				3,117				7,089				9,324				7,842				4,866				33,316
Other financial liabilities			–				3,198				–				–				1,189				–				–				–				4,387
Total financial liabilities			719,630				197,292				24,946				33,226				39,467				27,307				26,006				21,462				1,089,336
As at 31 December 2015
Deposits from banks			5,717				38,721				1,357				877				108				70				239				10				47,099
Items in the course of collection due to other banks			1,013				–				–				–				–				–				–				–				1,013
Customer accounts			312,921				80,142				7,640				9,655				3,858				1,854				744				3,087				419,901
Repurchase agreements and other similar secured lendingb			5,729				11,686				3,482				2,853				898				–				491				–				25,139
Trading portfolio liabilities			33,967				–				–				–				–				–				–				–				33,967
Financial liabilities designated at fair valueb			20,051				32,470				3,165				5,830				11,851				7,840				4,690				8,694				94,591
Derivative financial instruments			323,786				81				94				102				57				59				80				16				324,275
Debt securities in issue			50				14,352				5,845				9,277				16,777				14,175				11,276				4,547				76,299
Subordinated liabilities			2				253				403				344				6,057				3,737				9,969				6,313				27,078
Other financial liabilities			–				2,685				–				–				1,075				–				–				–				3,760
Total financial liabilities			703,236				180,390				21,986				28,938				40,681				27,735				27,489				22,667				1,053,122

 

 

 

Note

a	Financial liabilities on an undiscounted basis for 2016 exclude BAGL balances now held for sale but are included for 2015.

b	The On demand and Not more than three months categories for 2015 have been adjusted by £25bn for financial liabilities to better reflect the contractual maturity of Repurchase agreements measured at amortised cost and fair value.

 

176  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Funding risk – liquidity

 

 

Maturity of off-balance sheet commitments received and given (audited)

The table below presents the maturity split of the Group’s off-balance sheet commitments received and given at the balance sheet date. The amounts disclosed in the table are the undiscounted cash flows (i.e. nominal values) on the basis of earliest opportunity at which they are available.

 

Maturity analysis of off-balance sheet commitments received
			On demand £m				Not more than three months £m				Over three months but not more than six months £m				Over six months but not more than nine months £m				Over nine months but not more than one year £m				Over one year but not more than two years £m				Over two years but not more than three years £m				Over three years but not more than five years £m				Over five years but not more than ten years £m				Over ten years £m				Total £m
As at 31 December 2016
Guarantees, letters of credit and credit insurance			6,044				18				1				410				2				23				1				3				–				–				6,502
Forward starting repurchase agreements			102				246				–				1				–				–				18				–				–				–				367
Total off-balance sheet commitments receiveda			6,146				264				1				411				2				23				19				3				–				–				6,869
As at 31 December 2015
Guarantees, letters of credit and credit insurance			6,329				138				4				5				32				84				12				97				4				17				6,722
Forward starting repurchase agreements			–				392				–				73				–				–				–				–				–				–				465
Total off-balance sheet commitments receiveda			6,329				530				4				78				32				84				12				97				4				17				7,187
Maturity analysis of off-balance sheet commitments given (audited)
			On demand £m				Not more than three months £m				Over three months but not more than six months £m				Over six months but not more than nine months £m				Over nine months but not more than one year £m				Over one year but not more than two years £m				Over two years but not more than three years £m				Over three years but not more than five years £m				Over five years but not more than ten years £m				Over ten years £m				Total £m
As at 31 December 2016
Contingent liabilities			17,111				425				845				233				285				355				187				88				259				151				19,939
Documentary credits and other short-term trade related transactions			987				10				8				–				–				–				–				–				–				–				1,005
Forward Starting reverse repurchase agreements			–				24				–				–				–				–				–				–				–				–				24
Standby facilities, credit lines and other commitments			300,043				455				415				604				818				55				47				150				–				70				302,657
Total off-balance sheet commitments givena			318,141				914				1,268				837				1,103				410				234				238				259				221				323,625
As at 31 December 2015
Contingent liabilities			17,421				933				493				140				590				423				158				161				164				138				20,621
Documentary credits and other short-term trade related transactions			617				30				10				–				61				119				–				8				–				–				845
Forward Starting reverse repurchase agreements			–				93				–				–				–				–				–				–				–				–				93
Standby facilities, credit lines and other commitments			274,020				1,152				1,564				1,116				1,071				873				554				906				78				35				281,369
Total off-balance sheet commitments givena			292,058				2,208				2,067				1,256				1,722				1,415				712				1,075				242				173				302,928

 

Note

a	Amounts for 2016 exclude BAGL balances now held for sale but are included for 2015.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  177

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Risk review

Risk performance

Operational risk

 

 

    

 

178  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Operational risk

 

 

 

Note

a

The data disclosed include operational risk losses for reportable events (excluding Africa) having impact of > £10,000 and exclude events that are conduct risk, aggregate and boundary events. A boundary event is an operational risk event that results in a credit risk impact. Legal risk events are also included. Due to the nature of risk events that keep evolving, prior year losses are updated.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  179

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Risk review

Risk performance

Conduct risk

 

 

 

180  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Risk performance

Conduct risk

 

 

 

 

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Risk review

Supervision and regulation

                

 

 

 

182  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Supervision and regulation

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  183

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184  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Supervision and regulation

                    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  185

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186  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Supervision and regulation

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  187

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188  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Risk review

Supervision and regulation

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F | 189

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Financial review

    

    

 

 

 

Financial review							Page
				§  Key performance indicators			191
				§  Consolidated summary income statement			193
				§  Income statement commentary			194
				§  Consolidated summary balance sheet			195
				§  Balance sheet commentary			196
				§  Analysis of results by business			197
				§  Appendix: Non-IFRS performance measures			212

 

    

 

190  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Key performance indicators

    

 

 

Non-IFRS performance measures

Barclays management believes that the non-IFRS performance measures included in this document provide valuable information to the readers of the financial statements as they enable the reader to identify a more consistent basis for comparing the business’ performance between financial periods, and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays’ management. However, any non-IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well. Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document, and the most directly comparable IFRS measures.

 

Definition		Why is it important and how the Group performed
CRD IV fully loaded CET1 ratio Capital requirements are part of the regulatory framework governing how banks and depository institutions are supervised. Capital ratios express a bank’s capital as a percentage of its RWAs as defined by the PRA.   In the context of CRD IV, the fully loaded CET1 ratio is a measure of capital that is predominantly common equity as defined by the Capital Requirements Regulation.		The Group’s capital management objective is to maximise shareholder value by prudently managing the level and mix of its capital to: ensure the Group and all of its subsidiaries are appropriately capitalised relative to their minimum regulatory and stressed capital requirement support the Group risk appetite, growth and strategic option wide seeking to maintain a robust credit proposition for the Group and its subsidiaries.   The Group’s CRD IV fully loaded CET1 ratio increased to 12.4% (2015: 11.4%) due to an increase in CET1 capital to £45.2bn (2015: £40.7bn), partially offset by an increase in RWAs to £366bn (2015: £358bn). The 100 bps increase reflected the Group’s ability to grow capital through profit generation.   Group target: Revised end-state CET1 capital ratio target of 150-200bps above the minimum regulatory level providing 400-450bps buffer to the Bank of England stress test systemic reference point.		12.4%   CRD IV fully loaded CET1 ratio   2015: 11.4% 2014: 10.3%
Return on equity RoE is calculated as profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit recorded in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments.		This measure indicates the return generated by the management of the business based on shareholders’ equity. Achieving a target RoE demonstrates the organisation’s ability to execute its strategy and align management’s interests with the shareholders’.   RoE for the Group increased to 3.0% (2015: (0.6%)) reflecting an increase in Group attributable profit to £1,623m (2015: loss of £394m) and increased shareholders’ equity of £57.4bn (2015: £55.9bn).		3.0%   Group RoE   2015: (0.6%) 2014: (0.2%)
Return on average tangible shareholders’ equity RoTE is calculated as profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit recorded in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill.		This measure indicates the return generated by the management of the business based on shareholders’ tangible equity. Achieving a target RoTE demonstrates the organisation’s ability to execute its strategy and align management’s interests with the shareholders’. RoTE lies at the heart of the Group’s capital allocation and performance management process.   RoTE for the Group increased to 3.6% (2015: (0.7%)) reflecting an increase in Group attributable profit to £1,623m (2015: loss of £394m) and increased average tangible shareholders’ equity of £49bn (2015: £48bn).   Core RoTE increased to 8.4% (2015: 4.8%) reflecting a 95% increase in attributable profit to £3,350m and a £4bn increase in average allocated tangible equity to £41bn, as capital was returned from Non-Core. Core RoTE excluding notable items reduced to 9.4% (2015: 11.2%) with a 4% increase in profit before tax to £6,436m and an 8% reduction in attributable profit to £3,781m primarily reflecting an increase in tax, due to the introduction of a new surcharge of 8% that applies to banks’ UK profits with effect from 1 January 2016.   Group target: Group RoTE will converge with Core RoTE.		3.6%   Group RoTE   2015: (0.7%) 2014: (0.3%) 8.4%   Core RoTE   2015: 4.8% 2014: 7.0% 9.4%   Core RoTE excluding notable items   2015: 11.2% 2014: 11.2%

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  191

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Definition		Why is it important and how the Group performed
Leverage ratio The ratio is calculated as fully loaded tier 1 capital divided by leverage exposure.		The leverage ratio is non-risk based and is intended to act as a supplementary measure to the risk-based capital metrics such as the CET1 ratio.   The leverage ratio increased to 4.6% (2015: 4.5%), reflecting an increase in tier 1 capital to £52.0bn (2015: £46.2bn) and an increase in leverage exposure of £97bn to £1,125bn. Tier 1 capital included £6.8bn (2015: £5.4bn) of AT1 securities.   Group target: maintaining the leverage ratio above future minimum requirements		4.6%   Leverage ratio   2015: 4.5% 2014: 3.7%
Cost: income ratio Total operating expenses divided by total income		This is a measure management uses to assess the productivity of the business operations. Restructuring the cost base is a key execution priority for management and includes a review of all categories of discretionary spending and an analysis of how we can run the business to ensure that costs increase at a slower rate than income.   The Group cost: income ratio reduced to 76% (2015: 84%) driven by a 12% reduction in operating expenses, partially offset by a 3% reduction in income.   The reduction in operating expenses included a £3,024m reduction in litigation and conduct charges in 2016 to £1,363m.   The Core cost: income ratio reduced to 64% (2015: 75%) reflecting the reduction in litigation and conduct charges. Excluding notable items, the Core cost: income ratio reduced to 61% in 2016 (2015: 62%).   Group target: cost: income ratio of less than 60% over time		76%   Cost: income ratio   2015: 84% 2014: 84%
Operating expenses Total operating expenses		Barclays views operating expenses as a key strategic area for banks; those who actively manage costs and control them effectively will gain a strong competitive advantage.   Operating expenses for the Group were £16,338m (2015: £18,536m). This reflected lower litigation and conduct charges, increased structural reform implementation costs and the strengthening in average USD and EUR against GBP. Q416 included the impact of a decision for 2016 compensation awards, to more closely align income statement recognition with performance awards and to harmonise deferral structures across the Group. These changes resulted in a £395m income statement charge in Q416, of which £390m was in Core, resulting in Core costs being above guidance by that amount.   Refer to pages vi to viii for a reconciliation of total operating expenses excluding conduct and litigation charges, and other notable items.		£16,338m   Group statutory   2015: £18,536m 2014: £18,184m   £14,975m   Group total operating expenses, excluding conduct and litigation charges, and other notable items   2015: £14,479m 2014: £15,377m   £14,507m   Core statutory   2015: £15,990m 2014: £15,170m   £13,390m   Core total operating expenses, excluding conduct and litigation charges, and other notable items   2015: £12,532m 2014: £12,664m
Non-Core RWAs RWAs are a risk adjusted measure of assets. Risk weightings are established in accordance with the Basel Capital Accord as implemented by the PRA.		Barclays Non-Core was established as a separate unit in 2014 and groups together businesses and assets which do not fit with the strategic objectives of the Group. Reducing Non-Core RWAs will rebalance the Group to deliver higher and more sustainable returns.   Non-Core RWAs reduced by £22bn to £32bn in 2016. The 41% reduction in the year reflects strong progress in the rundown, driven by a £10bn reduction in Derivatives, a £3bn reduction in Securities and loans, a £4bn reduction in Businesses RWAs, and a £4bn reallocation to Head Office of operational risk RWAs associated with exited businesses and assets.   Target: Non-Core RWAs of c.£25bn as at 30 June 2017.		£32bn   Non-Core   2015: £54bn 2014: £89bn

 

192  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Consolidated summary income statement

                

 

 

For the year ended 31  Decembera			2016  £m				2015  £m				2014  £m				2013  £m				2012  £m
Continuing operationsb
Net interest income			10,537				10,608				10,086				9,457				9,442
Non-interest income			10,914				11,432				11,677				14,587				11,399
Total income			21,451				22,040				21,763				24,044				20,841
Credit impairment charges and other provisions			(2,373)				(1,762)				(1,821)				(2,601)				(2,659)
Operating expenses			(14,565)				(13,723)				(14,959)				(16,628)				(15,256)
UK bank levy			(410)				(426)				(418)				(462)				(311)
Litigation and conduct			(1,363)				(4,387)				(2,807)				(2,442)				(2,912)
Total operating expenses			(16,338)				(18,536)				(18,184)				(19,532)				(18,479)
Other net income/(expenses)			490				(596)				(445)				(32)				122
Profit/(loss) before tax			3,230				1,146				1,313				1,879				(175)
Tax charge			(993)				(1,149)				(1,121)				(1,251)				(326)
Profit/(loss) after tax in respect of continuing operations			2,237				(3)				192				628				(502)
Profit after tax in respect of discontinued operationb			591				626				653				669				683
Non-controlling interests in respect of continuing operations			(346)				(348)				(449)				(414)				(467)
Non-controlling interests in respect of discontinued operationb			(402)				(324)				(320)				(343)				(339)
Other equity holders			(457)				(345)				(250)				–				–
Attributable profit/(loss)			1,623				(394)				(174)				540				(624)
Selected financial statistics
Basic earnings/(loss) per sharec			10.4p				(1.9p)				(0.7p)				3.8p				(4.8p)
Diluted earnings/(loss) per sharec			10.3p				(1.9p)				(0.7p)				3.7p				(4.8p)
Dividends per ordinary share			4.5p				6.5p				6.5p				6.5p				6.5p
Dividend payout ratio			23%				39%				38%				41%				18%
Return on equity			3.0%				(0.6%)				(0.2%)				1.0%				(1.2%)
Return on average tangible shareholders’ equityc			3.6%				(0.7%)				(0.3%)				1.2%				(1.4%)

The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying consolidated financial statements.

 

Notes

a	Comparatives have been restated to reflect the implementation of the Group business reorganisation. These restatements were detailed in our announcement on 14 April 2016, accessible at home.barclays/results.

b	Refer to page 210 for further information on the Africa Banking discontinued operation.

c

The profit after tax attributable to other equity holders of £457m (2015: £345m) is offset by a tax credit recorded in reserves of £128m (2015: £70m). The net amount of £329m (2015: £275m), along with NCI is deducted from profit after tax in order to calculate earnings per share and return on average tangible shareholders’ equity.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  193

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Financial review

Income statement commentary

                    

 

 

 

194  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Consolidated summary balance sheet

    

 

 

As at 31 December			2016 £m				2015 £m				2014 £m				2013 £m				2012 £m
Assets
Cash and balances at central banks			102,353				49,711				39,695				45,687				86,191
Items in the course of collection from other banks			1,467				1,011				1,210				1,282				1,473
Trading portfolio assets			80,240				77,348				114,717				133,069				146,352
Financial assets designated at fair value			78,608				76,830				38,300				38,968				46,629
Derivative financial instruments			346,626				327,709				439,909				350,300				485,140
Financial investments			63,317				90,267				86,066				91,756				75,109
Loans and advances to banks			43,251				41,349				42,111				39,422				41,799
Loans and advances to customers			392,784				399,217				427,767				434,237				430,601
Reverse repurchase agreements and other similar secured lending			13,454				28,187				131,753				186,779				176,522
Assets included in disposal groups classified held for sale			71,454				7,364				–				–				–
Other assets			19,572				21,019				36,378				22,128				22,535
Total assets			1,213,126				1,120,012				1,357,906				1,343,628				1,512,351
Liabilities
Deposits from banks			48,214				47,080				58,390				55,615				77,345
Items in the course of collection due to other banks			636				1,013				1,177				1,359				1,587
Customer accounts			423,178				418,242				427,704				431,998				390,828
Trading portfolio liabilities			34,687				33,967				45,124				53,464				44,794
Financial liabilities designated at fair value			96,031				91,745				56,972				64,796				78,561
Derivative financial instruments			340,487				324,252				439,320				347,118				480,987
Debt securities in issuea			75,932				69,150				86,099				86,693				119,525
Subordinated liabilities			23,383				21,467				21,153				21,695				24,018
Repurchase agreements and other similar secured borrowings			19,760				25,035				124,479				196,748				217,178
Liabilities included in disposal groups classified as held for sale			65,292				5,997				–				–				–
Other liabilities			14,161				16,200				31,530				20,193				17,542
Total liabilities			1,141,761				1,054,148				1,291,948				1,279,679				1,452,365
Equity
Called up share capital and share premium			21,842				21,586				20,809				19,887				12,477
Other equity instruments			6,449				5,305				4,322				2,063				–
Other reserves			6,051				1,898				2,724				249				3,674
Retained earnings			30,531				31,021				31,712				33,186				34,464
Total equity excluding non-controlling interests			64,873				59,810				59,567				55,385				50,615
Non-controlling interests			6,492				6,054				6,391				8,564				9,371
Total equity			71,365				65,864				65,958				63,949				59,986
Total liabilities and equity			1,213,126				1,120,012				1,357,906				1,343,628				1,512,351
Net asset value per ordinary share			344p				324p				335p				331p				414p
Tangible net asset value per share			290p				275p				285p				283p				349p
Number of ordinary shares of Barclays PLC (in millions)			16,963				16,805				16,498				16,113				12,243
Year-end US Dollar exchange rate			1.23				1.48				1.56				1.65				1.62
Year-end Euro exchange rate			1.17				1.36				1.28				1.20				1.23
Year-end South African Rand exchange rate			16.78				23.14				18.03				17.37				13.74

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  195

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Financial review

Balance sheet commentary

 

 

 

 

196  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

All disclosures in this section are unaudited unless otherwise stated.

 

 

Segmental analysis (audited)

 

Analysis of results by business
			Barclays  UK  £m				Barclays  International  £m				Head  Office  £m				Barclays  Core  £m				Barclays  Non-Core  £m				Group  results  £m
For the year ended 31 December 2016
Total income			7,517				14,995				103				22,615				(1,164)				21,451
Credit impairment charges and other provisions			(896)				(1,355)				–				(2,251)				(122)				(2,373)
Net operating income			6,621				13,640				103				20,364				(1,286)				19,078
Operating expenses			(3,792)				(9,129)				(135)				(13,056)				(1,509)				(14,565)
UK bank levy			(48)				(284)				(2)				(334)				(76)				(410)
Litigation and conduct			(1,042)				(48)				(27)				(1,117)				(246)				(1,363)
Total operating expenses			(4,882)				(9,461)				(164)				(14,507)				(1,831)				(16,338)
Other net (expenses)/incomea			(1)				32				128				159				331				490
Profit/(loss) before tax from continuing operations			1,738				4,211				67				6,016				(2,786)				3,230
Total assets (£bn)b			209.6				648.5				75.2				933.4				279.7				1,213.1
For the year ended 31 December 2015
Total income			7,343				13,747				338				21,428				612				22,040
Credit impairment charges and other provisions			(706)				(922)				–				(1,628)				(134)				(1,762)
Net operating income			6,637				12,825				338				19,800				478				20,278
Operating expenses			(3,464)				(8,029)				(272)				(11,765)				(1,958)				(13,723)
UK bank levy			(77)				(253)				(8)				(338)				(88)				(426)
Litigation and conduct			(2,511)				(1,310)				(66)				(3,887)				(500)				(4,387)
Total operating expenses			(6,052)				(9,592)				(346)				(15,990)				(2,546)				(18,536)
Other net income/(expenses)a			–				45				(106)				(61)				(535)				(596)
Profit/(loss) before tax from continuing operations			585				3,278				(114)				3,749				(2,603)				1,146
Total assets (£bn)b			202.5				532.2				59.4				794.2				325.8				1,120.0
For the year ended 31 December 2014
Total income			7,436				12,908				276				20,620				1,143				21,763
Credit impairment charges and other provisions			(901)				(679)				–				(1,580)				(241)				(1,821)
Net operating income			6,535				12,229				276				19,040				902				19,942
Operating expenses			(4,108)				(8,170)				(70)				(12,348)				(2,611)				(14,959)
UK bank levy			(59)				(248)				(9)				(316)				(102)				(418)
Litigation and conduct			(1,108)				(1,333)				(65)				(2,506)				(301)				(2,807)
Total operating expenses			(5,275)				(9,751)				(144)				(15,170)				(3,014)				(18,184)
Other net income/(expenses)a			–				52				316				368				(813)				(445)
Profit/(loss) before tax from continuing operations			1,260				2,530				448				4,238				(2,925)				1,313
Total assets (£bn)b			198.0				596.5				61.0				855.5				502.4				1,357.9

 

Notable itemsc

For the year ended 31 December

2016  £m

2015  £m

2014  £m

Total income

Own credit

(35)

430

34

Gain on disposal of Barclays’ share of Visa Europe Limited

615

–

–

Revision of ESHLA valuation methodology

–

–

(935)

Gains on US Lehman acquisition assets

–

496

461

Litigation and conduct

Provisions for UK customer redress

(1,000)

(2,772)

(1,110)

Provisions for ongoing investigations and litigation including Foreign Exchange

–

(1,237)

(1,250)

Operating expenses

Gain on valuation of a component of the defined retirement benefit liability

–

429

–

Impairment of goodwill and other assets relating to businesses being disposed

–

(96)

–

Other net expenses

Losses on sale relating to the Spanish, Portuguese and Italian businesses

–

(580)

(446)

Total notable items

(420)

(3,330)

(3,246)

 

Notes

a	Other net (expenses)/income represents the share of post-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures, and gains on acquisitions.

b	Africa Banking assets held for sale are reported in Head Office within Core.

c	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

 

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Income by geographic region (audited)
For the year ended 31 December			2016  £m				2015  £m				2014  £m
Continuing operations
UK			11,096				12,160				11,456
Europe			2,087				2,245				2,896
Americas			7,278				6,610				6,008
Africa and Middle East			419				387				627
Asia			571				638				776
Total			21,451				22,040				21,763
Income from individual countries which represent more than 5% of total income (audited)a
For the year ended 31 December			2016  £m				2015  £m				2014  £m
Continuing operations
UK			11,096				12,160				11,456
US			6,876				6,228				5,866

 

 

 

Note

a	Total income based on counterparty location. Income from each single external customer does not amount to 10% or greater of the Group’s total income.

 

198  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

    

 

 

 

			2016 £m				2015 £m				2014 £m
Income statement informationa
Total income			22,615				21,428				20,620
Credit impairment charges and other provisions			(2,251	)			(1,628	)			(1,580	)
Net operating income			20,364				19,800				19,040
Operating expenses			(13,056	)			(11,765	)			(12,348	)
UK bank levy			(334	)			(338	)			(316	)
Litigation and conduct			(1,117	)			(3,887	)			(2,506	)
Total operating expenses			(14,507	)			(15,990	)			(15,170	)
Other net income/(expenses)			159				(61	)			368
Profit before tax			6,016				3,749				4,238
Tax charge			(1,975	)			(1,479	)			(1,590	)
Profit after tax			4,041				2,270				2,648
Non-controlling interests			(297	)			(266	)			(303	)
Other equity interests			(394	)			(282	)			(193	)
Attributable profitb			3,350				1,722				2,152
Balance sheet information
Total assetsb			£933.4bn				£794.2bn				£855.5bn
Risk weighted assetsb			£333.5bn				£304.1bn				£312.8bn
Leverage exposureb			£1,024.0bn				£879.1bn				£917.1bn
Key facts
Number of employees (full time equivalent)			73,000				78,000				75,000
Performance measures
Return on equity			7.0%				4.0%				5.6%
Average equity			£49.6bn				£44.7bn				£38.9bn
Return on average allocated tangible equity			8.4%				4.8%				7.0%
Average allocated tangible equityb			£41.0bn				£36.8bn				£31.4bn
Cost: income ratio			64%				75%				74%
Loan loss rate (bps)			58				45				43
Basic earnings per share contribution			20.5p				10.7p				13.4p
Notable items
Total income
Own credit			(35	)			430				34
Gain on disposal of Barclays’ share of Visa Europe Limited			615				–				–
Gains on US Lehman acquisition assets			–				496				461
Litigation and conduct
Provisions for UK customer redress			(1,000	)			(2,649	)			(1,035	)
Provisions for ongoing investigations and litigation including Foreign Exchange			–				(1,036	)			(1,250	)
Operating expenses
Gain on valuation of a component of the defined retirement benefit liability			–				429				–
Other net expenses
Losses on sale relating to the Spanish, Portuguese and Italian businesses			–				(112	)			315
Total notable items			(420	)			(2,442	)			(1,475	)

Excluding notable items, the Core return on average allocated tangible equity was 9.4% (2015: 11.2%) and the Core basic earnings per share was 23.1p (2015: 24.9p).

Notes

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

b	Attributable profit in respect of the Africa Banking discontinued operation is reported at the Group level only. Assets held for sale, risk weighted assets, leverage exposure and allocated tangible equity are reported in Head Office within Core.

 

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			2016 £m				2015 £m				2014 £m
Income statement informationa
Net interest income			6,048				5,973				5,839
Net fee, commission and other income			1,469				1,370				1,597
Total income			7,517				7,343				7,436
Credit impairment charges and other provisions			(896	)			(706	)			(901	)
Net operating income			6,621				6,637				6,535
Operating expenses			(3,792	)			(3,464	)			(4,108	)
UK bank levy			(48	)			(77	)			(59	)
Litigation and conduct			(1,042	)			(2,511	)			(1,108	)
Total operating expenses			(4,882	)			(6,052	)			(5,275	)
Other net expenses			(1	)			–				–
Profit before tax			1,738				585				1,260
Attributable profit/(loss)			828				(47	)			852
Balance sheet information
Loans and advances to customers at amortised cost			£166.4bn				£166.1bn				£165.3bn
Total assets			£209.6bn				£202.5bn				£198.0bn
Customer deposits			£189.0bn				£176.8bn				£168.3bn
Risk weighted assets			£67.5bn				£69.5bn				£69.3bn
Key facts
Average LTV of mortgage portfoliob			48%				49%				52%
Average LTV of new mortgage lendingb			63%				64%				65%
Number of branches			1,305				1,362				1,488
Barclays mobile banking customers			5.7m				4.7m				3.6m
30 day arrears rate – Barclaycard Consumer UK			1.9%				2.3%				2.5%
Number of employees (full time equivalent)			36,000				38,800				38,300
Performance measures
Return on equity			6.4%				(0.2)%				6.6%
Average equity			£13.4bn				£13.7bn				£13.1bn
Return on average allocated tangible equitya			9.6%				(0.3%	)			9.5%
Average allocated tangible equitya			£8.9bn				£9.3bn				£9.1bn
Cost: income ratio			65%				82%				71%
Loan loss rate (bps)			52				42				53
Loan: deposit ratio			88%				94%				98%
Net interest margin			3.62%				3.56%				n/a
Notable Items
Total income
Gain on disposal of Barclays’ share of Visa Europe Limited			151				–				–
Litigation and conduct
Provisions for UK customer redress			(1,000	)			(2,431	)			(1,067	)
Operating expenses
Gain on valuation of a component of the defined retirement benefit liability			–				296				–
Total notable items			(849	)			(2,135	)			(1,067	)

Excluding notable items, the Barclays UK return on average allocated tangible equity was 19.3% (2015: 21.1%).

Notes

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

b	Average LTV of mortgage portfolio and new mortgage lending calculated on the balance weighted basis.

 

200  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

    

 

 

Analysis of Barclays UK			2016 £m				2015 £m				2014 £m
Analysis of total income
Personal Banking			3,891				3,714				3,788
Barclaycard Consumer UK			2,022				2,065				2,078
Wealth, Entrepreneurs & Business Banking			1,604				1,564				1,570
Total income			7,517				7,343				7,436
Analysis of credit impairment charges and other provisions
Personal Banking			(183	)			(194	)			(211	)
Barclaycard Consumer UK			(683	)			(488	)			(592	)
Wealth, Entrepreneurs & Business Banking			(30	)			(24	)			(98	)
Total credit impairment charges and other provisions			(896	)			(706	)			(901	)
Analysis of loans and advances to customers at amortised cost
Personal Banking			£135.0bn				£134.0bn				£133.8bn
Barclaycard Consumer UK			£16.5bn				£16.2bn				£15.8bn
Wealth, Entrepreneurs & Business Banking			£14.9bn				£15.9bn				£15.7bn
Total loans and advances to customers at amortised cost			£166.4bn				£166.1bn				£165.3bn
Analysis of customer deposits
Personal Banking			£139.3bn				£131.0bn				£124.5bn
Barclaycard Consumer UK			–				–				–
Wealth, Entrepreneurs & Business Banking			£49.7bn				£45.8bn				£43.8bn
Total customer deposits			£189.0bn				£176.8bn				£168.3bn

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  201

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Note

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

 

202  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

 

 

Barclays International

 

			2016 £m				2015 £m				2014 £m
Income statement information
Net interest income			4,512				4,324				3,874
Net trading income			4,580				3,782				3,533
Net fee, commission and other income			5,903				5,641				5,501
Total income			14,995				13,747				12,908
Credit impairment charges and other provisions			(1,355	)			(922	)			(679	)
Net operating income			13,640				12,825				12,229
Operating expenses			(9,129	)			(8,029	)			(8,170	)
UK bank levy			(284	)			(253	)			(248	)
Litigation and conduct			(48	)			(1,310	)			(1,333	)
Total operating expenses			(9,461	)			(9,592	)			(9,751	)
Other net income			32				45				52
Profit before tax			4,211				3,278				2,530
Attributable profit			2,412				1,758				926
Balance sheet information
Loans and advances to banks and customers at amortised costb			£211.3bn				£184.1bn				£193.6bn
Trading portfolio assets			£73.2bn				£61.9bn				£87.3bn
Derivative financial instrument assets			£156.2bn				£111.5bn				£149.6bn
Derivative financial instrument liabilities			£160.6bn				£119.0bn				£157.3bn
Reverse repurchase agreements and other similar secured lending			£13.4bn				£24.7bn				£62.9bn
Financial assets designated at fair value			£62.3bn				£46.8bn				£5.7bn
Total assets			£648.5bn				£532.2bn				£596.5bn
Customer depositsc			£216.2bn				£185.6bn				£188.2bn
Risk weighted assets			£212.7bn				£194.8bn				£201.7bn
Key facts
Number of employees (full time equivalent)			36,900				39,100				36,600
Performance measures
Return on equity			8.8%				6.6%				3.5%
Average equity			£28.2bn				£27.1bn				£27.1bn
Return on average allocated tangible equitya			9.8%				7.2%				3.8%
Average allocated tangible equitya			£25.5bn				£24.9bn				£25.0bn
Cost: income ratio			63%				70%				76%
Loan loss rate (bps)			63				49				35
Loan: deposit ratio			86%				88%				90%
Net interest margind			3.98%				3.80%				n/a
Notable items
Total income
Gains on US Lehman acquisition assets			–				496				461
Gain on disposal of Barclays’ share of Visa Europe Limited			464				–				–
Litigation and conduct
Provisions for UK customer redress			–				(218	)			32
Provisions for ongoing investigations and litigation including Foreign Exchange			–				(984	)			(1,250	)
Operating expenses
Gain on valuation of a component of the defined retirement benefit liability			–				133				–
Total notable items			464				(573	)			(757	)

Excluding notable items, the Barclays International return on average allocated tangible equity was 8.0% (2015: 9.5%).

Notes

 

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

b

As at 31 December 2016 loans and advances included £185.9bn (December 2015: £162.6bn) of loans and advances to customers (including settlement balances of £19.5bn (December 2015: £18.5bn) and cash collateral of £30.1bn (December 2015: £24.8bn)), and £25.4bn (December 2015: £21.5bn) of loans and advances to banks (including settlement balances of £1.7bn (December 2015: £1.6bn) and cash collateral of £6.3bn (December 2015: £5.7bn)). Loans and advances to banks and customers in respect of Consumer, Cards and Payments were £39.7bn (December 2015: £32.1bn).

c	As at 31 December 2016 customer deposits included settlement balances of £16.6bn (December 2015: £16.3bn) and cash collateral of £20.8bn (December 2015: £15.9bn).

d	Barclays International margins have been restated to include interest earning lending within the investment banking business.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  203

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Analysis of Barclays International			2016 £m				2015 £m				2014 £m
Corporate and Investment Bank
Income statement information
Analysis of total income
Credit			1,185				824				792
Equities			1,790				1,912				1,956
Macro			2,304				2,108				1,950
Markets			5,279				4,844				4,698
Banking fees			2,397				2,087				2,115
Corporate lending			1,195				1,361				1,268
Transactional banking			1,657				1,663				1,594
Banking			5,249				5,111				4,977
Other			5				495				476
Total income			10,533				10,450				10,151
Credit impairment charges and other provisions			(260)				(199)				(87)
Total operating expenses			(7,624)				(7,929)				(8,279)
Profit before tax			2,650				2,322				1,787
Balance sheet information
Risk weighted assets			£178.6bn				£167.3bn				£175.1bn
Performance measures
Return on equity			5.8%				5.1%				1.8%
Average equity			£23.2bn				£23.1bn				£23.1bn
Return on average allocated tangible equitya			6.1%				5.4%				1.9%
Average allocated tangible equitya			£21.9bn				£21.9bn				£22.0bn
			2016 £m				2015 £m				2014 £m
Consumer, Cards and Payments
Income statement information
Total income			4,462				3,297				2,757
Credit impairment charges and other provisions			(1,095)				(723)				(592)
Total operating expenses			(1,837)				(1,663)				(1,472)
Profit before tax			1,561				956				743
Balance sheet information
Loans and advances to banks and customers at amortised cost			£39.7bn				£32.1bn				£29.7bn
Customer deposits			£50.0bn				£41.8bn				£37.9bn
Risk weighted assets			£34.1bn				£27.5bn				£26.6bn
Key facts
30 day arrears rates - Barclaycard US			2.6%				2.2%				2.1%
Total number of Barclaycard business clients			355,000				341,000				340,000
Value of payments processed			£296bn				£271bn				£236bn
Performance measures
Return on equity			23.1%				15.3%				13.2%
Average equity			£5.0bn				£4.0bn				£4.0bn
Return on average allocated tangible equitya			31.4%				20.2%				17.8%
Average allocated tangible equitya			£3.6bn				£3.0bn				£3.0bn

Notes

 

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measured included throughout this document.

 

204  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

  

 

 

 

 

 

Note

 

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  205

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Note

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

 

206  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

            

 

 

Head Office

 

			2016 £m				2015 £m				2014 £m
Income statement information
Net interest income			(183	)			(305	)			(216	)
Net fee, comission and other income			286				643				492
Net operating income			103				338				276
Operating expenses			(135	)			(272	)			(70	)
UK bank levy			(2	)			(8	)			(9	)
Litigation and conduct			(27	)			(66	)			(65	)
Total operating expenses			(164	)			(346	)			(144	)
Other net income/(expenses)			128				(106	)			316
Profit/(loss) before tax			67				(114	)			448
Attributable profit			110				11				374
Balance sheet information
Total assetsb			£75.2bn				£59.4bn				£61.0bn
Risk weighted assetsb			£53.3bn				£39.7bn				£41.8bn
Key facts
Number of employees (full time equivalent)			100				100				100
Performance measuresa
Average allocated tangible equity			£6.5bn				£2.6bn				£(2.7bn	)
Notable items
Total income
Own credit			(35	)			430				34
Litigation and conduct
Provisions for ongoing investigations and litigation including Foreign Exchange			–				(52	)			–
Other net expenses
Losses on sale relating to the Spanish business			–				(112	)			315
Total notable items			(35	)			266				349

 

 

Notes

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

b	Includes Africa Banking assets held for sale of £65.1bn (December 2015: £47.9bn) and risk weighted assets of £42.3bn (December 2015: £31.7bn).

 

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Barclays Non-Core

 

			2016 £m				2015 £m				2014 £m
Income statement information
Net interest income			160				615				590
Net trading income			(1,703)				(706)				(590)
Net fee, commission and other income			379				703				1,143
Total income			(1,164)				612				1,143
Credit impairment charges and other provisions			(122)				(134)				(241)
Net operating income			(1,286)				478				902
Operating expenses			(1,509)				(1,958)				(2,611)
UK bank levy			(76)				(88)				(102)
Litigation and conduct			(246)				(500)				(301)
Total operating expenses			(1,831)				(2,546)				(3,014)
Other net income/(expenses)			331				(535)				(813)
Loss before tax			(2,786)				(2,603)				(2,925)
Attributable loss			(1,916)				(2,418)				(2,659)
Balance sheet information
Loans and advances to banks and customers at amortised costb			£51.1bn				£51.8bn				£70.7bn
Derivative financial instrument assets			£188.7bn				£213.7bn				£288.9bn
Derivative financial instrument liabilities			£178.6bn				£202.1bn				£280.6bn
Reverse repurchase agreements and other similar secured lending			£0.1bn				£3.1bn				£50.7bn
Financial assets designated at fair value			£14.5bn				£21.4bn				£25.5bn
Total assets			£279.7bn				£325.8bn				£502.4bn
Customer depositsc			£12.5bn				£20.9bn				£30.8bn
Risk weighted assets			£32.1bn				£54.3bn				£89.1bn
Leverage exposure			£101.5bn				£148.7bn				£316.4bn
Key facts
Number of employees (full time equivalent)			5,500				9,900				15,000
Performance measures
Average equity			£7.8bn				£11.2 bn				£16.0bn
Average allocated tangible equitya			£7.8bn				£10.9bn				£15.6bn
Loan loss rate (bps)			22				23				39
Notable items
Total income
Revision of ESHLA valuation methodology			–				–				(935)
Litigation and conduct
Provisions for UK customer redress			–				(123)				(75)
Provisions for ongoing investigations and litigation including Foreign Exchange			–				(201)				–
Operating expenses
Impairment of goodwill and other assets relating to businesses being disposed			–				(96)				–
Other net expenses
Losses on sale relating to the Spanish business			–				(468)				(761)
Total notable items			–				(888)				(1,771)
Analysis of total income
Businesses			485				1,139				1,503
Securities and loans			(638)				(350)				(318)
Derivatives			(1,011)				(177)				(42)
Total income			(1,164)				612				1,143

 

Notes

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

b

As at 31 December 2016 loans and advances included £38.5bn (December 2015: £40.4bn) of loans and advances to customers (including settlement balances of £0.1bn (December 2015: £0.3bn) and cash collateral of £17.3bn (December 2015: £19.0bn)), and £12.6bn (December 2015: £11.4bn) of loans and advances to banks (including settlement balances of £0.1bn (December 2015: £nil) and cash collateral of £12.1bn (December 2015: £10.1bn)).

c	As at 31December 2016 customer deposits included settlement balances of £0.1bn (December 2015: £0.2bn) and cash collateral of £11.9bn (December 2015: £12.3bn).

 

208  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

    

 

 

 

Note

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  209

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Discontinued Operation: Africa Banking

 

 

			2016  £m				2015  £m			2014  £m
Income statement information
Net interest income			2,169				1,950			1,994
Net fee, commission and other income			1,577				1,464			1,532
Total income			3,746				3,414			3,526
Credit impairment charges and other provisions			(445)				(353)			(347)
Net operating income			3,301				3,061			3,179
Operating expenses			(2,345)				(2,091)			(2,199)
UK bank levy			(65)				(50)			(44)
Litigation and conduct			–				–			(2)
Total operating expenses			(2,410)				(2,141)			(2,245)
Other net income			6				7			10
Profit before tax			897				927			944
Profit after tax			591				626			653
Attributable profit			189				302			334
Balance sheet information			£bn				£bn			£bn
Total assetsa			65.1				47.9			53.7
Risk weighted assetsa			42.3				31.7			36.7
Key facts
Period end – ZAR/GBP			16.78				23.14			18.03
Average – ZAR/GBPb			20.04				19.57			17.84
Barclays Africa Group Limited share price (ZAR)			168.69				143.49			182.00
Barclays Africa Group Limited number of shares (m)			848				848			848
Number of employees (full time equivalent)			40,800				41,500			42,300

 

Notes

a	Africa Banking assets held for sale and RWAs are reported in Head Office within Core.

b	The average rate is derived from daily spot rates during the year.

 

210  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Financial review

Analysis of results by business

    

 

 

Margins analysis

 

 

			Year ended 31 December 2016												Year ended 31 December 2015
			Net interest income £m				Average customer assets £m				Net interest margin £m				Net interest income £m				Average customer assets £m				Net interest margin £m
Barclays UK			6,048				167,233				3.62				5,973				167,599				3.56
Barclays Internationala			4,275				107,333				3.98				3,841				101,164				3.80
Total Barclays UK and Barclays International			10,323				274,566				3.76				9,814				268,763				3.65
Otherb			214												794
Total net interest income			10,537												10,608

 

 

Notes

a	Barclays International margins have been restated to include interest earning lending within the investment banking business.

b	Other includes Head Office, Barclays Non-Core and non-lending related investment banking balances.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  211

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Non-IFRS performance measures

    

 

 

Non-IFRS performance measures glossary
Measure		Definition
Barclays Core		Barclays Core includes Barclays UK, Barclays International and Head Office. A reconciliation of Core statutory results and results excluding notable items is included on pages vi to viii.
Return on average tangible shareholders’ equity		Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill. The components of the calculation have been included on page 213.
Return on average allocated tangible shareholders’ equity		Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average allocated tangible equity. The components of the calculation have been included on page 213.
Average tangible shareholders’ equity		Calculated as the average of the monthly period end tangible shareholders’ equity during the period.
Average allocated tangible shareholders’ equity		Calculated as the average of the monthly period end allocated tangible shareholders’ equity during the period.
Cost: income ratio		Total operating expenses divided by total income.
Basic earnings/(loss) per share contribution (Barclays Core and Non-Core)		The calculation is consistent with the IFRS measure and applied to the Barclays Core and Non-Core: statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, divided by the Group basic weighted average number of shares. The components of the calculation have been included on page 215.
Loan loss rate		Is quoted in basis points and represents total loan impairment divided by gross loans and advances to customers and banks held at amortised cost at the balance sheet date.
Loan: deposit ratio		Loans and advances divided by customer accounts calculated for Barclays UK, Barclays International and Non-Core, excluding investment banking businesses. This excludes particular liabilities issued by the retail businesses that have characteristics comparable to retail deposits (for example structured Certificates of Deposit and retail bonds), which are included within debt securities in issue.
Notable items		Notable items are considered to be significant items impacting comparability of performance and are shown for each of the business segments. A reconciliation between statutory results and results excluding notable items is included on pages vi to viii including relevant performance measures.
Net interest margin		Net interest income divided by the sum of average customer assets. The components of the calculation have been included on page 211.
Tangible net asset value per share		Calculated by dividing shareholders equity, excluding non-controlling interests and other equity instruments, less goodwill and intangible assets, by the number of issued ordinary shares. The components of the calculation have been included on page 215.

 

212  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Returns

Return on average allocated tangible equity is calculated as profit for the period attributable to ordinary equity holders of the parent (adjusted for the tax credit recorded in reserves in respect of interest payments on other equity instruments) divided by average allocated tangible equity for the period as appropriate, excluding non-controlling and other equity interests for businesses. Allocated tangible equity has been calculated as 11.5% of CRD IV fully loaded risk weighted assets for each business, adjusted for CRD IV fully loaded capital deductions, excluding goodwill and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. Head Office average tangible equity represents the difference between the Group’s average tangible equity and the amounts allocated to businesses.

 

			Year ended 31.12.16 £m				Year ended 31.12.15 £m				Year ended 31.12.14 £m
Attributable profit
Barclays UK			828				(47	)			852
Barclays International			2,412				1,758				926
Head Office			110				11				374
Barclays Core			3,350				1,722				2,152
Barclays Non-Core			(1,916	)			(2,418	)			(2,659	)
Africa Banking discontinued operation			189				302				334
Barclays Group			1,623				(394)				(174	)
Tax credit in respect of interest payments on other equity instruments			£m				£m				£m
Barclays UK			29				14				17
Barclays International			83				42				23
Head Office			(1	)			–				(1	)
Barclays Core			111				56				39
Barclays Non-Core			17				14				14
Africa Banking discontinued operation			–				–				–
Barclays Group			128				70				54
Profit/(loss) attributable to ordinary equity holders of the parent			£m				£m				£m
Barclays UK			857				(33	)			869
Barclays International			2,495				1,800				949
Head Office			109				11				373
Barclays Core			3,461				1,778				2,191
Barclays Non-Core			(1,899	)			(2,405	)			(2,645	)
Africa Banking discontinued operation			189				302				334
Barclays Group			1,751				(324	)			(120	)
Average allocated tangible equitya			£bn				£bn				£bn
Barclays UK			8.9				9.3				9.1
Barclays International			25.5				24.9				25.0
Head Officeb			6.5				2.6				(2.7	)
Barclays Core			41.0				36.8				31.4
Barclays Non-Core			7.8				10.9				15.6
Barclays Group			48.7				47.7				47.0
Return on average allocated tangible equitya			%				%				%
Barclays UK			9.6%				(0.3%	)			9.5%
Barclays International			9.8%				7.2%				3.8%
Barclays Core			8.4%				4.8%				7.0%
Barclays Group			3.6%				(0.7%	)			(0.3%	)

Note

a	Refer to pages i to x and pages 212 to 215 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document.

b	Includes the Africa Banking discontinued operation.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  213

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Financial review

Non-IFRS performance measures

 

 

Returns excluding notable items
			Year ended 31.12.16 £m				Year ended 31.12.15 £m				Year ended 31.12.14 £m
Attributable profit excluding notable items
Barclays UK			1,685				1,961				1,707
Barclays International			1,961				2,320				1,734
Head Office			135				(176	)			114
Barclays Core			3,781				4,105				3,555
Barclays Non-Core			(1,916	)			(1,711	)			(1,109	)
Africa Banking discontinued operation			189				302				334
Barclays Group			2,054				2,696				2,780
Tax credit in respect of interest payments on other equity instruments
Barclays UK			29				14				17
Barclays International			83				42				23
Head Office			(1	)			–				(1	)
Barclays Core			111				56				39
Barclays Non-Core			17				14				14
Africa Banking discontinued operation			–				–				–
Barclays Group			128				70				54
Profit/(loss) attributable to ordinary equity holders of the parent excluding notable items
Barclays UK			1,714				1,975				1,724
Barclays International			2,044				2,362				1,757
Head Office			133				(176)				126
Barclays Core			3,891				4,161				3,594
Barclays Non-Core			(1,899	)			(1,697	)			(1,095	)
Africa Banking discontinued operation			189				302				334
Barclays Group			2,182				2,766				2,834
Average allocated tangible equity excluding notable itemsa			£bn				£bn				£bn
Barclays UK			8.9				9.3				9.1
Barclays International			25.5				24.9				25.0
Head Officeb,c			6.8				2.9				(1.9	)
Barclays Core			41.3				37.2				32.2
Barclays Non-Core			7.8				10.9				15.6
Barclays Group			49.0				48.1				47.8
Return on average allocated tangible equity excluding notable itemsa			%				%				%
Barclays UK			19.3%				21.1%				18.9%
Barclays International			8.0%				9.5%				7.0%
Barclays Core			9.4%				11.2%				11.2%
Barclays Group			4.4%				5.8%				5.9%

Notes

a	Refer to pages i to x and pages 212 to 215 for further information reconciliations and calculations of non-IFRS performance measures included throughout this document.

b	Includes the Africa Banking discontinued operation.

c	Excludes the cumulative post-tax impact of own credit.

 

214  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Non-IFRS performance measures

 

 

Earnings per share
			Year ended 31.12.16 £m				Year ended 31.12.15 £m				Year ended 31.12.14 £m
Profit/(loss) attributable to ordinary equity holders of the parenta
Barclays Core			3,461				1,778				2,191
Barclays Non-Core			(1,899)				(2,405)				(2,645)
Africa Banking discontinued operation			189				302				334
Barclays Groupb			1,751				(324)				(120)
			£m				£m				£m
Basic weighted average number of shares			16,860				16,683				16,329
Basic earnings per ordinary sharea.b			p				p				p
Barclays Core contribution			20.5				10.7				13.4
Barclays Non-Core contribution			(11.3)				(14.4)				(16.2)
Barclays Group			10.4				(1.9)				(0.7)
Profit/(loss) attributable to ordinary equity holders of the parent excluding notable itemsa			£m				£m				£m
Barclays Core			3,891				4,161				3,594
Barclays Non-Core			(1,899)				(1,697)				(1,095)
Africa Banking discontinued operation			189				302				334
Barclays Groupb			2,182				2,766				2,834
Basic earnings per ordinary share excluding notable itemsa,b			p				p				p
Barclays Core contribution			23.1				24.9				22.0
Barclays Non-Core contribution			(11.3)				(10.2)				(6.7)
Barclays Group			12.9				16.6				17.3
Tangible net asset value
			Year ended 31.12.16 £m				Year ended 31.12.15 £m				Year ended 31.12.14 £m
Total equity excluding non-controlling interests			64,873				59,810				59,567
Other equity instruments			(6,449)				(5,305)				(4,322)
Shareholder’s equity excluding non-controlling interests attributable to ordinary shareholders of the parent			58,424				54,505				55,245
Goodwill and intangiblesc			(9,245)				(8,222)				(8,180)
Tangible shareholders’ equity excluding non-controlling interests attributable to ordinary shareholders of the parent			49,179				46,283				47,023
			£m				£m				£m
Shares in issue			16,963				16,805				16,498
			p				p				p
Net asset value per share			344				324				335
Tangible net asset value per share			290				275				285

 

Notes

a

Profit for the period attributable to ordinary equity holders of the parent includes the tax credit recorded in reserves in respect of interest payments on other equity instruments. The tax credit of £128m (2015: £70m) is allocated to businesses in proportion to the allocation of the payments in relation to the other equity instruments.

b	Includes the Africa Banking discontinued operation

c	2016 includes goodwill and intangibles in relation to Africa Banking of £1,519m.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  215

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Financial statements

Detailed analysis of our statutory accounts, independently audited and providing

in-depth disclosure on the financial performance of the Group.

 

Consolidated financial statements							Page				Note
		§		Presentation of information			217				n/a
		§		Independent Registered Public Accounting Firm’s report			218				n/a
		§		Consolidated income statement			219				n/a
		§		Consolidated statement of comprehensive income			220				n/a
		§		Consolidated balance sheet			221				n/a
		§		Consolidated statement of changes in equity			222				n/a
		§		Consolidated cash flow statement			223				n/a
		§		Parent Company accounts			224				n/a
		§		Notes to the financial statements			226				n/a
		§		Significant accounting policies			226				1
Notes to the financial statements
Performance/return		§		Segmental reporting			231				2
		§		Net interest income			231				3
		§		Net fee and commission income			232				4
		§		Net trading income			232				5
		§		Net investment income			233				6
		§		Credit impairment charges and other provisions			233				7
		§		Operating expenses			235				8
		§		Profit/(loss) on disposal of subsidiaries, associates and joint ventures			235				9
		§		Tax			236				10
		§		Earnings per share			240				11
		§		Dividends on ordinary shares			240				12
Assets and liabilities		§		Trading portfolio			241				13
held at fair value		§		Financial assets designated at fair value			241				14
		§		Derivative financial instruments			242				15
		§		Financial investments			245				16
		§		Financial liabilities designated at fair value			245				17
		§		Fair value of financial instruments			246				18
		§		Offsetting financial assets and financial liabilities			263				19
Financial instruments		§		Loans and advances to banks and customers			264				20
held at amortised cost		§		Finance leases			264				21
		§		Reverse repurchase and repurchase agreements including other similar lending and borrowing			265				22
Non-current assets and		§		Property, plant and equipment			266				23
other investments		§		Goodwill and intangible assets			267				24
		§		Operating leases			269				25
Accruals, provisions,		§		Accruals, deferred income and other liabilities			270				26
contingent liabilities		§		Provisions			270				27
and legal proceedings		§		Contingent liabilities and commitments			272				28
		§		Legal, competition and regulatory matters			272				29
Capital instruments,		§		Subordinated liabilities			281				30
equity and reserves		§		Ordinary shares, share premium and other equity			284				31
		§		Reserves			285				32
		§		Non-controlling interests			285				33
Employee benefits		§		Share-based payments			287				34
		§		Pensions and post retirement benefits			288				35
Scope of consolidation		§		Principal subsidiaries			294				36
		§		Structured entities			295				37
		§		Investments in associates and joint ventures			298				38
		§		Securitisations			299				39
		§		Assets pledged			301				40
Other disclosure matters		§		Related party transactions and Directors’ remuneration			302				41
		§		Auditors’ remuneration			304				42
		§		Financial risks, liquidity and capital management			304				43
		§		Assets included in disposal groups held for sale and associated liabilities			305				44
		§		Barclays PLC (the Parent Company)			307				45
		§		Related undertakings			308				46

 

216  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Presentation of information

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  217

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Independent Registered Public Accounting Firm’s report

 

 

 

 

 

218  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Consolidated financial statements

Consolidated income statement

    

 

 

For the year ended 31 December			Note				2016 £m				2015 £m				2014 £m
Continuing operations
Interest income			3				14,541				13,953				14,194
Interest expense			3				(4,004	)			(3,345	)			(4,108	)
Net interest income							10,537				10,608				10,086
Fee and commission income			4				8,570				8,470				8,622
Fee and commission expense			4				(1,802	)			(1,611	)			(1,500	)
Net fee and commission income							6,768				6,859				7,122
Net trading income			5				2,768				3,426				3,086
Net investment income			6				1,324				1,097				1,309
Other income							54				50				160
Total income							21,451				22,040				21,763
Credit impairment charges and other provisions			7				(2,373	)			(1,762	)			(1,821	)
Net operating income							19,078				20,278				19,942
Staff costs			8				(9,423	)			(8,853	)			(9,860	)
Infrastructure costs			8				(2,998	)			(2,691	)			(2,895	)
Administration and general expenses			8				(2,917	)			(2,983	)			(3,069	)
Provision for UK customer redress							(1,000	)			(2,772	)			(1,110	)
Provision for ongoing investigations and litigation relating to Foreign Exchange							–				(1,237	)			(1,250	)
Operating expenses			8				(16,338	)			(18,536	)			(18,184	)
Share of post-tax results of associates and joint ventures							70				41				28
Profit/(loss) on disposal of subsidiaries, associates and joint ventures			9				420				(637	)			(473	)
Profit before tax							3,230				1,146				1,313
Taxation			10				(993	)			(1,149	)			(1,121	)
Profit/(loss) after tax in respect of continuing operations							2,237				(3	)			192
Profit after tax in respect of discontinued operation							591				626				653
Profit after tax							2,828				623				845
Attributable to:
Equity holders of the parent							1,623				(394	)			(174	)
Other equity holdersa							457				345				250
Total equity holders of the parent							2,080				(49	)			76
Non-controlling interests in respect of continuing operations			33				346				348				449
Non-controlling interests in respect of discontinued operation			33				402				324				320
Profit after tax							2,828				623				845
Earnings per share
Basic earnings/(loss) per ordinary share			11				10.4				(1.9	)			(0.7	)
Basic earnings/(loss) per ordinary share in respect of continuing operations							9.3				(3.7	)			(2.7	)
Basic earnings per ordinary share in respect of discontinued operation							1.1				1.8				2.0
Diluted earnings/(loss) per share			11				10.3				(1.9	)			(0.7	)

 

Note

a	The profit after tax attributable to other equity holders of £457m (2015: £345m) is offset by a tax credit recorded in reserves of £128m (2015: £70m). The net amount of £329m (2015: £275m), along with NCI, is deducted from profit after tax in order to calculate earnings per share.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  219

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Consolidated financial statements

Consolidated statement of comprehensive income

    

 

 

For the year ended 31 December			2016 £m				2015 £m				2014 £m
Profit after tax			2,828				623				845
Profit/(loss) after tax in respect of continuing operations			2,237				(3	)			192
Profit after tax in respect of discontinued operation			591				626				653
Other comprehensive income that may be recycled to profit or loss from continuing operations:
Currency translation reserve
Currency translation differences			3,024				748				774
Available for sale reserve
Net gains from changes in fair value			2,147				64				5,339
Net losses transferred to net profit on disposal			(912	)			(374	)			(619	)
Net losses/(gains) transferred to net profit due to impairment			20				17				(31	)
Net (gains) transferred to net profit due to fair value hedging			(1,677	)			(148	)			(4,074	)
Changes in insurance liabilities			53				86				(94	)
Tax			(18	)			126				(103	)
Cash flow hedging reserve
Net gains/(losses) from changes in fair value			1,455				(312	)			2,650
Net losses transferred to net profit			(365	)			(238	)			(713	)
Tax			(292	)			57				(384	)
Other			13				20				(42	)
Other comprehensive income that may be recycled to profit or loss			3,448				46				2,703
Other comprehensive (loss)/income not recycled to profit or loss:
Retirement benefit remeasurements			(1,309	)			1,176				268
Tax			329				(260	)			(63	)
Other comprehensive income for the period			2,468				962				2,908
Total comprehensive income for the year, net of tax from continuing operations			4,705				959				3,100
Total comprehensive income/(loss) for the year, net of tax from discontinued operation			2,111				(722	)			346
Total comprehensive income for the year			6,816				237				3,446
Attributable to:
Equity holders of the parent			5,233				45				2,755
Non-controlling interests			1,583				192				691
Total comprehensive income for the year			6,816				237				3,446

 

220  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Consolidated financial statements

Consolidated balance sheet

 

 

As at 31 December			Notes				2016 £m				2015 £m				2014 £m
Assets
Cash and balances at central banks							102,353				49,711				39,695
Items in the course of collection from other banks							1,467				1,011				1,210
Trading portfolio assets			13				80,240				77,348				114,717
Financial assets designated at fair value			14				78,608				76,830				38,300
Derivative financial instruments			15				346,626				327,709				439,909
Financial investments			16				63,317				90,267				86,066
Loans and advances to banks			20				43,251				41,349				42,111
Loans and advances to customers			20				392,784				399,217				427,767
Reverse repurchase agreements and other similar secured lending			22				13,454				28,187				131,753
Prepayments, accrued income and other assets							2,893				3,010				3,607
Investments in associates and joint ventures			38				684				573				711
Property, plant and equipment			23				2,825				3,468				3,786
Goodwill and intangible assets			24				7,726				8,222				8,180
Current tax assets			10				561				415				334
Deferred tax assets			10				4,869				4,495				4,130
Retirement benefit assets			35				14				836				56
Assets included in disposal groups classified as held for sale			44				71,454				7,364				15,574
Total assets							1,213,126				1,120,012				1,357,906
Liabilities
Deposits from banks							48,214				47,080				58,390
Items in the course of collection due to other banks							636				1,013				1,177
Customer accounts							423,178				418,242				427,704
Repurchase agreements and other similar secured borrowing			22				19,760				25,035				124,479
Trading portfolio liabilities			13				34,687				33,967				45,124
Financial liabilities designated at fair value			17				96,031				91,745				56,972
Derivative financial instruments			15				340,487				324,252				439,320
Debt securities in issue							75,932				69,150				86,099
Subordinated liabilities			30				23,383				21,467				21,153
Accruals, deferred income and other liabilities			26				8,871				10,610				11,423
Provisions			27				4,134				4,142				4,135
Current tax liabilities			10				737				903				1,021
Deferred tax liabilities			10				29				122				262
Retirement benefit liabilities			35				390				423				1,574
Liabilities included in disposal groups classified as held for sale			44				65,292				5,997				13,115
Total liabilities							1,141,761				1,054,148				1,291,948
Total equity
Called up share capital and share premium			31				21,842				21,586				20,809
Other equity instruments			31				6,449				5,305				4,322
Other reserves			32				6,051				1,898				2,724
Retained earnings							30,531				31,021				31,712
Total equity excluding non-controlling interests							64,873				59,810				59,567
Non-controlling interests			33				6,492				6,054				6,391
Total equity							71,365				65,864				65,958
Total liabilities and equity							1,213,126				1,120,012				1,357,906

The Board of Directors approved the financial statements on pages 219 to 316 on 22 February 2017.

John McFarlane

Group Chairman

James E Staley

Group Chief Executive

Tushar Morzaria

Group Finance Director

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  221

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Consolidated financial statements

Consolidated statement of changes in equity

 

 

			Called up share capital and share premium £m				Other equity instruments £m				Available for sale reserve £m				Cash flow hedging reserve £m				Currency translation reserve £m				Other reserves and treasury shares £m				Retained earnings £m				Total equity excluding non- controlling interests £m				Non- controlling interests £m				Total equity £m
Balance as at 1 January 2016			21,586				5,305				317				1,261				(623	)			943				31,021				59,810				6,054				65,864
Profit after tax			–				457				–				–				–				–				1,434				1,891				346				2,237
Currency translation movements			–				–				–				–				3,022				–				–				3,022				2				3,024
Available for sale investments			–				–				(387	)			–				–				–				–				(387	)			–				(387	)
Cash flow hedges			–				–				–				798				–				–				–				798				–				798
Pension remeasurement			–				–				–				–				–				–				(980	)			(980	)			–				(980	)
Other			–				–				–				–				–				–				12				12				1				13
Total comprehensive income net of tax from continuing operations			–				457				(387	)			798				3,022				–				466				4,356				349				4,705
Total comprehensive income net of tax from discontinued operation			–				–				(4	)			46				652				–				183				877				1,234				2,111
Total comprehensive (loss)/income for the year			–				457				(391	)			844				3,674				–				649				5,233				1,583				6,816
Issue of new ordinary shares			68				–				–				–				–				–				–				68				–				68
Issue of shares under employee share schemes			188				–				–				–				–				–				668				856				–				856
Issue and exchange of other equity instruments			–				1,132				–				–				–				–				–				1,132				–				1,132
Other equity instruments coupons paid			–				(457	)			–				–				–				–				128				(329	)			–				(329	)
Redemption of preference shares			–				–				–				–				–				–				(417	)			(417	)			(1,170	)			(1,587	)
Increase in treasury shares			–				–				–				–				–				(140	)			–				(140	)			–				(140	)
Vesting of shares under employee share schemes			–				–				–				–				–				166				(415	)			(249	)			–				(249	)
Dividends paid			–				–				–				–				–				–				(757	)			(757	)			(575	)			(1,332	)
Net equity impact of partial BAGL disposal			–				–				–				–				–				–				(349	)			(349	)			601				252
Other reserve movements			–				12				–				–				–				–				3				15				(1	)			14
Balance as at 31 December 2016			21,842				6,449				(74	)			2,105				3,051				969				30,531				64,873				6,492				71,365
Balance as at 1 January 2015			20,809				4,322				562				1,817				(582	)			927				31,712				59,567				6,391				65,958
Profit after tax			–				345				–				–				–				–				(696	)			(351	)			348				(3	)
Currency translation movements			–				–				–				–				747				–				–				747				1				748
Available for sale investments			–				–				(229	)			–				–				–				–				(229	)			–				(229	)
Cash flow hedges			–				–				–				(493	)			–				–				–				(493	)			–				(493	)
Pension remeasurement			–				–				–				–				–				–				916				916				–				916
Other			–				–				–				–				–				–				20				20				–				20
Total comprehensive income net of tax from continuing operations			–				345				(229	)			(493	)			747				–				240				610				349				959
Total comprehensive income net of tax from discontinued operation			–				–				(16	)			(63	)			(788	)			–				302				(565	)			(157	)			(722	)
Total comprehensive (loss)/income for the year			–				345				(245	)			(556	)			(41	)			–				542				45				192				237
Issue of new ordinary shares			137				–				–				–				–				–				–				137				–				137
Issue of shares under employee share schemes			640				–				–				–				–				–				571				1,211				–				1,211
Issue and exchange of other equity instruments			–				995				–				–				–				–				–				995				–				995
Other equity instruments coupons paid			–				(345	)			–				–				–				–				70				(275	)			–				(275	)
Redemption of preference shares			–				–				–				–				–				–				–				–				–				–
Increase in treasury shares			–				–				–				–				–				(602	)			–				(602	)			–				(602	)
Vesting of shares under employee share schemes			–				–				–				–				–				618				(755	)			(137	)			–				(137	)
Dividends paid			–				–				–				–				–				–				(1,081	)			(1,081	)			(552	)			(1,633	)
Other reserve movements			–				(12	)			–				–				–				–				(38	)			(50	)			23				(27	)
Balance as at 31 December 2015			21,586				5,305				317				1,261				(623	)			943				31,021				59,810				6,054				65,864
Balance as at 1 January 2014			19,887				2,063				148				273				(1,142	)			970				33,186				55,385				8,564				63,949
Profit after tax			–				250				–				–				–				–				(507	)			(257	)			449				192
Currency translation movements			–				–				–				–				773				–				–				773				1				774
Available for sale investments			–				–				418				–				–				–				–				418				–				418
Cash flow hedges			–				–				–				1,554				–				–				–				1,554				–				1,554
Pension remeasurement			–				–				–				–				–				–				205				205				–				205
Other			–				–				–				–				–				–				(43	)			(43	)			1				(42	)
Total comprehensive income net of tax from continuing operations			–				250				418				1,554				773				–				(345	)			2,650				451				3,101
Total comprehensive income net of tax from discontinued operation			–				–				(4	)			(10	)			(213	)			–				333				106				240				346
Total comprehensive (loss)/income for the year			–				250				414				1,544				560				–				(12	)			2,756				691				3,447
Issue of new ordinary shares			150				–				–				–				–				–				–				150				–				150
Issue of shares under employee share schemes			772				–				–				–				–				–				693				1,465				–				1,465
Issue and exchange of other equity instruments			–				2,263				–				–				–				–				(155	)			2,108				(1,527	)			581
Other equity instruments coupons paid			–				(250	)			–				–				–				–				54				(196	)			–				(196	)
Redemption of preference shares			–				–				–				–				–				–				(104	)			(104	)			(687	)			(791	)
Increase in treasury shares			–				–				–				–				–				(909	)			–				(909	)			–				(909	)
Vesting of shares under employee share schemes			–				–				–				–				–				866				(866	)			–				–				–
Dividends paid			–				–				–				–				–				–				(1,057	)			(1,057	)			(631	)			(1,688	)
Other reserve movements			–				(4	)			–				–				–				–				(27	)			(31	)			(19	)			(50	)
Balance as at 31 December 2014			20,809				4,322				562				1,817				(582	)			927				31,712				59,567				6,391				65,958

 

222  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Consolidated financial statements    

Consolidated cash flow statement    

        

 

 

For the year ended 31 December			2016 £m				2015 £m				2014 £m
Continuing operations
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax			3,230				1,146				1,312
Adjustment for non-cash items:
Allowance for impairment			2,357				1,752				1,816
Depreciation, amortisation and impairment of property, plant, equipment and intangibles			1,261				1,215				1,108
Other provisions, including pensions			1,964				4,241				3,487
Net profit on disposal of investments and property, plant and equipment			(912	)			(374	)			(619	)
Other non-cash movements including exchange rate movements			(20,025	)			226				(595	)
Changes in operating assets and liabilities
Net (increase)/decrease in loans and advances to banks and customers			(25,385	)			22,641				4,079
Net decrease in reverse repurchase agreements and other similar lending			14,733				103,471				54,380
Net increase/(decrease) in deposits and debt securities in issue			49,064				(33,120	)			(2,319	)
Net (decrease) in repurchase agreements and other similar borrowing			(4,852	)			(99,602	)			(72,107	)
Net (increase)/decrease in derivative financial instruments			(2,318	)			(3,315	)			2,961
Net (increase)/decrease in trading assets			(5,577	)			37,091				18,651
Net increase/(decrease) in trading liabilities			880				(10,877	)			(8,565	)
Net decrease/(increase) in financial investments			807				(3,064	)			(5,882	)
Net (increase) in other assets			(2,629	)			(2,661	)			(14,642	)
Net (increase)/decrease in other liabilities			(532	)			(1,766	)			8,092
Corporate income tax paid			(780	)			(1,670	)			(1,552	)
Net cash from operating activities			11,286				15,334				(10,395	)
Purchase of available for sale investments			(65,086	)			(120,061	)			(109,296	)
Proceeds from sale or redemption of available for sale investments			102,515				114,529				119,129
Purchase of property, plant and equipment and intangibles			(1,707	)			(1,928	)			(691	)
Proceeds from sale of property, plant and equipment and intangibles			358				393				335
Proceeds from part disposal of investment in BAGL			595				–				–
Other cash flows associated with investing activities			32				516				(48	)
Net cash from investing activities			36,707				(6,551	)			8,429
Dividends paid			(1,304	)			(1,496	)			(1,688	)
Issuance of subordinated debt			1,457				879				848
Redemption of subordinated debt			(1,143	)			(556	)			(869	)
Net issue of shares and other equity instruments			1,400				1,278				559
Repurchase of shares and other equity instruments			(1,587	)			–				(104	)
Net purchase of treasury shares			(140	)			(679	)			(909	)
Net redemption of shares issued to non-controlling interests			–				–				(746	)
Net cash from financing activities			(1,317	)			(574	)			(2,805	)
Net cash from discontinued operations			405				(1,821	)			1,809
Effect of exchange rates on cash and cash equivalents			10,473				1,689				(313	)
Net increase/(decrease) in cash and cash equivalents			57,554				8,077				(3,275	)
Cash and cash equivalents at beginning of year			86,556				78,479				81,754
Cash and cash equivalents at end of year			144,110				86,556				78,479
Cash and cash equivalents comprise:
Cash and balances at central banks			102,353				49,711				39,695
Loans and advances to banks with original maturity less than three months			38,252				35,876				36,282
Available for sale treasury and other eligible bills with original maturity less than three months			356				816				2,322
Trading portfolio assets with original maturity less than three months			–				153				180
Cash and cash equivalents held for sale			3,149				–				–
			144,110				86,556				78,479

Interest received was £22,099m (2015: £20,376m; 2014: £21,372m) and interest paid was £8,850m (2015: £7,534m; 2014: £8,566m).    

The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £4,254m (2015: £4,369m; 2014: £4,448m).    

For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.    

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  223

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Financial statements of Barclays PLC

Parent company accounts    

            

 

 

Income statement
For the year ended 31 December			Notes				2016 £m				2015 £m				2014 £m
Dividends received from subsidiary							621				876				821
Net interest income/(expense)							5				(7	)			(6	)
Other income			45				334				227				275
Operating expenses							(26	)			(6	)			(6	)
Profit before tax							934				1,090				1,084
Tax							(60	)			(43	)			(57	)
Profit after tax							874				1,047				1,027
Attributable to
Ordinary equity holders							417				702				777
Other equity holders							457				345				250

Profit after tax and total comprehensive income for the year was £874m (2015: £1,047m). There were no other components of total comprehensive income other than the profit after tax.

The Company has seven members of staff (2015: nil).

 

Balance sheet
As at 31 December			Notes				2016 £m				2015 £m
Assets
Investment in subsidiaries			45				36,553				35,303
Loans and advances to subsidiaries			45				19,421				7,990
Financial investments			45				1,218				–
Derivative financial instruments			45				268				210
Other assets							105				133
Total assets							57,565				43,636
Liabilities
Deposits from banks							547				494
Subordinated liabilities			45				3,789				1,766
Debt securities in issue			45				16,893				6,224
Other liabilities							14				–
Total liabilities							21,243				8,484
Equity
Called up share capital			31				4,241				4,201
Share premium account			31				17,601				17,385
Other equity instruments			31				6,453				5,321
Capital redemption reserve							420				394
Retained earnings							7,607				7,851
Total equity							36,322				35,152
Total liabilities and equity							57,565				43,636

The financial statements on pages 224 to 225 and the accompanying note on page 307 were approved by the Board of Directors on 22 February 2017 and signed on its behalf by:    

John McFarlane    

Group Chairman    

James E Staley    

Group Chief Executive    

Tushar Morzaria    

Group Finance Director    

 

224  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Statement of changes in equity
			Notes				Called up share capital and share premium £m				Other equity instruments £m				Capital redemption reserve £m				Available for sale reserve £m				Retained earnings £m				Total equity £m
Balance as at 1 January 2016							21,586				5,321				394				–				7,851				35,152
Profit after tax and total comprehensive income							–				457				–				–				417				874
Issue of new ordinary shares							68				–				–				–				–				68
Issue of shares under employee share schemes							188				–				–				–				–				188
Issue of other equity instruments							–				1,132				–				–				–				1,132
Dividends			12				–				–				–				–				(757	)			(757	)
Other equity instruments coupons paid							–				(457	)			–				–				91				(366	)
Other							–				–				–				26				5				31
Balance as at 31 December 2016							21,842				6,453				394				26				7,607				36,322
Balance as at 1 January 2015							20,809				4,326				394								8,163				33,692
Profit after tax and total comprehensive income							–				345				–								702				1,047
Issue of new ordinary shares							137				–				–								–				137
Issue of shares under employee share schemes							640				–				–								–				640
Issue of other equity instruments							–				995				–								–				995
Dividends			12				–				–				–								(1,081	)			(1,081	)
Other equity instruments coupons paid							–				(345	)			–								70				(275	)
Other							–				–				–								(3	)			(3	)
Balance as at 31 December 2015							21,586				5,321				394								7,851				35,152
Balance as at 1 January 2014							19,887				2,063				394								8,398				30,742
Profit after tax and total comprehensive income							–				250				–								777				1,027
Issue of new ordinary shares							150				–				–								–				150
Issue of shares under employee share schemes							772				–				–								–				772
Issue of other equity instruments							–				2,263				–								–				2,263
Dividends			12				–				–				–								(1,057	)			(1,057	)
Other equity instruments coupons paid							–				(250	)			–								54				(196	)
Other							–				–				–								(9	)			(9	)
Balance as at 31 December 2014							20,809				4,326				394								8,163				33,692
Cash flow statement
For the year ended 31 December																			2016 £m				2015 £m				2014 £m
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax																			934				1,090				1,084
Changes in operating assets and liabilities																			37				100				734
Other non-cash movements																			62				52				(43	)
Corporate income tax (paid)/received																			–				(27	)			38
Net cash generated from operating activities																			1,033				1,215				1,813
Capital contribution to subsidiary																			(1,250	)			(1,560	)			(3,684	)
Net cash used in investing activities																			(1,250	)			(1,560	)			(3,684	)
Issue of shares and other equity instruments																			1,388				1,771				3,185
Net (increase) in loans and advances to bank subsidiaries of the Parent																			(10,942	)			(4,973	)			(2,866	)
Net increase in deposits and debt securities in issue																			9,314				4,052				2,056
Proceeds of borrowings and issuance of subordinated debt																			1,671				921				803
Dividends paid																			(757	)			(1,081	)			(1,057	)
Coupons paid on AT1 instruments																			(457	)			(345	)			(250	)
Net cash generated from financing activities																			217				345				1,871
Net increase/(decrease) in cash and cash equivalents																			–				–				–
Cash and cash equivalents at beginning of year																			–				–				–
Cash and cash equivalents at end of year																			–				–				–
Net cash generated from operating activities includes:
Dividends received																			621				876				821
Interest received/(paid)																			5				(7	)			(6	)

The Parent Company’s principal activity is to hold the investment in its wholly-owned subsidiaries, Barclays Bank PLC and Group Service Company. Dividends received are treated as operating income.

The Company was not exposed at 31 December 2016 or 2015 to significant risks arising from the financial instruments it holds, which comprised loans and advances and other assets which had no market risk or material credit risk.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  225

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Notes to the financial statements

For the year ended 31 December 2016

    

 

 

1 Significant accounting policies

 

1. Reporting entity These financial statements are prepared for Barclays PLC and its subsidiaries (the Barclays PLC Group or the Group) under Section 399 of the Companies Act 2006. The Group is a major global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. In addition, individual financial statements have been presented for the holding company.   2. Compliance with International Financial Reporting Standards The consolidated financial statements of the Group, and the individual financial statements of Barclays PLC, have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) issued by the Interpretations Committee, as published by the International Accounting Standards Board (IASB). They are also in accordance with IFRS and IFRIC interpretations endorsed by the European Union. The principal accounting policies applied in the preparation of the consolidated and individual financial statements are set out below, and in the relevant notes to the financial statements. These policies have been consistently applied.   3. Basis of preparation The consolidated and individual financial statements have been prepared under the historical cost convention modified to include the fair valuation of investment property, and particular financial instruments, to the extent required or permitted under IFRS as set out in the relevant accounting policies. They are stated in millions of pounds Sterling (£m), the functional currency of Barclays PLC.   4. Accounting policies Barclays prepares financial statements in accordance with IFRS. The Group’s significant accounting policies relating to specific financial statement items, together with a description of the accounting estimates and judgements that were critical to preparing them, are set out under the relevant notes. Accounting policies that affect the financial statements as a whole are set out below.   (i) Consolidation Barclays applies IFRS 10 Consolidated Financial Statements.   The consolidated financial statements combine the financial statements of Barclays PLC and all its subsidiaries. Subsidiaries are entities over which Barclays PLC has control. The Group has control over another entity when the Group has all of the following:   1) power over the relevant activities of the investee, for example through voting or other rights;   2) exposure to, or rights to, variable returns from its involvement with the investee; and   3) the ability to affect those returns through its power over the investee.   The assessment of control is based on the consideration of all facts and circumstances. The Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.   Intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Group for the purposes of the consolidation.   Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained and they do not result in loss of control.   As the consolidated financial statements include partnerships where the Group member is a partner, advantage has been taken of the exemption under Regulation 7 of the Partnership (Accounts) Regulations 2008 with regard to preparing and filing of individual partnership financial statements.   Details of the principal subsidiaries are given in Note 36, and a complete list of all subsidiaries is presented in Note 46.   (ii) Foreign currency translation   The Group applies IAS 21 The Effects of Changes in Foreign Exchange Rates. Transactions and balances in foreign currencies are translated into Sterling at the rate ruling on the date of the transaction. Foreign currency balances are translated into Sterling at the period end exchange rates. Exchange gains and losses on such balances are taken to the income statement.   The Group’s foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may have different functional currencies. The functional currency of an operation is the currency of the main economy to which it is exposed.   Prior to consolidation (or equity accounting) the assets and liabilities of non-Sterling operations are translated at the closing rate and items of income, expense and other comprehensive income are translated into Sterling at the rate on the date of the transactions. Exchange differences arising on the translation of foreign operations are included in currency translation reserves within equity. These are transferred to the income statement when the Group loses control, joint control or significant influence over the foreign operation or on partial disposal of the operation.   (iii) Financial assets and liabilities The Group applies IAS 39 Financial Instruments: Recognition and Measurement to the recognition, classification and measurement, and derecognition of financial assets and financial liabilities, the impairment of financial assets, and hedge accounting.

 

226  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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1 Significant accounting policies continued

 

Recognition The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract, which is the trade date or the settlement date.   Classification and measurement Financial assets and liabilities are initially recognised at fair value and may be held at fair value or amortised cost depending on the Group’s intention toward the assets and the nature of the assets and liabilities, mainly determined by their contractual terms.   The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for determining the fair values of the assets and liabilities are set out in Note 18.   Derecognition The Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash flows from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset or significant risks and rewards, along with the unconditional ability to sell or pledge the asset.   Financial liabilities are derecognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing financial liability for a new liability with the same lender on substantially different terms – generally a difference of 10% in the present value of the cash flows or a substantive qualitative amendment – is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.   Critical accounting estimates and judgements Transactions in which the Group transfers assets and liabilities, portions of them, or financial risks associated with them can be complex and it may not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform a quantitative analysis. Such an analysis compares the Group’s exposure to variability in asset cash flows before the transfer with its retained exposure after the transfer.   A cash flow analysis of this nature may require judgement. In particular, it is necessary to estimate the asset’s expected future cash flows as well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the asset, with market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically determined by stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned to each scenario. Stressed parameters may include default rates, loss severity, or prepayment rates.   (iv) Issued debt and equity instruments   The Group applies IAS 32 Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.   Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having a present obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not the case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other returns to equity holders are recognised when paid or declared by the members at the AGM and treated as a deduction from equity.   Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt is estimated first and the balance of the proceeds is included within equity.   New and amended standards and interpretations   The accounting policies adopted are consistent with those of the previous financial year. There were no new or amended standards or interpretations that resulted in a change in accounting policy.   Future accounting developments   There have been and are expected to be a number of significant changes to the Group’s financial reporting after 2016 as a result of amended or new accounting standards that have been or will be issued by the IASB. The most significant of these are as follows:   IFRS 9 – Financial instruments   IFRS 9 Financial Instruments which will replace IAS 39 Financial Instruments: Recognition and Measurement is effective for periods beginning on or after 1 January 2018 and was endorsed by the EU in November 2016. IFRS 9, in particular the impairment requirements, will lead to significant changes in the accounting for financial instruments. Barclays does not expect to restate comparatives on initial application of IFRS 9 on 1 January 2018 but will provide detailed transitional disclosures in accordance with the amended requirements of IFRS 7.   Impairment   IFRS 9 introduces a revised impairment model which will require entities to recognise expected credit losses based on unbiased forward-looking information. This replaces the existing IAS 39 incurred loss model which only recognises impairment if there is objective evidence that a loss is already incurred and would measure the loss at the most probable outcome. The IFRS 9 impairment model will be applicable to all financial assets at amortised cost, lease receivables, debt financial assets at fair value through other comprehensive income, loan commitments and financial guarantee contracts. This contrasts to the IAS 39 impairment model which is not applicable to loan commitments and financial guarantee contracts (these were covered by IAS 37). In addition, IAS 39 requires the impairment of available for sale debt to be based on the fair value loss rather than estimated future cashflows as for amortised cost assets. Intercompany exposures, including loan commitments and financial guarantee contracts, are also in scope in the stand alone reporting entity accounts.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  227

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Notes to the financial statements

For the year ended 31 December 2016

 

 

1 Significant accounting policies continued

 

The measurement of expected loss will involve increased complexity and judgement including estimation of probabilities of defaults, loss given default, a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at default and assessing increases in credit risk.   It is expected to have a material financial impact and impairment charges will tend to be more volatile. Impairment will also be recognised earlier and the amounts will be higher. Unsecured products with longer expected lives, such as revolving credit cards, are expected to be most impacted. It will not be practical to disclose reliable financial impact estimates until the implementation programme and validation and testing is further advanced, which will be no later than the Barclays PLC Annual Report 2017.   Based on the current requirements of CRD IV, the expected increase in the accounting impairment provision would reduce CET1 capital but the impact would be partially mitigated by the ‘excess of expected losses over impairment’ included in the CET1 calculation as discussed on page 156. However, the Basel Committee on Banking Supervision (BCBS) is currently considering amending the capital rules as a result of IFRS 9 and is considering transitional rules which may mitigate or spread capital impacts from 1 January 2018 as well as permanent changes to the capital requirements. In addition, as part of its review of the Capital Requirements Regulation (CRR) the European Commission has proposed that the capital impact of IFRS 9 is phased-in over a five-year period. IFRS 9 is considered in the Group capital planning.   Key concepts and management judgements   The impairment requirements are complex and require management judgements, estimates and assumptions. Key concepts and management judgements will continue to be refined during the 2017 parallel run and as any further authoritative guidance is issued, and include:   ☒   Determining a significant increase in credit risk since initial recognition   IFRS 9 requires the recognition of 12 month expected credit losses (the expected credit losses from default events that are expected within 12 months of reporting date) if credit risk has not significantly increased since initial recognition (stage 1), and lifetime expected credit losses for financial instruments for which the credit risk has increased significantly since initial recognition or which are credit impaired. Barclays expects to estimate when a significant increase in credit risk has occurred based on quantitative and qualitative assessments. Quantitative assessments will be based on changes in and/or absolute thresholds for weighted average cumulative lifetime probabilities of default, determined for each portfolio. Qualitative drivers of a significant increase in credit risk are expected to include exposures determined to be higher risk (by credit risk) and subject to closer credit risk monitoring. Exposures which are more than 30 days past due will be used as a backstop rather than a primary driver. Exposures will move back to stage 1 once they no longer meet the criteria for a significant increase in credit risk and when any cure criteria used for credit risk management are met. This is subject to a minimum of 12 months’ full performance including timely receipt of all payments over that period, for exposures that have been restructured or granted forbearance or concessions. Barclays does not expect to rely primarily on the low credit risk exemption which would assume facilities of investment grade are not significantly deteriorated. Determining the probability of default at initial recognition is expected to require management estimates, in particular for exposures issued before the effective date of IFRS 9. For certain revolving facilities such as credit cards and overdrafts, this is expected to be when the facility was first entered into which could have been significantly in the past. Exposures modified due to financial difficulty do not generally result in a substantial modification or derecognition and therefore the probability of default at initial recognition is not reset for these exposures.   ☒  Forward-looking information   Credit losses are the expected cash shortfalls from what is contractually due over the expected life of the financial instrument, discounted at the original effective interest rate. Expected credit losses are the unbiased probability-weighted credit losses determined by evaluating a range of possible outcomes and considering future economic conditions. When there is a non-linear relationship between forward-looking economic scenarios and their associated credit losses, a range of forward-looking economic scenarios, currently expected to be a minimum of five, will be considered to ensure a sufficient unbiased representative sample of the complete distribution is included in determining the expected loss. Stress testing methodologies will be leveraged for forecasting economic scenarios for IFRS 9 purposes.   ☒  Definition of default and credit impaired assets   The definition of default for the purpose of determining expected credit losses is expected to be aligned to the Regulatory Capital CRR Article 178 definition of default, which considers indicators that the debtor is unlikely to pay, includes exposures in forbearance and is no later than when the exposure is more than 90 days past due or 180 days past due in the case of UK mortgages. When exposures are identified as credit impaired or purchased or originated as such, IFRS 9 requires separate disclosure and interest income to be presented on a net basis rather than gross.   Credit impairment is expected to occur when the exposure has defaulted which is also anticipated to align to when an exposure is identified as individually impaired under the incurred loss model of IAS 39. Write-off polices are not expected to change from IAS 39.   ☒  Expected life   Lifetime expected credit losses must be measured over the expected life. This is restricted to the maximum contractual life and takes into account expected prepayment, extension, call and similar options, except for certain revolver financial instruments that include both a drawn and an undrawn component where the entity’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the entity’s exposure to credit losses to the contractual notice period, such as credit cards and overdrafts. The expected life for these revolver facilities is expected to be behavioral life. Potential future modifications of contracts are not taken into account when determining the expected life or exposure at default until they occur.   ☒   Modelling techniques   Expected credit losses (ECL) are calculated by multiplying three main components, being the probability of default (PD), loss given default (LGD) and the exposure at default (EAD). The Basel ECL calculations are leveraged for IFRS 9 modelling but adjusted for key differences which include:   –  BCBS requires 12 month through the economic cycle losses whereas IFRS 9 requires 12 month or lifetime point-in-time losses based on conditions at the reporting date and multiple forecasts of the future economic conditions over the expected lives; and   –  IFRS 9 models do not include some of the conservative BCBS model floors and downturn assessments and require discounting to the reporting date at the original effective interest rate rather than using the cost of capital to the date of default.   Management adjustments will be made to modelled output to account for situations where known or expected risk factors and information have not been considered in the modelling process, for example forecast economic scenarios for uncertain political events.

 

228  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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1 Significant accounting policies continued

 

Classification and measurement   IFRS 9 will require financial assets to be classified on the basis of two criteria:   1) The business model within which financial assets are managed, and;   2) Their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’).   Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest.   Financial assets will be measured at fair value through other comprehensive income if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest.   Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election for non-traded equity investments to be measured at fair value through other comprehensive income, in which case dividends are recognised in profit or loss, but gains or losses are not reclassified to profit or loss upon derecognition, and impairment is not recognised in the income statement.   The accounting for financial liabilities is largely unchanged, except for financial liabilities designated at fair value through profit and loss. Gains and losses on such financial liabilities arising from changes in Barclays’ own credit risk will be presented in other comprehensive income rather than in profit and loss. There is no subsequent reclassification of realised gains or losses on own credit to profit and loss statement.   Barclays’ Classification and Measurement implementation programme is in progress. An assessment of potential changes to financial assets based on 30 June 2016 balances is being conducted, including an assessment of business models across various portfolios, and a review of contractual cash flow features for material financial assets.   There are some classification changes expected but they are not significant from a Group perspective. The notable potential exception relates to loans with symmetric make whole or fair value prepayment options, which are currently subject to interpretation discussions at IFRS Interpretations Committee (IFRIC) and IASB as to whether their contractual cash flows represent solely payments of principal and interest, or whether they must be measured at fair value through profit or loss in their entirety. Such prepayment features are present in some fixed rate corporate and investment bank loans. The carrying value of such loans is expected to be significant on initial application of IFRS 9. If such loans are concluded to be measured at fair value through profit or loss the potential impact on opening equity and profit or loss would depend on their fair values compared to their carrying amounts, and the future changes in fair value.   Business models are determined on initial application and this may differ from the model at 30 June 2016 for certain portfolios, and contractual cash flow characteristics assessed as at 30 June 2016 may not be representative of the population on transition.   The focus of the project during 2017 will be on finalising processes, governance and controls in preparation for initial application in 2018. IFRS 9 is applied retrospectively, although comparatives are not restated, with adjustments arising from classification and measurement changes recognised in opening equity.   Hedge accounting   IFRS 9 contains revised requirements on hedge accounting, which are more closely aligned with an entity’s risk management strategies and risk management objectives. The new rules would replace the current quantitative effectiveness test with a simpler version, and requires that an economic relationship exist between the hedged item and the hedging instrument. Under the new rules, voluntary hedge de-designations would not be allowed.   Adoption of the IFRS 9 hedge accounting requirements is optional, and certain aspects of IAS 39, being the portfolio fair value hedge for interest rate risk, would continue to be available for entities (while applying IFRS 9 to the remainder of the entity’s hedge accounting relationships) until the IASB completes its accounting for dynamic risk management project.   Based on analysis performed, Barclays expects to continue applying IAS 39 hedge accounting, although it will implement the amended IFRS 7 hedge accounting disclosure requirements.   Own credit   Barclays has applied the option in IFRS 9 to recognise changes in own credit in other comprehensive income from 1 January 2017. This will have no effect on net assets, and any changes due to own credit in prior periods have not been restated. Any realised and unrealised amounts recognised in other comprehensive income will not be reclassified to the income statement in future periods.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  229

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Notes to the financial statements

For the year ended 31 December 2016

    

 

 

1 Significant accounting policies continued

 

IFRS 15 – Revenue from Contracts with Customers   In 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers which will replace IAS 18 Revenue and IAS 11 Construction Contracts. It applies to all contracts with customers except leases, financial instruments and insurance contracts. The standard establishes a more systematic approach for revenue measurement and recognition by introducing a five-step model governing revenue recognition. The five-step model includes:   1) identifying the contract with the customer;   2) identifying each of the performance obligations included in the contract;   3) determining the amount of consideration in the contract;   4) allocating the consideration to each of the identified performance obligations, and;   5) recognising revenue as each performance obligation is satisfied.   In April 2016, the IASB issued clarifying amendments to IFRS 15 which provide additional application guidance but did not change the underlying principles of the standard. The standard was endorsed by the EU in September 2016. Adoption of the standard on 1 January 2018 is not expected to have a significant impact. Current project implementation efforts are primarily focused on preparing and sourcing information necessary to comply with the enhanced disclosure requirements introduced by IFRS 15.   IFRS 16 – Leases   In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. IFRS 16 will apply to all leases with the exception of licenses of intellectual property, rights held by licensing agreement within the scope of IAS 38 Intangible Assets, service concession arrangements, leases of biological assets within the scope of IAS 41 Agriculture, and leases of minerals, oil, natural gas and similar non-regenerative resources. IFRS 16 will not result in a significant change to lessor accounting; however for lessee accounting there will no longer be a distinction between operating and finance leases. Instead lessees will be required to recognise both a right of use asset and lease liability on balance sheet for all leases. As a result Barclays will observe an increase in both assets and liabilities for transactions currently accounted for as operating leases as at 1 January 2019 (the effective date of IFRS 16). A scope exemption will apply to short-term and low-value leases. Current project implementation efforts are focused on preparing and sourcing information necessary to comply with IFRS 16 requirements. The standard has not yet been endorsed by the EU.   Critical accounting estimates and judgements   The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying the accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements are highlighted under the relevant note. Critical accounting estimates and judgements are disclosed in:
		Page				Page
Credit impairment charges and other provisions		233		Fair value of financial instruments		246
Income taxes		236		Provisions		270
Available for sale assets		245		Retirement benefit obligations		288
Derecognition of financial assets		299
Other disclosures   To improve transparency and ease of reference, by concentrating related information in one place, and to reduce duplication, certain disclosures required under IFRS have been included within the Risk management section as follows:   ☒   Segmental reporting on pages 197 to 210; ☒   Credit risk management, on pages 101 and 102 including exposures to selected countries; ☒   Market risk, on page 103; ☒   Funding risk – liquidity, on pages 105 and 106 ; and ☒   Funding risk – capital, on pages 106 and 107.   These are covered by the Audit opinion, where referenced as audited, included on page 218.   The accompanying notes on pages 226 to 316 form an integral part of these financial statements.

 

230  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Notes to the financial statements

Performance/return

    

 

 

 

The notes included in this section focus on the results and performance of the Group. Information on the income generated, expenditure incurred, segmental performance, tax, earnings per share and dividends are included here.

2 Segmental reporting

 

Presentation of segmental reporting The Group’s segmental reporting is presented in accordance with IFRS 8 Operating Segments. Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Committee, which is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the chief operating decision maker. All transactions between business segments are conducted on an arm’s length basis, with intra-segment revenue and costs being eliminated in Head Office. Segmental income and expense excludes BAGL as it meets the requirement of a discontinued operation. Income and expenses directly associated with each segment are included in determining business segment performance.

During 2016 the Group’s activities have been re-segmented into Barclays UK and Barclays International in preparation for regulatory ring fencing requirements. In addition Barclays’ interest in Barclays Africa Group Limited was re-classified as a discontinued operation and the Non-Core segment has been enlarged. Comparatives have been updated to reflect the re-segmentation.

An analysis of the Group’s performance by business segment and income by geographic segment is included on pages 197 and 198. Further details on each of the segments are provided on pages 199 to 210.

3 Net interest income

 

Accounting for interest income and expense The Group applies IAS 39 Financial Instruments: Recognition and Measurement. Interest income on loans and advances at amortised cost, financial investments debt securities, and interest expense on financial liabilities held at amortised cost, are calculated using the effective interest method which allocates interest, and direct and incremental fees and costs, over the expected lives of the assets and liabilities.   The effective interest method requires the Group to estimate future cash flows, in some cases based on its experience of customers’ behaviour, considering all contractual terms of the financial instrument, as well as the expected lives of the assets and liabilities.   Barclays incurs certain costs to originate credit card balances with the most significant being co-brand partner fees. To the extent these costs are attributed to revolving customer balances they are capitalised and subsequently included within the calculation of the effective interest rate. They are amortised to interest income over the period of expected repayment of the originated balance. Costs attributed to transacting customer balances are recorded within fee and commission expense when incurred. There are no other individual estimates involved in the calculation of effective interest rates that are material to the results or financial position.

 

			2016 £m				2015 £m				2014 £m
Cash and balances with central banks			186				157				186
Financial investments			740				698				803
Loans and advances to banks			600				487				376
Loans and advances to customers			12,958				12,512				12,768
Other			57				99				61
Interest incomea			14,541				13,953				14,194
Deposits from banks			(265	)			(128	)			(133	)
Customer accounts			(1,514	)			(1,406	)			(2,205	)
Debt securities in issue			(990	)			(553	)			(691	)
Subordinated liabilities			(1,104	)			(1,015	)			(1,006	)
Other			(131	)			(243	)			(73	)
Interest expensea			(4,004	)			(3,345	)			(4,108	)
Net interest income			10,537				10,608				10,086

Costs to originate credit card balances of £480m (2015: £368m) have been amortised to interest during the period.

Interest income includes £75m (2015: £91m; 2014: £117m) accrued on impaired loans.

Other interest income principally includes interest income relating to reverse repurchase agreements. Similarly, other interest expense principally includes interest expense relating to repurchase agreements.

Included in net interest income is hedge ineffectiveness as detailed in Note 15.

2016

Net interest income remained stable at £10,537m (2015: £10,608m), driven by increased expenses from debt securities in issue partially offset by volume growth and margin improvement within Barclays International cards portfolio.

2015

Net interest income increased by £522m (5%) to £10,608m, primarily driven by lower interest expense from customer accounts.

Note

 

a

Both interest income and interest expense for 2015 and 2014 have been adjusted by £442m and £605m respectively in order to better align the effect of hedge accounting relationships with the related hedged items. The following categories were restated: financial investments by £(545)m (2014: £(637)m), loans and advances to customers by £987m (2014: £1,242m). Customer accounts by £(1,783)m (2014: £(2,016)m), debt securities in issue by £784m (2014: £859m) and subordinated liabilities by £557m (2014: £552m).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  231

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Notes to the financial statements

Performance/return

    

 

 

4 Net fee and commission income

 

Accounting for net fee and commission income The Group applies IAS 18 Revenue. Fees and commissions charged for services provided or received by the Group are recognised as the services are provided, for example on completion of the underlying transaction.

 

			2016 £m				2015 £m				2014 £m
Fee and commission income
Banking, investment management and credit related fees and commissions			8,452				8,340				8,483
Foreign exchange commission			118				130				139
Fee and commission income			8,570				8,470				8,622
Fee and commission expense			(1,802	)			(1,611	)			(1,500	)
Net fee and commission income			6,768				6,859				7,122

2016

Net fee and commission income decreased £91m to £6,768m. This was primarily driven by an increase in expenses in Barclays International due to higher customer reward costs and lower fees income in Non-Core due to the sale of the US and Asia wealth businesses and the closure of the equities traded securities business as well as a decrease within Barclays UK due to lower interchange fees on account of EU Interchange regulation. These movements were partially offset by an increase in income in Barclays International driven by growth in the cards portfolio and an increase in investment banking business due to higher fees income from the US loans/bonds and investment grade products coupled with higher financial advisory fees.

2015

Net fee and commission income decreased £263m to £6,859m. This was primarily driven by lower income in Non-Core due to the sale of the US Wealth and Spanish retail business and the Barclays UK business due to the launch of the revised overdraft proposition in mid 2014, which recognises the majority of the overdraft income as net interest income as opposed to fee income. The decrease in Barclays International is driven by lower equity underwriting fees partially offset by higher financial advisory and debt underwriting fees and increase in Barclaycard International, driven by growth in payment volumes.

5 Net trading income

 

Accounting for net trading income   In accordance with IAS 39, trading positions are held at fair value, and the resulting gains and losses are included in the income statement, together with interest and dividends arising from long and short positions and funding costs relating to trading activities.   Income arises from both the sale and purchase of trading positions, margins which are achieved through market-making and customer business and from changes in fair value caused by movements in interest and exchange rates, equity prices and other market variables.   Own credit gains/losses arise from the fair valuation of financial liabilities designated at fair value through profit or loss. See Note 17 Financial liabilities designated at fair value.

 

			2016 £m				2015 £m				2014 £m
Trading income			2,803				2,996				3,052
Own credit (losses)/gains			(35)				430				34
Net trading income			2,768				3,426				3,086

Included within net trading income were gains of £31m (2015: £992m gain; 2014: £1,051m loss) on financial assets designated at fair value and gains of £346m (2015: £187m loss; 2014: £65m loss) on financial liabilities designated at fair value.

2016

Net trading income decreased by 19% to £2,768m, primarily reflecting a £465m movement in own credit as the credit spreads on Barclays’ issued debt were relatively flat as compared to prior year. Trading income decreased by £193m, mainly driven by the continued disposal and running down of certain businesses and fair value reduction on the ESHLA portfolio within Non-Core. This was partially offset by higher contributions from Fixed Income businesses that benefited from market volatility and higher client volumes during the year.

2015

Net trading income increased by 11% to £3,426m, primarily reflecting a £396m favourable variance in own credit due to widening of credit spreads on Barclays’ issued debt. Trading income decreased by £56m, mainly driven by the continued disposal and running down of certain businesses and fair value movements on the ESHLA portfolio within Non-Core. This was partially offset by increases in various investment banking businesses within Barclays International driven by higher volatility and trading activity during the year.

 

232  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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6 Net investment income

 

Accounting for net investment income Dividends are recognised when the right to receive the dividend has been established. Other accounting policies relating to net investment income are set out in Note 14 Financial assets designated at fair value and Note 16 Financial Investments.

 

			2016 £m				2015 £m				2014 £m
Net gain from disposal of available for sale investments			912				385				622
Dividend income			8				8				9
Net gain from financial instruments designated at fair value			158				193				203
Other investment income			246				511				475
Net investment income			1,324				1,097				1,309

2016

Net investment income increased by 21% to £1,324m. This was largely driven by a gain of £615m on disposal of Barclays’ share of Visa Europe Limited and gains on buy-back of senior and subordinated debt issuances. These increases were partially offset by non-repeat of gains of £496m recognised in 2015 in other investment income due to the final and full legal settlement in respect of US Lehman acquisition assets.

2015

Net investment income decreased by 16% to £1,097m. This was largely driven by lower gains and fewer disposals of available for sale investments due to unfavourable market conditions. During the year a gain of £496m (2014: £461m) was recognised in other investment income due to the final and full legal settlement in respect of US Lehman acquisition assets.

7 Credit impairment charges and other provisions

 

Accounting for the impairment of financial assets Loans and other assets held at amortised cost In accordance with IAS 39, the Group assesses at each balance sheet date whether there is objective evidence that loan assets or available for sale financial investments (debt or equity) will not be recovered in full and, wherever necessary, recognises an impairment loss in the income statement.   An impairment loss is recognised if there is objective evidence of impairment as a result of events that have occurred and these have adversely impacted the estimated future cash flows from the assets. These events include:   ☒  becoming aware of significant financial difficulty of the issuer or obligor   ☒  a breach of contract, such as a default or delinquency in interest or principal payments   ☒  the Group, for economic or legal reasons relating to the borrower’s financial difficulty, grants a concession that it would not otherwise consider   ☒  it becomes probable that the borrower will enter bankruptcy or other financial reorganisation   ☒  the disappearance of an active market for that financial asset because of financial difficulties and   ☒  observable data at a portfolio level indicating that there is a measurable decrease in the estimated future cash flows, although the decrease cannot yet be ascribed to individual financial assets in the portfolio – such as adverse changes in the payment status of borrowers in the portfolio or national or local economic conditions that correlate with defaults on the assets in the portfolio.   Impairment assessments are conducted individually for significant assets, which comprise all wholesale customer loans and larger retail business loans and collectively for smaller loans and for portfolio level risks, such as country or sectoral risks. For the purposes of the assessment, loans with similar credit risk characteristics are grouped together – generally on the basis of their product type, industry, geographical location, collateral type, past due status and other factors relevant to the evaluation of expected future cash flows.   The impairment assessment includes estimating the expected future cash flows from the asset or the group of assets, which are then discounted using the original effective interest rate calculated for the asset. If this is lower than the carrying value of the asset or the portfolio, an impairment allowance is raised.   If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.   Following impairment, interest income continues to be recognised at the original effective interest rate on the restated carrying amount, representing the unwind of the discount of the expected cash flows, including the principal due on non-accrual loans.   Uncollectable loans are written off against the related allowance for loan impairment on completion of the Group’s internal processes when all reasonably expected recoverable amounts have been collected. Subsequent recoveries of amounts previously written off are credited to the income statement.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  233

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Notes to the financial statements

Performance/return

 

 

7 Credit impairment charges and other provisions continued

 

Available for sale financial assets Impairment of available for sale debt instruments Debt instruments are assessed for impairment in the same way as loans. If impairment is deemed to have occurred, the cumulative decline in the fair value of the instrument that has previously been recognised in the available for sale reserve is removed from reserves and recognised in the income statement. This may be reversed if there is evidence that the circumstances of the issuer have improved.   Impairment of available for sale equity instruments Where there has been a prolonged or significant decline in the fair value of an equity instrument below its acquisition cost, it is deemed to be impaired. The cumulative net loss that has been previously recognised directly in the available for sale reserve is removed from reserves and recognised in the income statement.   Increases in the fair value of equity instruments after impairment are recognised directly in other comprehensive income. Further declines in the fair value of equity instruments after impairment are recognised in the income statement.   Critical accounting estimates and judgements The calculation of impairment involves the use of judgement, based on the Group’s experience of managing credit risk.   Within the retail and small businesses portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics where credit scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on a portfolio basis, based on historical recovery rates and assumed emergence periods. These statistical analyses use as primary inputs the extent to which accounts in the portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are many such models in use, each tailored to a product, line of business or customer category. Judgement and knowledge is needed in selecting the statistical methods to use when the models are developed or revised. The impairment allowance reflected in the financial statements for these portfolios is therefore considered to be reasonable and supportable. The impairment charge reflected in the income statement for retail portfolios is £2,053m (2015: £1,535m; 2014: £1,549m) and amounts to 87% (2015: 88%; 2014: 83%) of the total impairment charge on loans and advances.   For individually significant assets, impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing on the expected future cash flows are taken into account (for example, the business prospects for the customer, the realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process). The level of the impairment allowance is the difference between the value of the discounted expected future cash flows (discounted at the loan’s original effective interest rate), and its carrying amount. Subjective judgements are made in the calculation of future cash flows. Furthermore, judgements change with time as new information becomes available or as work-out strategies evolve, resulting in frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have a direct impact on the impairment charge. The impairment charge reflected in the financial statements in relation to wholesale portfolios is £299m (2015: £209m; 2014: £308m) and amounts to 13% (2015: 12%; 2014: 17%) of the total impairment charge on loans and advances. Further information on impairment allowances and related credit information is set out within the Risk review.

 

			2016 £m				2015 £m				2014 £m
New and increased impairment allowances			3,259				2,641				2,809
Releases			(551	)			(535	)			(791	)
Recoveries			(365	)			(350	)			(166	)
Impairment charges on loans and advances			2,343				1,756				1,852
Provision charges/(releases) for undrawn contractually committed facilities and guarantees provided			9				(12	)			5
Loan impairment			2,352				1,744				1,857
Available for sale investment			21				18				(31	)
Reverse repurchase agreements			–				–				(5	)
Credit impairment charges and other provisions			2,373				1,762				1,821

2016

Loan impairment increased by 35% to £2,352m, primarily due to increased charges following the management review of impairment modelling for UK and US cards portfolios and the impairment of a number of single name exposures.

2015

Loan impairment decreased by 6% to £1,744m, reflecting lower impairment in Barclays UK and Non-Core, partially offset by increased charges in Barclays International.

 

234  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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8 Operating expenses

 

Accounting for staff costs The Group applies IAS 19 Employee benefits in its accounting for most of the components of staff costs.   Short-term employee benefits – salaries, accrued performance costs and social security are recognised over the period in which the employees provide the services to which the payments relate.   Performance costs – recognised to the extent that the Group has a present obligation to its employees that can be measured reliably and are recognised over the period of service that employees are required to work to qualify for the services.   Deferred cash and share awards are made to employees to incentivise performance over the period employees provide services. To receive payment under an award, employees must provide service over the vesting period. The period over which the expense for deferred cash and share awards is recognised is based upon the period employees consider their services contribute to the awards. For past awards, the Group considers that it is appropriate to recognise the awards over the period from the date of grant to the date that the awards vest. In relation to awards granted in 2017, the Group, taking into account the changing employee understanding surrounding those awards, considered it appropriate for expense to be recognised over four years including the financial year prior to the grant date. The impact in 2016 of the 2017 grant is an expense of £150m including social security costs.   The accounting policies for share-based payments, and pensions and other post-retirement benefits are included in Note 34 and Note 35 respectively.

 

			2016 £m				2015 £m				2014 £m
Infrastructure costs
Property and equipment			1,180				1,082				1,281
Depreciation of property, plant and equipment			492				475				495
Operating lease rentals			561				411				512
Amortisation of intangible assets			670				570				454
Impairment of property, equipment and intangible assets			95				150				153
Gain on property disposals			–				3				–
Total infrastructure costs			2,998				2,691				2,895
Administration and general costs
Consultancy, legal and professional fees			1,105				1,078				997
Subscriptions, publications, stationery and communications			644				678				756
Marketing, advertising and sponsorship			435				451				470
Travel and accommodation			136				188				185
UK bank levy			410				425				418
Goodwill impairment			–				102				–
Other administration and general expenses			187				61				243
Total administration and general costs			2,917				2,983				3,069
Staff costs			9,423				8,853				9,860
Provision for UK customer redress			1,000				2,772				1,110
Provision for ongoing investigations and litigation including Foreign Exchange			–				1,237				1,250
Operating expenses			16,338				18,536				18,184

2016

Operating expenses decreased by 12% to £16,338m (2015: £18,536m) primarily due to lower PPI provisions and lower litigation provisions in 2016. This is partially offset by an increase in staff costs primarily due to £395m of additional charges relating to 2016 compensation costs.

2015

Operating expenses increased by 2% to £18,536m attributable to an increase in provisions for UK customer redress including PPI and an increase in impairment of goodwill partially offset by a decrease in staff costs (includes a gain on retirement benefits, refer to Note 35, of £429m) and infrastructure costs reflecting savings from strategic cost programmes.

9 Profit/(loss) on disposal of subsidiaries, associates and joint ventures

During the year, the gain on disposal of subsidiaries, associates and joint ventures was £420m (2015: loss of £637m; 2014: loss of £473m), principally relating to the sale of Barclays Risk Analytics and Index Solutions, the disposal of the Southern European card business and the sale of the private banking and wealth management services conducted through the Hong Kong and Singapore branches. These gains were partially offset with the IFRS 5 charge on an impending disposal of the French business. Please refer to Note 44 Non-current assets held for sale and associated liabilities for further detail.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  235

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Notes to the financial statements

Performance/return

    

 

 

10 Tax

 

Accounting for income taxes Barclays applies IAS 12 Income Taxes in accounting for taxes on income. Income tax payable on taxable profits (Current Tax) is recognised as an expense in the period in which the profits arise. Withholding taxes are also treated as income taxes. Income tax recoverable on tax allowable losses is recognised as a current tax asset only to the extent that it is regarded as recoverable by offset against taxable profits arising in the current or prior period. Current tax is measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.   Deferred tax is provided in full, using the liability method, on temporary differences arising from the differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates and legislation enacted or substantively enacted by the balance sheet date which are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are only offset when there is both a legal right to set-off and an intention to settle on a net basis.   The Group considers an uncertain tax position to exist when it considers that ultimately, in the future, the amount of profit subject to tax may be greater than the amount initially reflected in the Group’s tax returns. The Group accounts for provisions in respect of uncertain tax positions in two different ways.   A current tax provision is recognised when it is considered probable that the outcome of a review by a tax authority of an uncertain tax position will alter the amount of cash tax due to, or from, a tax authority in the future. From recognition, the current tax provision is then measured at the amount the Group ultimately expects to pay the tax authority to resolve the position.   Deferred tax provisions are adjustments made to the carrying value of deferred tax assets in respect of uncertain tax positions. A deferred tax provision is recognised when it is considered probable that the outcome of a review by a tax authority of an uncertain tax position will result in a reduction in the carrying value of the deferred tax asset. From recognition of a provision, measurement of the underlying deferred tax asset is adjusted to take into account the expected impact of resolving the uncertain tax position on the loss or temporary difference giving rise to the deferred tax asset.   The approach taken to measurement takes account of whether the uncertain tax position is a discrete position that will be reviewed by the tax authority in isolation from any other position, or one of a number of issues which are expected to be reviewed together concurrently and resolved simultaneously with a tax authority. Barclays’ measurement of provisions is based upon its best estimate of the additional profit that will become subject to tax. For a discrete position, consideration is given only to the merits of that position. Where a number of issues are expected to be reviewed and resolved together, Barclays will take into account not only the merits of its position in respect of each particular issue but also the overall level of provision relative to the aggregate of the uncertain tax positions across all the issues that are expected to be resolved at the same time. In addition, in assessing provision levels, it is assumed that tax authorities will review uncertain tax positions and that all facts will be fully and transparently disclosed.

 

			2016  £m				2015 £m				2014 £m
Current tax charge/(credit)
Current year			896				1,605				1,131
Adjustments in respect of prior years			(361)				(188)				(19)
			535				1,417				1,112
Deferred tax charge/(credit)
Current year			393				(346)				75
Adjustments in respect of prior years			65				78				(66)
			458				(268)				9
Tax charge			993				1,149				1,121

 

236  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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10 Tax continued

The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to the Group’s profit before tax.

 

			2016 £m				2016 %				2015 £m				2015 %				2014 £m				2014 %
Profit before tax from continuing operations			3,230								1,146								1,313
Tax charge based on the standard UK corporation tax rate of 20%
(2015: 20.25%, 2014; 21.50%)			646				20.0%				232				20.25%				282				21.5%
Impact of profits/losses earned in territories with different statutory rates to the UK (weighted average tax rate is 32.8%
(2015: 33.4%, 2014; 29.3%))			415				12.8%				151				13.2%				103				7.8%
Recurring items:
Non-creditable taxes including withholding taxes			277				8.6%				309				27.0%				329				25.1%
Non-deductible expenses			114				3.5%				67				5.8%				146				11.1%
Impact of UK bank levy being non-deductible			82				2.5%				96				8.4%				99				7.5%
Other items			58				1.9%				(14	)			(1.1%	)			42				3.3%
Tax adjustments in respect of share-based payments			34				1.1%				30				2.6%				21				1.6%
Impact of change in tax rates			30				0.9%				158				13.8%				9				0.7%
Adjustments in respect of prior years			(296	)			(9.2%	)			(110	)			(9.6%	)			(85	)			(6.5%	)
Non-taxable gains and income			(199	)			(6.2%	)			(197	)			(17.2%	)			(212	)			(16.1%	)
Changes in recognition of deferred tax and effect of unrecognised tax losses			(178	)			(5.5%	)			(71	)			(6.2%	)			(115	)			(8.8%	)
Impact of Barclays Bank PLC’s overseas branches being taxed both locally and in the UK			(128	)			(4.0%	)			(35	)			(3.1%	)			(68	)			(5.2%	)
Non-recurring items:
Non-deductible provisions for UK customer redress			203				6.3%				283				24.7%				–				–
Non-deductible impairments and losses on divestments			67				2.1%				39				3.4%				234				17.8%
Non-deductible provisions for investigations and litigation			48				1.5%				261				22.8%				387				29.5%
Non-taxable gains and income on divestments			(180	)			(5.6%	)			(50	)			(4.4%	)			(51	)			(3.9%	)
Total tax charge			993				30.7%				1,149				100.3%				1,121				85.4%

Factors driving the effective tax rate

The effective tax rate of 30.7% is higher than the UK corporation tax rate of 20% primarily due to profits earned outside the UK being taxed at higher local statutory tax rates. In addition the effective tax rate is affected by provisions for UK customer redress being non-deductible for tax purposes, non-creditable taxes and non-deductible expenses including UK bank levy. These factors, which have each increased the effective tax rate, are partially offset by the impact of non-taxable gains and income, including those arising from divestments, and reductions in expected liabilities in respect of a range of issues related to a number of prior years.

Relative to the prior year, the effective tax rate on profit before tax decreased to 30.7% (2015: 100.3%). This was principally a result of a lower level of non-deductible provisions for investigations and litigation in 2016, as well as gains arising in 2016 on the divestment of businesses and assets, as the Group has pursued its strategy to run-down Non-Core, that were taxed at low rates.

The Group’s future tax charge will be sensitive to the geographic mix of profits earned and the tax rates in force in the jurisdictions in which we operate. In the UK, legislation to reduce the corporation tax rate to 19% from 1 April 2017 and to 17% from 1 April 2020 has been enacted. In the US, proposed tax reform measures include a reduction in the US corporate income tax rate to as low as 15%. The US rate change is a proposal only at this stage and developments are being closely monitored. In the long term, a reduction in the tax rate would enhance the returns generated by the Group’s US business. However, if enacted, such a change would have a substantial up-front negative impact on the measurement of the Group’s US deferred tax assets, although this would reverse over time and result in a lower effective tax rate as these assets are utilised.

Tax in the consolidated statement of comprehensive income

The most significant tax charge in the consolidated statement of comprehensive income relates to cash flow hedging reserve. The majority of this tax charge is on income brought into charge in the UK in 2016 and this reflects the new surcharge of 8%, that applies to banks’ UK profits, as well as the standard UK corporation tax rate of 20%. Additionally included within the ‘Other’ line is a tax credit of £21m (2015: £21m credit) relating to share-based payments.

Tax in respect of discontinued operation

Tax relating to the discontinued operation can be found in the BAGL disposal group income statement (see Note 44). The tax charge of £306m (2015: £301m) relates entirely to the profit from the ordinary activities of the discontinued operation.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  237

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Notes to the financial statements

Performance/return

        

 

 

10 Tax continued

Current tax assets and liabilities

Movements on current tax assets and liabilities were as follows:

 

			2016 £m				2015 £m
Assets			415				334
Liabilities			(903	)			(1,021	)
As at 1 January			(488	)			(687	)
Income statement from continuing operations			(535	)			(1,417	)
Income statement in relation to BAGL disposal group			–				(301	)
Other comprehensive income			23				6
Corporate income tax paid			780				1,670
Other movements			44				241
			(176	)			(488	)
Assets			561				415
Liabilities			(737	)			(903	)
As at 31 December			(176	)			(488	)
Deferred tax assets and liabilities
The deferred tax amounts on the balance sheet were as follows:
			2016 £m				2015 £m
Intermediate Holding Company (IHC) – US tax group			2,207				2,049
Barclays Bank PLC (US Branch) – US tax group			1,766				1,569
Barclays PLC – UK tax group			575				411
Other			321				466
Deferred tax asset			4,869				4,495
Deferred tax liability			(29	)			(122	)
Net deferred tax			4,840				4,373

US deferred tax assets in the IHC and the US Branch

The deferred tax asset in the IHC of £2,207m (2015: £2,049m) includes £321m (2015: £503m) relating to tax losses and the deferred tax asset in the US Branch of £1,766m (2015: £1,569m) includes £142m (2015: £244m) relating to tax losses. Under US tax rules, losses can be carried forward and offset against profits for a period of 20 years. The losses first arose in 2011 in the IHC and 2008 in the US Branch and therefore any unused amounts may begin to expire in 2031 and 2028 respectively. The remaining US deferred tax assets relate to temporary differences for which there is no time limit on recovery. The deferred tax assets for the IHC tax losses and the US Branch losses are projected to be fully utilised by 2018.

The measurement of the US branch deferred tax assets takes into account both US and UK tax. This is because Barclays Bank PLC is subject to UK tax on its worldwide profits, including the profits of its overseas branches. The US branch deferred tax assets are valued at the difference between the US and UK tax rates.

UK tax group deferred tax asset

The deferred tax asset in the UK tax group of £575m (2015: £411m) relates entirely to temporary differences.

Other deferred tax assets

The deferred tax asset of £321m (2015: £466m) in other entities within the Group includes £40m (2015: £155m) relating to tax losses carried forward. These deferred tax assets relate to a number of different territories and their recognition is based on profit forecasts or local country law which indicate that it is probable that the losses and temporary differences will be utilised.

Of the deferred tax asset of £321m (2015: £466m), an amount of £267m (2015: £106m) relates to entities which have suffered a loss in either the current or prior year. This has been taken into account in reaching the above conclusion that these deferred tax assets will be fully recovered in the future.

 

238  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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10 Tax continued

The table below shows movements on deferred tax assets and liabilities during the year. The amounts are different from those disclosed on the balance sheet and in the preceding table as they are presented before offsetting asset and liability balances where there is a legal right to set-off and an intention to settle on a net basis.

 

			Fixed asset timing differences £m				Available for sale investments £m				Cash flow hedges £m				Retirement benefit obligations £m				Loan impairment allowance £m				Other provisions £m				Tax losses carried forward £m				Share-based payments and deferred com- pensation £m				Other £m				Total £m
Assets			2,008				28				5				95				157				261				902				623				1,511				5,590
Liabilities			(194	)			(70	)			(239	)			(144	)			–				–				–				–				(570	)			(1,217	)
At 1 January 2016			1,814				(42	)			(234	)			(49	)			157				261				902				623				941				4,373
Income statement			(358	)			9				(7	)			(8	)			52				17				(522	)			15				344				(458	)
Other comprehensive income			–				49				(61	)			132				–				–				–				20				(6	)			134
Other movements			253				26				(31	)			16				(58	)			(27	)			123				74				415				791
			1,709				42				(333	)			91				151				251				503				732				1,694				4,840
Assets			1,801				183				–				91				151				251				503				732				2,013				5,725
Liabilities			(92	)			(141	)			(333	)			–				–				–				–				–				(319	)			(885	)
At 31 December 2016			1,709				42				(333	)			91				151				251				503				732				1,694				4,840
Assets			1,542				18				5				321				176				233				1,315				729				951				5,290
Liabilities			(555	)			(35	)			(464	)			–				–				–				–				–				(368	)			(1,422	)
At 1 January 2015			987				(17	)			(459	)			321				176				233				1,315				729				583				3,868
Income statement			779				(13	)			1				(119	)			(14	)			21				(540	)			(126	)			279				268
Other comprehensive income			–				(14	)			221				(261	)			–				–				122				(10	)			(21	)			37
Other movements			48				2				3				10				(5	)			7				5				30				100				200
			1,814				(42	)			(234	)			(49	)			157				261				902				623				941				4,373
Assets			2,008				28				5				95				157				261				902				623				1,511				5,590
Liabilities			(194	)			(70	)			(239	)			(144	)			–				–				–				–				(570	)			(1,217	)
At 31 December 2015			1,814				(42	)			(234	)			(49	)			157				261				902				623				941				4,373

Other movements include the impact of changes in foreign exchange rates as well as deferred tax amounts relating to acquisitions, disposals and transfers to held for sale.

The amount of deferred tax liability expected to be settled after more than 12 months is £273m (2015: £675m). The amount of deferred tax assets expected to be recovered after more than 12 months is £5,066m (2015: £4,838m). These amounts are before offsetting asset and liability balances where there is a legal right to set-off and an intention to settle on a net basis.

Unrecognised deferred tax

Tax losses and temporary differences

Deferred tax assets have not been recognised in respect of gross deductible temporary differences of £64m (2015: £51m) and gross tax losses of £16,820m (2015: £13,456m). The increase in these losses in 2016 is largely a result of the weakening of sterling against the overseas currencies these losses are denominated in. The tax losses include capital losses of £3,138m (2015: £3,838m) and unused tax credits of £514m (2015: £452m). Of these tax losses, £394m (2015: £389m) expire within five years, £57m (2015: £13m) expire within six to ten years, £358m (2015: £124m) expire within 11 to 20 years and £16,011m (2015: £12,930m) can be carried forward indefinitely. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits and gains will be available against which they can be utilised.

Group investments in subsidiaries, branches and associates

Deferred tax is not recognised in respect of the value of Group’s investments in subsidiaries, branches and associates where the Group is able to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate amount of these temporary differences for which deferred tax liabilities have not been recognised is £2bn (2015: £2bn).

Critical accounting estimates and judgements

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of current and deferred tax balances, including provisions for uncertain tax positions, in the next financial year. The provisions for uncertain tax positions cover a diverse range of issues and reflect legal advice from external counsel where relevant. It should be noted that only a proportion of the total uncertain tax positions will be under audit at any point in time, and could therefore be subject to challenge by a tax authority over the next year.

Deferred tax assets have been recognised based on business profit forecasts. Further detail on the recognition of deferred tax assets is provided in the deferred tax assets and liabilities section of this tax note.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  239

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Notes to the financial statements

Performance/return

        

 

 

11 Earnings per share
															2016 £m				2015 £m				2014 £m
Profit/(loss) attributable to ordinary equity holders of the parent from continuing and discontinued operations															1,623				(394	)			(174	)
Tax credit on profit after tax attributable to other equity holders															128				70				54
Total Profit/(loss) attributable to ordinary equity holders of the parent from continuing and discontinued operations															1,751				(324	)			(120	)
Continuing operations
Profit/(loss) attributable to ordinary equity holders of the parent from continuing operations															1,434				(696	)			(508	)
Tax credit on profit after tax attributable to other equity holders															128				70				54
Profit/(loss) attributable to equity holders of the parent from continuing operations															1,562				(626	)			(454	)
Discontinued operations
Profit attributable to ordinary equity holders of the parent from discontinued operations															189				302				334
Dilutive impact of convertible options from discontinued operations															(1	)			–				–
Profit attributable to equity holders of the parent from discontinued operations including dilutive impact on convertible options															188				302				334
Profit/(loss) attributable to equity holders of the parent from continuing and discontinued operations including dilutive impact on convertible options															1,750				(324	)			(120	)
															2016 million				2015 million				2014 million
Basic weighted average number of shares in issue															16,860				16,687				16,329
Number of potential ordinary shares															184				367				296
Diluted weighted average number of shares															17,044				17,054				16,625
			Basic earnings per share												Diluted earnings per sharea
			2016 p				2015 p				2014 p				2016 p				2015 p				2014 p
Basic earnings/(loss) per ordinary share			10.4				(1.9	)			(0.7	)			10.3				(1.9	)			(0.7	)
Basic earnings/(loss) per ordinary share from continuing operations			9.3				(3.7	)			(2.7	)			9.2				(3.7	)			(2.7	)
Basic earnings per ordinary share from discontinued operations			1.1				1.8				2.0				1.1				1.8				2.0

The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the basic weighted average number of shares excluding treasury shares held in employee benefit trusts or held for trading. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effects of all dilutive potential ordinary shares held in respect of Barclays PLC, totalling 184m (2015: 367m) shares. In addition, the profit attributable to equity holders of the parent is adjusted for the dilutive impact of the potential conversion of outstanding options held in respect of BAGL. The decrease in the number of potential ordinary shares is due to the average share price of £1.74 (2015: £2.52) being lower than the average strike price of £1.88 (2015: £2.11). During the year the total number of share options granted under employee share schemes was 584m (2015: 533m). The schemes have strike prices ranging from £1.20 to £2.49.

Of the total number of employee share options and share awards at 31 December 2016, 93m (2015: 23m) were anti-dilutive.

The 173m increase in the basic weighted average number of shares since 31 December 2015 to 16,860m is primarily due to shares issued under employee share schemes and the Scrip Dividend Programme.

12 Dividends on ordinary shares

The Directors have approved a final dividend in respect of 2016 of 2.0p per ordinary share of 25p each which will be paid on 5 April 2017 to shareholders on the Share Register on 3 March 2017. On 31 December 2016, there were 16,963m ordinary shares in issue. The financial statements for the year ended 31 December 2016 do not reflect this dividend, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2017. The 2016 financial statements include the 2016 interim dividends of £169m (2015: £503m) and final dividend declared in relation to 2015 of £588m (2015: £578m).

 

Note

a	Potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would increase loss per share.

 

240  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Notes to the financial statements

Assets and liabilities held at fair value

        

 

 

13 Trading portfolio

 

Accounting for trading portfolio assets and liabilities In accordance with IAS 39, all assets and liabilities held for trading purposes are held at fair value with gains and losses in the changes in fair value taken to the income statement in net trading income (Note 5).

 

											Trading portfolio assets								Trading portfolio liabilities
											2016 £m				2015 £m				2016 £m				2015 £m
Debt securities and other eligible bills											38,789				45,576				(26,842	)			(24,985	)
Equity securities											38,329				29,055				(7,831	)			(8,982	)
Traded loans											2,975				2,474				–				–
Commodities											147				243				(14	)			–
Trading portfolio assets/(liabilities)											80,240				77,348				(34,687	)			(33,967	)
14 Financial assets designated at fair value
Accounting for financial assets designated at fair value In accordance with IAS 39, financial assets may be designated at fair value, with gains and losses taken to the income statement within net trading income (Note 5) and net investment income (Note 6). The Group has the ability to make the fair value designation when holding the instruments at fair value reduces an accounting mismatch (caused by an offsetting liability or asset being held at fair value), or is managed by the Group on the basis of its fair value, or includes terms that have substantive derivative characteristics described in Note 15 Derivative financial instruments.   The details on how the fair value amounts are derived for financial assets designated at fair value are described in Note 18 Fair value of assets and liabilities.
																			2016 £m				2015 £m
Loans and advances																			10,519				17,913
Debt securities																			70				1,383
Equity securities																			4,558				6,197
Reverse repurchase agreements																			63,162				49,513
Customers’ assets held under investment contracts																			37				1,449
Other financial assets																			262				375
Financial assets designated at fair value																			78,608				76,830
Credit risk of loans and advances designated at fair value and related credit derivatives The following table shows the maximum exposure to credit risk, the changes in fair value attributable to changes in credit risk, and the cumulative changes in fair value since initial recognition together with the amount by which related credit derivatives mitigate this risk:
			Maximum exposure as at 31 December								Changes in fair value during the year ended								Cumulative changes in fair value from inception
			2016 £m				2015 £m				2016 £m				2015 £m				2016 £m				2015 £m
Loans and advances designated at fair value, attributable to credit risk			10,519				17,913				(42	)			69				(42	)			(629	)
Value mitigated by related credit derivatives			339				417				(2	)			26				(13	)			42

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  241

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Notes to the financial statements

Assets and liabilities held at fair value

        

 

 

15 Derivative financial instruments

 

 

Total derivatives							2016												2015
			Notional				Fair value								Notional				Fair value
			contract												contract
			amount				Assets				Liabilities				amount				Assets				Liabilities
			£m				£m				£m				£m				£m				£m
Total derivative assets/(liabilities) held for trading			36,185,820				345,624				(339,646	)			29,437,102				326,772				(323,788	)
Total derivative assets/(liabilities) held for risk management			336,524				1,002				(841	)			316,605				937				(464	)
Derivative assets/(liabilities)			36,522,344				346,626				(340,487	)			29,753,707				327,709				(324,252	)

The fair value of derivative assets increased by 6% to £347bn. This was mainly in foreign exchange derivatives largely due to increase in trade volumes and appreciation of all major currencies against GBP. Information on further netting of derivative financial instruments is included within Note 19 Offsetting financial assets and financial liabilities.

Trading derivatives are managed within the Group’s market risk management policies, which are outlined on page 103.

The Group’s exposure to credit risk arising from derivative contracts are outlined in the Credit risk section on page 139 and 140.

 

242  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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15 Derivative financial instruments continued

The fair values and notional amounts of derivative instruments held for trading are set out in the following table:

 

Derivatives held for trading							2016												2015
			Notional contract amount £m				Fair value								Notional contract amount £m				Fair value
							Assets £m				Liabilities £m								Assets £m				Liabilities £m
Foreign exchange derivatives
Forward foreign exchange			2,308,922				32,442				(30,907	)			1,277,863				17,613				(19,433)
Currency swaps			1,086,552				40,083				(40,164	)			1,006,640				30,703				(32,449)
OTC options bought and sold			772,031				6,338				(6,762	)			924,832				6,436				(6,771)
OTC derivatives			4,167,505				78,863				(77,833	)			3,209,335				54,752				(58,653)
Foreign exchange derivatives cleared by central counterparty			43,478				366				(388	)			9,308				33				(44)
Exchange traded futures and options – bought and sold			18,813				31				(27	)			6,071				13				(12)
Foreign exchange derivatives			4,229,796				79,260				(78,248	)			3,224,714				54,798				(58,709)
Interest rate derivatives
Interest rate swaps			4,799,897				153,822				(143,059	)			4,600,472				159,040				(148,475)
Forward-rate agreements			296,559				999				(968	)			371,510				440				(390)
OTC options bought and sold			2,522,430				42,412				(43,373	)			2,634,527				48,995				(49,001)
OTC derivatives			7,618,886				197,233				(187,400	)			7,606,509				208,475				(197,866)
Interest rate derivatives cleared by central counterpartya			14,439,407				30,503				(31,528	)			11,407,745				21,871				(22,603)
Exchange traded futures and options – bought and sold			7,952,733				397				(370	)			5,470,872				281				(263)
Interest rate derivatives			30,011,026				228,133				(219,298	)			24,485,126				230,627				(220,732)
Credit derivatives
OTC swaps			615,057				11,811				(10,513	)			671,389				14,087				(12,693)
Credit derivatives cleared by central counterpartya			332,743				4,462				(4,572	)			277,257				4,094				(3,931)
Credit derivatives			947,800				16,273				(15,085	)			948,646				18,181				(16,624)
Equity and stock index derivatives
OTC options bought and sold			102,545				6,766				(8,837	)			53,645				5,507				(7,746)
Equity swaps and forwards			105,120				2,253				(4,435	)			98,264				1,794				(3,855)
OTC derivatives			207,665				9,019				(13,272	)			151,909				7,301				(11,601)
Exchange traded futures and options – bought and sold			585,620				8,070				(8,600	)			429,592				6,498				(6,851)
Equity and stock index derivatives			793,285				17,089				(21,872	)			581,501				13,799				(18,452)
Commodity derivatives
OTC options bought and sold			14,053				395				(461	)			21,959				1,402				(1,408)
Commodity swaps and forwards			16,086				1,528				(1,821	)			29,161				3,645				(3,397)
OTC derivatives			30,139				1,923				(2,282	)			51,120				5,047				(4,805)
Exchange traded futures and options – bought and sold			173,774				2,946				(2,861	)			145,995				4,320				(4,466)
Commodity derivatives			203,913				4,869				(5,143	)			197,115				9,367				(9,271)
Derivative assets/(liabilities) held for trading			36,185,820				345,624				(339,646	)			29,437,102				326,772				(323,788)
Total OTC derivatives held for trading			12,639,252				298,849				(291,300	)			11,690,262				289,662				(285,618)
Total derivatives cleared by central counterparty held for trading			14,815,628				35,331				(36,488	)			11,694,310				25,998				(26,578)
Total exchange traded derivatives held for trading			8,730,940				11,444				(11,858	)			6,052,530				11,112				(11,592)
Derivative assets/(liabilities) held for trading			36,185,820				345,624				(339,646	)			29,437,102				326,772				(323,788)

 

Note

a

The Chicago Mercantile Exchange (CME) changed its rulebook with effective date 3 January 2017. Under the new rules, OTC positions cleared will be settled daily by cash payments and not collateralised by these payments (known currently as variation margin). For reporting periods following the effective date, the fair value of derivatives will reflect the settlement which will reduce the fair value of the recognised derivative assets and liabilities and there will be no separate cash collateral recognised for the daily ‘variation margin’. As of 31 December 2016, the fair value of impacted derivatives assets was £20.4bn and derivative liabilities £21.5bn.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  243

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Notes to the financial statements

Assets and liabilities held at fair value

 

 

15 Derivative financial instruments continued

The fair values and notional amounts of derivative instruments held for risk management are set out in the following table:

 

Derivatives held for risk management											2016												2015
							Notional				Fair value								Notional				Fair value
							contract												contract
							amount				Assets				Liabilities				amount				Assets				Liabilities
							£m				£m				£m				£m				£m				£m
Derivatives designated as cash flow hedges
Currency swaps							1,357				453				–				1,357				133				–
Interest rate swaps							5,965				154				(6)				14,198				162				(115)
Forward foreign exchange							–				–				–				759				5				–
Interest rate derivatives cleared by central counterparty							181,541				62				(27)				147,072				–				–
Derivatives designated as cash flow hedges							188,863				669				(33)				163,386				300				(115)
Derivatives designated as fair value hedges
Interest rate swaps							10,733				301				(744)				13,798				637				(264)
Forward foreign exchange							–				–				–				2,527				–				(32)
Interest rate derivatives cleared by central counterparty							130,842				–				–				134,939				–				–
Derivatives designated as fair value hedges							141,575				301				(744)				151,264				637				(296)
Derivatives designated as hedges of net investments
Forward foreign exchange							6,086				32				(64)				1,955				–				(53)
Derivatives designated as hedges of net investments							6,086				32				(64)				1,955				–				(53)
Derivative assets/(liabilities) held for risk management							336,524				1,002				(841)				316,605				937				(464)
Total OTC derivatives held for risk management							24,141				940				(814)				34,594				937				(464)
Total derivatives cleared by central counterparty held for risk management							312,383				62				(27)				282,011				–				–
Derivative assets/(liabilities) held for risk management							336,524				1,002				(841)				316,605				937				(464)
The Group has hedged the following forecast cash flows, which primarily vary with interest rates. These cash flows are expected to impact the income statement in the following periods, excluding any hedge adjustments that may be applied:
							Up to				One to				Two to				Three to				Four to				More than
			Total				one year				two years				three years				four years				five years				five years
			£m				£m				£m				£m				£m				£m				£m
2016
Forecast receivable cash flows			2,616				455				531				511				411				327				381
Forecast payable cash flows			52				15				16				7				6				5				3
2015
Forecast receivable cash flows			4,952				555				816				875				813				633				1,260
Forecast payable cash flows			872				769				35				31				22				11				4
The maximum length of time over which the Group hedges exposure to the variability in future cash flows for forecast transactions, excluding those forecast transactions related to the payment of variable interest on existing financial instruments is 10 years (2015: 10 years).
Amounts recognised in net interest income																							2016 £m				2015 £m
Gains on the hedged items attributable to the hedged risk																							1,787				552
Losses on the hedging instruments																							(1,741)				(485)
Fair value ineffectiveness																							46				67
Cash flow hedging ineffectiveness																							28				16
Net investment hedging ineffectiveness																							(3)				(2)

Gains and losses transferred from the cash flow hedging reserve to the income statement included a £17m gain (2015: £36m gain) transferred to interest income; a £491m gain (2015: £267m gain) to interest expense; nil (2015: £4m loss) to net trading income; a £17m gain (2015: £17m gain) to administration and general expenses; and a £75m loss (2015: £69m loss) to taxation.

 

244  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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16 Financial investments

 

Accounting for financial investments   Available for sale financial assets are held at fair value with gains and losses being included in other comprehensive income. The Group uses this classification for assets that are not derivatives and are not held for trading purposes or otherwise designated at fair value through profit or loss, or at amortised cost. Dividends and interest (calculated using the effective interest method) are recognised in the income statement in net interest income (Note 3) or, net investment income (Note 6). On disposal, the cumulative gain or loss recognised in other comprehensive income is also included in net investment income.   Held to maturity assets are held at amortised cost. The Group uses this classification when there is an intent and ability to hold the asset to maturity. Interest on the investments are recognised in the income statement within Net interest income (Note 3).

 

			2016				2015
			£m				£m
Available for sale debt securities and other eligible bills			57,703				89,278
Available for sale equity securities			438				989
Held to maturity debt securities			5,176				–
Financial investments			63,317				90,267

In June 2016 UK Gilts previously classified as available for sale investments, were reclassified to held to maturity in order to reflect the intention with these assets. Any previous fair value gain or loss on the asset that has been accumulated within the available for sale reserve (Note 32) is amortised to profit or loss over the remaining life of the financial asset using the effective interest method.

17 Financial liabilities designated at fair value

 

Accounting for liabilities designated at fair value through profit and loss   In accordance with IAS 39, financial liabilities may be designated at fair value, with gains and losses taken to the income statement within net trading income (Note 5) and net investment income (Note 6). The Group has the ability to make the fair value designation when holding the instruments at fair value reduces an accounting mismatch (caused by an offsetting liability or asset being held at fair value), or is managed by the Group on the basis of its fair value, or includes terms that have substantive derivative characteristics (Note 15 Derivative financial instruments).   The details on how the fair value amounts are derived for financial liabilities designated at fair value are described in Note 18 Fair value of assets and liabilities.

 

			2016								2015
							Contractual								Contractual
							amount due								amount due
			Fair value				on maturity				Fair value				on maturity
			£m				£m				£m				£m
Debt securities			34,985				37,034				33,177				36,097
Deposits			5,269				5,303				6,029				6,324
Liabilities to customers under investment contracts			37				–				1,633				–
Repurchase agreements			55,710				55,760				50,838				50,873
Other financial liabilities			30				30				68				68
Financial liabilities designated at fair value			96,031				98,127				91,745				93,362

The cumulative own credit net loss recognised is £239m (2015: £226m).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  245

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Notes to the financial statements

Assets and liabilities held at fair value

    

 

 

18 Fair value of financial instruments

 

Accounting for financial assets and liabilities – fair values The Group applies IAS 39. All financial instruments are initially recognised at fair value on the date of initial recognition and, depending on the classification of the asset or liability, may continue to be held at fair value either through profit or loss or other comprehensive income. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.   Wherever possible, fair value is determined by reference to a quoted market price for that instrument. For many of the Group’s financial assets and liabilities, especially derivatives, quoted prices are not available and valuation models are used to estimate fair value. The models calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These models use as their basis independently-sourced market parameters including, for example, interest rate yield curves, equities and commodities prices, option volatilities and currency rates.   For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit spreads calibrated to observable market data such as in primary issuance and redemption activity for structured notes. Own credit spreads for instruments issued out of Barclays Bank PLC were previously derived from Barclays Bank PLC issued vanilla debt in the secondary market but, due to extensive bond buy-back programmes, observations of Barclays Bank PLC secondary market bond prices have significantly decreased and no longer provide a reliable estimation for the fair value measurement.   On initial recognition, it is presumed that the transaction price is the fair value unless there is observable information available in an active market to the contrary. The best evidence of an instrument’s fair value on initial recognition is typically the transaction price. However, if fair value can be evidenced by comparison with other observable current market transactions in the same instrument, or is based on a valuation technique whose inputs include only data from observable markets, then the instrument should be recognised at the fair value derived from such observable market data.   For valuations that have made use of unobservable inputs, the difference between the model valuation and the initial transaction price (‘Day One profit’) is recognised in profit or loss either: on a straight-line basis over the term of the transaction; or where appropriate over the period until all model inputs will become observable or released in full when previously unobservable inputs become observable.   Various factors influence the availability of observable inputs and these may vary from product to product and change over time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the marketplace, the maturity of market modelling and the nature of the transaction (bespoke or generic). To the extent that valuation is based on models or inputs that are not observable in the market, the determination of fair value can be more subjective, depending on the significance of the unobservable input to the overall valuation. Unobservable inputs are determined based on the best information available, for example by reference to similar assets, similar maturities or other analytical techniques.   The sensitivity of valuations used in the financial statements to possible changes in significant unobservable inputs is shown on page 256.   Critical accounting estimates and judgements The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation models make use of unobservable inputs (‘Level 3’ assets and liabilities). This note provides information on these instruments, including the related unrealised gains and losses recognised in the period, a description of significant valuation techniques and unobservable inputs, and a sensitivity analysis.

Valuation

IFRS 13 Fair Value Measurement requires an entity to classify its assets and liabilities according to a hierarchy that reflects the observability of significant market inputs. The three levels of the fair value hierarchy are defined below.

Quoted market prices – Level 1

Assets and liabilities are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.

Valuation technique using observable inputs – Level 2

Assets and liabilities classified as Level 2 have been valued using models whose inputs are observable either directly or indirectly. Valuations based on observable inputs include assets and liabilities such as swaps and forwards which are valued using market standard pricing techniques, and options that are commonly traded in markets where all the inputs to the market standard pricing models are observable.

Valuation technique using significant unobservable inputs – Level 3

Assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price. Unobservable input levels are generally determined via reference to observable inputs, historical observations or using other analytical techniques.

 

246  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

The following table shows the Groups’ assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and balance sheet classification:

 

Assets and liabilities held at fair value
			Valuation technique using
			Quoted market prices (Level 1) £m				Observable inputs (Level 2) £m				Significant unobservable inputs (Level 3) £m				Total £m
As at 31 December 2016
Trading portfolio assets			41,550				36,625				2,065				80,240
Financial assets designated at fair value			4,031				64,630				9,947				78,608
Derivative financial assets			5,261				332,819				8,546				346,626
Available for sale investments			21,218				36,551				372				58,141
Investment property			–				–				81				81
Assets included in disposal groups classified as held for salea			6,754				8,511				6,009				21,274
Total assets			78,814				479,136				27,020				584,970
Trading portfolio liabilities			(20,205	)			(14,475	)			(7	)			(34,687	)
Financial liabilities designated at fair value			(70	)			(95,121	)			(840	)			(96,031	)
Derivative financial liabilities			(5,051	)			(328,265	)			(7,171	)			(340,487	)
Liabilities included in disposal groups classified as held for salea			(397	)			(5,224	)			(6,201	)			(11,822	)
Total liabilities			(25,723	)			(443,085	)			(14,219	)			(483,027	)
As at 31 December 2015
Trading portfolio assets			36,676				35,725				4,947				77,348
Financial assets designated at fair value			6,163				52,909				17,758				76,830
Derivative financial assets			6,342				315,949				5,418				327,709
Available for sale investments			42,552				46,693				1,022				90,267
Investment property			–				–				140				140
Assets included in disposal groups classified as held for salea			26				8				7,330				7,364
Total assets			91,759				451,284				36,615				579,658
Trading portfolio liabilities			(23,978	)			(9,989	)			–				(33,967	)
Financial liabilities designated at fair value			(240	)			(90,203	)			(1,302	)			(91,745	)
Derivative financial liabilities			(5,450	)			(314,033	)			(4,769	)			(324,252	)
Liabilities included in disposal groups classified as held for salea			(1,024	)			(802	)			(4,171	)			(5,997	)
Total liabilities			(30,692	)			(415,027	)			(10,242	)			(455,961	)

 

Note

a

Disposal groups held for sale and measured at fair value less cost to sell are included in the fair value table. For disposal groups measured at carrying amount, the underlying financial assets and liabilities measured at fair value are included in the fair value disclosures on pages 247 to 260 and items measured at amortised cost are included on page 261. Non-financial assets (£6.6bn) and liabilities (£1.7bn) within disposal groups measured at carrying amount are excluded from these disclosures.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  247

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Notes to the financial statements

Assets and liabilities held at fair value

    

 

 

18 Fair value of financial instruments continued

The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and product type.

 

Assets and liabilities held at fair value by product type
							Assets												Liabilities
			Valuation technique using												Valuation technique using
			Quoted market prices (Level 1) £m				Observable inputs (Level 2) £m				Significant unobservable inputs (Level 3) £m				Quoted market prices (Level 1) £m				Observable inputs (Level 2) £m				Significant unobservable inputs (Level 3) £m
As at 31 December 2016
Interest rate derivatives			–				222,892				5,759				–				(215,213	)			(4,860	)
Foreign exchange derivatives			–				79,612				132				–				(78,263	)			(51	)
Credit derivatives			–				14,662				1,611				–				(14,844	)			(241	)
Equity derivatives			4,210				11,842				1,037				(4,058	)			(15,808	)			(2,007	)
Commodity derivatives			1,052				3,809				8				(991	)			(4,138	)			(13	)
Government and government sponsored debt			31,203				49,834				3				(12,761	)			(11,454	)			–
Corporate debt			46				11,921				969				(27	)			(1,907	)			(5	)
Certificates of deposit, commercial paper and other money market instruments			–				994				–				–				(6,936	)			(319	)
Reverse repurchase and repurchase agreements			–				63,162				–				–				(55,710	)			–
Non-asset backed loans			–				2,888				8,767				–				–				–
Asset backed securities			–				1,956				515				–				(256	)			–
Commercial real estate loans			–				–				442				–				–				–
Issued debt			–				–				–				–				(31,973	)			(298	)
Equity cash products			35,399				6,478				150				(7,416	)			(934	)			(2	)
Funds and fund linked products			53				137				273				–				(170	)			(37	)
Private equity investments			23				110				856				–				(18	)			(12	)
Assets and liabilities held for sale			6,754				8,511				6,009				(397	)			(5,224	)			(6,201	)
Othera			74				328				489				(73	)			(237	)			(173	)
Total			78,814				479,136				27,020				(25,723	)			(443,085	)			(14,219	)
As at 31 December 2015
Interest rate derivatives			–				228,751				2,675				–				(218,864	)			(2,247	)
Foreign exchange derivatives			2				54,839				95				(4	)			(58,594	)			(196	)
Credit derivatives			–				16,279				1,902				–				(16,405	)			(219	)
Equity derivatives			3,830				9,279				690				(2,870	)			(14,037	)			(1,545	)
Commodity derivatives			2,510				6,801				56				(2,576	)			(6,133	)			(562	)
Government and government sponsored debt			55,150				52,967				419				(15,036	)			(5,474	)			(1	)
Corporate debt			352				11,598				2,895				(234	)			(4,558	)			(15	)
Certificates of deposit, commercial paper and other money market instruments			82				503				–				(5	)			(6,955	)			(382	)
Reverse repurchase and repurchase agreements			–				49,513				–				–				(50,838	)			–
Non-asset backed loans			–				1,931				16,828				–				–				–
Asset backed securities			–				12,009				770				–				(384	)			(37	)
Commercial real estate loans			–				–				551				–				–				–
Issued debt			–				–				–				–				(29,695	)			(546	)
Equity cash products			29,704				4,038				171				(8,943	)			(221	)			–
Funds and fund linked products			–				1,649				378				–				(1,601	)			(148	)
Private equity investments			7				283				1,388				–				–				–
Assets and liabilities held for sale			26				8				7,330				(1,024	)			(802	)			(4,171	)
Othera			96				836				467				–				(466	)			(173	)
Total			91,759				451,284				36,615				(30,692	)			(415,027	)			(10,242	)

 

Note

a	Other includes asset backed loans, physical commodities and investment property.

 

248  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Valuation techniques and sensitivity analysis

Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible alternative valuations. The sensitivity methodologies applied take account of the nature of the valuation techniques used, as well as the availability and reliability of observable proxy and historical data and the impact of using alternative models.

Sensitivities are dynamically calculated on a monthly basis. The calculation is based on range or spread data of a reliable reference source or a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated without reflecting the impact of any diversification in the portfolio.

The valuation techniques used for the material products within Levels 2 and 3, and observability and sensitivity analysis for products within Level 3, are described below.

Interest rate derivatives

Description: These are derivatives linked to interest rates or inflation indices. This category includes futures, interest rate and inflation swaps, swaptions, caps, floors, inflation options, balance guaranteed swaps and other exotic interest rate derivatives.

Valuation: Interest rate derivative cash flows are valued using interest rate yield curves whereby market data is used to construct the term structure of forward rates. This is then used to project and discount future cash flows based on the parameters of the trade. Instruments with optionality are valued using volatilities implied from market inputs. Exotic interest rate derivatives are valued using industry standard and bespoke models based on observable and unobservable market parameter inputs. Input parameters include interest rates, volatilities, correlations and others as appropriate. Inflation forward curves and interest rate yield curves may be extrapolated beyond observable tenors.

Balance guaranteed swaps are valued using cash flow models that calculate fair value based on loss projections, prepayment, recovery and discount rates. These parameters are determined by reference to underlying asset performance.

Observability: In general, input parameters are deemed observable up to liquid maturities which are determined separately for each parameter and underlying. Certain correlation, convexity, long dated forwards and volatility exposures are unobservable beyond liquid maturities. Unobservable market data and model inputs are set by referencing liquid market instruments and applying extrapolation techniques or inferred via another reasonable method.

Level 3 sensitivity: Sensitivity relating to unobservable valuation inputs is based on the dispersion of consensus data services where available, otherwise stress scenarios or historic data are used.

Foreign exchange derivatives

Description: These are derivatives linked to the foreign exchange (FX) market. This category includes FX forward contracts, FX swaps and FX options. The vast majority are traded as over the counter (OTC) derivatives.

Valuation: Exotic and non-exotic derivatives are valued using industry standard and bespoke models. Input parameters include FX rates, interest rates, FX volatilities, interest rate volatilities, FX interest rate correlations and others as appropriate. Unobservable model inputs are set by referencing liquid market instruments and applying extrapolation techniques to match the appropriate risk profile.

Observability: Certain correlations, long dated forwards and volatilities are unobservable beyond liquid maturities.

Level 3 sensitivity: Sensitivity relating to unobservable valuation inputs is primarily based on the dispersion of consensus data services.

Credit derivatives

Description: These are derivatives linked to the credit spread of a referenced entity, index or basket of referenced entities or a pool of referenced assets via securitisation. This category includes single name and index credit default swaps (CDS), asset backed CDS, synthetic CDOs and Nth-to-default basket swaps.

Valuation: CDS are valued using a market standard model that incorporates the credit curve as its principal input. Credit spreads are observed directly from broker data, third-party vendors or priced to proxies. Where credit spreads are unobservable, they are determined with reference to recent transactions or proxied from bond spreads on observable trades of the same issuer or other similar entities. Synthetic CDOs are valued using a model that calculates fair value based on credit spreads, recovery rates, correlations and interest rates, and is calibrated to the index tranche market.

Observability: CDS contracts referencing entities that are not actively traded are considered unobservable. The correlation input to synthetic CDO valuation is considered unobservable as it is proxied from the observable index tranche market. Where an asset backed credit derivative does not have an observable market price and the valuation is determined using a model, an instrument is considered unobservable.

Level 3 sensitivity: The sensitivity of valuations of the illiquid CDS portfolio is determined by applying a shift to each spread curve. The shift is based on the average range of pricing observed in the market for similar CDS. Synthetic CDO sensitivity is calculated using correlation levels derived from the range of contributors to a consensus bespoke service.

Equity derivatives

Description: These are derivatives linked to equity indices and single names. This category includes exchange traded and OTC equity derivatives including vanilla and exotic options.

Valuation: The valuations of OTC equity derivatives are determined using industry standard models. Input parameters include stock prices, dividends, volatilities, interest rates, equity repo curves and, for multi-asset products, correlations. Unobservable model inputs are determined by reference to liquid market instruments and applying extrapolation techniques to match the appropriate risk profile.

Observability: In general, input parameters are deemed observable up to liquid maturities which are determined separately for each parameter and underlying.

Level 3 sensitivity: Sensitivity is estimated based on the dispersion of consensus data services either directly or through proxies.

Commodity derivatives

Description: These products are exchange traded and OTC derivatives based on underlying commodities such as metals, crude oil and refined products, agricultural, power and natural gas.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  249

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Notes to the financial statements

Assets and liabilities held at fair value

    

 

 

18 Fair value of financial instruments continued

Valuation: The valuations of commodity swaps and options are determined using models incorporating discounting of cash flows and other industry standard modelling techniques. Valuation inputs include forward curves, volatilities implied from market observable inputs and correlations. Unobservable inputs are set with reference to similar observable products or by applying extrapolation techniques from the observable market.

Observability: Certain correlations, forward curves and volatilities for longer dated exposures are unobservable.

Level 3 sensitivity: Sensitivity is determined primarily by measuring historical variability over two years. Where historical data is unavailable or uncertainty is due to volumetric risk, sensitivity is measured by applying appropriate stress scenarios or using proxy bid-offer spread levels.

Complex derivative instruments

Valuation estimates made by counterparties with respect to complex derivative instruments, for the purpose of determining the amount of collateral to be posted, often differ, sometimes significantly, from Barclays’ own estimates. In almost all cases, Barclays has been able to successfully resolve such differences or otherwise reach an accommodation with respect to collateral posting levels, including in certain cases by entering into compromise collateral arrangements. Due to the ongoing nature of collateral calls, Barclays will often be engaged in discussion with one or more counterparties in respect of such differences at any given time. Valuation estimates made by counterparties for collateral purposes are considered, like any other third-party valuation, when determining Barclays’ fair value estimates.

Government and government sponsored debt

Description: These are government bonds, supra sovereign bonds and agency bonds.

Valuation: Liquid government bonds actively traded through an exchange or clearing house are marked to the closing levels observed in these markets. Less liquid bonds are valued using observable market prices which are sourced from broker quotes, inter-dealer prices or other reliable pricing services. Where there are no observable market prices, fair value is determined by reference to yields on other bonds from the same issuer.

Observability: Where an observable market price is not available the bond is considered Level 3.

Level 3 sensitivity: Sensitivity is calculated by using the range of observable proxy prices.

Corporate debt

Description: This primarily contains corporate bonds.

Valuation: Corporate bonds are valued using observable market prices which are sourced from broker quotes, inter-dealer prices or other reliable pricing services. Where there are no observable market prices, fair value is determined by reference to either issuances or CDS spreads of the same issuer as proxy inputs to obtain discounted cash flow amounts. In the absence of observable bond or CDS spreads for the respective issuer, similar reference assets or sector averages are applied as a proxy (the appropriateness of proxies being assessed based on issuer, coupon, maturity and industry).

Observability: Where an observable market price is not available the security is considered Level 3.

Level 3 sensitivity: The sensitivity of the corporate bonds portfolio is determined by applying a shift to each underlying position driven by average ranges of external levels observed in the market for similar bonds.

Certificates of Deposit, Commercial Paper and other money market instruments

Description: These are certificates of deposit, commercial paper and other money market instruments.

Valuation: Certificates of deposit and commercial paper are valued using observable market prices which are sourced from broker quotes inter-dealer prices or other reliable pricing services. Where there are no observable market prices, fair value is determined by reference to either issuances or CDS spreads of the same issuer as proxy inputs to obtain discounted cash flow amounts. In the absence of observable bond or CDS spreads for the respective issuer, similar reference assets or sector averages are applied as a proxy (the appropriateness of proxies being assessed based on issuer, coupon, maturity and industry).

Observability: Where an observable market price is not available the instrument is considered Level 3.

Level 3 sensitivity: Sensitivity is calculated by using the range of observable proxy prices.

Reverse repurchase and repurchase agreements

Description: These include securities purchased under resale agreements, securities sold under repurchase agreements, and other similar secured lending agreements.

Valuation: Reverse repurchase and repurchase agreements are valued by discounting the expected future cash flows. The inputs to the valuation include interest rates and repo rates, which are determined based on the specific parameters of the transaction.

Observability: In general, input parameters are deemed observable up to liquid maturities, as determined based on the specific parameters of the transaction. Unobservable market data and model inputs are set by referencing liquid market instruments and applying extrapolation techniques or inferred via another reasonable method.

Level 3 sensitivity: Sensitivity relating to unobservable valuation inputs is based on the dispersion of consensus data services where available, otherwise stress scenarios or historic data are used. In general, the sensitivity of unobservable inputs is insignificant to the overall balance sheet valuation given the predominantly short-term nature of the agreements.

Non-asset backed loans

Description: This category is largely made up of fixed rate loans, primarily the ESHLA portfolio, which are valued using models that discount expected future cash flows.

Valuation: Fixed rate loans are valued using models that calculate fair value based on observable interest rates and unobservable loan spreads. Unobservable loan spreads incorporate funding costs, the level of comparable assets such as gilts, issuer credit quality and other factors.

Observability: Within this population, the unobservable input is the loan spread.

Level 3 sensitivity: The sensitivity of fixed rate loans is calculated by applying a shift to loan spreads.

 

250  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Asset backed securities

Description: These are securities that are linked to the cash flows of a pool of referenced assets via securitisation. This category includes residential mortgage backed securities, commercial mortgage backed securities, CDOs, collaterallised loan obligations (CLOs) and other asset backed securities.

Valuation: Where available, valuations are based on observable market prices which are sourced from broker quotes and inter-dealer prices. Otherwise, valuations are determined using industry standard discounted cash flow analysis that calculates the fair value based on valuation inputs such as constant default rate, conditional prepayment rate, loss given default and yield. These inputs are determined by reference to a number of sources including proxying to observed transactions, market indices or market research, and by assessing underlying collateral performance.

Proxying to observed transactions, indices or research requires an assessment and comparison of the relevant securities’ underlying attributes including collateral, tranche, vintage, underlying asset composition (historical losses, borrower characteristics and loan attributes such as loan-to-value ratio and geographic concentration) and credit ratings (original and current).

Observability: Where an asset backed product does not have an observable market price and the valuation is determined using a discounted cash flow analysis, the instrument is considered unobservable.

Level 3 sensitivity: The sensitivity analysis for asset backed products is based on externally sourced pricing dispersion or by stressing the inputs of discount cash flow analysis.

Commercial real estate loans

Description: This portfolio includes loans that are secured by a range of commercial property types including retail, hotel, office, multi-family and industrial properties.

Valuation: Performing loans are valued using discounted cash flow analysis which considers the characteristics of the loan such as property type, geographic location, credit quality and property performance reviews in order to determine an appropriate credit spread. Where there is significant uncertainty regarding loan performance, valuation is based on independent third-party appraisals or bids for the underlying properties. Independent third party appraisals are determined by discounted cash flow analysis. The key valuation inputs are yield and loss given default.

Observability: Since each commercial real estate loan is unique in nature and the secondary loan market is relatively illiquid, valuation inputs are generally considered unobservable.

Level 3 sensitivity: For performing loans, sensitivity is determined by stressing the credit spread for each loan. For loans which have significant uncertainty regarding loan performance, sensitivity is determined by either a range of bids or by stressing the inputs to independent third party appraisals.

Issued debt

Description: This category contains Barclays issued notes.

Valuation: Fair valued Barclays issued notes are valued using discounted cash flow techniques and industry standard models incorporating various input parameters observed for each parameter or instrument.

Observability: Barclays issued notes are generally observable. Structured notes are debt instruments containing embedded derivatives. Where either an input to the embedded derivative or the debt instrument is deemed unobservable and significant to the overall valuation of the note, the structured note is classified as Level 3.

Level 3 sensitivity: Sensitivity to the unobservable input in the embedded derivative is calculated in line with the method used for the derivative instrument concerned.

Equity cash products

Description: This category includes listed equities, Exchange Traded Funds (ETF) and preference shares.

Valuation: Valuation of equity cash products is primarily determined through market observable prices.

Observability: Prices are generally observed in the market. Where a price for an equity security is not available, the instrument is considered unobservable.

Level 3 sensitivity: Sensitivity is calculated based on a stressed valuation on the underlying asset.

Funds and fund linked products

Description: This category includes holdings in hedge funds and funds of funds.

Valuation: In general, fund holdings are valued based on the latest available valuation received from the fund administrator. In the case of illiquid fund holdings the valuation will take account of all available information in relation to the underlying fund or collection of funds and may be adjusted relative to the performance of relevant index benchmarks.

Observability: Funds are deemed unobservable where the fund is either suspended, in wind-down, has a redemption restriction that severely affects liquidity, or where the latest net asset value from the fund administrators is older than the frequency dictated by the fund offering documents.

Level 3 sensitivity: Sensitivity is calculated on an individual fund basis using a loss-based scenario approach which factors in the underlying assets of the specific fund and assumed recovery rates.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  251

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Notes to the financial statements

Assets and liabilities held at fair value

    

 

 

18 Fair value of financial instruments continued

Private equity investments

Description: This category includes private equity investments.

Valuation: Private equity investments are valued in accordance with the ‘International Private Equity and Venture Capital Valuation Guidelines’. These require the use of a number of individual pricing benchmarks such as the prices of recent transactions in the same or similar entities, discounted cash flow analysis and comparison with the earnings multiples of listed comparative companies. Full valuations are generally performed at least bi-annually, with the positions reviewed periodically for material events that might impact upon fair value. The valuation of unquoted equity instruments is subjective by nature. However, the relevant methodologies are commonly applied by other market participants and have been consistently applied over time.

Observability: Unobservable inputs include earnings estimates, multiples of comparative companies, marketability discounts and discount rates.

Level 3 sensitivity: The relevant valuation models are each sensitive to a number of key assumptions, such as projected future earnings, comparator multiples, marketability discounts and discount rates. Valuation sensitivity is estimated by flexing such assumptions to reasonable alternative levels and determining the impact on the resulting valuation.

Assets and liabilities held for sale

Description: Assets and liabilities held for sale materially consist of the intention to dispose of BAGL, France, Egypt, BVP and Zimbabwe.

Valuation: Assets and liabilities held for sale are valued at the lower of carrying value and fair value less cost to sell.

Level 3 sensitivity: The disposal groups that are measured at fair value less cost to sell are valued at the agreed price less costs to sell and are not expected to display significant sensitivity. The sensitivity of the assets and liabilities measured at carrying value is explained within the relevant product descriptions.

Other

Description: Other includes asset-backed loans, physical commodities and investment property.

Assets and liabilities reclassified between Level 1 and Level 2

There were transfers of £2,340m of government bond assets during the period from Level 2 to Level 1 to reflect the market observability of these product types (2015: £537m assets and £801m liabilities of equity and foreign exchange derivatives transferred from Level 1 to Level 2).

Level 3 movement analysis

The following table summarises the movements in the Level 3 balances during the period. The table shows gains and losses and includes amounts for all financial assets and liabilities that are held at fair value transferred to, and from, Level 3 during the period. Transfers have been reflected as if they had taken place at the beginning of the year.

Assets and liabilities included in disposal groups classified as held for sale and measured at fair value less cost to sell are not included as these are measured at fair value on a non-recurring basis.

Asset and liability transfers between Level 2 and Level 3 are primarily due to i) an increase or decrease in observable market activity related to an input or ii) a change in the significance of the unobservable input, with assets and liabilities classified as Level 3 if an unobservable input is deemed significant.

During the year:

 

☒	£2.1bn corporate bonds were transferred from Level 3 to Level 2 to reflect the market observability of the products;

 

☒	£8.6bn of non-asset backed loans were derecognised due to a substantial modification of terms on the ESHLA loans. The new restructured loans are measured on an amortised cost basis; and

 

☒	Market moves in the interest rate and inflation markets have resulted in an increase in the value of the Level 3 assets being reported, the gains have largely been offset through Level 2 hedges.

 

252  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Analysis of movements in Level 3 assets and liabilities
																							Total gains and
																							losses in the period								Total
																							recognised in the								gains or
			As at																				income statement								losses re-				Transfers								As at 31
			1 January																Settle-				Trading				Other				cognised												December
			2016a				Purchases				Sales				Issues				ments				income				income				in OCI				In				Out				2016
			£m				£m				£m				£m				£m				£m				£m				£m				£m				£m				£m
Government and government sponsored debt			320				–				(317	)			–				–				–				–				–				–				–				3
Corporate debt			2,843				38				(48	)			–				(5	)			206				–				–				32				(2,097	)			969
Non-asset backed loans			507				173				(498	)			–				(4	)			(38	)			–				–				18				(7	)			151
Asset backed securities			743				129				(295	)			–				(171	)			111				–				–				1				(3	)			515
Funds and fund linked products			340				–				(77	)			–				–				23				–				–				1				(14	)			273
Other			155				59				(16	)			–				(1	)			(8	)			–				–				–				(35	)			154
Trading portfolio assets			4,908				399				(1,251	)			–				(181	)			294				–				–				52				(2,156	)			2,065
Non-asset backed loans			15,963				–				–				–				(8,602	)			1,155				100				–				–				–				8,616
Asset backed loans			256				48				(225	)			–				(20	)			30				–				–				112				–				201
Commercial real estate loans			543				2,658				(2,755	)			–				(12	)			56				–				–				–				(48	)			442
Private equity investments			457				38				(51	)			–				(3	)			16				120				–				6				(21	)			562
Other			78				–				–				–				(21	)			(19	)			85				–				41				(38	)			126
Financial assets designated at fair value			17,297				2,744				(3,031	)			–				(8,658	)			1,238				305				–				159				(107	)			9,947
Private equity investments			877				15				(254	)			–				(407	)			–				–				63				–				–				294
Other			44				53				(14	)			–				(16	)			–				4				7				1				(1	)			78
Available for sale investments			921				68				(268	)			–				(423	)			–				4				70				1				(1	)			372
Investment property			82				–				(3	)			–				–				–				2				–				–				–				81
Trading portfolio liabilities			–				–				(9	)			–				–				(1	)			–				–				–				3				(7	)
Certificates of deposit, commercial paper and other money market instruments			(272	)			–				–				(19	)			48				2				(7	)			–				(301	)			230				(319	)
Issued debt			(538	)			–				–				–				231				–				9				–				–				–				(298	)
Other			(244	)			–				–				–				83				(48	)			(2	)			–				(50	)			38				(223	)
Financial liabilities designated at fair value			(1,054	)			–				–				(19	)			362				(46	)			–				–				(351	)			268				(840	)
Interest rate derivatives			418				45				3				–				(6	)			228				–				–				294				(83	)			899
Foreign exchange derivatives			(104	)			–				30				2				40				6				–				–				55				52				81
Credit derivatives			1,685				2				(306	)			–				(119	)			111				–				–				3				(6	)			1,370
Equity derivatives			(857	)			196				7				(83	)			(34	)			(98	)			–				–				(15	)			(86	)			(970	)
Commodity derivatives			(506	)			–				–				–				91				(3	)			–				–				–				413				(5	)
Net derivative financial instrumentsb			636				243				(266	)			(81	)			(28	)			244				–				–				337				290				1,375
Assets and liabilities held for sale			424				126				(166	)			(116	)			85				–				172				–				–				49				574
Total			23,214				3,580				(4,994	)			(216	)			(8,843	)			1,729				483				70				198				(1,654	)			13,567
Net liabilities held for sale measured at fair value on non-recurring basis																																											(766	)
Total			23,214				3,580				(4,994	)			(216	)			(8,843	)			1,729				483				70				198				(1,654	)			12,801

 

Notes

a	The Level 3 opening balances have been amended to exclude the asset and liabilities held for sale.

b	The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £8,546m (2015: £5,418m) and derivative financial liabilities are £7,171m (2015: £4,769m).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  253

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Notes to the financial statements

Assets and liabilities held at fair value

    

 

 

18 Fair value of financial instruments continued
Analysis of movements in Level 3 assets and liabilities
																							Total gains and
																							losses in the period								Total
																							recognised in the								gains or
			As at																				income statement								losses re-				Transfers								As at 31
			1 January																				Trading				Other				cognised												December
			2015 £m				Purchases £m				Sales £m				Issues £m				Settlements £m				income £m				income £m				in OCI £m				In £m				Out £m				2015 £m
Government and government sponsored debt			685				27				(119	)			–				(109	)			(6	)			–				–				2				(160	)			320
Corporate debt			3,026				62				(64	)			–				(20	)			(47	)			–				–				5				(80	)			2,882
Non-asset backed loans			273				520				(251	)			–				(3	)			(42	)			–				–				11				(1	)			507
Asset backed securities			1,610				1,365				(1,565	)			–				(711	)			58				–				–				5				(19	)			743
Funds and fund linked products			589				–				(174	)			–				(56	)			(27	)			–				–				12				(4	)			340
Other			144				23				(19	)			–				(9	)			(14	)			–				–				53				(23	)			155
Trading portfolio assets			6,327				1,997				(2,192	)			–				(908	)			(78	)			–				–				88				(287	)			4,947
Non-asset backed loans			17,471				192				(114	)			–				(756	)			(531	)			(6	)			–				–				–				16,256
Asset backed loans			393				1,098				(1,260	)			–				2				8				–				–				15				–				256
Commercial real estate loans			1,179				3,540				(3,878	)			–				(342	)			49				1				–				–				–				549
Private equity investments			701				94				(200	)			–				(3	)			8				38				–				4				(132	)			510
Other			161				66				(31	)			–				(3	)			(11	)			5				–				26				(26	)			187
Financial assets designated at fair value			19,905				4,990				(5,483	)			–				(1,102	)			(477	)			38				–				45				(158	)			17,758
Government and government sponsored debt			327				14				(36	)			–				–				–				–				1				–				(212	)			94
Private equity investments			425				29				(89	)			–				–				–				471				22				–				20				878
Other			561				36				(2	)			–				(1,026	)			–				78				397				27				(21	)			50
Available for sale investments			1,313				79				(127	)			–				(1,026	)			–				549				420				27				(213	)			1,022
Investment property			207				27				(89	)			–				–				–				(5	)			–				–				–				140
Trading portfolio liabilities			(349	)			–				–				–				–				–				–				–				–				349				–
Certificates of deposit, commercial paper and other money market instruments			(666	)			–				–				(216	)			261				–				17				–				–				221				(383	)
Issued debt			(748	)			–				–				(16	)			245				(4	)			(8	)			–				(38	)			4				(565	)
Other			(402	)			–				–				–				(19	)			(18	)			75				–				–				10				(354	)
Financial liabilities designated at fair value			(1,816	)			–				–				(232	)			487				(22	)			84				–				(38	)			235				(1,302	)
Interest rate derivatives			(105	)			1				218				–				(247	)			203				–				–				243				117				430
Foreign exchange derivatives			(30	)			14				(1	)			(7	)			9				(14	)			–				–				(73	)			–				(102	)
Credit derivatives			1,557				273				(12	)			–				(6	)			(123	)			–				–				(11	)			7				1,685
Equity derivatives			(845	)			111				(2	)			(290	)			103				34				–				–				(21	)			52				(858	)
Commodity derivatives			(152	)			–				–				–				(66	)			(6	)			–				–				(388	)			106				(506	)
Net derivative financial instrumentsa			425				399				203				(297	)			(207	)			94				–				–				(250	)			282				649
Total			26,012				7,492				(7,688	)			(529	)			(2,756	)			(483	)			666				420				(128	)			208				23,214
Net assets held for sale measured at fair value on non-recurring basis																																											3,159
Total			26,012				7,492				(7,688	)			(529	)			(2,756	)			(483	)			666				420				(128	)			208				26,373

Note

a	The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £8,546m (2015: £5,418m) and derivative financial liabilities are £7,171m (2015: £4,769m).

 

254  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Unrealised gains and losses on Level 3 financial assets and liabilities

The following table discloses the unrealised gains and losses recognised in the year arising on Level 3 financial assets and liabilities held at year end.

 

Unrealised gains and losses recognised during the period on Level 3 assets and liabilities held at period end
							2016																2015
			Income statement								Other								Income statement								Other
											compre-																compre-
			Trading				Other				hensive								Trading				Other				hensive
			income				income				income				Totala				income				income				income				Total
As at 31 December			£m				£m				£m				£m				£m				£m				£m				£m
Trading portfolio assets			243				–				–				243				(125	)			–				–				(125	)
Financial assets designated at fair value			227				271				–				498				(562	)			(17	)			–				(579	)
Available for sale investments			–				6				70				76				–				(20	)			488				468
Investment property			–				2				–				2				–				(22	)			–				(22	)
Trading portfolio liabilities			(1	)			–				–				(1	)			(1	)			–				–				(1	)
Financial liabilities designated at fair value			96				(6	)			–				90				(24	)			76				–				52
Net derivative financial instruments			175				–				–				175				123				–				–				123
Assets and liabilities held for sale			–				128				–				128				–				–				–				–
Total			740				401				70				1,211				(589	)			17				488				(84	)

Note

a	The £1.2bn unrealised gain on Level 3 assets (2015: £84m loss) is largely offset by losses on related Level 2 and Level 1 portfolio hedges.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  255

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Notes to the financial statements

Assets and liabilities held at fair value

 

 

18 Fair value of financial instruments continued
Sensitivity analysis of valuations using unobservable inputs
			Fair value								Favourable changes								Unfavourable changes
			Total				Total				Income								Income
			assets				liabilities				statement				Equity				statement				Equity
			£m				£m				£m				£m				£m				£m
As at 31 December 2016
Interest rate derivatives			5,759				(4,860	)			209				–				(249	)			–
Foreign exchange derivatives			132				(51	)			15				–				(15	)			–
Credit derivatives			1,611				(241	)			127				–				(133	)			–
Equity derivatives			1,037				(2,007	)			163				–				(164	)			–
Commodity derivatives			8				(13	)			5				–				(5	)			–
Government and government sponsored debt			3				–				–				–				–				–
Corporate debt			969				(5	)			7				–				(2	)			–
Certificates of deposit, commercial paper and other money market instruments			–				(319	)			–				–				(1	)			–
Reverse repurchase and repurchase agreements			–				–				–				–				–				–
Non asset backed loans			8,767				–				462				–				(597	)			–
Asset backed securities			515				–				1				–				(1	)			–
Commercial real estate loans			442				–				2				–				(2	)			–
Issued debt			–				(298	)			–				–				–				–
Equity cash products			150				(2	)			12				26				(11	)			(26	)
Funds and fund linked products			273				(37	)			6				–				(6	)			–
Private equity investments			856				(12	)			104				18				(104	)			(21	)
Assets and liabilities held for sale			699				(125	)			3				–				(3	)			–
Othera			489				(173	)			147				–				(105	)			–
Total			21,710				(8,143	)			1,263				44				(1,398	)			(47	)
As at 31 December 2015
Interest rate derivatives			2,675				(2,247	)			93				–				(103	)			–
Foreign exchange derivatives			95				(196	)			17				–				(17	)			–
Credit derivatives			1,902				(219	)			66				–				(96	)			–
Equity derivatives			690				(1,545	)			167				–				(185	)			–
Commodity derivatives			56				(562	)			13				–				(13	)			–
Government and government sponsored debt			419				(1	)			4				–				(4	)			–
Corporate debt			2,895				(15	)			10				1				(5	)			(1	)
Certificates of deposit, commercial paper and other money market instruments			–				(382	)			–				–				–				–
Reverse repurchase and repurchase agreements			–				–				–				–				–				–
Non asset backed loans			16,828				–				1,581				–				(1,564	)			–
Asset backed securities			770				(37	)			1				–				(1	)			–
Commercial real estate loans			551				–				24				–				(1	)			–
Issued debt			–				(546	)			–				–				–				–
Equity cash products			171				–				–				17				–				(17	)
Funds and fund linked products			378				(148	)			1				–				(1	)			–
Private equity investments			1,388				–				149				318				(149	)			(53	)
Othera			467				(173	)			5				–				(23	)			–
Total			29,285				(6,071	)			2,131				336				(2,162	)			(71	)

The effect of stressing unobservable inputs to a range of reasonably possible alternatives, alongside considering the impact of using alternative models, would be to increase fair values by up to £1.3bn (2015: £2.1bn) or to decrease fair values by up to £1.4bn (2015: £2.2bn) with substantially all the potential effect impacting profit and loss rather than reserves.

Note

a	Other includes asset backed loans, physical commodities and investment property.

 

256  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Significant unobservable inputs

The following table discloses the valuation techniques and significant unobservable inputs for assets and liabilities recognised at fair value and classified as Level 3 along with the range of values used for those significant unobservable inputs:

 

			Total assets £m				Total liabilities £m			Valuation technique(s)		Significant unobservable inputs					2016       Range								2015         Range								Unitsa
																	Min				Max				Min				Max
Derivative financial instrumentsb
Interest rate			5,759				(4,860	)		Discounted cash flows		Inflation forwards					(1	)			8				–				8				%
derivatives												Credit spread					25				1,669				25				1,563				bps
										Option model		Inflation volatility					35				207				36				197				bp vol
												IR –  IR correlation					(26	)			98				(55	)			100				%
												FX –  IR correlation					(15	)			81				(20	)			30				%
												Interest rate volatility					9				295				5				249				bp vol
Credit derivatives			1,611				(241	)		Discounted cash flows		Credit spread					133				274				140				413				bps
										Correlation model		Credit correlation					25				43				26				41				%
												Credit spread					13				2,317				10				9,923				bps
										Comparable pricing		Price					84				100				80				102				points
Equity derivatives			1,037				(2,007	)		Option model		Equity volatility					1				150				–				318				%
												Equity – equity correlation					(90	)			100				(54	)			100				%
												Equity – FX correlation					(80	)			25				(100	)			40				%
Non-derivative financial instruments
Corporate debt			969				(5	)		Discounted cash flows		Credit spread					145				190				120				529				bps
										Comparable pricing		Price					–				121				1				114				points
Non-asset backed loans			8,767				–			Discounted cash flows		Loan spread					30				1,495				3				994				bps
												Price					–				99				–				100				points
										Comparable pricing		Price					–				100				–				101				points
												Conditional
Asset backed securities			515				–			Discounted cash flows		prepayment rate					–				–				–				25				%
												Constant default rate					–				–				–				2				%
												Loss given default					–				–				30				100				%
												Yield					–				–				5				58				%
												Credit spread					70				150				157				1,416				bps
Commercial real estate loans			442				–			Discounted cash flows		Loss given default					–				100				–				100				%
												Credit spread					179				408				230				801				bps
Private equity investments			856				(12	)		Discounted cash flows		Loss given default					–				–				–				94				%
										EBITDA multiple		EBITDA multiple					5				17				–				12				multiple
Otherc			1,754				(1,018	)
Total			21,710				(8,143	)

 

Notes

a	The units used to disclose ranges for significant unobservable inputs are percentages, points and basis points. Points are a percentage of par; for example, 100 points equals 100% of par. A basis point equals 1/100th of 1%; for example, 150 basis points equals 1.5%.

b	Certain derivative instruments are classified as Level 3 due to a significant unobservable credit spread input into the calculation of the Credit Valuation Adjustment for the instruments. The range of significant unobservable credit spreads is between 65-874bps (2015: 67-1,175bps).

c	Other includes the remaining Level 3 assets and liabilities.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  257

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Notes to the financial statements

Assets and liabilities held at fair value

 

 

18 Fair value of financial instruments continued

The following section describes the significant unobservable inputs identified in the table above, and the sensitivity of fair value measurement of the instruments categorised as Level 3 assets or liabilities to increases in significant unobservable inputs. Where sensitivities are described, the inverse relationship will also generally apply.

Where reliable inter-relationships can be identified between significant unobservable inputs used in fair value measurement, a description of those
inter-relationships is included below.

Forwards

A price or rate that is applicable to a financial transaction that will take place in the future. A forward is generally based on the spot price or rate, adjusted for the cost of carry, and defines the price or rate that will be used to deliver a currency, bond, commodity or some other underlying instrument at a point in the future. A forward may also refer to the rate fixed for a future financial obligation, such as the interest rate on a loan payment. In general, a significant increase in a forward in isolation will result in a movement in fair value that is favourable for the contracted receiver of the underlying (currency, bond, commodity, etc.), but the sensitivity is dependent on the specific terms of the instrument.

Credit spread

Credit spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Credit spreads reflect the additional yield that a market participant would demand for taking exposure to the credit risk of an instrument and form part of the yield used in a discounted cash flow calculation.

In general, a significant increase in credit spread in isolation will result in a movement in fair value that is unfavourable for the holder of a cash asset.

For a derivative instrument, a significant increase in credit spread in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.

Volatility

Volatility is a key input in the valuation of derivative products containing optionality. Volatility is a measure of the variability or uncertainty in returns for a given derivative underlying. It represents an estimate of how much a particular underlying instrument, parameter or index will change in value over time. In general, volatilities will be implied from observed option prices. For unobservable options the implied volatility may reflect additional assumptions about the nature of the underlying risk, as well as reflecting the given strike/maturity profile of a specific option contract.

In general a significant increase in volatility in isolation will result in a movement in fair value that is favourable for the holder of a simple option, but the sensitivity is dependent on the specific terms of the instrument.

There may be inter-relationships between unobservable volatilities and other unobservable inputs that can be implied from observation, e.g. when equity prices fall, implied equity volatilities generally rise but these are specific to individual markets and may vary over time.

Correlation

Correlation is a measure of the relationship between the movements of two variables i.e. how the change in one variable influences a change in the other variable. Correlation is a key input into valuation of derivative contracts with more than one underlying instrument. For example, where an option contract is written on a basket of underlying names, the volatility of the basket, and hence the fair value of the option, will depend on the correlation between the basket’s components. Credit correlation generally refers to the correlation between default processes for the separate names that make up the reference pool of a collateralised debt obligation structure.

A significant increase in correlation in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.

Comparable price

Comparable instrument prices are used in valuation by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable observable bond, then adjusting that yield (or spread) to derive a value for the unobservable bond. The adjustment to yield (or spread) should account for relevant differences in the bonds such as maturity or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and bond being valued in order to establish the value of the bond.

In general, a significant increase in comparable price in isolation will result in a movement in fair value that is favourable for the holder of a cash instrument.

For a derivative instrument, a significant increase in an input derived from a comparable price in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.

Loan spread

Loan spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Loan spreads typically reflect funding costs, credit quality, the level of comparable assets such as gilts, and other factors, and form part of the yield used in a discounted cash flow calculation.

The ESHLA portfolio primarily consists of long dated fixed rate loans extended to counterparties in the UK Education, Social Housing and Local Authority sectors. The loans are categorised as Level 3 in the fair value hierarchy due to their illiquid nature and the significance of unobservable loan spreads to the valuation. Valuation uncertainty arises from the long dated nature of the portfolio, the lack of a secondary market in the loans and the lack of observable loan spreads. The majority of ESHLA loans are to borrowers in heavily regulated sectors that are considered extremely low credit risk, and have a history of zero defaults since inception. While the overall loan spread range is from 30bps to 1,495bps (2015: 3bps to 994bps), the vast majority of spreads are concentrated towards the bottom end of this range, with 99% of the loan notional being valued with spreads less than 200bps consistently for both years.

In general, a significant increase in loan spreads in isolation will result in a movement in fair value that is unfavourable for the holder of a loan.

 

258  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Conditional prepayment rate

Conditional prepayment rate is the proportion of voluntary, unscheduled repayments of loan principal by a borrower. Prepayment rates affect the weighted average life of securities by altering the timing of future projected cash flows.

A significant increase in a conditional prepayment rate in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.

Conditional prepayment rates are typically inversely correlated to credit spread, i.e. securities with high borrower credit spread typically experience lower prepayment rates and also tend to experience higher default rates.

Constant default rate

The constant default rate represents an annualised rate of default of the loan principal by the borrower.

A significant increase in a constant default rate in isolation can result in a movement in fair value that is favourable or unfavourable depending on the specific terms of the instrument.

Constant default rate and conditional prepayment rates are typically inversely correlated; fewer defaults on loans will typically mean higher credit quality and therefore more prepayments.

Loss given default (LGD)

Loss given default represents the expected loss upon liquidation of the collateral as a percentage of the balance outstanding.

In general, a significant increase in the LGD in isolation will translate to lower recovery and lower projected cash flows to pay to the securitisation, resulting in a movement in fair value that is unfavourable for the holder of the securitised product.

Yield

The rate used to discount projected cash flows in a discounted future cash flow analysis.

In general, a significant increase in yield in isolation will result in a movement in fair value that is unfavourable for the holder of a cash instrument.

EBITDA Multiple

EBITDA multiple is the ratio of the valuation of the investment to the earnings before interest, taxes, depreciation and amortisation.

In general an increase in the multiple is favourable to the holder of the investment.

Fair value adjustments

Key balance sheet valuation adjustments are quantified below:

 

			2016 £m				2015 £m
Exit price adjustments derived from market bid-offer spreads			(475	)			(509	)
Uncollateralised derivative funding			(82	)			(72	)
Derivative credit valuation adjustments:
– Monolinesa			–				(9	)
– Other derivative credit valuation adjustments			(237	)			(318	)
Derivative debit valuation adjustments			242				189

Exit price adjustments derived from market bid-offer spreads

The Group uses mid-market pricing where it is a market maker and has the ability to transact at, or better than, mid price (which is the case for certain equity, bond and vanilla derivative markets). For other financial assets and liabilities, bid-offer adjustments are recorded to reflect the exit level for the expected close out strategy. The methodology for determining the bid-offer adjustment for a derivative portfolio involves calculating the net risk exposure by offsetting long and short positions by strike and term in accordance with the risk management and hedging strategy.

Bid-offer levels are generally derived from market quotes such as broker data. Less liquid instruments may not have a directly observable bid-offer level. In such instances, an exit adjustment may be derived from an observable bid-offer level for a comparable liquid instrument, determined by calibrating to derivative prices, or by scenario or historical analysis.

Exit price adjustments have reduced by £34m to £475m as a result of risk reduction and spread tightening.

 

Note

a	Derivative exposure to monoline insurers was exited in 2016.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  259

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Notes to the financial statements

Assets and liabilities held at fair value

 

 

18 Fair value of financial instruments continued

Discounting approaches for derivative instruments

Collateralised

In line with market practice, the methodology for discounting collateralised derivatives takes into account the nature and currency of the collateral that can be posted within the relevant credit support annex (CSA). This CSA-aware discounting approach recognises the ‘cheapest to deliver’ option that reflects the ability of the party posting collateral to change the currency of the collateral.

For counterparties in dispute regarding the settlement of collateral interest, where the relevant rate is currently negative, an additional fair value adjustment of £24m is held to account for the potential impact of resolving the dispute.

Uncollateralised

A fair value adjustment of £82m is applied to account for the impact of incorporating the cost of funding into the valuation of uncollateralised and partially collateralised derivative portfolios and collateralised derivatives where the terms of the agreement do not allow the rehypothecation of collateral received. This adjustment is referred to as the Funding Fair Value Adjustment (FFVA). FFVA has increased by £10m to £82m mainly as a result of material trade unwinds.

FFVA is determined by calculating the net expected exposure at a counterparty level and applying a funding rate to these exposures that reflects the market cost of funding. Barclays’ internal Treasury rates are used as an input to the calculation. The approach takes into account the probability of default of each counterparty, as well as any mandatory break clauses.

FFVA incorporates a scaling factor which is an estimate of the extent to which the cost of funding is incorporated into observed traded levels. On calibrating the scaling factor, it is with the assumption that Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) are retained as valuation components incorporated into such levels. The effect of incorporating this scaling factor at 31 December 2016 was to reduce FFVA by £246m (2015: £216m).

Uncollateralised derivative trading activity is used to determine this scaling factor. The trading history analysed includes new trades, terminations, trade restructures and novations. The FFVA balance and movement is driven by Barclays’ own cost of funding spread over LIBOR, counterparty default probabilities and recovery rates, as well as the market value of the underlying derivatives. Movements in the market value of the portfolio in scope for FFVA are mainly driven by interest rates, inflation rates and foreign exchange levels.

Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains appropriate. The above approach has been in use since 2012 with no significant changes.

Derivative credit and debit valuation adjustments

CVAs and DVAs are incorporated into derivative valuations to reflect the impact on fair value of counterparty credit risk and Barclays’ own credit quality respectively. These adjustments are calculated for uncollateralised and partially collateralised derivatives across all asset classes. CVA and DVA are calculated using estimates of exposure at default, probability of default and recovery rates, at a counterparty level. Counterparties include (but are not limited to) corporates, sovereigns and sovereign agencies, supranationals and special purpose vehicles.

Exposure at default is generally based on expected exposure, estimated through the simulation of underlying risk factors. For some complex products, where this approach is not feasible, simplifying assumptions are made, either through approximating with a more vanilla structure, or using current or scenario-based mark to market as an estimate of future exposure. Where a strong CSA exists to mitigate counterparty credit risk, the exposure at default is set to zero.

Probability of default and recovery rate information is generally sourced from the CDS markets. For counterparties where this information is not available, or considered unreliable due to the nature of the exposure, alternative approaches are taken based on mapping internal counterparty ratings onto historical or market-based default and recovery information. In particular, this applies to sovereign-related names where the effect of using the recovery assumptions implied in CDS levels would imply a £95m (2015: £56m) increase in CVA.

Correlation between counterparty credit and underlying derivative risk factors may lead to a systematic bias in the valuation of counterparty credit risk, termed ‘wrong-way,’ or ‘right-way’, risk. This is not systematically incorporated into the CVA calculation but is adjusted where the underlying exposure is directly related to the counterparty.

CVA decreased by £90m to £237m, primarily due to reductions in the average maturity of the portfolio driven by trade unwinds, including a reduction in monoline CVA of £9m. DVA increased by £53m to £242m, primarily as a result of Barclays’ credit spreads widening.

Portfolio exemptions

The Group uses the portfolio exemption in IFRS 13 Fair Value Measurement to measure the fair value of groups of financial assets and liabilities.

Instruments are measured using the price that would be received to sell a net long position, i.e. an asset, for a particular risk exposure or to transfer a net short position, i.e. a liability, for a particular risk exposure in an orderly transaction between market participants at the balance sheet date under current market conditions. Accordingly, the Group measures the fair value of the group of financial assets and liabilities consistently with how market participants would price the net risk exposure at the measurement date.

Unrecognised gains as a result of the use of valuation models using unobservable inputs

The amount that has yet to be recognised in income that relates to the difference between the transaction price (the fair value at initial recognition) and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition, less amounts subsequently recognised, is £179m (2015: £187m). There are additions of £29m (2015: £42m) and £37m (2015: £51m) of amortisation and releases.

Third party credit enhancements

Structured and brokered certificates of deposit issued by Barclays are insured up to $250,000 per depositor by the Federal Deposit Insurance

Corporation (FDIC) in the US. The FDIC is funded by premiums that Barclays and other banks pay for deposit insurance coverage. The carrying value of these issued certificates of deposit that are designated under the IAS 39 fair value option includes this third party credit enhancement. The on-balance sheet value of these brokered certificates of deposit amounted to £3,905m (2015: £3,729m).

 

260  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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18 Fair value of financial instruments continued

Comparison of carrying amounts and fair values for assets and liabilities not held at fair value

The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Group’s balance sheet:

 

As at 31 December 2016			Carrying amount £m				Fair value £m				Quoted market prices (Level 1) £m				Observable inputs (Level 2) £m				Significant unobservable inputs (Level 3) £m
Financial assets
Held to maturitya			5,176				5,347				5,347				–				–
Loans and advances to banks			43,251				43,228				7,256				34,987				985
Loans and advances to customers:
– Home loans			144,765				141,155				–				–				141,155
– Credit cards, unsecured and other retail lending			57,808				57,699				737				42				56,920
– Finance lease receivablesb			1,602				1,598
– Corporate loans			188,609				186,715				–				126,979				59,736
Reverse repurchase agreements and other similar secured lending			13,454				13,454				–				13,454				–
Assets included in disposal groups classified as held for salec			43,593				44,838				1,070				4,614				39,154
Financial liabilities
Deposits from banks			(48,214	)			(48,212	)			(5,256	)			(42,895	)			(61	)
Customer accounts:
– Current and demand accounts			(138,204	)			(138,197	)			(127,258	)			(10,921	)			(18	)
– Savings accounts			(133,344	)			(133,370	)			(120,471	)			(12,891	)			(8	)
– Other time deposits			(151,630	)			(151,632	)			(48,853	)			(96,240	)			(6,539	)
Debt securities in issue			(75,932	)			(76,971	)			(196	)			(74,712	)			(2,063	)
Repurchase agreements and other similar secured borrowing			(19,760	)			(19,760	)			–				(19,760	)			–
Subordinated liabilities			(23,383	)			(24,547	)			–				(24,547	)			–
Liabilities included in disposal groups classified as held for salec			(51,775	)			(51,788	)			(22,264	)			(28,998	)			(526	)
As at 31 December 2015
Financial assets
Loans and advances to banks			41,349				41,301				5,933				34,125				1,243
Loans and advances to customers:
– Home loans			155,863				151,431				–				–				151,431
– Credit cards, unsecured and other retail lending			67,840				67,805				1,148				284				66,373
– Finance lease receivablesb			4,776				4,730				–				–				–
– Corporate loans			170,738				169,697				585				129,847				39,265
Reverse repurchase agreements and other similar secured lending			28,187				28,187				–				28,187				–
Financial liabilities
Deposits from banks			(47,080	)			(47,080	)			(4,428	)			(42,652	)			–
Customer accounts:
– Current and demand accounts			(147,122	)			(147,121	)			(130,439	)			(16,537	)			(145	)
– Savings accounts			(135,567	)			(135,600	)			(122,029	)			(13,537	)			(34	)
– Other time deposits			(135,553	)			(135,796	)			(43,025	)			(84,868	)			(7,903	)
Debt securities in issue			(69,150	)			(69,863	)			(190	)			(69,122	)			(551	)
Repurchase agreements and other similar secured borrowing			(25,035	)			(25,035	)			–				(25,035	)			–
Subordinated liabilities			(21,467	)			(22,907	)			–				(22,907	)			–

Notes

a	In June 2016 UK Gilts previously classified as available for sale were reclassified to held to maturity in order to reflect the intention with these assets.

b	The fair value hierarchy for finance lease receivables is not required as part of the standard.

c

Disposal groups held for sale and measured at fair value less cost to sell are in included in the fair value table. For disposal groups measured at carrying amount, the underlying financial assets and liabilities measured at fair value are included in the fair value disclosures on pages 247 to 260 and items measured at amortised cost are included on page 261. Non financial assets (£6.6bn) and liabilities (£1.7bn) within disposal groups measured at carrying amount are excluded from these disclosures.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  261

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Notes to the financial statements

Assets and liabilities held at fair value

    

 

 

18 Fair value of financial instruments continued

The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a wide range of valuation techniques are available, it may not be appropriate to directly compare this fair value information to independent market sources or other financial institutions. Different valuation methodologies and assumptions can have a significant impact on fair values which are based on unobservable inputs.

Financial assets

The carrying value of financial assets held at amortised cost (including loans and advances to banks and customers, and other lending such as reverse repurchase agreements and cash collateral on securities borrowed) is determined in accordance with the relevant accounting policy in Note 20.

Loans and advances to banks

The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers is unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount rates.

There is minimal difference between the fair value and carrying amount due to the short-term nature of the lending, i.e. predominantly overnight deposits, and the high credit quality of counterparties.

Loans and advances to customers

The fair value of loans and advances to customers, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality.

For retail lending, i.e. Home loans and credit cards, tailored discounted cash flow models are used to estimate the fair value of different product types. For example, for home loans different models are used to estimate fair values of tracker, offset and fixed rate mortgage products. Key inputs to these models are the differentials between historic and current product margins and estimated prepayment rates.

The discount of fair value to carrying amount for home loans has reduced to 2.5% (2015: 2.8%) due to changes in product mix across the loan portfolio and movements in product margins.

The fair value of corporate loans is calculated by the use of discounted cash flow techniques where the gross loan values are discounted at a rate of difference between contractual margins and hurdle rates or spreads where Barclays charges a margin over LIBOR depending on credit quality and loss given default and years to maturity. The discount between the carrying and fair value has increased to 1.0% (2015: 0.6%).

Reverse repurchase agreements

The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised.

Financial liabilities

The carrying value of financial liabilities held at amortised cost (including customer accounts, other deposits, repurchase agreements and cash collateral on securities lent, debt securities in issue and subordinated liabilities) is determined in accordance with the accounting policy in Note 22.

Deposits from banks and customer accounts

In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest rates that reprice frequently, such as customer accounts and other deposits and short-term debt securities.

The fair value for deposits with longer-term maturities such as time deposits, are estimated using discounted cash flows applying either market rates or current rates for deposits of similar remaining maturities. Consequently the fair value discount is minimal.

Debt securities in issue

Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated, carrying amount approximates fair value. The fair value difference has increased to 1.4% (2015: 1.0%).

Repurchase agreements

The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated.

Subordinated liabilities

Fair values for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issuer concerned or issuers with similar terms and conditions.

 

262  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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19 Offsetting financial assets and financial liabilities

In accordance with IAS 32 Financial Instruments: Presentation, the Group reports financial assets and financial liabilities on a net basis on the balance sheet only if there is a legally enforceable right to set-off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangements on:

 

☒	all financial assets and liabilities that are reported net on the balance sheet

 

☒	all derivative financial instruments and reverse repurchase and repurchase agreements and other similar secured lending and borrowing agreements that are subject to enforceable master netting arrangements or similar agreements, but do not qualify for balance sheet netting.

The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of IAS 32 described above.

The ‘Net amounts’ presented below are not intended to represent the Group’s actual exposure to credit risk, as a variety of credit mitigation strategies are employed in addition to netting and collateral arrangements.

 

			Amounts subject to enforceable netting arrangements																								Amounts
			Effects of offsetting on-balance sheet												Related amounts not offseta												not
As at 31 December 2016			Gross amounts £m				Amounts offsetb £m				Net amounts reported on the balance sheet £m				Financial instruments £m				Financial collateral £m				Net amount £m				subject to enforceable netting arrange- mentsc £m				Balance sheet totald £m
Derivative financial assets			353,078				(11,934	)			341,144				(273,602	)			(49,923	)			17,619				5,482				346,626
Reverse repurchase agreements and other similar secured lendinge			257,430				(187,262	)			70,168				–				(69,932	)			236				6,448				76,616
Total assets			610,508				(199,196	)			411,312				(273,602	)			(119,855	)			17,855				11,930				423,242
Derivative financial liabilities			(345,752	)			10,962				(334,790	)			273,602				47,383				(13,805	)			(5,697	)			(340,487	)
Repurchase agreements and other similar secured borrowinge			(257,854	)			187,262				(70,592	)			–				68,897				(1,695	)			(4,878	)			(75,470	)
Total liabilities			(603,606	)			198,224				(405,382	)			273,602				116,280				(15,500	)			(10,575	)			(415,957	)
As at 31 December 2015
Derivative financial assets			328,692				(7,685	)			321,007				(259,582	)			(42,402	)			19,023				6,702				327,709
Reverse repurchase agreements and other similar secured lending			169,597				(102,888	)			66,709				–				(66,400	)			309				10,991				77,700
Total assets			498,289				(110,573	)			387,716				(259,582	)			(108,802	)			19,332				17,693				405,409
Derivative financial liabilities			(325,984	)			7,645				(318,339	)			259,582				40,124				(18,633	)			(5,913	)			(324,252	)
Repurchase agreements and other similar secured borrowing			(171,651	)			102,888				(68,763	)			–				68,202				(561	)			(7,110	)			(75,873	)
Total liabilities			(497,635	)			110,533				(387,102	)			259,582				108,326				(19,194	)			(13,023	)			(400,125	)

Derivative assets and liabilities

The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set-off under netting agreements, such as the ISDA

Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.

Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur.

Repurchase and reverse repurchase agreements and other similar secured lending and borrowing

The ‘Amounts offset’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as Global Master Repurchase Agreements and Global Master Securities Lending Agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other predetermined events occur.

Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated in the event of counterparty default.

These offsetting and collateral arrangements and other credit risk mitigation strategies used by the Group are further explained in the Credit risk mitigation section on page 102.

Notes

a

Financial collateral of £49,923m (2015: £42,402m) was received in respect of derivative assets, including £41,641m (2015: £34,918m) of cash collateral and £8,282m (2015: £7,484m) of non-cash collateral. Financial collateral of £47,383m (2015: £40,124m) was placed in respect of derivative liabilities, including £43,763m (2015: £35,464m) of cash collateral and £3,620m (2015: £4,660m) of non-cash collateral. The collateral amounts are limited to net balance sheet exposure so as to not include over-collateralisation. Of the £41,641m (2015: £34,918m) cash collateral held, £26,834m (2015: £27,732m) was included in deposits from banks and £14,807m (2015: £7,186m), was included in customer accounts. Of the £43,763m (2015: £35,464m) cash collateral placed, £17,587m (2015: £13,238m) was included in loans and advances to banks and £26,176m (2015: £22,226m) was included in loans and advances to customers.

b

Amounts offset for Derivative financial assets include cash collateral netted of £972m (2015: £572m). Amounts offset for Derivative liabilities did not include any cash collateral netted for December 2016 (2015: £532m). Settlements assets and liabilities have been offset amounting to £10,486m (2015: £8,886m). No other significant recognised financial assets and liabilities were offset in the balance sheet. Therefore, the only balance sheet categories necessary for inclusion in the table are those shown above.

c	This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.

d	The balance sheet total is the sum of ‘Net amounts reported on the balance sheet’ that are subject to enforceable netting arrangements and ‘Amounts not subject to enforceable netting arrangements’.

e

Repurchase and Reverse Repurchase agreements include instruments at amortised cost and instruments designated at fair value through profit and loss. Reverse Repurchase agreements and other similar secured lending of £76,616m (December 2015: £77,700m) is split by fair value £63,162m (December 2015: £49,513m) and amortised cost £13,454m (December 2015: £28,187m). Repurchase agreements and other similar secured borrowing of £75,470m (December 2015: £75,873m) is split by fair value £55,710m (December 2015: £50,838m) and amortised cost £19,760m (December 2015: £25,035m).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  263

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Notes to the financial statements

Financial instruments held at amortised cost

    

 

 

The notes included in this section focus on assets that are held at amortised cost arising from the Group’s retail and wholesale lending including loans and advances, finance leases, repurchase and reverse repurchase agreements and similar secured lending. Detail regarding the Group’s capital and liquidity position can be found on pages 152 to 177.

20 Loans and advances to banks and customers

 

Accounting for financial instruments held at amortised cost Loans and advances to customers and banks, customer accounts, debt securities and most financial liabilities, are held at amortised cost. That is, the initial fair value (which is normally the amount advanced or borrowed) is adjusted for repayments and the amortisation of coupon, fees and expenses to represent the effective interest rate of the asset or liability.   In accordance with IAS 39, where the Group no longer intends to trade in financial assets it may transfer them out of the held for trading classification and measure them at amortised cost if they meet the definition of a loan. The initial value used for the purposes of establishing amortised cost is fair value on the date of the transfer.

 

As at 31 December			2016 £m				2015 £m
Gross loans and advances to banks			43,251				41,349
Less: allowance for impairment			–				–
Loans and advances to banks			43,251				41,349
Gross loans and advances to customers			397,404				404,138
Less: allowance for impairment			(4,620	)			(4,921	)
Loans and advances to customers			392,784				399,217

Included within the carrying value of gross loans and advances to customers are effective interest rate adjustments of £1,028m (2015: £917m). Of the total balance deferred, £649m (2015: £424m) relate to costs, such as co-brand partner fees, incurred to originate credit card balances.

21 Finance leases

 

Accounting for finance leases The Group applies IAS 17 Leases in accounting for finance leases, both where it is the lessor or the lessee. A finance lease is a lease which confers substantially all the risks and rewards of the leased assets on the lessee. Where the Group is the lessor, the leased asset is not held on the balance sheet; instead a finance lease receivable is recognised representing the minimum lease payments receivable under the terms of the lease, discounted at the rate of interest implicit in the lease. Where the Group is the lessee, the leased asset is recognised in property, plant and equipment and a finance lease liability is recognised, representing the minimum lease payments payable under the lease, discounted at the rate of interest implicit in the lease.   Interest income or expense is recognised in interest receivable or payable, allocated to accounting periods to reflect a constant periodic rate of return.

Finance lease receivables

Finance lease receivables are included within loans and advances to customers. The Group specialises in asset-based lending and works with a broad range of international technology, industrial equipment and commercial companies to provide customised finance programmes to assist manufacturers, dealers and distributors of assets.

 

			2016																2015
			Gross investment in finance lease receivables £m				Future finance income £m				Present value of minimum lease payments receivable £m				Un- guaranteed residual values £m				Gross investment in finance lease receivables £m				Future finance income £m				Present value of minimum lease payments receivable £m				Un- guaranteed residual values £m
Not more than one year			646				(37	)			609				60				1,826				(230	)			1,596				117
Over one year but not more than five years			986				(57	)			929				132				3,569				(555	)			3,014				275
Over five years			73				(4	)			69				19				224				(32	)			192				21
Total			1,705				(98	)			1,607				211				5,619				(817	)			4,802				413

The decrease in finance lease receivables is primarily driven by BAGL balances now being classified as held for sale.

The impairment allowance for uncollectable finance lease receivables amounted to £6m (2015: £56m).

Finance lease liabilities

The Group leases items of property, plant and equipment on terms that meet the definition of finance leases. Finance lease liabilities are included within Note 26 Accruals, deferred income and other liabilities.

As at 31 December 2016, the total future minimum payments under finance leases were £15m (2015: nil). The carrying amount of assets held under finance leases was £15m (2015: nil).

 

264  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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22 Reverse repurchase and repurchase agreements including other similar lending and borrowing

Reverse repurchase agreements (and stock borrowing or similar transactions) are a form of secured lending whereby the Group provides a loan or cash collateral in exchange for the transfer of collateral, generally in the form of marketable securities subject to an agreement to transfer the securities back at a fixed price in the future. Repurchase agreements are where the Group obtains such loans or cash collateral, in exchange for the transfer of collateral.

 

Accounting for reverse repurchase and repurchase agreements including other similar lending and borrowing The Group purchases (a reverse repurchase agreement) or borrows securities subject to a commitment to resell or return them. The securities are not included in the balance sheet as the Group does not acquire the risks and rewards of ownership. Consideration paid (or cash collateral provided) is accounted for as a loan asset at amortised cost, unless it is designated at fair value through profit and loss.   The Group may also sell (a repurchase agreement) or lend securities subject to a commitment to repurchase or redeem them. The securities are retained on the balance sheet as the Group retains substantially all the risks and rewards of ownership. Consideration received (or cash collateral provided) is accounted for as a financial liability at amortised cost, unless it is designated at fair value through profit and loss.

 

			2016 £m				2015 £m
Assets
Banks			2,769				8,954
Customers			10,685				19,233
Reverse repurchase agreements and other similar secured lending at amortised costa			13,454				28,187
Liabilities
Banks			12,820				13,951
Customers			6,940				11,084
Repurchase agreements and other similar secured borrowing at amortised costa			19,760				25,035

 

 

 

 

Note

a

New reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment implemented in 2015 to better align to the way the business manages the portfolio’s risk and performance (see Notes 14 and 17 for further detail).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  265

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Notes to the financial statements

Non-current assets and other investments

    

 

 

The notes included in this section focus on the Group’s non-current tangible and intangible assets and property, plant and equipment, which provide long-term future economic benefits.

23 Property, plant and equipment

 

Accounting for property, plant and equipment
The Group applies IAS 16 Property Plant and Equipment and IAS 40 Investment Properties.   Property, plant and equipment is stated at cost, which includes direct and incremental acquisition costs less accumulated depreciation and provisions for impairment, if required. Subsequent costs are capitalised if these result in the enhancement to the asset.   Depreciation is provided on the depreciable amount of items of property, plant and equipment on a straight-line basis over their estimated useful economic lives. Depreciation rates, methods and the residual values underlying the calculation of depreciation of items of property, plant and equipment are kept under review to take account of any change in circumstances. The Group uses the following annual rates in calculating depreciation:
Annual rates in calculating depreciation		Depreciation rate
Freehold land		Not depreciated
Freehold buildings and long-leasehold property (more than 50 years to run)		2-3.3%
Leasehold property (less than 50 years to run)		Over the remaining life of the lease
Costs of adaptation of freehold and leasehold property		6-10%
Equipment installed in freehold and leasehold property		6-10%
Computers and similar equipment		17-33%
Fixtures and fittings and other equipment		9-20%
Where leasehold property has a remaining useful life of less than 17 years, costs of adaptation and installed equipment are depreciated over the remaining life of the lease.
Investment property
The Group initially recognises investment property at cost, and subsequently at fair value at each balance sheet date, reflecting market conditions at the reporting date. Gains and losses on remeasurement are included in the income statement.

 

			Investment property £m				Property £m				Equipment £m				Leased assets £m				Total £m
Cost
As at 1 January 2016			140				3,919				4,259				62				8,380
Additions			–				167				370				–				537
Disposalsa			(6	)			(761	)			(631	)			–				(1,398	)
Change in fair value of investment properties			–				–				–				–				–
Exchange and other movementsb			(53	)			104				(158	)			(52	)			(159	)
As at 31 December 2016			81				3,429				3,840				10				7,360
Accumulated depreciation and impairment
As at 1 January 2016			–				(1,697	)			(3,177	)			(38	)			(4,912	)
Depreciation charge			–				(185	)			(325	)			–				(510	)
Disposalsa			–				635				405				–				1,040
Exchange and other movementsb			–				(236	)			54				29				(153	)
As at 31 December 2016			–				(1,483	)			(3,043	)			(9	)			(4,535	)
Net book value			81				1,946				797				1				2,825
Cost
As at 1 January 2015			207				4,054				4,350				10				8,621
Additions			13				385				405				49				852
Disposals			(84	)			(363	)			(232	)			–				(679	)
Change in fair value of investment properties			10				–				–				–				10
Exchange and other movements			(6	)			(157	)			(264	)			3				(424	)
As at 31 December 2015			140				3,919				4,259				62				8,380
Accumulated depreciation and impairment
As at 1 January 2015			–				(1,669	)			(3,157	)			(9	)			(4,835	)
Depreciation charge			–				(181	)			(373	)			–				(554	)
Disposals			–				144				159				–				303
Exchange and other movements			–				9				194				(29	)			174
As at 31 December 2015			–				(1,697	)			(3,177	)			(38	)			(4,912	)
Net book value			140				2,222				1,082				24				3,468

Notes

a	Cost and depreciation disposals include £0.9bn relating to fully depreciated assets that are no longer in use. There is no impact on the net book value.

b	Includes property, plant and equipment relating to BAGL of £627m (cost of £1,066m less accumulated depreciation of £439m) which was reclassified to held for sale.

 

266  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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23 Property, plant and equipment continued

Property rentals of £7m (2015: £9m) and £6m (2015: £9m) have been included in net investment income and other income respectively. Impairment of £19m (2015: £38m) was charged in the period.

The fair value of investment property is determined by reference to current market prices for similar properties, adjusted as necessary for condition and location, or by reference to recent transactions updated to reflect current economic conditions. Discounted cash flow techniques may be employed to calculate fair value where there have been no recent transactions, using current external market inputs such as market rents and interest rates. Valuations are carried out by management with the support of appropriately qualified independent valuers. Refer to Note 18 Fair value of financial instruments for further details.

24 Goodwill and intangible assets

 

 

Note

a	Exceptions to the stated rate relate to useful lives of certain core banking platforms that are assessed individually and, if appropriate, amortised over longer periods ranging from 10 to 15 years.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  267

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Notes to the financial statements

Non-current assets and other investments

    

 

 

24 Goodwill and intangible assets continued
			Goodwill £m				Internally generated software £m				Other software £m				Core deposit intangibles £m				Brands £m				Customer lists £m				Licences and other £m				Total £m
2016
Cost
As at 1 January 2016			5,603				4,112				542				146				86				1,665				471				12,625
Additions and disposals			(77	)			955				2				–				–				59				78				1,017
Exchange and other movementsa			(679	)			(140	)			(340	)			(140	)			(86	)			(16	)			(4	)			(1,405	)
As at 31 December 2016			4,847				4,927				204				6				–				1,708				545				12,237
Accumulated amortisation and impairment
As at 1 January 2016			(998	)			(1,634	)			(212	)			(75	)			(86	)			(1,081	)			(317	)			(4,403	)
Disposals			77				46				1				–				–				14				12				150
Amortisation charge			–				(480	)			(36	)			–				–				(129	)			(29	)			(674	)
Impairment charge			–				(73	)			(1	)			–				–				–				(1	)			(75	)
Exchange and other movementsa			(9	)			277				105				69				86				(35	)			(2	)			491
As at 31 December 2016			(930	)			(1,864	)			(143	)			(6	)			–				(1,231	)			(337	)			(4,511	)
Net book value			3,917				3,063				61				–				–				477				208				7,726
2015
Cost
As at 1 January 2015			6,329				3,240				482				186				112				1,721				447				12,517
Additions and disposals			(515	)			998				75				–				–				–				18				576
Exchange and other movements			(211	)			(126	)			(15	)			(40	)			(26	)			(56	)			6				(468	)
As at 31 December 2015			5,603				4,112				542				146				86				1,665				471				12,625
Accumulated amortisation and impairment
As at 1 January 2015			(1,442	)			(1,257	)			(194	)			(88	)			(111	)			(962	)			(283	)			(4,337	)
Disposals			518				128				2				–				–				–				3				651
Amortisation charge			–				(421	)			(17	)			(6	)			–				(143	)			(30	)			(617	)
Impairment charge			(102	)			(101	)			(1	)			(1	)			–				(12	)			–				(217	)
Exchange and other movements			28				17				(2	)			20				25				36				(7	)			117
As at 31 December 2015			(998	)			(1,634	)			(212	)			(75	)			(86	)			(1,081	)			(317	)			(4,403	)
Net book value			4,605				2,478				330				71				–				584				154				8,222

Goodwill

Goodwill is allocated to business operations according to business segments as follows:

 

			2016 £m				2015 £m
Barclays UK			3,556				3,621
Barclays International			361				258
Africa Banking			–				703
Barclays Non-Core			–				23
Total net book value of goodwill			3,917				4,605

Critical accounting estimates and judgements

Goodwill

Testing goodwill for impairment involves a significant amount of judgement. This includes the identification of independent CGUs and the allocation of goodwill to these units based on which units are expected to benefit from the acquisition. The allocation is reviewed following business reorganisations. Cash flow projections necessarily take into account changes in the market in which a business operates including the level of growth, competitive activity, and the impacts of regulatory change. Determining both the expected pre-tax cash flows and the risk-adjusted interest rate appropriate to the operating unit requires the exercise of judgement. The estimation of pre-tax cash flows is sensitive to the periods for which detailed forecasts are available and to assumptions regarding long-term sustainable cash flows.

Other intangible assets

Determining the estimated useful lives of intangible assets (such as those arising from contractual relationships) requires an analysis of circumstances. The assessment of whether an asset is exhibiting indicators of impairment as well as the calculation of impairment, which requires the estimate of future cash flows and fair values less costs to sell, also requires the preparation of cash flow forecasts and fair values for assets that may not be regularly bought and sold.

Note

a	Includes goodwill and intangibles relating to BAGL of £1.1bn which was reclassified to held for sale.

 

268  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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24 Goodwill and intangible assets continued

Impairment testing of goodwill

During 2016, the Group recognised an impairment charge of nil (2015: £102m). The impairment charge of £102m recognised in 2015 related to Non-Core and the withdrawal of the Bespoke product in Barclays International which was as a result of the recoverable amount of the goodwill relating to these businesses not being supported based on the value in use calculations.

Key assumptions

The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £787m (2015: £1,475m) was allocated to multiple CGUs which are not considered individually significant.

Barclays UK

Goodwill relating to Woolwich in Personal Banking and Business Banking was £3,130m (2015: £3,130m) of the total Barclays UK balance. The carrying value of the CGU has been determined by using net asset value. The recoverable amount of the CGU has been determined using cash flow predictions based on financial budgets approved by management and covering a five-year period, with a terminal growth rate of 2.0% (2015: 2.4%) applied thereafter. The forecast cash flows have been discounted at a pre-tax rate of 14.6% (2015: 11.4%). Based on these assumptions, the recoverable amount exceeded the carrying amount including goodwill by £4,130m (2015: £14,097m). A one percentage point change in the discount rate or terminal growth rate would increase or decrease the recoverable amount by £988m (2015: £2,775m) and £615m (2015: £2,109m) respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £1,293m (2015: £2,789m).

The headroom reflects the changes made to the cash generating unit (CGU) in Barclays UK as part of the business reorganisation in 2016. The reduction in headroom in 2016 reflects changes in discount rate and future cash flow projections.

25 Operating leases

 

Accounting for operating leases The Group applies IAS 17 Leases, for operating leases. An operating lease is a lease where substantially all of the risks and rewards of the leased assets remain with the lessor. Where the Group is the lessor, lease income is recognised on a straight-line basis over the period of the lease unless another systematic basis is more appropriate. The Group holds the leased assets on balance sheet within property, plant and equipment.   Where the Group is the lessee, rentals payable are recognised as an expense in the income statement on a straight-line basis over the lease term unless another systematic basis is more appropriate.

Operating lease receivables

The Group acts as lessor, whereby items of plant and equipment are purchased and then leased to third parties under arrangements qualifying as operating leases. The future minimum lease payments expected to be received under non-cancellable operating leases was nil (2015: £1m).

Operating lease commitments

The Group leases various offices, branches and other premises under non-cancellable operating lease arrangements. With such operating lease arrangements, the asset is kept on the lessor’s balance sheet and the Group reports the future minimum lease payments as an expense over the lease term. The leases have various terms, escalation and renewal rights. There are no contingent rents payable.

Operating lease rentals of £560m (2015: £411m) have been included in administration and general expenses.

The future minimum lease payments by the Group under non-cancellable operating leases are as follows:

 

			2016								2015
			Property £m				Equipment £m				Property £m				Equipment £m
Not more than one year			364				–				376				1
Over one year but not more than five years			974				23				1,127				11
Over five years			1,520				–				1,874				–
Total			2,858				23				3,377				12

Total future minimum sublease payments to be received under non-cancellable subleases was £2m (2015: £1m).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  269

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Notes to the financial statements

Accruals, provisions, contingent liabilities and legal proceedings

    

 

 

The notes included in this section focus on the Group’s accruals, provisions and contingent liabilities. Provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. Contingent liabilities reflect potential liabilities that are not recognised on the balance sheet.

26 Accruals, deferred income and other liabilities

 

Accounting for insurance contracts The Group applies IFRS 4 Insurance Contracts to its insurance contracts. An insurance contract is a contract that compensates a third party against a loss from non-financial risk. Some wealth management and other products, such as life assurance contracts, combine investment and insurance features; these are treated as insurance contracts when they pay benefits that are at least 5% more than they would pay if the insured event does not occur.   Insurance liabilities include current best estimates of future contractual cash flows, claims handling, and administration costs in respect of claims. Liability adequacy tests are performed at each balance sheet date to ensure the adequacy of contract liabilities. Where a deficiency is highlighted by the tests, insurance liabilities are increased with any deficiency being recognised in the income statement.   Insurance premium revenue is recognised in the income statement in the period earned, net of reinsurance premiums payable, in net premiums from insurance contracts. Increases and decreases in insurance liabilities are recognised in the income statement in net claims and benefits on insurance contracts.

 

			2016 £m				2015 £m
Accruals and deferred income			4,422				4,271
Other creditors			4,382				3,770
Obligations under finance leases (see Note 21)			15				–
Insurance contract liabilities, including unit-linked liabilities			52				2,569
Accruals, deferred income and other liabilities			8,871				10,610

Accruals and deferred income increased by 4% to £4.4bn mainly driven by accruals towards staff costs and administrative and general costs as at 31 December 2016.

Insurance Liabilities relating to the Group’s long-term business have decreased by £2.5bn primarily driven by Non-Core entities being classified as held for sale. Insurance contract liabilities associated with the Group’s short-term business are £52m (2015: £115m). The maximum amounts payable under all of the Group’s insurance products, ignoring the probability of insured events occurring and the contribution from investments backing the insurance policies, were £0.4bn (2015: £65bn) or £0.2bn (2015: £49bn) after reinsurance. The decrease in the maximum amounts payable is primarily due to BAGL which has been classified as held for sale in 2016.

The impact to the income statement and equity under a reasonably possible change in the assumptions used to calculate the insurance liabilities would be £2m (2015: £1m).

27 Provisions

 

Accounting for provisions The Group applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets in accounting for non-financial liabilities.   Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, which can be reliably estimated. Provision is made for the anticipated cost of restructuring, including redundancy costs when an obligation exists; for example, when the Group has a detailed formal plan for restructuring a business and has raised valid expectations in those affected by the restructuring by announcing its main features or starting to implement the plan. Provision is made for undrawn loan commitments if it is probable that the facility will be drawn and result in the recognition of an asset at an amount less than the amount advanced.

 

															Customer Redress
			Onerous contracts £m				Redundancy and restructuring £m				Undrawn contractually committed facilities and guarantees £m				Payment Protection Insurance £m				Other customer redress £m				Legal, competition and regulatory matters £m				Sundry provisions £m				Total £m
As at 1 January 2016			141				186				60				2,106				896				489				264				4,142
Additions			328				336				52				1,000				297				212				206				2,431
Amounts utilised			(39	)			(274	)			(1	)			(1,127	)			(396	)			(254	)			(84	)			(2,175	)
Unused amounts reversed			(53	)			(60	)			(44	)			–				(93	)			(27	)			(36	)			(313	)
Exchange and other movements			8				18				–				–				8				35				(20	)			49
As at 31 December 2016			385				206				67				1,979				712				455				330				4,134

Provisions expected to be recovered or settled within no more than 12 months after 31 December 2016 were £2,045m (2015: £2,113m).

 

270  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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27 Provisions continued

Onerous contracts

Onerous contract provisions comprise an estimate of the costs involved with fulfilling the terms and conditions of contracts where the liability is higher than the amount of economic benefit to be received.

Redundancy and restructuring

These provisions comprise the estimated cost of restructuring, including redundancy costs where an obligation exists. Additions made during the year relate to formal restructuring plans and have either been utilised, or reversed, where total costs are now expected to be lower than the original provision amount.

Undrawn contractually committed facilities and guarantees

Provisions are made if it is probable that a facility will be drawn and the resulting asset is expected to have a realisable value that is less than the amount advanced.

Customer redress

Customer redress provisions comprise the estimated cost of making redress payments to customers, clients and counterparties for losses or damages associated with inappropriate judgement in the execution of our business activities. Provisions for other customer redress include £264m (2015: £290m) in respect of historic pricing practices associated with Foreign Exchange transactions for certain customers between 2005 and 2012, and smaller provisions across the retail and corporate businesses which are likely to be utilised in the next 12 months.

Sundry provisions

This category includes provisions that do not fit into any of the other categories, such as fraud losses and dilapidation provisions.

Legal, competition and regulatory matters

The Group is engaged in various legal, competition and regulatory matters in the UK and US and a number of other overseas jurisdictions. For further information in relation to legal proceedings and discussion of the associated uncertainties, please see Note 29 Legal, competition and regulatory matters.

Critical accounting estimates and judgements

Payment Protection Insurance Redress

As at 31 December 2016, Barclays had recognised cumulative provisions totalling £8.44bn (31 December 2015: £7.44bn) against the cost of Payment Protection Insurance (PPI) redress and associated processing costs with utilisation of £6.46bn (31 December 2015: £5.33bn), leaving a residual provision of £1.98bn (31 December 2015: £2.11bn).

Through to 31 December 2016, 1.8m (31 December 2015: 1.6m) customer initiated claimsa had been received and processed. The volume of claims received during 2016 decreased 8%b from 2015. This rate of decline was slower than previously recorded but in line with expectations.

The current provision reflects the estimated costs of PPI redress primarily relating to customer initiated complaints and ongoing remediation programmes. This also includes liabilities managed by third parties arising from portfolios previously sold where Barclays remains liable.

As at 31 December 2016, the provision of £2.0bn represents Barclays’ best estimate of expected PPI redress. However, it is possible the eventual outcome may differ from the current estimate. We will continue to review the adequacy of provision level in respect of the ongoing level of complaints.

The PPI provision is calculated using a number of key assumptions which continue to involve significant management judgement and modelling:

 

§

customer initiated claim volumes – claims received but not yet processed plus an estimate of future claims initiated by customers where the volume is anticipated to cease after half year 2019

 

§

average claim redress – the expected average payment to customers for upheld claims based on the type and age of the policy/policies

 

§

processing cost per claim – the cost to Barclays of assessing and processing each valid claim.

These assumptions remain subjective, in particular due to the uncertainty associated with future claims levels, which include complaints driven by CMC activity.

The current provision represents Barclays’ revised best estimate of all future expected costs of PPI redress.

The following table details actual data through to 31 December 2016, key forecast assumptions used in the provision calculation and a sensitivity analysis illustrating the impact on the provision if the future expected assumptions prove too high or too low.

 

Assumption

Cumulative actual to 31.12.16

Future expected

Sensitivity analysis increase/ decrease in provision

Cumulative actual to 31.12.15

Customer initiated claims received and processeda

1,840k

650k

50k = £100m

1,570k

Average uphold rate per claimc

87%

83%

1% = £15m

86%

Average redress per valid claimd

£2,137

£1,950

£100 = £74m

£1,808

Processing cost per claime

£410

£350

50k = £17m

£300

Notes

a	Total claims received directly by Barclays to date, including those received via CMCs but excluding those for which no PPI policy exists and excluding responses to proactive mailing.

b	Gross volumes received including no PPI.

c	Average uphold rate per customer initiated claims received directly by Barclays and proactive mailings, excluding those for which no PPI policy exists.

d	Average redress stated on a per policy basis for future customer initiated complaints received directly by Barclays and proactive mailings.

e	Processing cost per claim on an upheld complaints basis, includes direct staff costs and associated overheads.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  271

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Notes to the financial statements

Accruals, provisions, contingent liabilities and legal proceedings

 

 

28 Contingent liabilities and commitments

 

Accounting for contingent liabilities

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet but are disclosed unless the outflow of economic resources is remote.

 

The following table summarises the nominal principal amount of contingent liabilities and commitments which are not recorded on balance sheet:

 

			2016				2015
Contingent liabilities and commitments excluding BAGL			£m				£m
Guarantees and letters of credit pledged as collateral security			15,303				16,065
Performance guarantees, acceptances and endorsements			4,636				4,556
Contingent liabilities			19,939				20,621
Documentary credits and other short-term trade related transactions			1,005				845
Forward starting reverse repurchase agreements			24				93
Standby facilities, credit lines and other commitments			302,657				281,369

The Financial Services Compensation Scheme

The Financial Services Compensation Scheme (the FSCS) is the UK’s government-backed compensation scheme for customers of authorised institutions that are unable to pay claims. It provides compensation to depositors in the event that UK licensed deposit-taking institutions are unable to meet their claims. The FSCS raises levies on UK licensed deposit-taking institutions to meet such claims based on their share of UK deposits on 31 December of the specified years preceding the scheme year (which runs from 1 April to 31 March).

Compensation has previously been paid out by the FSCS, funded by loan facilities totalling approximately £18bn provided by HM Treasury to the FSCS in support of FSCS’s obligations to the depositors of banks declared in default. The interest rate chargeable on the loan and levied to the industry is subject to a floor equal to the higher of HM Treasury’s own cost of borrowing (typically 2024 UK Gilt yield), and GBP LIBOR with 12-month maturity plus 100 basis points. The FSCS recovered £1bn capital shortfall in respect of the legacy facility from industry in three instalments across 2013, 2014 and 2015. A separate shortfall in respect of Dunfermline Building Society was levied on the industry in 2014, 2015 and fully recovered in 2016. The FSCS liability for the interest levy for 2016/17 has been recognised in 2016. Barclays has included an accrual of £55m in other liabilities as at

31 December 2016 (2015: £56m) in respect of the Barclays portion of the Interest Levy.

Further details on contingent liabilities relating to legal, competition and regulatory matters can be found in Note 29.

29 Legal, competition and regulatory matters

Barclays PLC, Barclays Bank PLC and the Group face legal, competition and regulatory challenges, many of which are beyond our control. The extent of the impact on Barclays PLC, Barclays Bank PLC and the Group of these matters cannot always be predicted but may materially impact our operations, financial results, condition and prospects. Matters arising from a set of similar circumstances can give rise to either a contingent liability or a provision, or both, depending on the relevant facts and circumstances. The Group has not disclosed an estimate of the potential financial effect on the Group of contingent liabilities where it is not currently practicable to do so.

Investigations into certain advisory services agreements and civil action

The United Kingdom (UK) Serious Fraud Office (SFO), the Financial Conduct Authority (FCA), the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) have been conducting investigations into certain advisory services agreements entered into by Barclays Bank PLC.

Background Information

Barclays Bank PLC entered into two advisory services agreements with Qatar Holding LLC (Qatar Holding) in June and October 2008. The FCA subsequently commenced an investigation into whether these agreements may have related to Barclays PLC’s capital raisings in June and November 2008 (the Capital Raisings). The existence of the June 2008 advisory services agreement was disclosed, but the entry into the advisory services agreement in October 2008 and the fees payable under both agreements, which amounted to a total of £322m payable over a period of five years, were not disclosed in the announcements or public documents relating to the Capital Raisings.

In September 2013, the FCA issued warning notices (the Notices) finding that while, Barclays PLC and Barclays Bank PLC believed at the time of the execution of the agreements that there should be at least some unspecified and undetermined value to be derived from them, the primary purpose of the agreements was not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the Capital Raisings. The Notices concluded that Barclays PLC and Barclays Bank PLC were in breach of certain disclosure-related listing rules and Barclays PLC was also in breach of Listing Principle 3 (the requirement to act with integrity towards holders and potential holders of the Company’s shares). In this regard, the FCA considers that Barclays PLC and Barclays Bank PLC acted recklessly. The financial penalty provided in the Notices against the Group is £50m. Barclays PLC and Barclays Bank PLC continue to contest the findings.

The SFO has also been conducting an investigation into the agreements, and the Group continues to respond to requests for further information in that investigation, which is at an advanced stage. The FCA action has been stayed pending the resolution of the SFO investigation.

In addition, the DOJ and the SEC have been conducting investigations relating to the agreements.

In January 2016, PCP Capital Partners LLP and PCP International Finance Limited (PCP) served a claim on Barclays Bank PLC seeking damages of £721.4m plus interest and costs for fraudulent misrepresentation and deceit, arising from alleged statements made by Barclays Bank PLC to PCP in relation to the terms on which securities were to be issued to investors, including PCP, in the November 2008 capital raising. Barclays Bank PLC is defending the claim.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period. PCP has made a claim against Barclays Bank PLC totalling £721.4m plus interest and costs. This amount does not necessarily reflect Barclays Bank PLC’s potential financial exposure if a ruling were to be made against it.

 

272  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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29 Legal, competition and regulatory matters continued

Investigations into certain business relationships

The DOJ and SEC are undertaking an investigation into whether the Group’s relationships with third parties who assist Barclays PLC to win or retain business are compliant with the US Foreign Corrupt Practices Act. Certain regulators in other jurisdictions have also been briefed on the investigations. Separately, the Group is cooperating with the DOJ and SEC in relation to an investigation into certain of its hiring practices in Asia and elsewhere and is keeping certain regulators in other jurisdictions informed.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Alternative Trading Systems and High-Frequency Trading

The SEC, the New York State Attorney General (NYAG) and regulators in certain other jurisdictions have been investigating a range of issues associated with alternative trading systems (ATSs), including dark pools, and the activities of high-frequency traders.

Background Information

In June 2014, the NYAG filed a complaint (NYAG Complaint) against Barclays PLC and Barclays Capital Inc. (BCI) in the Supreme Court of the State of New York alleging, amongst other things, that Barclays PLC and BCI engaged in fraud and deceptive practices in connection with LX, the Group’s SEC-registered ATS. In February 2016, Barclays reached separate settlement agreements with each of the SEC and the NYAG to resolve those agencies’ claims against Barclays PLC and BCI relating to the operation of LX for $35m each.

Barclays PLC and BCI have been named in a purported class action by an institutional investor client under California law based on allegations similar to those in the NYAG Complaint. In October 2016, the federal court in California granted the motion of Barclays PLC and BCI to dismiss the entire complaint and plaintiffs have appealed the court’s decision.

Following the filing of the NYAG Complaint, Barclays PLC and BCI were also named in a shareholder securities class action along with certain of its former CEOs, and its current and a former CFO, as well as an employee in Equities Electronic Trading (Shareholder Class Action). The plaintiffs claim that investors suffered damages when their investments in Barclays American Depository Receipts declined in value as a result of the allegations in the NYAG Complaint. Barclays PLC and BCI filed a motion to dismiss the complaint, which the court granted in part and denied in part. In February 2016, the court certified the action as a class action, and Barclays has appealed that certification.

Claimed Amounts/Financial Impact

The class actions seek unspecified monetary damages and injunctive relief. It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect they might have upon the Group’s operating results, cash flows or financial position in any particular period.

FERC

The US Federal Energy Regulatory Commission (FERC) has filed a civil action against Barclays Bank PLC and certain of its former traders in the US District Court in California seeking to collect a $435m civil penalty and the disgorgement of $34.9m of profits, plus interest, in connection with allegations that Barclays Bank PLC manipulated the electricity markets in and around California. A civil class action complaint was also filed in the US District Court for the Southern District of New York (SDNY) against Barclays Bank PLC asserting antitrust claims based on allegations that mirror those raised in the civil suit filed by FERC.

Background Information

In October 2012, FERC issued an Order to Show Cause and Notice of Proposed Penalties (Order and Notice) against Barclays Bank PLC and four of its former traders in relation to their power trading in the western US. In the Order and Notice, FERC asserted that Barclays Bank PLC and its former traders violated FERC’s Anti-Manipulation Rule by manipulating the electricity markets in and around California from November 2006 to December 2008, and proposed civil penalties and profit disgorgement to be paid by Barclays Bank PLC.

In October 2013, FERC filed a civil action against Barclays Bank PLC and its former traders in the US District Court in California seeking to collect the $435m civil penalty and disgorgement of $34.9m of profits, plus interest.

In June 2015, a civil class action complaint was filed in the US District Court for the SDNY against Barclays Bank PLC by Merced Irrigation District, a California utility company, asserting antitrust allegations in connection with Barclays Bank PLC’s purported manipulation of the electricity markets in and around California. The factual allegations mirror those raised in the civil action filed by FERC against Barclays Bank PLC currently pending in the US District Court in California.

In October 2015, the US District Court in California ordered that it would bifurcate its assessment of liabilities and penalties from its assessment of disgorgement. FERC has filed and Barclays Bank PLC is opposing a brief seeking summary affirmance of the penalty assessment. The court has indicated that it will either affirm the penalty assessment or require further evidence to determine this issue. Oral argument on the motion to affirm the penalty assessment occurred in February 2017.

In December 2015, Barclays Bank PLC filed a motion to dismiss the civil class action for failure to state a claim, which the SDNY in February 2016 granted in part and denied in part.

Claimed Amounts/Financial Impact

FERC has made claims against Barclays Bank PLC totalling $469.9m, plus interest, for civil penalties and profit disgorgement. The civil class action complaint refers to damages of $139.3m. These amounts do not necessarily reflect Barclays Bank PLC’s potential financial exposure if a ruling were to be made against it in either action.

Investigations into LIBOR and other Benchmarks

Regulators and law enforcement agencies, including certain competition authorities, from a number of governments have been conducting investigations relating to Barclays Bank PLC’s involvement in manipulating certain financial benchmarks, such as LIBOR and EURIBOR. Barclays Bank PLC, Barclays PLC and BCI have reached settlements with the relevant law enforcement agency or regulator in certain of the investigations, but others, including the investigations by the SFO and the prosecutors’ office in Trani, Italy remain pending.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  273

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Notes to the financial statements

Accruals, provisions, contingent liabilities and legal proceedings

    

 

 

29 Legal, competition and regulatory matters continued

Background Information

In June 2012, Barclays Bank PLC announced that it had reached settlements with the Financial Services Authority (FSA) (as predecessor to the FCA), the US Commodity Futures Trading Commission (CFTC) and the DOJ Fraud Section (DOJ-FS) in relation to their investigations concerning certain benchmark interest rate submissions, and Barclays Bank PLC agreed to pay total penalties of £290m. The settlement with the DOJ-FS was made by entry into a Non-Prosecution Agreement (NPA) which has now expired. In addition, Barclays Bank PLC was granted conditional leniency from the DOJ Antitrust Division (DOJ-AD) in connection with potential US antitrust law violations with respect to financial instruments that reference EURIBOR. The DOJ granted final leniency to Barclays Bank PLC in May 2016.

Settlements with the US State Attorneys General and the Swiss Competition Commission

Following the settlements announced in June 2012, a group of US State Attorneys General (SAGs) commenced its own investigations into LIBOR, EURIBOR and the Tokyo Interbank Offered Rate. In August 2016, Barclays Bank PLC, BCI and 44 SAGs entered into a settlement agreement resolving the claims of those SAGs (and those of any other SAG who joined the settlement within 60 days) with respect to the matters subject to the investigations. Barclays agreed among other things to make payments totalling $100m to the SAGs in connection with the settlement.

In December 2016, a settlement in the sum of CHF29.8m was reached with the Swiss Competition Commission relating to its investigation into EURIBOR-related conduct.

Investigation by the SFO

In July 2012, the SFO announced that it had decided to investigate the LIBOR matter, in respect of which Barclays Bank PLC has received and continues to respond to requests for information. The SFO’s investigation, including in respect of Barclays Bank PLC, continues.

For a discussion of civil litigation arising in connection with these investigations see ‘LIBOR and other Benchmarks Civil Actions’.

Claimed Amounts/Financial Impact

Aside from the settlements discussed above, it is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

LIBOR and other Benchmark Civil Actions

Following the settlements of the investigations referred to above in ‘Investigations into LIBOR and other Benchmarks’, a number of individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group in relation to LIBOR and/or other benchmarks. While several of such cases have been dismissed and certain have settled subject to approval from the court (and in the case of class actions, the right of class members to opt-out of the settlement and to seek to file their own claims), other actions remain pending and their ultimate impact is unclear.

Background Information

A number of individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group and other banks in relation to manipulation of LIBOR and/or other benchmark rates.

USD LIBOR Cases in MDL Court

The majority of the USD LIBOR cases, which have been filed in various US jurisdictions, have been consolidated for pre-trial purposes before a single judge in the SDNY (MDL Court).

The complaints are substantially similar and allege, amongst other things, that Barclays Bank PLC and the other banks individually and collectively violated provisions of the US Sherman Antitrust Act (Antitrust Act), the Commodity Exchange Act (CEA), the US Racketeer Influenced and Corrupt Organizations Act (RICO) and various state laws by manipulating USD LIBOR rates.

The lawsuits seek unspecified damages with the exception of five lawsuits, in which the plaintiffs are seeking a combined total in excess of $1.25bn in actual damages against all defendants, including Barclays Bank PLC, plus punitive damages. Some of the lawsuits also seek trebling of damages under the Antitrust Act and RICO.

The proposed class actions purported to be brought on behalf of (amongst others) plaintiffs that (i) engaged in USD LIBOR-linked over-the-counter transactions (OTC Class); (ii) purchased USD LIBOR-linked financial instruments on an exchange (Exchange-Based Class); (iii) purchased USD LIBOR-linked debt securities (Debt Securities Class); (iv) purchased adjustable-rate mortgages linked to USD LIBOR (Homeowner Class); or (v) issued loans linked to USD LIBOR (Lender Class).

In August 2012 the MDL Court stayed all newly filed proposed class actions and individual actions (Stayed Actions). In March 2013, August 2013 and June 2014, the MDL Court issued a series of decisions effectively dismissing the majority of claims against Barclays Bank PLC and other panel bank defendants in the three lead proposed class actions (Lead Class Actions) and three lead individual actions (Lead Individual Actions).

In July 2014, the MDL Court allowed the Stayed Actions to proceed and a number of plaintiffs filed amended complaints. The MDL Court subsequently dismissed a number of Lead Individual Action claims and all Homeowner Class and Lender Class claims. In May 2016, the appeal court reversed the MDL Court’s holding that plaintiffs in the Lead Class Actions, including the Debt Securities Class, and Lead Individual Actions had not suffered an injury under the Antitrust Act, and remanded the antitrust claims for the MDL Court’s further consideration of those claims and related issues. Following further consideration, the MDL Court dismissed the majority of antitrust claims against foreign defendants, including Barclays Bank PLC, for lack of personal jurisdiction. Certain plaintiffs have sought leave to move the MDL Court to reconsider its decision, and certain defendants, including Barclays Bank PLC, have sought leave to move to dismiss certain of the remaining antitrust claims.

In December 2014, the MDL Court granted preliminary approval for the settlement of the Exchange-Based Class claims for $20m. Final approval of the settlement is awaiting plaintiff’s submission of a plan for allocation of the settlement proceeds acceptable to the MDL Court and will be subject to the right of class members to opt-out of the settlement and to seek to file their own claims.

In November 2015, the OTC Class claims were settled for $120m. The settlement was preliminarily approved by the MDL court in December 2016, but remains subject to final court approval and the right of class members to opt-out of the settlement and to seek to file their own claims.

In November 2016, a settlement was agreed with respect to the Debt Securities Class claims. As the plaintiffs have not yet sought court approval of the settlement, the amount (which Barclays does not consider to be material to the Group) has not yet been publicly disclosed.

 

274  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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29 Legal, competition and regulatory matters continued

EURIBOR Case in the SDNY

In February 2013, a EURIBOR-related class action was filed against Barclays PLC, Barclays Bank PLC, BCI and other EURIBOR panel banks in the SDNY. The plaintiffs asserted antitrust, CEA, RICO, and unjust enrichment claims relating to EURIBOR manipulation. In October 2015, the class action was settled for $94m subject to court approval. The settlement has been preliminarily approved by the court but remains subject to final approval and the right of class members to opt-out of the settlement and to seek to file their own claims.

Additional USD LIBOR Case in the SDNY

An additional individual action was commenced in February 2013 in the SDNY against Barclays Bank PLC and other panel bank defendants. The plaintiff alleged that the panel bank defendants conspired to increase USD LIBOR, which caused the value of bonds pledged as collateral for a loan to decrease, ultimately resulting in the sale of the bonds at a low point in the market. In April 2015, the court dismissed the action. The plaintiff’s motion to file a further amended complaint is pending.

Sterling LIBOR Case in SDNY

In May 2015, a putative class action was commenced in the SDNY against Barclays Bank PLC and other Sterling LIBOR panel banks by a plaintiff involved in exchange-traded and over-the-counter derivatives that were linked to Sterling LIBOR. The complaint alleges, among other things, that Barclays Bank PLC and other panel banks manipulated the Sterling LIBOR rate between 2005 and 2010 and, in so doing, committed CEA, Antitrust Act, and RICO violations. In early 2016, this class action was consolidated with an additional putative class action making similar allegations against Barclays Bank PLC and BCI and other Sterling LIBOR panel banks. Defendants have filed a motion to dismiss.

Complaint in the US District Court for the Central District of California

In July 2012, a putative class action complaint in the US District Court for the Central District of California was amended to include allegations related to USD LIBOR and names Barclays Bank PLC as a defendant. The amended complaint was filed on behalf of a putative class that includes holders of adjustable rate mortgages linked to USD LIBOR. In January 2015, the court granted Barclays Bank PLC’s motion for summary judgement and dismissed all of the remaining claims against Barclays Bank PLC. The dismissal was affirmed on appeal in December 2016.

Japanese Yen LIBOR Cases in SDNY

A putative class action was commenced in April 2012 in the SDNY against Barclays Bank PLC and other Japanese Yen LIBOR panel banks by a plaintiff involved in exchange-traded derivatives. The complaint also names members of the Japanese Bankers Association’s Euroyen Tokyo Interbank Offered Rate (Euroyen TIBOR) panel, of which Barclays Bank PLC is not a member. The complaint alleges, amongst other things, manipulation of the Euroyen TIBOR and Yen LIBOR rates and breaches of the CEA and Antitrust Act between 2006 and 2010. In March 2014, the court dismissed the plaintiff’s antitrust claims in full, but sustained the plaintiff’s CEA claims, which are pending. Plaintiff has amended the pleadings to extend the putative class period, and defendants have filed a partial motion to dismiss claims arising during the extended period.

In July 2015, a second putative class action concerning Yen LIBOR was filed in the SDNY against Barclays PLC, Barclays Bank PLC and BCI. The complaint alleges breaches of the Antitrust Act and RICO between 2006 and 2010 based on factual allegations that are substantially similar to those in the April 2012 class action. Defendants have filed a motion to dismiss.

SIBOR/SOR Case in the SDNY

A putative class action was commenced in July 2016 in the SDNY against Barclays PLC, Barclays Bank PLC, BCI, and other defendants, alleging manipulation of the Singapore Interbank Offered Rate (SIBOR) and Singapore Swap Offer Rate (SOR). The complaint alleges, amongst other things, manipulation of the SIBOR and SOR rates and breaches of the Antitrust Act and RICO between 2007 and 2011. Defendants filed motions to dismiss.

Non-US Benchmarks Cases

In addition to US actions, legal proceedings have been brought or threatened against the Group in connection with alleged manipulation of LIBOR and EURIBOR in a number of jurisdictions. The number of such proceedings in non-US jurisdictions, the benchmarks to which they relate, and the jurisdictions in which they may be brought have increased over time.

Claimed Amounts/Financial Impact

Aside from the settlements discussed above, it is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Foreign Exchange Investigations

Various regulatory and enforcement authorities have been investigating a range of issues associated with Foreign Exchange sales and trading, including electronic trading. Certain of these investigations involve multiple market participants in various countries. The Group has reached settlements with the CFTC, the DOJ, the New York State Department of Financial Services (NYDFS), the Board of Governors of the Federal Reserve System (Federal Reserve) and the FCA (together, the 2015 Resolving Authorities) and the Administrative Council for Economic Defence in Brazil with respect to certain of these investigations as further described below. The South African Competition Commission (SACC) has initiated proceedings before the South African Competition Tribunal (Tribunal). Investigations by the European Commission (Commission) and the DOJ, amongst others, remain pending.

Background Information

In 2015, the Group reached settlements with the 2015 Resolving Authorities in relation to investigations into certain sales and trading practices in the Foreign Exchange market. In connection with these settlements, the Group agreed to pay total penalties of approximately $2.38bn, and to undertake certain remedial actions.

Under the plea agreement with the DOJ, in addition to a criminal fine, Barclays PLC agreed to a term of probation of three years during which Barclays PLC must, amongst other things, (i) commit no crime whatsoever in violation of the federal laws of the US, (ii) implement and continue to implement a compliance program designed to prevent and detect the conduct that gave rise to the plea agreement and (iii) strengthen its compliance and internal controls as required by relevant regulatory or enforcement agencies. In January 2017, the US District Court for the District of Connecticut accepted the plea agreement and in accordance with the agreement sentenced Barclays PLC to pay $650m as a fine and $60m for violating the NPA (which amounts are part of the $2.38bn referred to above) and to serve three years of probation from the date of the sentencing order. The Group also continues to provide relevant information to certain of the 2015 Resolving Authorities.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  275

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Notes to the financial statements

Accruals, provisions, contingent liabilities and legal proceedings

    

 

 

29 Legal, competition and regulatory matters continued

The full text of the DOJ plea agreement, the orders of the CFTC, NYDFS and Federal Reserve, and the Final Notice issued by the FCA related to the settlements referred to above are publicly available on the 2015 Resolving Authorities’ respective websites.

In December 2016 the Group reached a settlement with the Administrative Council for Economic Defence in Brazil regarding its investigation into certain Foreign Exchange trading conduct. The Group agreed to a penalty of approximately £4.9m as part of the settlement agreement.

An investigation by the FCA into historic pricing practices by Barclays Bank PLC associated with certain Foreign Exchange transactions was discontinued in December 2016. Barclays Bank PLC has initiated a customer remediation program and is keeping the FCA informed on its progress.

The DOJ is also conducting an investigation into conduct relating to certain trading activities in connection with certain transactions during 2011 and 2012. Barclays is providing information to the DOJ and other relevant authorities reviewing this conduct.

In February 2017 the SACC referred Barclays Bank PLC, BCI and Absa Bank Limited, a subsidiary of Barclays Africa Group Limited, among other banks, to the Tribunal to be prosecuted for breaches of South African antitrust law related to Foreign Exchange trading of South African Rand. The SACC found from its investigation that, from at least 2007, the banks had engaged in various forms of collusive behaviour. Barclays was the first to bring the conduct to the attention of the SACC under its leniency programme and has cooporated with, and will continue to cooperate with, the SACC in relation to this matter. The SACC is therefore not seeking an order from the Tribunal to impose any fine on Barclays Bank PLC, BCI or Absa Bank Limited.

For a discussion of civil litigation arising in connection with these investigations see ‘Civil Actions in respect of Foreign Exchange’ below.

Claimed Amounts/Financial Impact

The provision for the customer remediation program relating to historic pricing practices by Barclays Bank PLC associated with certain Foreign Exchange transactions referred to above was £264m as of 31 December 2016 (see Provisions Note 27). Aside from the settlements discussed above it is not currently practicable to provide an estimate of any further financial impact of the actions described on the Group or what effect they might have on the Group’s operating results, cash flows or financial position in any particular period.

Civil Actions in respect of Foreign Exchange

Background Information

A number of individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group and other banks in relation to Foreign Exchange or may do so in future. Certain of these cases have been dismissed or have been settled subject to approval from the relevant court (and in the case of class actions, the right of class members to opt-out of the settlement and to seek to file their own claims).

Consolidated FX Action

Beginning in November 2013, a number of civil actions were filed in the SDNY on behalf of proposed classes of plaintiffs alleging manipulation of Foreign Exchange markets under the Antitrust Act and New York state law and naming several international banks as defendants, including Barclays Bank PLC. In February 2014, the SDNY combined all then-pending actions alleging a class of US persons in a single consolidated action (Consolidated FX Action). In September 2015, Barclays Bank PLC and BCI settled the Consolidated FX Action for $384m. The settlement itself is subject to final court approval and the right of class members to opt-out of the settlement and to seek to file their own claims.

ERISA FX Action

Since February 2015, several other civil actions have been filed in the SDNY on behalf of proposed classes of plaintiffs purporting to allege different legal theories of injury (other than those alleged in the Consolidated FX Action) related to alleged manipulation of Foreign Exchange rates and naming several international banks as defendants, including Barclays PLC, Barclays Bank PLC and BCI. One such consolidated action asserts claims under the US Employee Retirement Income Security Act (ERISA) statute (ERISA Claims) and includes allegations of conduct that are duplicative of allegations in the other cases, as well as additional allegations about ERISA plans. The Court has ruled that the ERISA allegations concerning collusive manipulation of FX rates are covered by the settlement agreement in the Consolidated FX Action, but has not ruled on whether allegations characterised by the ERISA plaintiffs as non-collusive manipulation of FX rates are likewise covered by the agreement. In September 2016, the Court dismissed all claims (based on both alleged collusive and non-collusive conduct) in the ERISA Claims against Barclays and all other defendants as a matter of law. The ERISA plaintiffs have appealed this decision.

Retail Basis Action

Another action was filed in the Northern District of California (and subsequently transferred to the SDNY) against several international banks, including Barclays PLC and BCI, on behalf of a putative class of individuals that exchanged currencies on a retail basis at bank branches (Retail Basis Claims). The Court has ruled that the Retail Basis Claims are not covered by the settlement agreement in the Consolidated FX Action. Barclays has moved to dismiss the Retail Basis Claims as a matter of law.

Last Look Actions

In addition, in November 2015 and December 2015, two additional civil actions were filed in the SDNY on behalf of proposed classes of plaintiffs alleging injuries based on Barclays’ purported improper rejection of customer trades through Barclays Last Look system. In February 2016, Barclays Bank PLC and BCI settled one of the actions for $50m on a class-wide basis. (The other action was voluntarily dismissed.) Class members have the right to opt-out of the settlement and to seek to file their own claims.

ETF FX Action

In September 2016, another action was filed in the SDNY under federal, New York and California law on behalf of proposed classes of stockholders of Exchange Traded Funds and others who supposedly were indirect investors in FX Instruments. Barclays will move to dismiss this action as a matter of law or, alternatively, to enjoin the claims as covered by the settlement agreement in the Consolidated FX Action.

Canadian FX Action

Similar civil actions to the Consolidated FX Action have been filed in Canadian courts on behalf of proposed classes of plaintiffs containing similar factual allegations of manipulation of Foreign Exchange rates as in the US actions and of damages resulting from such manipulation in violation of Canadian law.

Claimed Amounts/Financial Impact

Aside from the settlements discussed above, the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period is currently uncertain.

 

276  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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29 Legal, competition and regulatory matters continued

Civil Actions in respect of ISDAFIX

Beginning in September 2014, a number of ISDAFIX related civil actions were filed in the SDNY on behalf of a proposed class of plaintiffs, alleging that Barclays Bank PLC, a number of other banks and one broker, violated the Antitrust Act and several state laws by engaging in a conspiracy to manipulate the USD ISDAFIX. Those actions, which were consolidated in February 2015, arose in connection with certain regulatory and law enforcement agencies’ investigations into historical practices with respect to ISDAFIX.

In April 2016, Barclays Bank PLC and BCI entered into a settlement agreement with plaintiffs to resolve the consolidated action for $30m, fully resolving all ISDAFIX-related claims that were or could have been brought by the class. In May 2016, the court preliminarily approved the settlement, which remains subject to final approval and to the right of class members to opt-out of the settlement and to seek to file their own claims.

Claimed Amounts/Financial Impact

Aside from the settlements discussed above, it is not currently practicable to provide an estimate of any further financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Precious Metals Investigation

Barclays Bank PLC has been providing information to the DOJ, the CFTC and other authorities in connection with investigations into precious metals and precious metals-based financial instruments.

For a discussion of civil litigation arising in connection with these investigations see ‘Civil Actions in respect of the Gold Fix’ below.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Civil Actions in respect of the Gold Fix

Since March 2014, a number of civil complaints have been filed in US Federal Courts, each on behalf of a proposed class of plaintiffs, alleging that Barclays Bank PLC and other members of The London Gold Market Fixing Ltd. manipulated the prices of gold and gold derivative contracts in violation of the CEA, the Antitrust Act, and state antitrust and consumer protection laws. All of the complaints have been transferred to the SDNY and consolidated for pretrial purposes.

A similar civil action has been filed in Canadian courts on behalf of a proposed class of plaintiffs containing similar factual allegations of the manipulation of the prices of gold in violation of Canadian law.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

US Residential and Commercial Mortgage-related Activity and Litigation

The Group’s activities within the US residential mortgage sector during the period from 2005 through 2008 included:

 

§

sponsoring and underwriting of approximately $39bn of private-label securitisations;

 

§

economic underwriting exposure of approximately $34bn for other private-label securitisations;

 

§

sales of approximately $0.2bn of loans to government sponsored enterprises (GSEs);

 

§

sales of approximately $3bn of loans to others; and

 

§

sales of approximately $19.4bn of loans (net of approximately $500m of loans sold during this period and subsequently repurchased) that were originated and sold to third parties by mortgage originator affiliates of an entity that the Group acquired in 2007 (Acquired Subsidiary).

Throughout this time period affiliates of the Group engaged in secondary market trading of US residential mortgaged-backed securities (RMBS) and US commercial mortgage-backed securities (CMBS), and such trading activity continues today.

In connection with its loan sales and certain private-label securitisations, on 31 December 2016, the Group had unresolved repurchase requests relating to loans with a principal balance of approximately $2.2bn at the time they were sold, and civil actions have been commenced by various parties alleging that the Group must repurchase a substantial number of such loans.

In addition, the Group is party to a lawsuit filed by a purchaser of RMBS asserting statutory and/or common law claims. The current outstanding face amount of RMBS related to these pending claims against the Group as of 31 December 2016 was approximately $0.1bn.

Regulatory and governmental authorities, including amongst others, the DOJ, SEC, Special Inspector General for the US Troubled Asset Relief Program (SIGTARP), the US Attorney’s Office for the District of Connecticut and the US Attorney’s Office for the Eastern District of New York (EDNY) have been conducting wide-ranging investigations into market practices involving mortgage-backed securities, and the Group is cooperating with those investigations. In December 2016, the DOJ filed a civil complaint against Barclays in the US District Court for the EDNY containing a number of allegations, including mail and wire fraud, relating to mortgage-backed securities sold between 2005 and 2007. The complaint seeks, amongst other relief, unspecified monetary penalties. Barclays is defending the complaint.

RMBS Repurchase Requests

Background Information

The Group was the sole provider of various loan-level representations and warranties (R&Ws) with respect to:

 

§

approximately $5bn of Group sponsored securitisations;

 

§

approximately $0.2bn of sales of loans to GSEs; and

 

§

approximately $3bn of loans sold to others.

 

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Notes to the financial statements

Accruals, provisions, contingent liabilities and legal proceedings

    

 

 

29 Legal, competition and regulatory matters continued

In addition, the Acquired Subsidiary provided R&Ws on all of the $19.4bn of loans it sold to third parties.

R&Ws on the remaining Group sponsored securitisations were primarily provided by third-party originators directly to the securitisation trusts with a Group subsidiary, such as the depositor for the securitisation, providing more limited R&Ws. There are no stated expiration provisions applicable to most R&Ws made by the Group, the Acquired Subsidiary or these third parties.

Under certain circumstances, the Group and/or the Acquired Subsidiary may be required to repurchase the related loans or make other payments related to such loans if the R&Ws are breached.

The unresolved repurchase requests received on or before 31 December 2016 associated with all R&Ws made by the Group or the Acquired Subsidiary on loans sold to GSEs and others and private-label activities had an original unpaid principal balance of approximately $2.2bn at the time of such sale.

The unresolved repurchase requests discussed above relate to civil actions that have been commenced by the trustees for certain RMBS securitisations in which the trustees allege that the Group and/or the Acquired Subsidiary must repurchase loans that violated the operative R&Ws. Such trustees and other parties making repurchase requests have also alleged that the operative R&Ws may have been violated with respect to a greater (but unspecified) amount of loans than the amount of loans previously stated in specific repurchase requests made by such trustees. Cumulative realised losses reported at 31 December 2016 on loans covered by R&Ws made by the Group or the Acquired Subsidiary are approximately $1.3bn. All of the litigation involving repurchase requests remain at early stages.

In addition, the Acquired Subsidiary is subject to a more advanced civil action seeking, among other things, indemnification for losses allegedly suffered by a loan purchaser as a result of alleged breaches of R&Ws provided by the Acquired Subsidiary in connection with loan sales to the purchaser during the period 1997 to 2007. This litigation is ongoing.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

RMBS Securities Claims

Background Information

As a result of some of the RMBS activities described above, the Group has been party to a number of lawsuits filed by purchasers of RMBS sponsored and/or underwritten by the Group between 2005 and 2008. As a general matter, these lawsuits alleged, among other things, that the RMBS offering materials allegedly relied on by such purchasers contained materially false and misleading statements and/or omissions and generally demanded rescission and recovery of the consideration paid for the RMBS and recovery of monetary losses arising out of their ownership. The Group has resolved a number of these claims, and only one action currently remains pending.

Claimed Amounts/Financial Impact

Approximately $0.1bn of the original face amount of RMBS related to the remaining pending action was outstanding as at 31 December 2016. There were virtually no cumulative realised losses reported on these RMBS as at 31 December 2016. The Group does not expect that, if it were to lose the remaining pending action, any such loss to be material.

Mortgage-related actions

Numerous governmental authorities have been investigating various aspects of the mortgage-related business. The Group has responded to requests from the DOJ relating to the RMBS Working Group of the Financial Fraud Enforcement Task Force (RMBS Working Group), which was formed to investigate pre-financial crisis mortgage-related misconduct. In connection with several of the investigations by members of the RMBS Working Group, a number of financial institutions have entered into settlements involving substantial monetary payments resolving claims related to the underwriting, securitisation and sale of residential mortgage-backed securities. In December 2016, the DOJ filed a civil complaint against Barclays in the US District Court in the EDNY containing a number of allegations, including mail and wire fraud, relating to mortgage-backed securities sold between 2005 and 2007. The complaint seeks, amongst other relief, unspecified monetary penalties. Barclays is defending the complaint.

The Group has also received requests for information and subpoenas from the SEC, the US Attorney’s Office for the District of Connecticut and SIGTARP related to trading practices in the secondary market for both RMBS and CMBS. The investigation by the SEC is at an advanced stage.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period. The cost of resolving these actions could individually or in aggregate prove to be substantial.

American Depositary Shares

Barclays PLC, Barclays Bank PLC and various former members of Barclays PLC’s Board of Directors have been named as defendants in a securities class action consolidated in the SDNY alleging misstatements and omissions in offering documents for certain American Depositary Shares issued by Barclays Bank PLC in April 2008 with an original face amount of approximately $2.5 billion (the April 2008 Offering).

Background Information

The plaintiffs have asserted claims under the Securities Act of 1933, alleging that the offering documents for the April 2008 Offering contained misstatements and omissions concerning (amongst other things) Barclays Bank PLC’s portfolio of mortgage-related (including US subprime-related) securities, Barclays Bank PLC’s exposure to mortgage and credit market risk, and Barclays Bank PLC’s financial condition. The plaintiffs have not specifically alleged the amount of their damages. In June 2016, the SDNY certified the action as a class action. Barclays has moved for summary judgement.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the action described on the Group or what effect that it might have upon the Group’s operating results, cash flows or financial position in any particular period.

 

278  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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29 Legal, competition and regulatory matters continued

BDC Finance L.L.C.

BDC Finance L.L.C. (BDC) filed a complaint against Barclays Bank PLC in the NY Supreme Court alleging breach of contract in connection with a portfolio of total return swaps governed by an ISDA Master Agreement (collectively, the Agreement). Parties related to BDC have also sued Barclays Bank PLC and BCI in Connecticut State Court in connection with Barclays Bank PLC’s conduct relating to the Agreement.

Background Information

In October 2008, BDC filed a complaint in the NY Supreme Court alleging that Barclays Bank PLC breached the Agreement when it failed to transfer approximately $40m of alleged excess collateral in response to BDC’s October 2008 demand (Demand).

BDC asserts that under the Agreement Barclays Bank PLC was not entitled to dispute the Demand before transferring the alleged excess collateral and that even if the Agreement entitled Barclays Bank PLC to dispute the Demand before making the transfer, Barclays Bank PLC failed to dispute the Demand. BDC demands damages totalling $298m plus attorneys’ fees, expenses, and pre-judgement interest. Proceedings are currently pending and a trial on liability issues is currently scheduled to occur in 2017.

In September 2011, BDC’s investment advisor, BDCM Fund Adviser, L.L.C. and its parent company, Black Diamond Capital Holdings, L.L.C. also sued Barclays Bank PLC and BCI in Connecticut State Court for unspecified damages allegedly resulting from Barclays Bank PLC’s conduct relating to the Agreement, asserting claims for violation of the Connecticut Unfair Trade Practices Act and tortious interference with business and prospective business relations. The parties agreed to stay this case.

Claimed Amounts/Financial Impact

BDC has made claims against the Group totalling $298m plus attorneys’ fees, expenses, and pre-judgement interest. This amount does not necessarily reflect the Group’s potential financial exposure if a ruling were to be made against it.

Civil Actions in respect of the US Anti-Terrorism Act

In April 2015, an amended civil complaint was filed in the US Federal Court in the EDNY by a group of approximately 250 plaintiffs, alleging that Barclays Bank PLC and a number of other banks engaged in a conspiracy and violated the US Anti-Terrorism Act (ATA) by facilitating US Dollar denominated transactions for the Government of Iran and various Iranian banks, which in turn funded Hezbollah and other attacks that injured or killed the plaintiffs’ family members. Plaintiffs seek to recover for pain, suffering and mental anguish pursuant to the provisions of the ATA, which allows for the tripling of any proven damages and attorneys’ fees. Plaintiffs filed a second amended complaint in July 2016, which, among other things, added various plaintiffs, bringing the total number of plaintiffs to approximately 350. In November 2016, defendants’ filed a motion to dismiss.

In November 2016, a separate civil complaint was filed in the US Federal Court in the Southern District of Illinois by a group of approximately 90 plaintiffs, alleging claims under the ATA against Barclays Bank PLC and a number of other banks. The allegations against Barclays Bank PLC are substantially similar to those in the second amended complaint in the US Federal Court in the EDNY action. Plaintiffs filed an amended complaint in January 2017, which, among other things, added various plaintiffs, bringing the total number of plaintiffs to approximately 200.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Interest Rate Swap US Civil Action

Barclays PLC, Barclays Bank PLC, and BCI, together with other financial institutions that act as market makers for interest rate swaps (IRS), Trade Web, and ICAP, are named as defendants in several antitrust class actions consolidated in the SDNY. The complaints allege defendants conspired to prevent the development of exchanges for IRS and demand unspecified money damages, treble damages and legal fees. Plaintiffs include certain swap execution facilities, as well as buy-side investors. The buy-side investors claim to represent a class that transacted in fixed-for-floating IRS with defendants in the US from 1 January 2008 to the present, including, for example, US retirement and pension funds, municipalities, university endowments, corporations, insurance companies and investment funds. Defendants filed motion to dismiss.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect it have upon the Group’s operating results, cash flows or financial position in any particular period.

Treasury Auction Securities Civil Actions

Numerous putative class action complaints have been filed in US Federal Courts against BCI and other financial institutions that have served as primary dealers in US Treasury securities. The complaints have been consolidated in the US Federal Court in New York. The complaints generally allege that defendants conspired to manipulate the US Treasury securities market in violation of US federal antitrust laws, the CEA and state common law. Some complaints also allege that defendants engaged in illegal “spoofing” of the US Treasury market.

Certain governmental authorities have been conducting investigations into activities relating to the trading of government securities in various markets and Barclays has been providing information to various authorities on an ongoing basis.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Investigation into Americas Wealth & Investment Management Advisory Business

The SEC is investigating certain practices in Barclays’ former Wealth Americas investment advisory business relating to certain due diligence failures, fee and billing practices and mutual fund fee waivers and related disclosures. Barclays has been cooperating with the investigation, which is at an advanced stage.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  279

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Notes to the financial statements

Accruals, provisions, contingent liabilities and legal proceedings

    

 

 

29 Legal, competition and regulatory matters continued

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the action described on the Group or what effect that it might have upon the Group’s operating results, cash flows or financial position in any particular period.

Retail Structured Products Investigation

The Group is cooperating with an enforcement investigation commenced by the FCA in connection with structured products provided to UK customers from November 2009 to the present.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the action described on the Group or what effect that it might have upon the Group’s operating results, cash flows or financial position in any particular period.

Investigation into suspected money laundering related to foreign exchange transactions in South African operation

Absa Bank Limited, a subsidiary of Barclays Africa Group Limited, has identified potentially fraudulent activity by certain of its customers using advance payments for imports in 2014 and 2015 to effect foreign exchange transfers from South Africa to beneficiary accounts located in East Asia, UK, Europe and the US. As a result, the Group has been conducting a review of relevant activity, processes, systems and controls. The Group is keeping relevant authorities informed as to the status of this matter and is providing information to these authorities as part of its ongoing cooperation.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

Portuguese Competition Authority Investigation

The Portuguese Competition Authority is investigating whether competition law was infringed by the exchange of information about retail credit products amongst 15 banks in Portugal, including the Group, over a period of 11 years with particular reference to mortgages, consumer lending and lending to small and medium enterprises. The Group is cooperating with the investigation.

Claimed Amounts/Financial Impact

It is not currently practicable to provide an estimate of the financial impact of the action described or what effect it might have upon operating results, cash flows or the Group’s financial position in any particular period.

Credit Default Swap (CDS) Antitrust Investigations and Civil Actions

The Commission and the DOJ-AD commenced investigations into the CDS market in 2011 and 2009, respectively. In December 2015 the Commission announced its decision to close its investigations in respect of Barclays Bank PLC and 12 other banks. In July 2016 the Commission announced its decision to accept legally binding commitments relating to licensing of inputs for CDS exchange trading from each of the remaining entities subject to the investigation, ISDA and Markit Ltd., and close its investigation. The DOJ-AD has also closed its investigation.

A related civil class action in the SDNY involving similar claims against Barclays Bank PLC, other financial institutions, Markit Ltd., and ISDA was settled for a total of US$1.864bn (including a payment of US $170m from Barclays Bank PLC). The settlement received final approval in April 2016 subject to the right of class members to opt-out of the settlement and to seek to file their own claims.

Claimed Amounts/Financial Impact

Aside from the settlement discussed above, it is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect that they might have upon the Group’s operating results, cash flows or financial position in any particular period.

General

The Group is engaged in various other legal, competition and regulatory matters in the UK and US and a number of other overseas jurisdictions. It is subject to legal proceedings by and against the Group which arise in the ordinary course of business from time to time, including (but not limited to) disputes in relation to contracts, securities, debt collection, consumer credit, fraud, trusts, client assets, competition, data protection, money laundering, financial crime, employment, environmental and other statutory and common law issues.

The Group is also subject to enquiries and examinations, requests for information, audits, investigations and legal and other proceedings by regulators, governmental and other public bodies in connection with (but not limited to) consumer protection measures, compliance with legislation and regulation, wholesale trading activity and other areas of banking and business activities in which the Group is or has been engaged. The Group is keeping all relevant agencies briefed as appropriate in relation to these matters and others described in this Note on an ongoing basis.

At the present time, the Group does not expect the ultimate resolution of any of these other matters to have a material adverse effect on its financial position. However, in light of the uncertainties involved in such matters and the matters specifically described in this note, there can be no assurance that the outcome of a particular matter or matters will not be material to the Group’s results of operations or cash flow for a particular period, depending on, amongst other things, the amount of the loss resulting from the matter(s) and the amount of income otherwise reported for the reporting period.

 

280  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Notes to the financial statements

Capital instruments, equity and reserves

    

 

 

30 Subordinated liabilities

 

Subordinated liabilities include accrued interest and comprise undated and dated loan capital as follows:

 

							2016 £m				2015 £m
Undated subordinated liabilities							4,495				5,248
Dated subordinated liabilities							18,888				16,219
Total subordinated liabilities							23,383				21,467
None of the Group’s loan capital is secured.
Undated subordinated liabilities
							Subordinated liabilities per balance sheet
			Initial call date				2016 £m				2015 £m
Barclays Bank PLC issued
Tier One Notes (TONs)
6% Callable Perpetual Core Tier One Notes			2032				17				16
6.86% Callable Perpetual Core Tier One Notes (USD 179m)			2032				232				626
Reserve Capital Instruments (RCIs)
5.926% Step-up Callable Perpetual Reserve Capital Instruments			2016				–				113
7.434% Step-up Callable Perpetual Reserve Capital Instruments (USD 117m)			2017				100				85
6.3688% Step-up Callable Perpetual Reserve Capital Instruments			2019				37				38
14% Step-up Callable Perpetual Reserve Capital Instruments			2019				3,124				3,062
5.3304% Step-up Callable Perpetual Reserve Capital Instruments			2036				54				51
Undated Notes
6.375% Undated Subordinated Notes			2017				140				143
7.7% Undated Subordinated Notes (USD 99m)			2018				84				69
8.25% Undated Subordinated Notes			2018				148				149
7.125% Undated Subordinated Notes			2020				193				195
6.125% Undated Subordinated Notes			2027				45				245
Junior Undated Floating Rate Notes (USD 38m)			Any interest payment date				31				74
Undated Floating Rate Primary Capital Notes Series 3			Any interest payment date				21				145
Bonds
9.25% Perpetual Subordinated Bonds (ex-Woolwich Plc)			2021				91				91
9% Permanent Interest Bearing Capital Bonds			At any time				47				45
Loans
5.03% Reverse Dual Currency Undated Subordinated Loan (JPY 8,000m)			2028				54				42
5% Reverse Dual Currency Undated Subordinated Loan (JPY 12,000m)			2028				77				59
Total undated subordinated liabilities							4,495				5,248

Undated loan capital

Undated loan capital is issued by the Bank and its subsidiaries for the development and expansion of the business and to strengthen the capital bases. The principal terms of the undated loan capital are described below:

Subordination

All undated loan capital ranks behind the claims against the bank of depositors and other unsecured unsubordinated creditors and holders of dated loan capital in the following order: Junior Undated Floating Rate Notes; other issues of Undated Notes, Bonds and Loans ranking pari passu with each other; followed by TONs and RCIs ranking pari passu with each other.

Interest

All undated loan capital bears a fixed rate of interest until the initial call date, with the exception of the 9% Bonds which are fixed for the life of the issue, and the Junior and Series 3 Undated Notes which are floating rate.

After the initial call date, in the event that they are not redeemed, the 6.375%, 7.125%, 6.125% Undated Notes and the 9.25% Bonds will bear interest at rates fixed periodically in advance for five-year periods based on market rates. All other undated loan capital except the two floating rate Undated Notes will bear interest, and the two floating rate Undated Notes currently bear interest, at rates fixed periodically in advance based on London interbank rates.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  281

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Notes to the financial statements

Capital instruments, equity and reserves

    

 

 

30 Subordinated liabilities continued

Payment of interest

The Bank is not obliged to make a payment of interest on its Undated Notes, Bonds and Loans excluding the 7.7% Undated Notes, 8.25% Undated Notes and 9.25% Bonds if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC or, in certain cases, any class of preference shares of the Bank. The Bank is not obliged to make a payment of interest on its 9.25% Perpetual Subordinated Bonds if, in the immediately preceding 12 months’ interest period, a dividend has not been paid on any class of its share capital. Interest not so paid becomes payable in each case if such a dividend is subsequently paid or in certain other circumstances. During the year, the Bank declared and paid dividends on its ordinary shares and on all classes of preference shares.

No payment of principal or any interest may be made unless the Bank satisfies a specified solvency test.

The Bank may elect to defer any payment of interest on the 7.7% Undated Notes and 8.25% Undated Notes. Until such time as any deferred interest has been paid in full, neither the Bank nor Barclays PLC may declare or pay a dividend, subject to certain exceptions, on any of its ordinary shares, preference shares, or other share capital or satisfy any payments of interest or coupons on certain other junior obligations.

The Bank may elect to defer any payment of interest on the RCIs. Any such deferred payment of interest must be paid on the earlier of: (i) the date of redemption of the RCIs, (ii) the coupon payment date falling on or nearest to the tenth anniversary of the date of deferral of such payment, and (iii) in respect of the 14% RCIs only, substitution. Whilst such deferral is continuing, neither the Bank nor Barclays PLC may declare or pay a dividend, subject to certain exceptions, on any of its ordinary shares or preference shares.

The Bank may elect to defer any payment of interest on the TONs if it determines that it is, or such payment would result in it being, in non-compliance with capital adequacy requirements and policies of the PRA. Any such deferred payment of interest will only be payable on a redemption of the TONs. Until such time as the Bank next makes a payment of interest on the TONs, neither the Bank nor Barclays PLC may (i) declare or pay a dividend, subject to certain exceptions, on any of their respective ordinary shares or Preference Shares, or make payments of interest in respect of the Bank’s Reserve Capital Instruments and (ii) certain restrictions on the redemption, purchase or reduction of their respective share capital and certain other securities also apply.

Repayment

All undated loan capital is repayable at the option of the Bank, generally in whole, at the initial call date and on any subsequent coupon or interest payment date or in the case of the 6.375%, 7.125%, 6.125% Undated Notes and the 9.25% Bonds on any fifth anniversary after the initial call date. In addition, each issue of undated loan capital is repayable, at the option of the Bank in whole in the event of certain changes in the tax treatment of the notes, either at any time, or on an interest payment date. There are no events of default except non-payment of principal or mandatory interest. Any repayments require the prior approval of the PRA.

Other

All issues of undated subordinated liabilities are non-convertible.

 

282  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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30 Subordinated liabilities continued
Dated subordinated liabilities
											Subordinated liabilities per balance sheet
			Initial call date				Maturity date				2016 £m				2015 £m
Barclays PLC issued
2.625% Fixed Rate Subordinated Callable Notes (EUR 1,250m)			2020				2025				1,084				918
4.375% Fixed Rate Subordinated Notes (USD 1,250m)							2024				1,054				883
5.20% Fixed Rate Subordinated Notes (USD 2,050m)							2026				1,590				–
Barclays Bank PLC issued
6.05% Fixed Rate Subordinated Notes (USD 1,556m)							2017				1,316				1,124
Floating Rate Subordinated Notes (EUR 40m)							2018				34				29
6% Fixed Rate Subordinated Notes (EUR 1,750m)							2018				1,590				1,377
CMS-Linked Subordinated Notes (EUR 100m)							2018				90				77
CMS-Linked Subordinated Notes (EUR 135m)							2018				120				103
Fixed/Floating Rate Subordinated Callable Notes			2018				2023				548				555
7.75% Contingent Capital Notes (USD 1,000m)			2018				2023				822				679
Floating Rate Subordinated Notes (EUR 50m)							2019				42				36
5.14% Lower Tier 2 Notes (USD 1,094m)							2020				956				808
6% Fixed Rate Subordinated Notes (EUR 1,500m)							2021				1,444				1,252
9.5% Subordinated Bonds (ex-Woolwich Plc)							2021				286				293
Subordinated Floating Rate Notes (EUR 100m)							2021				85				73
10% Fixed Rate Subordinated Notes							2021				2,345				2,317
10.179% Fixed Rate Subordinated Notes (USD 1,521m)							2021				1,285				1,083
Subordinated Floating Rate Notes (EUR 50m)							2022				43				37
6.625% Fixed Rate Subordinated Notes (EUR 1,000m)							2022				1,042				891
7.625% Contingent Capital Notes (USD 3,000m)							2022				2,390				1,984
Subordinated Floating Rate Notes (EUR 50m)							2023				43				37
5.75% Fixed Rate Subordinated Notes							2026				384				802
5.4% Reverse Dual Currency Subordinated Loan (JPY 15,000m)							2027				103				80
6.33% Subordinated Notes							2032				64				60
Subordinated Floating Rate Notes (EUR 68m)							2040				58				74
Absa Bank Limited issueda
10.28% Subordinated Callable Notes (ZAR 600m)			2017				2022				–				26
Subordinated Callable Notes (ZAR 400m)			2017				2022				–				18
Subordinated Callable Notes (ZAR 1,805m)			2017				2022				–				79
Subordinated Callable Notes (ZAR 2,007m)			2018				2023				–				88
8.295% Subordinated Callable Notes (ZAR 1,188m)			2018				2023				–				42
5.50% CPI-linked Subordinated Callable Notes (ZAR 1,500m)			2023				2028				–				86
Barclays Africa Group Limited Issueda
Subordinated Callable Notes (ZAR 370m)			2019				2024				–				16
10.835% Subordinated Callable Notes (ZAR 130m)			2019				2024				–				6
Subordinated Callable Notes (ZAR 1,693m)			2020				2025				–				74
10.05% Subordinated Callable Notes (ZAR 807m)			2020				2025				–				36
11.4% Subordinated Callable Notes (ZAR 288m)			2020				2025				–				13
11.365% Subordinated Callable Notes (ZAR 508m)			2020				2025				–				23
Subordinated Callable Notes (ZAR 437m)			2020				2025				–				19
11.81% Subordinated Callable Notes (ZAR 737m)			2022				2027				–				33
Subordinated Callable Notes (ZAR 30m)			2022				2027				–				1
Other capital issued by Barclays Africaa							2019				–				3
Capital issued by other subsidiaries							2017-2019				70				84
Total dated subordinated liabilities											18,888				16,219

Dated loan capital

Dated loan capital is issued by the Company, the Bank and respective subsidiaries for the development and expansion of their business and to strengthen their respective capital bases. The principal terms of the dated loan capital are described below:

Subordination

Dated loan capital issued by the Company ranks behind the claims against the Company of unsecured unsubordinated creditors but before the claims of the holders of its equity.

All dated loan capital issued by the Bank ranks behind the claims against the Bank of depositors and other unsecured unsubordinated creditors but before the claims of the undated loan capital and the holders of its equity. The dated loan capital issued by other subsidiaries is similarly subordinated.

Notes

a	Instruments forming part of the BAGL group have been reclassified to Liabilities included in disposal groups classified as held for sale. For more information refer to Note 44 on page 305.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  283

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Notes to the financial statements

Capital instruments, equity and reserves

 

 

30 Subordinated liabilities continued

Interest

Interest on the Floating Rate Notes is fixed periodically in advance, based on the related interbank or local central bank rates.

Interest on the 7.75% Contingent Capital Notes and the 2.625% Fixed Rate Subordinated Callable Notes are fixed until the call date. After the respective call dates, in the event that they are not redeemed, the interest rates will be re-set and fixed until maturity based on a market rate.

Repayment

Those Notes with a call date are repayable at the option of the issuer, on conditions governing the respective debt obligations, some in whole or in part, and some only in whole. The remaining dated loan capital outstanding at 31 December 2016 is redeemable only on maturity, subject in particular cases to provisions allowing an early redemption in the event of certain changes in tax law, or to certain changes in legislation or regulations.

Any repayments prior to maturity require, in the case of the Company and the Bank, the prior approval of the PRA, or in the case of the overseas issues, the approval of the local regulator for that jurisdiction and of the PRA in certain circumstances.

There are no committed facilities in existence at the balance sheet date which permit the refinancing of debt beyond the date of maturity.

Other

The 7.625% Contingent Capital Notes will be automatically transferred from investors to Barclays PLC (or another entity within the Group) for nil consideration in the event the Barclays PLC consolidated CRD IV Common Equity Tier 1 (CET1) ratio (FSA October 2012 transitional statement) falls below 7.0%.

The 7.75% Contingent Capital Notes will be automatically written-down and investors will lose their entire investment in the notes in the event the Barclays PLC consolidated CRD IV Common Equity Tier 1 (CET1) ratio (FSA October 2012 transitional statement) falls below 7.0%.

31 Ordinary shares, share premium, and other equity

Called up share capital, allotted and fully paid
			Number of shares m				Ordinary shares £m				Share premium £m				Total share capital and share premium £m				Other  equity  instruments  £m
As at 1 January 2016			16,805				4,201				17,385				21,586				5,305
Issued to staff under share incentive plans			116				30				158				188				–
Issuances relating to Scrip Dividend Programme			42				10				58				68				–
AT1 securities issuance			–				–				–				–				1,132
Other movements			–				–				–				–				12
As at 31 December 2016			16,963				4,241				17,601				21,842				6,449
As at 1 January 2015			16,498				4,125				16,684				20,809				4,322
Issued to staff under share incentive plans			253				63				577				640				–
Issuances relating to Scrip Dividend Programme			54				13				124				137				–
AT1 securities issuance			–				–				–				–				995
Other movements			–				–				–				–				(12)
As at 31 December 2015			16,805				4,201				17,385				21,586				5,305

Called up share capital

Called up share capital comprises 16,963m (2015: 16,805m) ordinary shares of 25p each. The increase was due to the issuance of 116m (2015: 253m) shares under employee share schemes and a further 42m (2015: 54m) issued as part of the Barclays PLC Scrip Dividend Programme.

Share repurchase

At the 2016 AGM on 28 April 2016, Barclays PLC was authorised to purchase up to an aggregate of 1,681m of its ordinary shares of 25p. The authorisation is effective until the AGM in 2017 or the close of business on 30 June 2017, whichever is the earlier. No share repurchases were made during either 2016 or 2015.

Other equity instruments

Other equity instruments of £6,449m (2015: £5,305m) include AT1 securities issued by Barclays PLC. In 2016, there was one issuance of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities, with a principal amount of £1.1bn. In 2015, there was one issuance of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities, with a principal amount of £1.0bn.

The AT1 securities are perpetual securities with no fixed maturity and are structured to qualify as AT1 instruments under CRD IV.

The principal terms of the AT1 securities are described below:

 

§

AT1 securities rank behind the claims against Barclays PLC of (i) unsubordinated creditors; (ii) claims which are expressed to be subordinated to the claims of unsubordinated creditors of Barclays PLC but not further or otherwise; or (iii) claims which are, or are expressed to be, junior to the claims of other creditors of Barclays PLC, whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari passu with, or junior to, the claims of holders of the AT1 securities.

 

§

AT1 securities bear a fixed rate of interest until the initial call date. After the initial call date, in the event that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five-year periods based on market rates.

 

§

Interest on the AT1 securities will be due and payable only at the sole discretion of Barclays PLC, and Barclays PLC has sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any interest payment date.

 

284  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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31 Ordinary shares, share premium, and other equity continued

§

AT1 securities are undated and are repayable, at the option of Barclays PLC, in whole at the initial call date, or on any fifth anniversary after the initial call date. In addition, the AT1 securities are repayable, at the option of Barclays PLC, in whole in the event of certain changes in the tax or regulatory treatment of the securities. Any repayments require the prior consent of the PRA.

All AT1 securities will be converted into ordinary shares of Barclays PLC, at a pre determined price, should the fully loaded CET1 ratio of the Barclays PLC Group fall below 7.0%.

32 Reserves

Currency translation reserve

The currency translation reserve represents the cumulative gains and losses on the retranslation of the Group’s net investment in foreign operations, net of the effects of hedging.

As at 31 December 2016, there was a credit balance of £3,051m (2015: £623m debit) in the currency translation reserve. The increase in the credit balance of £3,674m (2015: £41m debit) principally reflected the strengthening of all major currencies against GBP. The currency translation reserve movement associated with non-controlling interests was a £801m credit (2015: £435m debit) reflecting the strengthening of ZAR against GBP.

During the year a £101m net gain (2015: £65m net loss) from recycling of the currency translation reserve was recognised in the income statement.

Available for sale reserve

The available for sale reserve represents the unrealised change in the fair value of available for sale investments since initial recognition.

As at 31 December 2016 there was a debit balance of £74m (2015: £317m credit) in the available for sale reserve. The decrease of £391m (2015: £245m decrease) was primarily due to a £2,192m gain from changes in fair value on Government Bonds, predominantly held in the liquidity pool which was more than offset by £1,677m of losses from related hedging and £912m of net gains transferred to net profit, mainly due to £615m gain on disposal of Barclays’ share of Visa Europe Limited. A tax charge of £28m was recognised in the period relating to these items.

Cash flow hedging reserve

The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss.

As at 31 December 2016, there was a credit balance of £2,105m (2015: £1,261m credit) in the cash flow hedging reserve. The increase of £844m (2015: £556m decrease) principally reflected a £1,595m increase in the fair value of interest rate swaps held for hedging purposes as interest rate forward curves decreased, partially offset by £450m gains recycled to the income statement in line with when the hedged item affects profit or loss and tax charge of £326m. The tax charge on cash flow hedge movements represented an effective rate of tax of 27.9% (2015: 10.6%). This tax charge reflects the introduction of the new surcharge of 8%, that applies to bank’s UK profits with effect from January 2016, in addition to the standard UK corporation tax rate of 20%.

Other reserves and treasury shares

As at 31 December 2016, there was a credit balance of £969m (2015: £943m credit) in other reserves and treasury shares.

A credit balance of £1,011m (2015: £1,011m credit ) related to the excess repurchase price paid over nominal of redeemed ordinary and preference shares issues by the Group.

The treasury shares relate to Barclays PLC shares held in relation to the Group’s various share schemes. These schemes are described in Note 34 Share-based payments.

Treasury shares are deducted from shareholders’ equity within other reserves. A transfer is made to retained earnings in line with the vesting of treasury shares held for the purposes of share-based payments.

As at 31 December 2016, there was a debit balance of £42m (2015: £68m debit) in other reserves relating to treasury shares. The decrease principally reflected £166m (2015: £618m) transferred from treasury shares reflecting the vesting of deferred share-based payments, partially offset by £140m (2015: £602m) net purchases of treasury shares held for the purposes of employee share schemes.

33 Non-controlling interests

			Profit attributable to non-controlling interest								Equity attributable to non-controlling interest								Dividends paid to non-controlling interest
			2016 £m				2015 £m				2016 £m				2015 £m				2016 £m				2015 £m
Barclays Bank PLC issued:
– Preference shares			340				343				2,698				3,654				340				343
– Upper Tier 2 instruments			3				2				272				486				–				–
Barclays Africa Group Limited			402				324				3,507				1,902				235				209
Other non-controlling interests			3				3				15				12				–				–
Total			748				672				6,492				6,054				575				552

Subsidiaries of the Group that give rise to significant non-controlling interests are Barclays Bank PLC and Barclays Africa Group Limited.

Barclays Bank PLC

Barclays PLC holds 100% of the voting rights of Barclays Bank PLC. As at 31 December 2016, Barclays Bank PLC has in issue preference shares and Upper Tier 2 instruments, representing 11% (2015: 11%) of its equity. Preference share dividends and redemption are typically at the discretion of Barclays Bank PLC. The payment of Upper Tier 2 instrument coupons and principal are typically at the discretion of Barclays Bank PLC, except for coupon payments that become compulsory where Barclays PLC has declared or paid a dividend on ordinary shares in the preceding six-month period. Preference share and Upper Tier 2 instrument holders typically only have rights to redeem in the event of insolvency.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  285

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Notes to the financial statements

Capital instruments, equity and reserves

    

 

 

33 Non-controlling interests continued

 

Instrument			2016 £m				2015   £m
Preference Shares:
6.00% non cumulative callable preference shares			203				203
6.278% non cumulative callable preference shares			318				318
4.75% non cumulative callable preference shares			211				211
6.625% non cumulative callable preference shares			–				406
7.1% non cumulative callable preference shares			657				657
7.75% non cumulative callable preference shares			–				550
8.125% non cumulative callable preference shares			1,309				1,309
Total Barclays Bank PLC Preference Shares			2,698				3,654
Barclays Africa Group Limited			277				201
Total			2,975				3,855
Upper Tier 2 Instruments:
Undated Floating Rate Primary Capital Notes Series 1			93				222
Undated Floating Rate Primary Capital Notes Series 2			179				264
Total Upper Tier 2 Instruments			272				486

Protective rights of non-controlling interests

Barclays Africa Group Limited

Barclays owns 50.2% (50.1% including treasury shares) of the share capital of Barclays Africa Group Limited. Barclays PLC’s rights to access the assets of Barclays Africa and its group companies are restricted by virtue of the South African Companies Act which requires 75% shareholder approval to dispose of all or the greater part of Barclays Africa Group Limited’s assets or to complete the voluntary winding up of the entity.

Barclays Bank PLC

Barclays Bank PLC also has in issue preference shares which are non-controlling interests to the Group. Under the terms of these instruments, Barclays PLC may not pay dividends on ordinary shares until a dividend is next paid on these instruments or the instruments are redeemed or purchased by Barclays Bank PLC. There are no restrictions on Barclays Bank PLC’s ability to remit capital to the Parent as a result of these issued instruments.

 

286  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Notes to the financial statements

Employee benefits

    

 

 

The notes included in this section focus on the costs and commitments associated with employing our staff.

34 Share-based payments

 

Accounting for share-based payments The Group applies IFRS 2 Share-Based Payments in accounting for employee remuneration in the form of shares.   Employee incentives include awards in the form of shares and share options, as well as offering employees the opportunity to purchase shares on favourable terms. The cost of the employee services received in respect of the shares or share options granted is recognised in the income statement over the period that employees provide services, generally the period in which the award is granted or notified and the vesting date of the shares or options. The overall cost of the award is calculated using the number of shares and options expected to vest and the fair value of the shares or options at the date of grant.   The number of shares and options expected to vest takes into account the likelihood that performance and service conditions included in the terms of the awards will be met. Failure to meet the non-vesting condition is treated as a cancellation, resulting in an acceleration of recognition of the cost of the employee services.   The fair value of shares is the market price ruling on the grant date, in some cases adjusted to reflect restrictions on transferability. The fair value of options granted is determined using option pricing models to estimate the numbers of shares likely to vest. These take into account the exercise price of the option, the current share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Market conditions that must be met in order for the award to vest are also reflected in the fair value of the award, as are any other non-vesting conditions – such as continuing to make payments into a share based savings scheme.

The charge for the year arising from share-based payment schemes was as follows:

 

			Charge for the year
			2016 £m				2015 £m				2014 £m
Share Value Plan			473				442				575
Others			192				86				82
Total equity settled			665				528				657
Cash settled			1				4				5
Total share based payments			666				532				662

The terms of the main current plans are as follows:

Share Value Plan (SVP)

The SVP was introduced in March 2010 and approved by shareholders (for Executive Director participation and use of new issue shares) at the AGM in April 2011. SVP awards are granted to participants in the form of a conditional right to receive Barclays PLC shares or provisional allocations of Barclays PLC shares which vest or are considered for release over a period of three years in equal annual tranches. Participants do not pay to receive an award or to receive a release of shares. The grantor may also make a dividend equivalent payment to participants on release of a SVP award. SVP awards are also made to eligible employees for recruitment purposes. All awards are subject to potential forfeiture in certain leaver scenarios. See also Note 8 for additional detail on share awards granted under SVP.

Other schemes

In addition to the SVP, the Group operates a number of other schemes including schemes operated by, and settled in, the shares of subsidiary undertakings, none of which is individually or in aggregate material in relation to the charge for the year or the dilutive effect of outstanding share options. Included within other schemes are Sharesave (both UK and overseas), the Barclays’ Long Term Incentive Plan, the Share Incentive Award and the Executive Share Award Scheme.

Share option and award plans

The weighted average fair value per award granted and weighted average share price at the date of exercise/release of shares during the year was:

 

			Weighted average fair value per award granted in year								Weighted average share price at exercise/ release during year
			2016 £				2015 £				2016 £				2015 £
SVPa			1.66				2.54				1.66				2.53
Othersa			0.61-1.67				0.49-2.54				1.65-1.88				2.37-2.67

SVP are nil cost awards on which the performance conditions are substantially completed at the date of grant. Consequently the fair value of these awards is based on the market value at that date.

 

 

 

Notes

a	Options/award granted over Barclays PLC shares.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  287

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Notes to the financial statements

Employee benefits

    

 

 

34 Share based payments continued

Movements in options and awards

The movement in the number of options and awards for the major schemes and the weighted average exercise price of options was:

 

			SVPa,b								Othersa,c
			Number (000s)								Number (000s)								Weighted average ex. price (£)
			2016				2015				2016				2015				2016				2015
Outstanding at beginning of year/acquisition date			386,470				480,042				166,975				185,599				1.75				1.61
Granted in the year			229,371				186,397				154,069				55,982				1.20				2.27
Exercised/released in the year			(191,623	)			(252,031	)			(60,912	)			(50,538	)			1.39				1.41
Less: forfeited in the year			(18,202	)			(27,938	)			(47,342	)			(20,811	)			1.95				1.76
Less: expired in the year			–				–				(7,661	)			(3,257	)			1.83				2.39
Outstanding at end of year			406,016				386,470				205,129				166,975				1.38				1.75
Of which exercisable:							30				24,435				26,058				1.78				1.48
Certain of the Group’s share option plans enable certain Directors and employees to subscribe for new ordinary shares of Barclays PLC. For accounting for treasury shares see Note 32 Reserves.   The weighted average contractual remaining life and number of options and awards outstanding (including those exercisable) at the balance sheet date are as follows:
											2016								2015
											Weighted average remaining contractual life in years				Number of options/ awards outstanding (000s	)			Weighted average remaining contractual life in years				Number of options/ awards outstanding (000s	)
SVPa,b											1				406,016				1				386,470
Othersa											0-3				205,129				0-2				166,975

There were no significant modifications to the share based payments arrangements in 2016 and 2015.

As at 31 December 2016, the total liability arising from cash-settled share based payments transactions was nil (2015: £13m).

Holdings of Barclays PLC shares

Various employee benefit trusts established by the Group hold shares in Barclays PLC to meet obligations under the Barclays share based payment schemes. The total number of Barclays shares held in these employee benefit trusts at 31 December 2016 was 6.6 million (2015: 5.1 million). Dividend rights have been waived on all these shares. The total market value of the shares held in trust based on the year end share price of £2.23 (2015: £2.19) was £14.7m (2015: £11.2m).

35 Pensions and post retirement benefits

 

Accounting for pensions and post retirement benefits The Group operates a number of pension schemes and post-employment benefit schemes.   Defined contribution schemes – the Group recognises contributions due in respect of the accounting period in the income statement. Any contributions unpaid at the balance sheet date are included as a liability.   Defined benefit schemes – the Group recognises its obligations to members of each scheme at the period end, less the fair value of the scheme assets after applying the asset ceiling test. The clarifications contained in the proposed amendments to IFRIC 14 as to when an entity has an unconditional right to benefit from a scheme surplus are not expected to have a material impact on the Group. The Trustee board do not have a substantive right to augment benefits in the UKRF, nor do they have the right to wind up the plan except in the dissolution of the Bank or termination of contributions by the Bank.   Each scheme’s obligations are calculated using the projected unit credit method. Scheme assets are stated at fair value as at the period end.   Changes in pension scheme liabilities or assets (remeasurements) that do not arise from regular pension cost, net interest on net defined benefit liabilities or assets, past service costs, settlements or contributions to the scheme, are recognised in other comprehensive income. Remeasurements comprise experience adjustments (differences between previous actuarial assumptions and what has actually occurred), the effects of changes in actuarial assumptions, return on scheme assets (excluding amounts included in the interest on the assets) and any changes in the effect of the asset ceiling restriction (excluding amounts included in the interest on the restriction).   Post-employment benefit schemes – the cost of providing health care benefits to retired employees is accrued as a liability in the financial statements over the period that the employees provide services to the Group, using a methodology similar to that for defined benefit pension schemes.

 

 

Notes

a	Options/award granted over Barclays PLC shares.

b	Nil cost award and therefore the weighted average exercise price was nil.

c	The number of awards within Others at the end of the year principally relates to Sharesave (number of awards exercisable at end of year was 10,584,072). The weighted average exercise price relates to Sharesave.

 

288  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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35 Pensions and post retirement benefits continued

Pension schemes

UK Retirement Fund (UKRF)

The UKRF is the Group’s main scheme, representing 96% of the Group’s total retirement benefit obligations. The UKRF was closed to new entrants on 1 October 2012, and comprises 10 sections, the two most significant of which are:

 

§

Afterwork, which comprises a contributory cash balance defined benefit element, and a voluntary defined contribution element. The cash balance element is accrued each year and revalued until Normal Retirement Age in line with the increase in Retail Price Index (RPI) (up to a maximum of 5% p.a.). An investment related increase of up to 2% a year may also be added at Barclays’ discretion. Between 1 October 2003 and 1 October 2012 the majority of new employees outside of the investment banking business within Barclays International were eligible to join this section. The costs of ill-health retirements and death in service benefits for Afterwork members are borne by the UKRF. The main risks that Barclays runs in relation to Afterwork are limited although additional contributions are required if pre-retirement investment returns are not sufficient to provide for the benefits.

 

§

The 1964 Pension Scheme. Most employees recruited before July 1997 built up benefits in this non-contributory defined benefit scheme in respect of service up to 31 March 2010. Pensions were calculated by reference to service and pensionable salary. From 1 April 2010, members became eligible to accrue future service benefits in either Afterwork or the Pension Investment Plan (PIP), a historic defined contribution section which is now closed to future contributions. The risks that Barclays runs in relation to the 1964 section are typical of final salary pension schemes, principally that investment returns fall short of expectations, that inflation exceeds expectations, and that retirees live longer than expected.

Barclays Pension Savings Plan (BPSP)

§

From 1 October 2012, a new UK pension scheme, the BPSP, was established to satisfy Auto Enrolment legislation. The BPSP is a defined contribution scheme (Group Personal Pension) providing benefits for all new Barclays UK hires from 1 October 2012, investment banking business within Barclays International employees who were in PIP as at 1 October 2012, and also all UK employees who were not members of a pension scheme at that date. As a defined contribution scheme, BPSP is not subject to the same investment return, inflation or life expectancy risks for Barclays that defined benefit schemes are. Members’ benefits reflect contributions paid and the level of investment returns achieved.

Apart from the UKRF and the BPSP, Barclays operates a number of smaller pension and long-term employee benefits and post-retirement health care plans globally, the largest of which are the US defined benefit schemes. Many of the schemes are funded, with assets backing the obligations held in separate legal vehicles such as trusts. Others are operated on an unfunded basis. The benefits provided, the approach to funding, and the legal basis of the schemes, reflect local environments.

Governance

The UKRF operates under trust law and is managed and administered on behalf of the members in accordance with the terms of the Trust Deed and Rules and all relevant legislation. The Corporate Trustee is Barclays Pension Funds Trustees Limited, a private limited company and a wholly owned subsidiary of Barclays Bank PLC. The Trustee is the legal owner of the assets of the UKRF which are held separately from the assets of the Group.

The Trustee Board comprises six Management Directors selected by Barclays, of whom three are independent Directors with no relationship with Barclays or the UKRF, plus three Member Nominated Directors selected from eligible active staff and pensioner members who apply for the role.

The BPSP is a Group Personal Pension arrangement which operates as a collection of personal pension plans. Each personal pension plan is a direct contract between the employee and the BPSP provider (Legal & General Assurance Society Limited), and is regulated by the FCA.

Similar principles of pension governance apply to the Group’s other pension schemes, depending on local legislation.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  289

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Notes to the financial statements

Employee benefits

    

 

 

35 Pensions and post retirement benefits continued

Amounts recognised

The following tables include amounts recognised in the income statement and an analysis of benefit obligations and scheme assets for all Group defined benefit schemes. The net position is reconciled to the assets and liabilities recognised on the balance sheet. The tables include funded and unfunded post-retirement benefits.

 

Income statement chargea
							2016				2015				2014
							£m				£m				£m
Current service cost							243				255				279
Net finance cost							(32	)			41				69
Past service cost							–				(432	)			(1	)
Other movements							2				1				(15	)
Total							213				(135	)			332
Past service costs includes a nil (2015: £429m; 2014: nil) gain on valuation of a component of the defined retirement benefit liability.
Balance sheet reconciliationa			2016								2015
							Of which								Of which
							relates to								relates to
			Total				UKRF				Total				UKRF
			£m				£m				£m				£m
Benefit obligation at beginning of the year			(28,279	)			(26,027	)			(30,392	)			(27,931	)
Current service cost			(243	)			(220	)			(303	)			(234	)
Interest costs on scheme liabilities			(1,016	)			(980	)			(1,147	)			(1,010	)
Past service cost			–				–				434				429
Remeasurement (loss)/gain – financial			(7,214	)			(7,170	)			1,161				1,121
Remeasurement gain/(loss) – demographic			413				390				(159	)			(160	)
Remeasurement gain – experience			525				490				609				611
Employee contributions			(4	)			(1	)			(36	)			(2	)
Benefits paid			1,852				1,800				1,172				1,021
Exchange and other movements			933				(129	)			382				128
Benefit obligation at end of the year			(33,033	)			(31,847	)			(28,279	)			(26,027	)
Fair value of scheme assets at beginning of the year			28,752				26,829				28,874				26,827
Interest income on scheme assets			1,048				1,023				1,105				979
Employer contribution			720				634				689				586
Remeasurement – return on scheme assets greater/(less) than discount rate			5,009				5,002				(476	)			(446	)
Employee contributions			4				1				36				2
Benefits paid			(1,852	)			(1,800	)			(1,172	)			(1,021	)
Exchange and other movements			(1,024	)			131				(304	)			(98	)
Fair value of scheme assets at the end of the year			32,657				31,820				28,752				26,829
Net (deficit)/surplus			(376	)			(27	)			473				802
Irrecoverable surplus (effect of asset ceiling)			–				–				(60	)			–
Net recognised (liabilities)/assets			(376	)			(27	)			413				802
Retirement benefit assets			14				–				836				802
Retirement benefit liabilities			(390	)			(27	)			(423	)			–
Net retirement benefit (liabilities)/assets			(376	)			(27	)			413				802

Included within the benefit obligation was £979m (2015: £2,050m) relating to overseas pensions and £207m (2015: £202m) relating to other post-employment benefits.

As at 31 December 2016, the UKRF’s scheme assets were in deficit versus IAS 19 obligations by £27m (2015: surplus of £802m). The movement for the UKRF is mainly due to a decrease in discount rate to 2.62% (2015: 3.82%), and an increase in inflation rate to 3.35% (2015: 3.05%) partially offset by deficit contributions, updated mortality assumptions based on scheme experience, and higher than assumed returns on plan assets. The UKRF benefits paid of £1,800m (2015: £1,021m) included transfers out of the fund and contribution refunds of £1,029m (2015: £270m).

Where a scheme’s assets exceed its obligation, an asset is recognised to the extent that it does not exceed the present value of future contribution holidays or refunds of contributions (the “asset ceiling”). In the case of the UKRF the asset ceiling is not applied as, in certain specified circumstances such as wind-up, Barclays expects to be able to recover any surplus. The application of the asset ceiling to other plans is considered on an individual plan basis.

Critical accounting estimates and judgements

Actuarial valuation of the schemes’ obligation is dependent upon a series of assumptions, below is a summary of the main financial and demographic assumptions adopted for the UKRF.

 

Key UKRF financial assumptions			2016 % p.a.				2015 % p.a.
Discount rate			2.62				3.82
Inflation rate (RPI)			3.35				3.05

Note

a	Comparative information for the income statement charge has been restated to exclude discontinued operations, while balance sheet information has not been restated. Please see page 217 for more details.

 

290  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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35 Pensions and post retirement benefits continued

The UKRF discount rate assumption for 2016 was based on a variant of the standard Willis Towers Watson RATE Link model. This variant includes all bonds rated AA by at least one of the four major ratings agencies, and assumes that yields after year 30 are flat. The RPI inflation assumption for 2016 was set by reference to the Bank of England’s implied inflation spot curve, assuming the spot curve remains flat after the published 25 years. The inflation assumption incorporates a deduction of 20 basis points as an allowance for an inflation risk premium. The methodology used to derive the discount rate and price inflation assumption is consistent with that used at the prior year end.

The UKRF’s post-retirement mortality assumptions are based on a best estimate assumption derived from an analysis in 2016 of Barclays own post-retirement mortality experience, and taking account of recent evidence from published mortality surveys. An allowance has been made for future mortality improvements based on the 2015 core projection model published by the Continuous Mortality Investigation Bureau subject to a long-term trend of 1.25% per annum in future improvements. The table below shows how the assumed life expectancy at 60, for members of the UKRF, has varied over the past three years:

 

Assumed life expectancy			2016				2015				2014
Life expectancy at 60 for current pensioners (years)
– Males			27.9				28.4				28.3
– Females			29.7				30.0				29.9
Life expectancy at 60 for future pensioners currently aged 40 (years)
– Males			29.7				30.2				30.1
– Females			31.7				32.0				31.9

Sensitivity analysis on actuarial assumptions

The sensitivity analysis has been calculated by valuing the UKRF liabilities using the amended assumptions shown in the table below and keeping the remaining assumptions as disclosed in the table above the same, except in the case of the inflation sensitivity where other assumptions that depend on assumed inflation have also been amended. The difference between the recalculated liability figure and that stated in the balance sheet reconciliation table above is the figure shown. The selection of these movements to illustrate the sensitivity of the defined benefit obligation to key assumptions should not be interpreted as Barclays expressing any specific view of the probability of such movements happening.

 

Change in key assumptions
			2016				2015
			(Decrease)/ Increase in UKRF defined benefit obligation £bn				(Decrease)/ Increase in UKRF defined benefit obligation £bn
Discount rate
0.5% p.a. increase			(2.8	)			(2.1	)
0.25% p.a. increase			(1.4	)			(1.1	)
0.25% p.a. decrease			1.5				1.2
0.5% p.a. decrease			3.2				2.4
Assumed RPI
0.5% p.a. increase			1.9				1.4
0.25% p.a. increase			0.9				0.7
0.25% p.a. decrease			(0.9	)			(0.7	)
0.5% p.a. decrease			(2.0	)			(1.3	)
Life expectancy at 60
One year increase			1.1				0.9
One year decrease			(1.1	)			(0.9	)

The weighted average duration of the benefit payments reflected in the defined benefit obligation for the UKRF is 20 years.

Assets

A long-term investment strategy has been set for the UKRF, with its asset allocation comprising a mixture of equities, bonds, property and other appropriate assets. This recognises that different asset classes are likely to produce different long-term returns and some asset classes may be more volatile than others. The long-term investment strategy ensures, among other aims, that investments are adequately diversified. Asset managers are permitted some flexibility to vary the asset allocation from the long-term investment strategy within control ranges agreed with the Trustee from time to time.

The UKRF also employs derivative instruments, where appropriate, to achieve a desired exposure or return, or to match assets more closely to liabilities. The value of assets shown reflects the assets held by the scheme, with any derivative holdings reflected on a fair value basis.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  291

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Notes to the financial statements

Employee benefits

 

 

35 Pensions and post retirement benefits continued

The value of the assets of the schemes and their percentage in relation to total scheme assets were as follows:

 

Analysis of scheme assets
			Total								Of which relates to UKRF
			Value				% of total     fair value of scheme assets				Value				% of total     fair value of scheme assets
			£m				%				£m				%
As at 31 December 2016
Equities – quoted			8,123				24.9				7,840				24.6
Equities – non-quoted			2,043				6.3				2,042				6.4
Bonds – fixed governmenta			1,330				4.1				1,072				3.4
Bonds – index-linked governmenta			13,173				40.3				13,165				41.4
Bonds – corporate and othera			5,222				16.0				5,054				15.9
Property – commercialb			1,630				5.0				1,622				5.1
Derivativesb			870				2.7				870				2.7
Otherb			266				0.7				155				0.5
Fair value of scheme assets			32,657				100.0				31,820				100.0
As at 31 December 2015
Equities – quoted			7,764				27.0				6,947				25.9
Equities – non-quoted			1,757				6.1				1,750				6.5
Bonds – fixed governmenta			1,105				3.8				577				2.2
Bonds – index-linked governmenta			9,677				33.7				9,670				36.0
Bonds – corporate and othera			5,856				20.4				5,680				21.2
Property – commercialb			1,602				5.6				1,581				5.9
Derivativesb			183				0.6				183				0.7
Otherb			808				2.8				441				1.6
Fair value of scheme assets			28,752				100.0				26,829				100.0

Included within the fair value of scheme assets were: £0.2m (2015: £5m) relating to shares in Barclays PLC, £0.1m (2015: £23m) relating to bonds issued by the Barclays PLC, nil (2015: £6m) relating to property occupied by Group companies, and nil (2015: £7m) relating to other investments. The UKRF also invests in pooled investment vehicles which may hold shares or debt issued by Barclays PLC.

The UKRF scheme assets also include £32m (2015: £36m) relating to UK private equity investments and £2,009m (2015: £1,714m) relating to overseas private equity investments. These are disclosed above within Equities – non-quoted.

Approximately 40% of the UKRF assets are invested in liability-driven investment strategies; primarily UK gilts as well as interest rate and inflation swaps. These are used to better match the assets to liabilities. The swaps are used to reduce the scheme’s inflation and duration risks against liabilities.

 

Notes

 

a	Assets held are predominately quoted.

b	Assets held are predominantly non-quoted.

 

292  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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35 Pensions and post retirement benefits continued

Funding

The triennial funding valuation of the UKRF is currently underway with an effective date of 30 September 2016. Contribution requirements, including any deficit recovery plans, must be agreed by 31 December 2017, and are expected to be agreed between the Bank and Trustee well in advance of this statutory deadline. In these discussions, the Bank and the Trustee are taking into account the impact of the Structural Reform Programme.

The previous triennial funding valuation at 30 September 2013 showed a deficit of £3.6bn and a funding level of 87.4%. The Bank and Trustee agreed a scheme-specific funding target, statement of funding principles, a schedule of contributions and a recovery plan to eliminate the deficit relative to the funding target. The main differences between the funding and IAS 19 assumptions are a more prudent discount rate and longevity assumptions for funding.

The recovery plan agreed as part of the 2013 actuarial valuation provided for the Bank to pay deficit contributions to the UKRF until 2021. Deficit contributions of £300m were paid in 2015 and in 2016. Under the existing recovery plan, further deficit contributions of £740m per annum are payable during 2017 to 2021, and up to £500m of the 2021 deficit contribution is payable in 2017 depending on the deficit level at that time. These deficit contributions are in addition to the regular contributions to meet the Group’s share of the cost of benefits accruing over each year.

In non-valuation years, the Scheme Actuary prepares an annual update of the funding position. The latest annual update was carried out as at 30 September 2015 and showed a deficit of £6.0bn and a funding level of 82.7%. The contributions paid to the UKRF are agreed between Barclays and the Trustee every three years.

Defined benefit contributions paid with respect to the UKRF were as follows:

 

Contributions paid
			£m
2016			634
2015			586
2014			241

Included within the Group’s contributions paid were £112m (2015: nil; 2014: nil) Section 75 contributions.

The Group’s expected contribution to the UKRF in respect of defined benefits in 2017 is £1,585m (2016: £634m) including £167m Section 75 contributions. In addition, the expected contributions to UK defined contribution schemes in 2017 is £36m (2016: £49m) to the UKRF and £124m (2016: £126m) to the BPSP.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  293

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Notes to the financial statements

Scope of consolidation

 

 

36 Principal subsidiaries

 

Barclays applies IFRS 10 Consolidated Financial Statements. The consolidated financial statements combine the financial statements of Barclays PLC and all its subsidiaries. Subsidiaries are entities over which the Group has control. Under IFRS 10, this is when the Group is exposed or has rights to variable returns from its involvement in the entity and has the ability to affect those returns through its power over the entity.   The Group reassesses whether it controls an entity if facts and circumstances indicate that there have been changes to its power, its rights to variable returns or its ability to use its power to affect the amount of its returns.   Intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Group for the purposes of the consolidation. Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has been obtained and they do not result in loss of control.   The significant judgements used in applying this policy are set out below.   Accounting for investment in subsidiaries In the individual financial statements of Barclays PLC, investments in subsidiaries are stated at cost less impairment.

Principal subsidiaries for the Group are set out below. This includes those subsidiaries that are most significant in the context of the Group’s business, results or financial position.

 

Company Name

Principal place of business or incorporation

Nature of business

Percentage of voting rights held %

Non- controlling interests – proportion of ownership interests %

Non- controlling interests – proportion of voting interests %

Barclays Bank PLC

England

Banking, holding company

100

11

–

Barclays Capital Securities Limited

England

Securities dealing

100

–

–

Barclays Securities Japan Limited

Japan

Securities dealing

100

–

–

Barclays Africa Group Limited

South Africa

Banking

50.1

49.9

49.9

Barclays Capital Inc

US

Securities dealing

100

–

–

Barclays Bank Delaware

US

Credit card issuer

100

–

–

The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries.

Ownership interests are in some cases different to voting interests due to the existence of non-voting equity interests, such as preference shares. See Note 33 Non-controlling interests for more information.

Barclays Private Clients International Limited was considered a principal subsidiary in 2015. Barclays Private Clients International Limited transferred all associated assets and liabilities to Barclays Bank PLC in October 2016.

Significant judgements and assumptions used to determine the scope of the consolidation

Determining whether the Group has control of an entity is generally straightforward based on ownership of the majority of the voting capital. However, in certain instances, this determination will involve significant judgement, particularly in the case of structured entities where voting rights are often not the determining factor in decisions over the relevant activities. This judgement may involve assessing the purpose and design of the entity. It will also often be necessary to consider whether the Group, or another involved party with power over the relevant activities, is acting as a principal in its own right or as an agent on behalf of others.

There is also often considerable judgement involved in the ongoing assessment of control over structured entities. In this regard, where market conditions have deteriorated such that the other investors’ exposures to the structure’s variable returns have been substantively eliminated, the Group may conclude that the managers of the structured entity are acting as its agent and therefore will consolidate the structured entity.

An interest in equity voting rights exceeding 50% would typically indicate that the Group has control of an entity. However, certain entities, as set out below, are excluded from consolidation because the Group does not have exposure to their variable returns.

 

				Percentage of voting		Equity shareholder’s		Retained profit for
Country of registration or incorporation		Company name		rights held (%)		funds (£m)		the year (£m)
UK		Fitzroy Finance Limited		100		–		–
Cayman Islands		Palomino Limited		100		2		1

These entities are managed by external counterparties and consequently are not controlled by the Group. Where appropriate, interests relating to these entities are included in Note 37 Structured entities.

Significant restrictions

As is typical for a Group of its size and international scope, there are restrictions on the ability of Barclays PLC to obtain distributions of capital, access the assets or repay the liabilities of members of its Group due to the statutory, regulatory and contractual requirements of its subsidiaries and due to the protective rights of non-controlling interests. These are considered on the next page.

 

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36 Principal subsidiaries continued

Regulatory requirements

Barclays’ principal subsidiary companies have assets and liabilities before intercompany eliminations of £1,553bn (2015: £1,468bn) and £1,480bn (2015: £1,398bn) respectively. The assets and liabilities are subject to prudential regulation and regulatory capital requirements in the countries in which they are regulated. These require entities to maintain minimum capital levels which cannot be returned to the parent company, Barclays PLC on a going concern basis.

In order to meet capital requirements, subsidiaries may hold certain equity-accounted and debt-accounted issued financial instruments and non-equity instruments such as Tier 1 and Tier 2 capital instruments and other forms of subordinated liabilities. See Note 28 Contingent liabilities and commitments, Note 30 Subordinated liabilities and Note 33 Non-controlling interests for particulars of these instruments. These instruments may be subject to cancellation clauses or preference share restrictions that would limit the ability of the entity to repatriate the capital on a timely basis.

Liquidity requirements

Regulated subsidiaries of the Group are required to maintain liquidity pools to meet PRA and local regulatory requirements. The main subsidiaries affected are Barclays Bank PLC, Barclays Africa Group Limited and Barclays Capital Inc which must maintain daily compliance with the regulatory minimum. See pages 159 to 177 for further details of liquidity requirements, including those of our significant subsidiaries.

Statutory requirements

The Group’s subsidiaries are subject to statutory requirements not to make distributions of capital and unrealised profits and generally to maintain solvency. These requirements restrict the ability of subsidiaries to make remittances of dividends to Barclays PLC, the ultimate parent, except in the event of a legal capital reduction or liquidation. In most cases, the regulatory restrictions referred to above exceed the statutory restrictions.

Contractual requirements

Asset encumbrance

The Group uses its financial assets to raise finance in the form of securitisations and through the liquidity schemes of central banks. Once encumbered, the assets are not available for transfer around the Group. The assets typically affected are disclosed in Note 40 Assets Pledged.

Assets held by consolidated structured entities

£99m (2015: £80m) of assets included in the Group’s balance sheet relate to consolidated investment funds and are held to pay return and principal to the holders of units in the funds. The assets held in these funds cannot be transferred to other members of the Group.

Other restrictions

The Group is required to maintain balances with central banks and other regulatory authorities, and these amounted to £4,254m (2015: £4,369m).

Barclays Africa Group Limited assets are subject to exchange control regulation determined by the South African Reserve Bank (SARB). Special dividends and loans in lieu of dividends cannot be transferred without SARB approval.

37 Structured entities

A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities.

Depending on the Group’s power over the activities of the entity and its exposure to and ability to influence its own returns, it may consolidate the entity. In other cases, it may sponsor or have exposure to such an entity but not consolidate it.

Consolidated structured entities

The Group has contractual arrangements which may require it to provide financial support to the following types of consolidated structured entities:

Securitisation vehicles

The Group uses securitisation as a source of financing and a means of risk transfer. Refer to Note 39 Securitisations for further detail.

The Group provides liquidity facilities to certain securitisation vehicles. At 31 December 2016, there were outstanding loan commitments to these entities totalling £152m (2015: £135m).

Commercial paper (CP) and medium-term note conduits

The Group provided £9bn (2015: £8.5bn) in undrawn contractual backstop liquidity facilities to CP conduits.

Fund management entities

Barclays has contractually guaranteed the performance of certain cash investments in a number of managed investment funds which have resulted in their consolidation. As at 31 December 2016, the notional value of the guarantee was £99m (2015: £257m). The decrease is primarily due to the closure of a number of European wealth funds during the year, as well as a reduction in fund assets.

Employee benefit and other trusts

The Group provides capital contributions to employee share trusts to enable them to meet their obligations to employees under share-based payment plans. During 2016, the Group provided undrawn liquidity facilities of £0.4bn (2015: £0.8bn) to certain trusts.

Unconsolidated Structured Entities in which the Group has an interest

An interest in a structured entity is any form of contractual or non-contractual involvement which creates variability in returns arising from the performance of the entity for the Group. Such interests include holdings of debt or equity securities, derivatives that transfer financial risks from the entity to the Group, lending, loan commitments, financial guarantees and investment management agreements.

Interest rate swaps, foreign exchange derivatives that are not complex and which expose the Group to insignificant credit risk by being senior in the payment waterfall of a securitisation and derivatives that are determined to introduce risk or variability to a structured entity are not considered to be an interest in an entity and have been excluded from the disclosures below.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  295

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Notes to the financial statements

Scope of consolidation

 

 

37 Structured entities continued

The nature and extent of the Group’s interests in structured entities is summarised below:

 

Summary of interests in unconsolidated structured entities
			Secured financing £m				Short-term traded interests £m				Traded derivatives £m				Other interests £m				Total £m
As at 31 December 2016
Assets
Trading portfolio assets			–				8,436				–				516				8,952
Financial assets designated at fair value			22,706				–				–				367				23,073
Derivative financial instruments			–				–				4,731				2,130				6,861
Available for sale investments			–				–				–				894				894
Loans and advances to banks			–				–				–				4,915				4,915
Loans and advances to customers			–				–				–				24,142				24,142
Reverse repurchase agreements and other similar secured lending			6,338				–				–				–				6,338
Other assets			–				–				–				25				25
Total assets			29,044				8,436				4,731				32,989				75,200
Liabilities
Derivative financial instruments			–				–				3,567				2,130				5,697
As at 31 December 2015
Assets
Trading portfolio assets			–				8,949				–				1,648				10,597
Financial assets designated at fair value			12,382				–				–				353				12,735
Derivative financial instruments			–				–				4,427				1,926				6,353
Available for sale investments			–				–				–				1,060				1,060
Loans and advances to banks			–				–				–				4,067				4,067
Loans and advances to customers			–				–				–				27,700				27,700
Reverse repurchase agreements and other similar secured lending			7,117				–				–				–				7,117
Other assets			–				–				–				31				31
Total assets			19,499				8,949				4,427				36,785				69,660
Liabilities
Derivative financial instruments			–				–				2,761				1,926				4,687

Secured financing arrangements, short term traded interests and traded derivatives are typically managed under market risk management policies described on page 143 which includes an indication of the change of risk measures compared to last year. For this reason, the total assets of these entities are not considered meaningful for the purposes of understanding the related risks and so have not been presented. Other interests include a portfolio held within Non-Core which is being managed down, conduits and corporate lending where the interest is driven by normal customer demand.

Secured financing

The Group routinely enters into reverse repurchase contracts, stock borrowing and similar arrangements on normal commercial terms where the counterparty to the arrangement is a structured entity. Due to the nature of these arrangements, especially the transfer of collateral and ongoing margining, the Group has minimal exposure to the performance of the structured entity counterparty. A description of these transactions is included in Note 22 Reverse repurchase and repurchase agreements including other similar lending and borrowing.

Short-term traded interests

The Group buys and sells interests in structured entities as part of its trading activities, for example, retail mortgage-backed securities, collateralised debt obligations and similar interests. Such interests are typically held individually or as part of a larger portfolio for no more than 90 days. In such cases, the Group typically has no other involvement with the structured entity other than the securities it holds as part of trading activities and its maximum exposure to loss is restricted to the carrying value of the asset.

As at 31 December 2016, £6,568m (2015: £7,443m) of the Group’s £8,436m (2015: £8,949m) short-term traded interests were comprised of debt securities issued by asset securitisation vehicles.

Traded derivatives

The Group enters into a variety of derivative contracts with structured entities which reference market risk variables such as interest rates, foreign exchange rates and credit indices amongst other things. The main derivative types which are considered interests in structured entities include index-based and entity specific credit default swaps, balance guaranteed swaps, total return swaps, commodities swaps, and equity swaps. A description of the types of derivatives and the risk management practices are detailed in Note 15 Derivative financial instruments. The risk of loss may be mitigated through ongoing margining requirements as well as a right to cash flows from the structured entity which are senior in the payment waterfall. Such margining requirements are consistent with market practice for many derivative arrangements and in line with the Group’s normal credit policies.

Derivative transactions require the counterparty to provide cash or other collateral under margining agreements to mitigate counterparty credit risk. The Group is exposed to settlement risk only on these derivatives which is mitigated through daily margining. Total notionals amounted to £1,183,215m (2015: £1,117,642m).

 

296  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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37 Structured entities continued

Except for credit default swaps where the maximum exposure to loss is the swap notional amount, it is not possible to estimate the maximum exposure to loss in respect of derivative positions as the fair value of derivatives is subject to changes in market rates of interest, exchange rates and credit indices which by their nature are uncertain. In addition, the Group’s losses would be subject to mitigating action under its traded market risk and credit risk policies that require the counterparty to provide collateral in cash or other assets on a daily basis in most cases.

Other interests in unconsolidated structured entities

The Group’s interests in structured entities not held for the purposes of short-term trading activities are set out below, summarised by the purpose of the entities and limited to significant categories, based on maximum exposure to loss.

 

Nature of interest
			Structured credit portfolio £m				Multi-seller conduit programmes £m				Lending £m				Mortgage- backed securities £m				Investment funds and trusts £m				Others £m				Total £m
As at 31 December 2016
Trading portfolio assets
– Debt securities			441				–				–				–				–				–				441
– Equity securities			–				–				–				–				–				75				75
Financial assets designated at fair value
– Loans and advances to customers			–				–				260				–				–				4				264
– Debt securities			–				–				50				–				–				48				98
– Equity securities			–				–				–				–				–				5				5
Derivative financial instruments			–				–				–				–				–				2,130				2,130
Available for sale investments
– Debt securities			535				–				–				357				–				2				894
Loans and advances to banks			–				–				4,890				–				–				25				4,915
Loans and advances to customers			637				6,016				16,754				–				–				735				24,142
Other assets			–				5				7				–				13				–				25
Total on balance sheet exposures			1,613				6,021				21,961				357				13				3,024				32,989
Total off balance sheet notional amounts			681				2,734				9,873				–				–				1,058				14,346
Maximum exposure to loss			2,294				8,755				31,834				357				13				4,082				47,335
Total assets of the entity			22,508				75,535				492,950				12,213				18,550				4,621				626,377
As at 31 December 2015
Trading portfolio assets
– Debt securities			1,545				–				–				–				–				40				1,585
– Equity securities			–				–				–				–				–				63				63
Financial assets designated at fair value
– Loans and advances to customers			–				–				247				–				–				6				253
– Debt securities			–				–				41				–				–				57				98
– Equity securities			–				–				–				–				–				2				2
Derivative financial instruments			–				–				–				–				–				1,926				1,926
Available for sale investments
– Debt securities			537				–				–				515				–				8				1,060
Loans and advances to banks			–				–				4,051				–				–				16				4,067
Loans and advances to customers			1,599				5,029				20,571				–				–				501				27,700
Other assets			–				4				7				–				20				–				31
Total on balance sheet exposures			3,681				5,033				24,917				515				20				2,619				36,785
Total off balance sheet notional amounts			708				3,042				10,225				–				–				1,409				15,384
Maximum exposure to loss			4,389				8,075				35,142				515				20				4,028				52,169
Total assets of the entity			36,290				81,355				376,296				115,351				21,766				5,084				636,142

Maximum exposure to loss

Unless specified otherwise below, the Group’s maximum exposure to loss is the total of its on balance sheet positions and its off balance sheet arrangements, being loan commitments and financial guarantees. Exposure to loss is mitigated through collateral, financial guarantees, the availability of netting and credit protection held.

Structured Credit Portfolio

This comprises interests in debt securities issued by securitisation vehicles, mainly Collateralised Loan Obligations (CLOs), Collateralised Debt Obligations (CDOs), Residential and Commercial Mortgage-Backed Securitisation structures (RMBSs and CMBSs), and drawn and undrawn loan facilities to these entities. The entities are wholly debt financed through the issuance of tranches of debt securities or through direct funding, such as the loan facilities provided by the Group. As the underlying assets of the entities amortise and pay down, the debt securities issued by the entities are repaid in order of seniority. Where the entities experience significant credit deterioration, debt securities may be written off or cancelled in reverse order of seniority.

As at 31 December 2016, the £1,613m (2015: £3,681m) Group’s funded exposures comprised of £441m (2015: £1,545m) debt securities at fair value and £637m (2015: £1,599m) amortised cost loans and advances. Of which £645m (2015: £2,783m) were within investment grade, and the remainder either non-investment grade or not rated. The Group also had £681m (2015: £708m) of unfunded exposures in the form of undrawn liquidity commitments. Of the £2,294m (2015: £4,389m) of funded and unfunded exposures, £2,294m (2015: £4,387m) is senior in the capital structure of the entity.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  297

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Notes to the financial statements

Scope of consolidation

    

 

 

37 Structured entities continued

Though the Group’s funded exposures are primarily investment grade and senior in the capital structure, there are cases where the interests that are subordinate to the Group’s senior and mezzanine interests have minimal or no value, due to decreases in the fair value of the underlying collateral held by the entity.

The Group’s income from these entities comprises trading income (largely gains and losses on changes in the fair value and interest earned on bonds) on items classified as held for trading and interest income on interests classified as loans and receivables.

During 2016, the Group recorded a fair value gain of £78m (2015: £4m loss) on debt securities, impairment losses recorded on loans and advances were immaterial in both the current and prior year.

Multi-seller conduit programme

The multi-seller conduit engages in providing financing to various clients and hold whole or partial interests in pools of receivables or similar obligations. These instruments are protected from loss through over-collateralisation, seller guarantees, or other credit enhancements provided to the conduit. The Group’s off balance sheet exposure included in the table above represents liquidity facilities that are provided to the conduit for the benefit of the holders of the commercial paper issued by the conduit and will only be drawn where the conduit is unable to access the commercial paper market. If these liquidity facilities are drawn, the Group is protected from loss through over-collateralisation, seller guarantees, or other credit enhancements provided to the conduit. The Group also has overlapping exposure to the conduit that arises from the letter of credit and the programme loan. The letter of credit is an unfunded commitment that is only funded to cover credit losses up to 10% of total commitments. The programme loan, which allows the conduit to comply with US risk retention rules, is a funded exposure that is positioned pari passu with the interests of commercial paper holders. The Group earns income from fees received on the liquidity facility and letter of credit provided to the conduit, as well as from management fees. There were no impairment losses on this lending in either of the current year or the prior year.

Lending

The portfolio includes lending provided by the Group to unconsolidated structured entities in the normal course of its lending business to earn income in the form of interest and lending fees and includes loans to structured entities that are generally collateralised by property, equipment or other assets. All loans are subject to the Group’s credit sanctioning process. Collateral arrangements are specific to the circumstances of each loan with additional guarantees and collateral sought from the sponsor of the structured entity for certain arrangements. During the period the Group incurred an impairment of £24m (2015: £35m) against such facilities. The main types of lending are £2bn (2015: £3bn) of funding loans to bankruptcy remote structured entities to either invest or develop properties, £3bn (2015: £4bn) of loans to structured entities which have been created by an individual to hold one or more assets, £2bn (2015: £2bn) to entities whose operations are limited to financing or funding the acquisition of specific assets such as schools, hospitals, roads and renewable energy projects under the Private Finance Initiative (PFI), and £1bn (2015: £1bn) of funding loans to bankruptcy remote structured entities to enable them to purchase capital equipment for parent companies and are supported by government export guarantees.

Mortgage-backed securities

This represents a portfolio of floating rate notes used as an accounting hedge of interest rate risk under the Group’s structural hedging programme. All notes are investment grade. The portfolio has decreased owing to a reduced requirement for hedge accounting capacity in Sterling.

Investment funds and trusts

In the course of its fund management activities, the Group establishes pooled investment funds that comprise investments of various kinds, tailored to meet certain investors’ requirements. The Group’s interest in funds is generally restricted to a fund management fee, the value of which is typically based on the performance of the fund.

The Group acts as trustee to a number of trusts established by or on behalf of its clients. The purpose of the trusts, which meet the definition of structured entities, is to hold assets on behalf of beneficiaries. The Group’s interest in trusts is generally restricted to unpaid fees which, depending on the trust, may be fixed or based on the value of the trust assets. Barclays has no other risk exposure to the trusts.

Other

This includes £2,130m (2015: £1,926m) of derivative transactions with structured entities where the market risk is materially hedged with corresponding derivative contracts.

Assets transferred to sponsored unconsolidated structured entities

Assets transferred to sponsored unconsolidated structured entities were immaterial.

38 Investments in associates and joint ventures

 

 

298  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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38 Investments in associates and joint ventures continued

There are no individually significant investments in joint ventures or associates held by Barclays.

 

							2016												2015
			Associates				Joint ventures				Total				Associates				Joint ventures				Total
			£m				£m				£m				£m				£m				£m
Equity accounted			321				363				684				217				356				573
Held at fair value through profit or loss			–				484				484				77				475				552
Total			321				847				1,168				294				831				1,125
Summarised financial information for the Group’s equity accounted associates and joint ventures is set out below. The amounts shown are the net income of the investees, not just the Group’s share for the year ended 31 December 2016, with the exception of certain undertakings for which the amounts are based on accounts made up to dates not earlier than three months before the balance sheet date.
											Associates								Joint ventures
											2016				2015				2016				2015
											£m				£m				£m				£m
Profit from continuing operations											33				5				64				73
Other comprehensive expense											–				–				19				(24)
Total comprehensive income from continuing operations											33				5				83				49

Unrecognised shares of the losses of individually immaterial associates and joint ventures were nil (2015: nil).

The Group’s associates and joint ventures are subject to statutory requirements such that they cannot make remittances of dividends or make loan repayments to Barclays PLC without agreement from the external parties.

The Group’s share of commitments and contingencies of its associates and joint ventures comprised unutilised credit facilities provided to customers of £1,755m (2015: £1,450m). In addition, the Group has made commitments to finance or otherwise provide resources to its joint ventures and associates of £263m (2015: £177m).

39 Securitisations

 

In the course of its normal banking activities, the Group makes transfers of financial assets, either legally (where legal rights to the cash flows from the asset are passed to the counterparty) or beneficially (where the Group retains the rights to the cash flows but assumes a responsibility to transfer them to the counterparty). Depending on the nature of the transaction, this may result in derecognition of the assets in their entirety, partial derecognition or no derecognition of the assets subject to the transfer.

A summary of the main transactions, and the assets and liabilities and the financial risks arising from these transactions, is set out below:

Transfers of financial assets that do not result in derecognition

Securitisations

The Group was party to securitisation transactions involving its residential mortgage loans, business loans and credit card balances.

In these transactions, the assets, interests in the assets, or beneficial interests in the cash flows arising from the assets, are transferred to a special purpose entity, which then issues interest bearing debt securities to third party investors.

Securitisations may, depending on the individual arrangement, result in continued recognition of the securitised assets and the recognition of the debt securities issued in the transaction. Partial continued recognition of the assets to the extent of the Group’s continuing involvement in those assets can also occur or derecognition of the assets and the separate recognition, as assets or liabilities, of any rights and obligations created or retained in the transfer.

 

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Notes to the financial statements

Scope of consolidation

 

 

39 Securitisations continued

The following table shows the carrying amount of securitised assets that have not resulted in full derecognition, together with the associated liabilities, for each category of asset on the balance sheet:

 

			2016																2015
			Assets								Liabilities								Assets								Liabilities
			Carrying amount £m				Fair Value £m				Carrying amount £m				Fair Value £m				Carrying amount £m				Fair Value £m				Carrying amount £m				Fair Value £m
Loans and advances to customers
Residential mortgage loans			125				120				(107	)			(107	)			376				362				(168	)			(170	)
Credit cards, unsecured and other retail lending			5,094				5,084				(4,926	)			(4,931	)			5,433				5,472				(4,604	)			(4,606	)
Corporate loansa			–				–				–				–				8				8				(8	)			(8	)
Total			5,219				5,204				(5,033	)			(5,038	)			5,817				5,842				(4,780	)			(4,784	)
Loans and advances to customers
Retained interests in corporate loansa			–				–				–				–				42				42				n/a				n/a

Balances included within loans and advances to customers represent securitisations where substantially all the risks and rewards of the asset have been retained by the Group.

The relationship between the transferred assets and the associated liabilities is that holders of notes may only look to cash flows from the securitised assets for payments of principal and interest due to them under the terms of their notes, although the contractual terms of their notes may be different to the maturity and interest of the transferred assets.

Retained interests in transfers of financial assets that resulted in partial derecognition are securities which represent a continuing exposure to the prepayment and credit risk in the underlying securitised assets. For the Group only, the carrying amount of the loans before transfer was nil (2015: £78m). The retained interest is initially recorded as an allocation of the original carrying amount based on the relative fair values of the portion derecognised and the portion retained.

For transfers of assets in relation to repurchase agreements, see Note 22 Reverse repurchase and repurchase agreements including other similar lending and borrowing and Note 40 Assets pledged.

Continuing involvement in financial assets that have been derecognised

In some cases, the Group may have transferred a financial asset in its entirety but may have continuing involvement in it. This arises in asset securitisations where loans and asset backed securities were derecognised as a result of the Group’s continuing involvement, mainly within Non-Core, with CLOs, CDOs, RMBS and CMBS. Continuing involvement largely arises from providing financing into these structures in the form of retained notes, which do not bear first losses.

The table below shows the potential financial implications of such continuing involvement:

 

			Continuing involvement as at 31 December 2016												Gain/(loss) from continuing involvement
Type of transfer			Carrying amount £m				Fair value £m				Maximum exposure to loss £m				For the year ended 31 December 2016 £m				Cumulative to 31 December 2016 £m
CLO and other assets			10				10				10				–				(3	)
US sub-prime and Alt-A			–				–				–				–				(95	)
Total			10				10				10				–				(98	)
			Continuing involvement as at 31 December 2015												Gain/(loss) from continuing involvement
Type of transfer			Carrying amount £m				Fair value £m				Maximum exposure to loss £m				For the year ended 31 December 2015 £m				Cumulative to 31 December 2015 £m
CLO and other assets			686				684				686				7				(36	)
US sub-prime and Alt-A			38				37				38				–				(426	)
Total			724				721				724				7				(462	)

 

 

Note

a	Corporate loans and retained interest in corporate loans balances as at December 2015 were attributable to BAGL which is classified as held for sale in 2016.

 

300  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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39 Securitisations continued

Assets which represent the Group’s continuing involvement in derecognised assets are recorded in the following line items:

 

Type of transfer			Loans and advances £m				Trading portfolio assets £m				Total £m
As at 31 December 2016
CLO and other assets			–				10				10
US sub-prime and Alt-A			–				–				–
Total			–				10				10
As at 31 December 2015
CLO and other assets			327				359				686
US sub-prime and Alt-A			38				–				38
Total			365				359				724

40 Assets pledged

Assets are pledged as collateral to secure liabilities under repurchase agreements, securitisations and stock lending agreements or as security deposits relating to derivatives. Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 168, other than those held in commercial paper conduits. In these transactions, Barclays will be required to step in to provide financing itself under a liquidity facility if the vehicle cannot access the commercial paper market. The following table summarises the nature and carrying amount of the assets pledged as security against these liabilities:

 

			2016 £m				2015 £m
Trading portfolio assets			51,241				49,308
Financial assets at fair value			3,195				2,534
Loans and advances to customers			30,414				51,038
Cash collateral			68,797				62,599
Financial Investments			13,053				11,666
Non current assets held for sale			117				1,930
Assets pledged			166,817				179,075

Barclays has an additional £14bn (2015: £13bn) of loans and advances within its asset backed funding programmes that can readily be used to raise additional secured funding and are available to support future issuance.

Collateral held as security for assets

Under certain transactions, including reverse repurchase agreements and stock borrowing transactions, the Group is allowed to resell or re-pledge the collateral held. The fair value at the balance sheet date of collateral accepted and re-pledged to others was as follows:

 

			2016 £m				2015 £m
Fair value of securities accepted as collateral			466,975				308,162
Of which fair value of securities re-pledged/transferred to others			405,582				266,015

The full disclosure as per IFRS 7 has been included in collateral and other credit enhancements see pages 119 to 120.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  301

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Notes to the financial statements

Other disclosure matters

    

 

 

41 Related party transactions and Directors’ remuneration

Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions, or one other party controls both. The definition includes subsidiaries, associates, joint ventures and the Group’s pension schemes.

Subsidiaries

Transactions between Barclays PLC and its subsidiaries also meet the definition of related party transactions. Where these are eliminated on consolidation, they are not disclosed in the Group Financial Statements. Transactions between Barclays PLC and its subsidiary, Barclays Bank PLC are fully disclosed in Barclays PLC’s balance sheet and income statement. A list of the Group’s principal subsidiaries is shown in Note 36.

Associates, joint ventures and other entities

The Group provides banking services to its associates, joint ventures, the Group pension funds (principally the UK Retirement Fund) and to entities under common directorships, providing loans, overdrafts, interest and non-interest bearing deposits and current accounts to these entities as well as other services. Group companies also provide investment management and custodian services to the Group pension schemes. The Group also provides banking services for unit trusts and investment funds managed by Group companies, which are not individually material. All of these transactions are conducted on the same terms as third-party transactions. Summarised financial information for the Group’s investments in associates and joint ventures is set out in Note 38.

Amounts included in the Group’s financial statements, in aggregate, by category of related party entity are as follows:

 

			Associates £m				Joint ventures £m			Pension funds, unit trusts and investment funds £m
For the year ended and as at 31 December 2016
Income			(20	)			7			4
Impairment			(13	)			–			–
Total assets			72				2,244			–
Total liabilities			94				95			260
For the year ended and as at 31 December 2015
Income			(19	)			40			4
Impairment			(4	)			(2	)		–
Total assets			36				1,578			–
Total liabilities			158				133			184
For the year ended and as at 31 December 2014
Income			(5	)			9			4
Impairment			–				(1	)		–
Total assets			130				1,558			–
Total liabilities			264				188			149

Guarantees, pledges or commitments given in respect of these transactions in the year were £940m (2015: £881m) predominantly relating to joint ventures. No guarantees, pledges or commitments were received in the year. Derivatives transacted on behalf of the pensions funds, unit trusts and investment funds were £3m (2015: £13m).

Key Management Personnel

The Group’s Key Management Personnel, and persons connected with them, are also considered to be related parties for disclosure purposes. Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of Barclays PLC (directly or indirectly) and comprise the Directors of Barclays PLC and the Officers of the Group, certain direct reports of the Group Chief Executive and the heads of major business units and functions.

There were no material related party transactions with entities under common directorship where a Director or other member of Key Management Personnel (or any connected person) is also a Director or other member of Key Management Personnel (or any connected person) of Barclays.

 

302  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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41 Related party transactions and Directors’ remuneration continued

The Group provides banking services to Directors and other Key Management Personnel and persons connected to them. Transactions during the year and the balances outstanding were as follows:

 

Loans outstanding
			2016				2015
			£m				£m
As at 1 January			9.8				11.4
Loans issued during the year			0.6				1.1
Loan repayments during the year/change of key management personnel			(1.2	)			(2.7	)
As at 31 December			9.2				9.8
No allowances for impairment were recognised in respect of loans to Directors or other members of Key Management Personnel (or any connected person).
Deposits outstanding
			2016				2015
			£m				£m
As at 1 January			116.5				103.0
Deposits received during the year			18.9				44.8
Deposits repaid during the year/change of key management personnel			(128.1	)			(31.3	)
As at 31 December			7.3				116.5
Total commitments outstanding Total commitments outstanding refers to the total of any undrawn amounts on credit cards and/or overdraft facilities provided to Key Management Personnel. Total commitments outstanding as at 31 December 2016 were £0.2m (2015: £0.5m).   All loans to Directors and other Key Management Personnel (and persons connected to them), (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons and (c) did not involve more than a normal risk of collectability or present other unfavourable features.   Remuneration of Directors and other Key Management Personnel Total remuneration awarded to Directors and other Key Management Personnel below represents the awards made to individuals that have been approved by the Board Remuneration Committee as part of the latest remuneration decisions, and is consistent with the approach adopted for disclosures set out on pages 51 to 85. Costs recognised in the income statement reflect the accounting charge for the year and are included within operating expenses. The difference between the values awarded and the recognised income statement charge principally relates to the recognition of deferred costs for prior year awards. Figures are provided for the period that individuals met the definition of Directors and other Key Management Personnel.
			2016				2015
			£m				£m
Salaries and other short-term benefits			31.9				31.3
Pension costs			0.2				0.3
Other long-term benefits			11.0				4.7
Share-based payments			21.9				11.0
Employer social security charges on emoluments			6.2				5.2
Costs recognised for accounting purposes			71.2				52.5
Employer social security charges on emoluments			(6.2	)			(5.2	)
Other long-term benefits – difference between awards granted and costs recognised			(2.5	)			2.5
Share-based payments – difference between awards granted and costs recognised			(8.9	)			(2.3	)
Total remuneration awarded			53.6				47.5
Disclosure required by the Companies Act 2006 The following information regarding Directors is presented in accordance with the Companies Act 2006:
			2016				2015
			£m				£m
Aggregate emolumentsa			8.1				7.0
Amounts paid under LTIPsb			–				2.2
			8.1				9.2

There were no pension contributions paid to defined contribution schemes on behalf of Directors (2015: £nil). There were no notional pension contributions to defined contribution schemes.

As at 31 December 2016, there were no Directors accruing benefits under a defined benefit scheme (2015: nil).

Notes

a	The aggregate emoluments include amounts paid for the 2016 year. In addition, a deferred share award for 2016 will be made to James E Staley and Tushar Morzaria which will only vest subject to meeting certain conditions. The total of the deferred share awards is £1.4m for 2016 (£0.7m for 2015).

b

The figure of nil is shown for 2016 in “Amounts paid under LTIPs” because neither executive Director held an LTIP award that was released in 2016. The LTIP amount in the single total figure table for executive Directors’ 2016 remuneration in the Directors’ Remuneration report relates to the award that is scheduled to be released in 2017 in respect of the 2014-2016 LTIP cycle.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  303

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Notes to the financial statements

Other disclosure matters

        

 

 

41 Related party transactions and Directors’ remuneration continued

Directors’ and Officers’ shareholdings and options

The beneficial ownership of ordinary share capital of Barclays PLC by all Directors and Officers of Barclays PLC (involving 24 persons) at 31 December 2016 amounted to 11,464,580 (2015: 10,586,812) ordinary shares of 25p each (0.07% of the ordinary share capital outstanding).

At 31 December 2016, executive Directors and officers of Barclays PLC (involving 13 persons) held options to purchase a total of 22,527 (2015: 17,206) Barclays PLC ordinary shares of 25p each at prices ranging from 120p to 178p under Sharesave.

Advances and credit to Directors and guarantees on behalf of Directors

In accordance with Section 413 of the Companies Act 2006, the total amount of advances and credits made available in 2016 to persons who served as Directors during the year was £0.2m (2015: £0.3m). The total value of guarantees entered into on behalf of Directors during 2016 was £nil (2015:£nil).

42 Auditors’ remuneration

Auditors’ remuneration is included within consultancy, legal and professional fees in administration and general expenses and comprises:

 

Audit £m

Audit related £m

Taxation services £m

Other services £m

Total £m

2016

Audit of the Group’s annual accounts

14

–

–

–

14

Other services:

Fees payable for the Company’s associatesa

27

–

–

–

27

Other services suppliedb

–

3

–

–

3

Other services relating to taxation

– compliance services

–

–

–

–

–

– advisory servicesc

–

–

–

–

–

Other

–

1

–

4

5

Total Auditors’ remuneration

41

4

–

4

49

2015

Audit of the Group’s annual accounts

13

–

–

–

13

Other services:

Fees payable for the Company’s associatesa

21

–

–

–

21

Other services suppliedb

–

3

–

–

3

Other services relating to taxation

– compliance services

–

–

1

–

1

– advisory servicesc

–

–

–

–

–

Other

–

4

–

1

5

Total Auditors’ remuneration

34

7

1

1

43

2014

Audit of the Group’s annual accounts

11

–

–

–

11

Other services:

Fees payable for the Company’s associatesa

24

–

–

–

24

Other services suppliedb

–

4

–

–

4

Other services relating to taxation

– compliance services

–

–

1

–

1

– advisory servicesc

–

–

–

–

–

Other

–

3

–

1

4

Total Auditors’ remuneration

35

7

1

1

44

The figures shown in the above table relate to fees paid to PricewaterhouseCoopers LLP and its associates, of which the fees paid in relation to discontinued operations were £12m (2015: £10m, 2014: £10m).

Fees paid to other auditors not associated with PricewaterhouseCoopers LLP in respect of the audit of discontinued operations were £5m (2015: £4m, 2014: £4m).

43 Financial risks, liquidity and capital management

To improve transparency and ease of reference, by concentrating related information in one place, and to reduce duplication, disclosures required under IFRS relating to financial risks and capital resources have been included within the Risk management and governance section as follows:

 

§

Credit risk, on pages 116 to 140;

 

§

Market risk, on pages 141 to 151;

 

§

Capital resources, on pages 152 to 158; and

 

§

Liquidity risk, on pages 159 to 177.

Notes

a	Comprises the fees for the statutory audit of the subsidiaries both inside and outside UK and fees for the work performed by associates of PricewaterhouseCoopers LLP in respect of the consolidated financial statements of the Company.

b	Comprises services in relation to statutory and regulatory filings. These include audit services for the review of the interim financial information under the Listing Rules of the UK listing authority.

c	Includes consultation on tax matters, tax advice relating to transactions and other tax planning and advice.

 

304  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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44 Assets included in disposal groups classified as held for sale and associated liabilities

 

Accounting for non-current assets held for sale and associated liabilities   The group applies IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.   Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction rather than continuing use. In order to be classified as held for sale, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary and the sale must be highly probable. Non-current assets (or disposal groups) held for sale are measured at the lower of carrying amount and fair value less cost to sell.

On 1 March 2016, Barclays announced its intention to reduce the Group’s 62.3% interest in BAGL. This reduction is intended to be to a level which will permit deconsolidation from an accounting and regulatory perspective for which approval was granted by shareholders at the Group’s general meeting held on 28 April 2016. On 5 May 2016 Barclays sold 12.2% of the Group’s interest in BAGL resulting in a transfer to non-controlling interests of £601m. Following this sale, Barclays’ interest represents 50.1% of BAGL’s share capital. The BAGL disposal group includes all assets and liabilities of BAGL and its subsidiaries as well as Group balances associated with BAGL and expected contributions that will form part of the sale.

No impairment for BAGL has been recognised under IFRS 5 as at 31 December 2016. Impairment under IFRS 5 is calculated as the difference between fair value less disposal costs and the carrying value of the disposal group. The fair value is determined by reference to the quoted market price for BAGL and the foreign exchange rate for ZAR/GBP as at 31 December 2016, less the expected contributions. The fair value less disposal costs and the expected contribution exceeds the net asset value as at 31 December 2016.

Barclays continues to explore a sale through the disposal of its shares in BAGL during the course of 2017.

 

Assets included in disposal groups classified as held for sale
			BAGL 2016 £m				Other 2016 £m				Total 2016 £m				Total 2015 £m
Cash and balances at central banks			2,689				241				2,930				21
Items in the course of collection from other banks			549				21				570				24
Trading portfolio assets			3,044				40				3,084				–
Financial assets designated at fair value			5,546				1,438				6,984				696
Derivative financial instruments			1,992				–				1,992				–
Financial investments			4,995				2,742				7,737				1,230
Loans and advances to banks			1,184				482				1,666				74
Loans and advances to customers			41,793				1,711				43,504				5,513
Prepayments, accrued income and other assets			637				59				696				47
Investments in associates and joint ventures			63				24				87				10
Property, plant and equipment			902				52				954				128
Goodwill			965				32				997				–
Intangible assets			554				16				570				43
Current and deferred tax assets			124				25				149				22
Retirement benefit assets			33				–				33				–
Total			65,070				6,883				71,953				7,808
Balance of impairment unallocated under IFRS 5							(499	)			(499	)			(444	)
Total assets classified as held for sale			65,070				6,384				71,454				7,364
Liabilities included in disposal groups classified as held for sale
			BAGL 2016 £m				Other 2016 £m				Total 2016 £m				Total 2015 £m
Deposits from banks			2,113				36				2,149				–
Items in the course of collection due to banks			350				23				373				74
Customer accounts			39,331				3,100				42,431				4,000
Repurchase agreements and other similar secured borrowing			597				–				597				–
Trading portfolio liabilities			388				–				388				–
Financial liabilities designated at fair value			3,748				3,577				7,325				346
Derivative financial instruments			1,610				1				1,611				3
Debt securities in issue			7,997				–				7,997				1,474
Subordinated liabilities			934				–				934				–
Accruals, deferred income and other liabilities			1,061				119				1,180				39
Provisions			52				51				103				34
Current and deferred tax liabilities			154				8				162				(6	)
Retirement benefit liabilities			26				16				42				33
Total liabilities classified as held for sale			58,361				6,931				65,292				5,997
Net assets/(liabilities) classified as held for salea			6,709				(547	)			6,162				1,367
Expected BAGL separation payments and costsb,c			866				–				866				–
Disposal group post contribution			7,575				(547	)			7,028				1,367

Notes

a

The carrying value of the disposal group is stated after the elimination of internal balances between Barclays and BAGL of £595m. Internal balances have been considered in determining the carrying value of BAGL (of £7.3bn before the planned contributions in respect of BAGL) for the purposes of measuring the disposal group at the lower of carrying amount and fair value less costs to sell.

b

In December 2016, Barclays finalised proposals regarding planned contributions to the BAGL group relating to the reimbursement of certain expenses as well as contributions for investment to support separation activities. The cash and cash equivalents to make these planned contributions is included within the perimeter of the disposal group, also for the purposes of measuring the disposal group at the lower of carrying amount and fair value less costs to sell. The planned contributions are reported within Cash and balances at central banks in the Group’s consolidated balance sheet.

c	In December 2016, Barclays reimbursed BAGL for expenses incurred for an amount of £28m. This amount is excluded from the proposed overall potential reimbursement and contribution figure of £866m.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  305

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Notes to the financial statements

Other disclosure matters

        

 

 

44 Assets included in disposal groups classified as held for sale and associated liabilities continued

The BAGL disposal group meets the requirements for presentation as a discontinued operation. As such, the results, which have been presented as the profit after tax and non-controlling interest in respect of the discontinued operation on the face of the Group income statement, are analysed in the income statement below.

 

BAGL group income statement
For the year ended 31 December			2016 £m				2015 £m
Net interest income			2,169				1,950
Net fee and commission income			1,072				1,033
Net trading income			281				197
Net investment income			45				41
Other income			179				193
Total income			3,746				3,414
Credit impairment charges and other provisions			(445	)			(353	)
Net operating income			3,301				3,061
Staff costs			(1,186	)			(1,107	)
Administration and general expenses			(653	)			(545	)
Depreciation of property, plant and equipment			(513	)			(442	)
Amortisation of intangible assets			(58	)			(47	)
Operating expenses			(2,410	)			(2,141	)
Share of post-tax results of associates and joint ventures			6				7
Profit before tax			897				927
Taxation			(306	)			(301	)
Profit after tax			591				626
Attributable to:
Equity holders of the parent			189				302
Non-controlling interests			402				324
Profit after tax			591				626
Other comprehensive income relating to discontinued operations is as follows:
For the year ended 31 December			2016 £m				2015 £m
Available for sale assets			(9	)			(22	)
Currency translation reserves			1,451				(1,223	)
Cash flow hedge reserves			89				(101	)
Other comprehensive income, net of tax from discontinued operations			1,531				(1,346	)
The cash flows attributed to the discontinued operations are as follows:
For the year ended 31 December			2016 £m				2015 £m
Net cash flows from operating activities			1,164				794
Net cash flows from investing activities			(691	)			(1,883	)
Net cash flows from financing activities			(105	)			133
Effect of exchange rates on cash and cash equivalents			37				(865	)
Net increase/(decrease) in cash and cash equivalents			405				(1,821	)

 

306  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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44 Assets included in disposal groups classified as held for sale and associated liabilities continued

Other held for sale assets

Sale of the French retail business

The disposal group includes the total assets and liabilities in the French retail business with assets of £4bn. An impairment of £456m has been recognised in expectation of the loss on sale, with the sale expected to be completed in 2017.

Sale of the Egypt banking business

The disposal group includes the total assets and liabilities in Barclays Bank Egypt, with assets of £1bn. Subject to regulatory approvals, the sale is expected to be completed in Q1 2017.

Sale of Barclays Vida Y Pensiones

The majority of the disposal group have been sold during 2016. The sale of the remaining Spanish Life Insurance business, with assets of £657m, is expected to complete in 2017.

Sale of the Zimbabwe business

The disposal group includes the total assets and liabilities in the Zimbabwe business, with assets of £362m. The sale is expected to be completed in Q4 2017.

Sale of other businesses

Other disposals include £379m of assets, mainly comprised of the Italian business, with assets of £258m. The sale is expected to be completed in 2017. The remaining businesses mainly comprise of the Irish Insurance business, UK Trust and Vocalink, all of which are expected to be completed in 2017.

During the year, a number of disposal groups of held for sale assets have been disposed of. The sale of the Asia Wealth business took place in November 2016. A gain on sale of £164m has been recognised in the income statement within (loss)/profit on disposal of subsidiaries, associates and joint ventures. The sales of Barclays Risk Analytics and Index Solutions Ltd in August 2016, the Spanish and Portuguese credit card businesses in November 2016, Italian insurance business in June 2016, Italian retail banking in August 2016, Portuguese retail and insurance businesses in April 2016, the Offshore Trust business in January 2016, the sale of the designated Market Maker business in April 2016 and part of the Spanish Insurance business in November 2016 also took place this year.

45 Barclays PLC (the Parent Company)

Other income

Other income of £334m (2015: £227m) includes £457m (2015: £345m) of income received from gross coupon payments on Barclays Bank PLC issued AT1 securities.

Non-Current Assets and Liabilities

Investment in subsidiaries

The investment in subsidiary of £36,553m (2015: £35,303m) represents investments made in Barclays Bank PLC, including £6,486m (2015: £5,350m) of AT1 securities. The increase of £1,250m during the year was mainly driven by a $1.5bn AT1 issuance during the third quarter.

Loans and advances to subsidiaries, subordinated liabilities and debt securities in issue

During the period, Barclays PLC issued $2.1bn of Fixed Rate Subordinated Notes included within the subordinated liabilities balance of £3,789m (2015: £1,766m), $6.7bn of Fixed Rate Senior Notes, Yen 20bn of Fixed Rate Senior Notes, € 2.7bn Fixed and Floating Rate Senior Notes, £1.3bn of Fixed Rate Senior Notes and AUD 0.2bn of Fixed Rate Senior Notes included within the debt securities in issue balance of £16,893m (2015: £6,224m). The proceeds raised through these transactions were used to invest in subsidiaries of Barclays Bank PLC accounted for as loans and advances to subsidiaries of £19,421m (2015: £7,990m).

Barclays PLC retains the discretion to manage the nature of its internal investments in subsidiaries according to their regulatory and business needs. As we implement our structural reform programme, Barclays PLC will invest capital and funding to Barclays Bank PLC and other group subsidiaries such as the Group Service Company, the US IHC and the UK ring-fenced bank.

Financial investments

The financial investment assets relate to loans made to subsidiaries of the Group. These instruments include a feature that allows for the loan to be written down in whole or in part by the borrower only in the event that the liabilities of the subsidiary would otherwise exceed its assets.

Derivative financial instrument

The derivative financial instrument of £268m (2015: £210m) held by the Parent Company represents Barclays PLC’s right to receive a Capital Note for no additional consideration, in the event the Barclays PLC consolidated CRD IV Common Equity Tier 1 (CET1) ratio (FSA October 2012 transitional statement) falls below 7% at which point the notes are automatically assigned by the holders to Barclays PLC.

Total equity

Called up share capital and share premium of Barclays PLC was £21,842m (2015: £21,586m). Other equity instruments of £6,453m (2015: £5,321m) comprises of AT1 securities. For further details please refer to Note 31 Ordinary share, share premium and other equity.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  307

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Notes to the financial statements

    

    

 

 

46 Related undertakings

The Group’s corporate structure consists of a number of related undertakings, comprising subsidiaries, joint ventures, associates and significant other interests. A full list of these undertakings, the country of incorporation and the ownership of each share class is set out below. The information is provided as at 31 December 2016.

The entities are grouped by the countries in which they are incorporated. The profits earned by the activities of these entities are in some cases taxed in countries other than the country of incorporation. Barclays’ 2016 Country Snapshot provides details of where the Group carries on its business, where its profits are subject to tax and the taxes it pays in each country it operates in.

Wholly owned subsidiaries

Unless otherwise stated the undertakings below are wholly owned and consolidated by Barclays and the share capital disclosed comprises ordinary or common shares which are held by Group subsidiaries.

 

 

308  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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46 Related undertakings continued

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  309

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Notes to the financial statements

        

        

 

 

46 Related undertakings continued

 

310  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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46 Related undertakings continued

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  311

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Notes to the financial statements

        

        

 

 

 

312  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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46 Related undertakings continued

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  313

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Notes to the financial statements

 

 

46 Related undertakings continued

 

 

314  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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46 Related undertakings continued

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  315

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  319

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320  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  321

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  325

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326  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Fees and Charges Payable by a Holder of ADSs

The ADR depositary collects fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them.

The charges of the ADR depositary payable by investors are as follows:

 

Type of Service		ADR Depositary Actions		Fee
ADR depositary or substituting the underlying shares		Issuance of ADSs against the deposit of ordinary shares, including deposits and issuances in respect of:		$5.00 or less per 100 ADSs (or portion thereof) evidenced by the new ADSs delivered
		– Share distributions, stock splits, rights issues, mergers
		– Exchange of securities or other transactions or event or other distribution affecting the ADSs or deposited securities
Receiving or distributing cash dividends		Distribution of cash dividends		$0.04 or less per ADS*
Selling or exercising rights		Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities		$5.00 or less per each 100 ADSs (or portion thereof)
Withdrawing an underlying ordinary share		Acceptance of ADSs surrendered for withdrawal of deposited ordinary shares		$5.00 or less for each 100 ADSs (or portion thereof)
General depositary services, particularly those charged on an annual basis		Other services performed by the ADR depositary in administering the ADS program		No fee currently payable
Expenses of the ADR depositary		Expenses incurred on behalf of Holders in connection with:   - Expenses of the ADR depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency)		Expenses payable at the sole discretion of the ADR depositary by billing Holders or by deducting charges from one or more cash dividends or other cash distributions
		– Taxes and other governmental charges
		– Cable, telex and facsimile transmission/delivery
		– Transfer or registration fees, if applicable, for the registration of transfers or underlying ordinary shares
		– Any other charge payable by ADR depositary or its agents

* The fee in relation to the distribution of cash dividends was $0.0064 per ADS in respect of dividends paid in the year ended 31 December 2016.

 

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Fees and Payments made by the ADR depositary to Barclays

The ADR depositary has agreed to provide Barclays with an amount based on the cash dividend fee charged on each ADS during each twelve-month period running from August 11 of the relevant year to August 10 of the following year (a ‘Contract Year’) for expenses incurred by Barclays in connection with the ADS program (such amount being the ‘Contribution’ for the relevant Contract Year). The Contributions are paid to Barclays in two instalments each Contract Year, both of which are scheduled to be paid in the Barclays’ fiscal year in which the relevant Contract Year ends.

The table below sets out the Contribution for the 2015/2016 Contract Year and thus the total amount received in the year ended 31 December 2016:

 

Cash Dividend Fee Amount Collected during 2015/2016   Contract Year				Amount provided in Contributions from the ADR depositary   for the year ended 31 December 2016
US$0.0084 per ADS**				$1,500,000
Total				$1,500,000

** On 1 March 2016, Barclays announced its decision to pay dividends on a bi-annual rather than quarterly basis. As a result, the fees in relation to the 2015/16 Contract Year covering the September and December 2015 and April 2016 dividends amounted to $0.0084 per ADS.

Under certain circumstances, including non-routine corporate actions, removal of the ADR depositary or termination of the ADS program by Barclays, Barclays may be charged by the ADR depositary certain fees (including in connection with depositary services, certain expenses paid on behalf of Barclays, an administrative fee, fees for non-routine services and corporate actions and any other reasonable fees/expenses incurred by the ADR depositary).

The ADR depositary has agreed to waive certain of its fees chargeable to Barclays with respect to standard costs associated with the administration of the ADS program.

 

328  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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External auditor objectivity and independence: Non-Audit Services

Our policy on the provision of services by the Group’s statutory Auditor (the ‘Policy’) sets out the circumstances in which the auditor may be permitted to undertake non-audit work for the Group.

The Board Audit Committee oversees compliance with the Policy and considers and, if appropriate, approves requests to use the Auditor for non-audit work. Allowable services are pre-approved up to but not including £100,000 or £25,000 in the case of certain taxation services. The Group Finance Director and the Company Secretary and their teams deal with day to day administration of the Policy, facilitating requests for approval.

Details of the services that are prohibited and allowed under the Policy are set out below:

Services that are prohibited include:

 

–

Bookkeeping;

 

–

design and implementation of financial information systems;

 

–

design or implementation of internal controls or risk management services related to financial information

 

–

*appraisal or valuation services;

 

–

fairness opinions or contribution-in-kind reports;

 

–

*actuarial services;

 

–

internal audit;

 

–

management and Human Resources functions;

 

–

broker or dealer, investment advisor or investment banking services;

 

–

legal, expert and certain *tax services or personal services to persons in a financial reporting role; and

 

–

transaction-related and restructuring services.

*these may be permissible subject to compliance with certain requirements

Allowable services that the Board Audit Committee considers for approval include:

 

–

statutory audit and audit related services and regulatory non-audit services;

 

–

other attest and assurance services;

 

–

training, surveys and software;

 

–

risk management and controls advice;

 

–

transaction support;

 

–

taxation services;

 

–

business support and recoveries; and

 

–

translation services.

 

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NYSE Corporate Governance

NYSE Corporate Governance Statement

As our main listing is on the London Stock Exchange, we follow the UK Corporate Governance Code. However, as Barclays also has American Depositary Receipts listed on the New York Stock Exchange (NYSE), we are also subject to the NYSE’s Corporate Governance Rules (NYSE Rules). We are exempt from most of the NYSE Rules, which US domestic companies must follow, because we are a non-US company listed on the NYSE. However, we are required to provide an Annual Written Affirmation to the NYSE of our compliance with the applicable NYSE Rules and must also disclose any significant differences between our corporate governance practices and those followed by domestic US companies listed on the NYSE. Key differences between the Code and NYSE Rules are set out here:

Director Independence

NYSE Rules require the majority of the Board to be independent. The Code requires at least half of the Board (excluding the Chairman) to be independent. The NYSE Rules contain different tests from the Code for determining whether a Director is independent. We follow the Code’s recommendations as well as developing best practices among other UK public companies. The independence of our non-executive Directors is reviewed by the Board on an annual basis and it takes into account the guidance in the Code and the criteria we have established for determining independence, which are described on page 37.

Board Committees

We have a Board Nominations Committee and a Board Remuneration Committee, both of which are broadly similar in purpose and constitution to the Committees required by the NYSE Rules and whose terms of reference comply with the Code’s requirements. The NYSE Rules state that both Committees must be composed entirely of independent Directors. As the Group Chairman was independent on appointment, the Code permits him to chair the Board Nominations Committee. Except for this appointment, both Committees are composed solely of non-executive Directors, whom the Board has determined to be independent. We comply with the NYSE Rules requirement that we have a Board Audit Committee comprised solely of independent non-executive Directors. However, we follow the Code recommendations, rather than the NYSE Rules, regarding the responsibilities of the Board Audit Committee (except for applicable mandatory responsibilities under the Sarbanes-Oxley Act), although both are broadly comparable. Although the NYSE Rules state that the Board Audit Committee is to take responsibility for risk oversight, Barclays has additional Board Committees which address different areas of risk management. To enhance Board governance of risk, Barclays has two risk committees; the Board Risk Committee and the Board Reputation Committee. A full description of each Board Committee can be found in the governance section.

Corporate Governance Guidelines

The NYSE Rules require domestic US companies to adopt and disclose corporate governance guidelines. There is no equivalent recommendation in the Code but the Board Nominations Committee has developed corporate governance guidelines, ‘Corporate Governance in Barclays’, which have been approved and adopted by the Board.

Code of Ethics

The NYSE Rules require that domestic US companies adopt and disclose a code of business conduct and ethics for Directors, officers and employees. The Barclays Way was introduced in 2013; this is a Code of Conduct which outlines the Values and Behaviours which govern our way of working across our business globally. The Barclays Way has been adopted on a Group wide basis by all Directors, Officers and employees. The Barclays Way is available to view on the Barclays website at home.barclays/about-barclays/barclays-values.

Shareholder Approval of Equity-compensation Plans

The NYSE listing standards require that shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions to those plans. We comply with UK requirements, which are similar to the NYSE standards. However, the Board does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.

 

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Substantial shareholders

As at 20 February 2017 the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the UKLA of the following holdings of voting rights in its shares:

 

2016
Holder			Number of Barclays Shares				% of total voting rights attached to issued share capitala				Number of warrants				% of total voting rights attached to issued share capitala
The Capital Group Companies Incb			1,172,090,125				6.98				-				-
Qatar Holding LLCc			1,017,455,690				5.99				-				-
BlackRock, Incd			922,509,972				5.45				-				-

a The percentage of voting rights detailed above were as calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR.

b. The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts.

c. Qatar Holding LLC is wholly-owned by Qatar Investment Authority.

d Total shown includes 3,860,531 contracts for difference to which voting rights are attached. Part of the holding is held as American Depositary receipts. On 19 January 2017, BlackRock, Inc. disclosed by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,054,988,420 ordinary shares of the Company as of 31 December 2016, representing 6.2% of that class of shares.

On 23 January 2017 the Company was notified that Norges Bank now holds 508,175,594 Barclays shares, representing 2.996% of the total voting rights attached to the issued share capital. The relevant threshold for UK disclosure is 3%, so Norges Bank will make no further notifications to the Company unless they again exceed 3% of the total voting rights attached to the issued share capital.

As at 29 February 2016 the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the UKLA of the following holdings of voting rights in its shares:

 

2015
Holder			Number of Barclays Shares				% of total voting rights attached to issued  share capitala				Number of warrants				% of total voting rights attached to issued share capitala
Qatar Holding LLCb			813,964,552				6.65				-				-
BlackRock, Incc			822,938,075				5.02				-				-
The Capital Group Companies Incd			1,172,090,125				6.98				-				-
Norges Bank			506,870,056				3.02				-				-

a The percentage of voting rights detailed above were as calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR.

b Qatar Holding LLC is wholly-owned by Qatar Investment Authority.

c Total shown includes 1,408,618 contracts for difference to which voting rights are attached. On 25 January 2016, BlackRock, Inc. disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,109,026,156 ordinary shares of Barclays PLC as of 31 December 2015, representing 6.6% of that class of shares.

d The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts (ADRs) with a ratio of 1 share to every 4 ADRs.

 

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As at 27 February 2015 the Company had been notified under Rule 5 of the Disclosure and Transparency Rules of the UKLA of the following holdings of voting rights in its shares:

 

2014
Holder			Number of Barclays Shares				% of total voting rights attached to issued share capitala				Number of warrants				% of total voting rights attached to issued share capital
Qatar Holding LLCb			813,964,552				6.65				-				-
BlackRock, Incc			822,938,075				5.02				-				-
The Capital Group Companies Incd			861,142,569				5.22				-				-

a The percentage of voting rights detailed above were as calculated at the time of the relevant disclosures made in accordance with Rule 5 of the DTR.

b Qatar Holding LLC is wholly-owned by Qatar Investment Authority.

c Total shown includes 1,408,618 contracts for difference to which voting rights are attached. On 12 January 2015 BlackRock, Inc disclosed, by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,032,843,875 ordinary shares of Barclays PLC as of 31 December 2014, representing 6.3% of that class of shares.

d The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts (ADRs) with a ratio of 1 share to every 4 ADRs.

Disclosure controls and procedures

The Chief Executive, James E Staley, and the Group Finance Director, Tushar Morzaria, conducted with Group Management an evaluation of the effectiveness of the design and operation of the Group’s disclosure controls and procedures of each of Barclays PLC and Barclays Bank PLC as at 31 December 2016, which are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the US Securities Exchange Act of 1934 is recorded, processed, summarised and reported within the time periods specified in the US Securities and Exchange Commission’s rules and forms. As of the date of the evaluation, the Chief Executive and Group Finance Director concluded that the design and operation of these disclosure controls and procedures were effective.

Board of Directors

John McFarlane, Chairman

John McFarlane is a senior figure in global banking and financial services circles and is in his 42^nd year in the sector (including 22 years as a main-board director, 10 years as CEO and six years as chairman). John is Chairman of Barclays PLC and Barclays Bank PLC. He is also a non-executive director of Westfield Corporation and Old Oak Holdings Limited. He is chairman of TheCityUK and a member of the Financial Services Trade and Investment Board and the European Financial Roundtable. John was formerly chairman of Aviva plc, where he oversaw a transformation of the company and for a brief period he was also chairman of FirstGroup plc. He was also a non-executive director of the Royal Bank of Scotland plc, joining at the time of the UK government rescue. Prior to that, for 10 years he was Chief Executive officer of Australia and New Zealand Banking Group Ltd, Group Executive Director of Standard Chartered plc and head of Citibank in the UK.

Jes Staley, Chief Executive, Executive Director

Jes Staley joined Barclays as Group Chief Executive on 1 December 2015. Jes has nearly four decades of extensive experience in banking and financial services. He worked for more than 30 years at JP Morgan, initially training as a commercial banker, and later advancing to the leadership of major businesses involving equities, private banking and asset management, and ultimately heading the company’s Global Investment Bank. Most recently, Jes served as Managing Partner at BlueMountain Capital.

Sir Gerry Grimstone, Deputy Chairman and Senior Independent Director, Non-executive Director

Sir Gerry Grimstone is Deputy Chairman and Senior Independent Director of Barclays and chairs the Board Reputation Committee. He is also chairman of Standard Life plc, one of the UK’s largest savings and investments businesses. He is an independent non-executive board member of Deloitte LLP where he represents the public interest. Within the UK public sector, he is the lead non-executive on the board of the Ministry of Defence and is a member of HM Treasury’s Financial Services Trade and Investment Board. From 2012-2015, Gerry served as the chairman of TheCityUK, the representative body for the financial and professional services industry in the UK. Gerry has held a number of board appointments in the public and private sectors and has served as one of the UK’s Business Ambassadors. He was previously a senior investment banker at Schroders and ran businesses in London, New York and Asia Pacific. He specialised in mergers and acquisitions and capital-raising for major companies worldwide. Prior to that, he was an official in HM Treasury where he was responsible for privatisation and policy towards state-owned enterprises.

Mike Ashley, Non-executive Director

Mike joined the Board as a non-executive Director in September 2013. He was formerly head of quality and risk management for KPMG Europe LLP (ELLP), which forms part of the KPMG global network, where his responsibilities included the management of professional risks and quality control.

 

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He was a member of the ELLP Board and was also KPMG UK’s designated Ethics Partner. Mike has over 20 years’ experience as an audit partner, during which he was the lead audit partner for several large financial services groups, most recently HSBC Holdings PLC and Standard Chartered PLC, and also for the Bank of England. Mike has an in depth understanding of auditing and the associated regulatory issues, with specific experience of large, global banks. Mike’s other current principal external appointments are Institute of Chartered Accountants in England and Wales’ Ethics Standards Committee (member), Charity Commission (board member), Government Internal Audit Agency (chairman) and International Ethics Standards Board for Accountants (member).

Tim Breedon, Non-executive Director

Tim was appointed to the Board as a non-executive Director in November 2012. Tim held a number of roles at Legal & General Group plc (L&G) before joining its board as Group Director (Investments) and becoming Group Chief Executive, a position he held from January 2006 to June 2012. Tim was a director of the Association of British Insurers (ABI), and also served as its chairman. He was also chairman of the UK Government’s non-bank lending taskforce, an industry-led taskforce that looked at the structural and behavioural barriers to the development of alternative debt markets in the UK. Tim was a director of the Financial Reporting Council and was on the board of the Investment Management Association. Tim has over 25 years of experience in financial services and has extensive knowledge and experience of regulatory and government relationships. He brings to the Board the experience and knowledge of leading a financial services company, combined with an understanding of the UK and EU regulatory environment and risk management. His customer focus and understanding of investor issues, gained both at L&G and the ABI, is of particular relevance to Barclays. Tim’s other current principal external appointments are as chairman of Apax Global Alpha Limited and chairman of The Northview Group.

Mary Francis, CBE, Non-executive Director

Mary Francis CBE was appointed to the Board as a non-executive Director in October 2016. Mary has extensive board-level experience across a range of industries and is currently serving on the boards of Swiss Re Group and Ensco plc. She has previously served as Senior Independent Director on the board of Centrica and as a non-executive director of Aviva, Cable & Wireless Communications, the Bank of England and Alliance & Leicester. In her executive career, Mary was a senior civil servant in HM Treasury for twelve years, before serving as Private Secretary to the Prime Minister, Deputy Private Secretary to the Queen and as Director General of the Association of British Insurers.

Crawford Gillies, Non-executive Director

Crawford joined the Board as a non-executive Director in May 2014. Crawford has over three decades of business and management experience, initially with Bain & Company, a firm of international management consultants, where he was managing director Europe from 2001 to 2005. While at Bain he worked with major companies in the UK, Continental Europe and North America across multiple sectors. From 2007-2016 Crawford was on the board of Standard Life plc, where he has chaired the remuneration committee. He was chairman of the law firm Hammonds, now Squire Sanders (2006 - 2009), has chaired Control Risks International since 2007 and chaired Touch Bionics (2006 - 2011), an innovative medical device company. Crawford was also on the board of MITIE Group PLC from 2012 to July 2015. He has also held public sector posts in England and Scotland. He was an independent member of the Department of Trade and Industry (2002 - 2007) and chaired its Audit and Risk Committee (2003 - 2007). He is former chairman of Scottish Enterprise and of the Confederation of British Industry in London. Crawford’s other current principal external appointments are as a non-executive director of SSE plc and The Edrington Group Limited.

Reuben Jeffery III, Non-executive Director

Reuben joined the Board in July 2009 as a non-executive Director. He is currently CEO, president and a director of Rockefeller & Co Inc. and Rockefeller Financial Services Inc. Reuben served in the US government as under secretary of State for Economic, Energy and Agricultural Affairs, as chairman of the Commodity Futures Trading Commission and as a special assistant to the President on the staff of the National Security Council. Before his government service, Reuben spent 18 years at Goldman, Sachs & Co where he was managing partner of Goldman Sachs in Paris and led the firm’s European financial institutions group in London. Prior to joining Goldman Sachs, Reuben was a corporate attorney with Davis Polk & Wardwell. Reuben has a broad range of financial services experience, particularly investment banking, and in addition brings extensive insight into the US political and regulatory environment. Reuben’s other current principal external appointments are Advisory Board of Towerbrook Capital Partners LP (member), Financial Services Volunteer Corps (director), Advisory Board of J. Rothschild Capital Management Limited (member) and The Asia Foundation (trustee).

Tushar Morzaria, Group Finance Director, Executive Director

Tushar joined the Board and Group Executive Committee of Barclays in October 2013 as Group Finance Director. Prior to this, he was CFO, corporate and investment bank at JP Morgan, a role he held on the merger of the investment bank and the wholesale treasury/security services business at JP Morgan. Prior to the merger, he was CFO of the investment bank and held other various roles during his career at JP Morgan. Tushar qualified as an accountant at Coopers and Lybrand Deloitte and for most of his career he has worked in investment banking, having held various roles at SG Warburg, JP Morgan and Credit Suisse. Tushar has over 20 years of strategic financial management experience, which prove invaluable in his role as Group Finance Director.

Dambisa Moyo, Non-executive Director

Dambisa joined the Board in May 2010 as a non-executive Director. She is an international economist and commentator on the global economy, with a background in financial services. After completing a PhD in Economics, she worked for Goldman Sachs in the debt capital markets, hedge funds coverage and global macroeconomics teams. Dambisa has also worked for the World Bank and formerly served as a non-executive director of Lundin Petroleum AB (publ) and SABMiller PLC. Dambisa’s background as an economist, in particular her knowledge and understanding of global macroeconomic issues and African economic, political and social issues, provides an important contribution to the Board’s discussion of Barclays’ business and citizenship strategy. Dambisa’s other current principal external appointments are as non-executive director of Barrick Gold Corporation and Seagate Technology plc and Chevron Corporation.

 

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Diane de Saint Victor, Non-executive Director

Diane was appointed as a non-executive Director in March 2013. She is currently general counsel and company secretary and a member of the group executive committee of ABB Limited, a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids. The company is headquartered in Switzerland. She is a member of the board of directors of the American Chamber of Commerce in France. At ABB her responsibilities include Head of Legal and Integrity Group. She was formerly senior vice president and general counsel of The Airbus Group, formerly EADS Group, the European aerospace and defence company. Diane’s legal experience and her knowledge of regulatory and compliance matters allows her to provide a unique perspective to the Board and its Committees.

Diane Schueneman, Non-executive Director

Diane was appointed to the Board as a non-executive Director in June 2015. Diane has extensive experience in managing global, cross-discipline business operations, client services and technology in the financial services industry. She spent 37 years with Merrill Lynch and held senior roles with responsibility for banking, brokerage services and technology provided to the company’s retail and middle market clients, and latterly for IT, operations and client services worldwide as senior vice president & head of global infrastructure solutions. As a consultant at McKinsey & Company she advised the IRS Commissioner in the US and has held a number of non-executive directorships.

Steve Thieke, Non-executive Director

Steve was appointed to the Board as a non-executive Director in January 2014. He has four decades of experience in financial services, both in regulation and investment banking. Steve worked for the Federal Reserve Bank of New York for 20 years, where he held several senior positions in credit and capital market operations and banking supervision and later he became a non-executive director at the FSA. He has also held senior roles in investment banking and risk management with JP Morgan, where he spent ten years. He was head of the fixed income division, co-head of global markets, president and chairman of JP Morgan Securities, Inc. and head of the corporate risk management group, retiring from JP Morgan in 1999. He has significant board level experience, both in executive and non-executive roles, including spending seven years as a director of Risk Metrics Group, where latterly he served as chairman of the board, and nine years on the board of PNC Financial Services Group, Corp.

Group Executive Committee

Jes Staley, Group Chief Executive, Executive Director

See above for full biography.

Tushar Morzaria, Group Finance Director, Executive Director

See above for full biography.

Paul Compton, Group Chief Operating Officer

Paul joined Barclays as Group Chief Operating Officer in May 2016. In this role, Paul is responsible for leading the global Operations & Technology functions, driving the implementation of the structural reform and cost transformation programmes, and for the delivery of other major bank-wide projects. Prior to joining Barclays, Paul was the Chief Administrative Officer of JPMorgan Chase, and was accountable for overseeing global technology, operations, real estate and general services. Before being appointed in this role in 2013, Paul served as Co-Chief Administrative Officer for the Corporate & Investment Bank, Deputy Head of Operations for JPMorgan Chase, and head of the JPMorgan Chase Global Service Centre in India. Paul started his career at JPMorgan in 1997, and first led the overhaul of the wholesale bank’s credit risk infrastructure, before taking on the role as Chief Financial Officer for the Investment Bank. Previous to JP Morgan, Paul spent 10 years as Principal at Ernst & Young in the Brisbane and New York offices. He has previously been a

 

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member of the Board of Directors of the Depository Trust and Clearing Corporation (DTCC) American Australian Association and the American Red Cross of Greater New York.

Bob Hoyt, Group General Counsel

Bob joined Barclays in October 2013 and is responsible for all legal and regulatory matters across Barclays as Group General Counsel. Previously, Bob was at PNC Financial Services Group, where he was General Counsel and Chief Regulatory Affairs Officer, having previously served as Deputy General Counsel since 2009. Between 2006 and 2009, Bob served as General Counsel of the US Department of the Treasury, where he was the Chief Legal Officer of the department and a senior policy advisor to Secretary Henry M. Paulson, Jr. Prior to that Bob served at the White House where he was Special Assistant and Associate Counsel to President George W. Bush. Earlier in his career, Bob was a partner in the Securities, Litigation and Corporate departments of the law firm of Wilmer Cutler Pickering Hale and Dorr (WilmerHale).

Tristram Roberts, Group Human Resources Director

Tristram is the Group Human Resources Director. Tristram joined Barclays in July 2013 as HR Director for the Investment Bank. His remit was expanded in May 2014 to include HR responsibilities for Barclays Non-Core, and became the Group HR Director in December 2015. Prior to Barclays, Tristram was Head of Human Resources for Global Functions and Operations & Technology at HSBC Holdings PLC, as well as group head of performance and reward. Previously, he was group reward and policy director for Vodafone Group Plc. Tristram began his career in consulting. He became a partner with Arthur Andersen in 2001 and was subsequently a partner with both Deloitte and KPMG.

Michael Roemer, Group Head of Compliance

Mike joined Barclays in January 2011 as the Head of Internal Audit. Mike joined Barclays from CIT Group where he was the chief auditor, reporting directly to the board audit committee and having global responsibility for CIT Group’s internal audit function. Mike has 27 years’ experience in internal audit, with 23 years of that time spent at JP Morgan. Mike currently serves on the advisory board of the Make-A-Wish Foundation of Metro New York where he is audit committee chair. He also serves on the board of Ronald McDonald House of New York, Inc. where he is also audit committee chair. In 2016, the LGBT Agenda (Lesbian, Gay, Bisexual and Transgender) announced Mike’s appointment as the new ExCo sponsor.

Amer Sajed, CEO, Barclaycard International

Amer Sajed was appointed Chief Executive Officer for Barclaycard, the global consumer payments business of the Barclays Banking Group, in May 2015. Barclaycard is a leading payments company with more than 15,000 employees, £40bn in net loans and advances and 28m customers and clients. In 2015, Barclaycard enabled payments globally with a value of more than £293bn and contributed 30% of Barclays’ PBT. Prior to his appointment as CEO for Barclaycard Amer served as Chief Executive Officer for Barclaycard US, the payments arm of Barclays in the United States. During his five years leading the US business it doubled in size to rank as one of the top ten credit card companies locally. Amer joined Barclaycard in August of 2006. Before assuming the US post, he was Chief Executive Officer for UK Cards. From 2010 to 2012, Amer also oversaw Barclays’ South African cards issuing and acquiring businesses. Before coming to Barclaycard, Amer worked at Citigroup for 20 years in various roles – most recently overseeing the travel and affluent segment. Previously, he served in senior finance roles. Amer served on the Board of Visa Europe from July 2015 to June 2016.

Tim Throsby, President, Barclays International and Chief Executive Officer, Corporate and Investment Bank

Tim Throsby is President of Barclays International and Chief Executive Officer of the Corporate and Investment Bank at Barclays. Based in London, he is a member of the Group Executive Committee. Prior to joining Barclays in January 2017, Tim worked for JP Morgan where he held a variety of senior management roles, most recently serving as Global Head of Equities. Tim has had an extensive career in banking and asset management, working initially for Credit Suisse and Macquarie, before joining Goldman Sachs in 1995 as a Managing Director and Co-Head of Equity Derivatives for Asia. In 2002, he joined Lehman Brothers to lead the Asia Equities Division, before relocating to New York in 2004 to run the global Equity Derivatives business as well as risk arbitrage. In

 

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2005, he became President of Citadel Asia where he oversaw the investment firm’s Asia business. He serves on the board of Human Dignity Trust, and is a school governor at the Ark Oval Primary Academy.

CS Venkatakrishnan, Chief Risk Officer

Venkat joined as Chief Risk Officer in March 2016. Venkat is responsible for helping to define, set and manage the risk profile of Barclays. He has over 20 years of financial market and risk management expertise. Venkat worked at JP Morgan from 1994, most recently as Head of Model Risk and Development and Operational Risk. Prior to this, he worked in fixed income structuring at the JP Morgan Investment Bank. This followed upon 14 years in JP Morgan Asset Management where he held senior positions in the Global Fixed Income business.

Ashok Vaswani, CEO, Barclays UK

Ashok joined Barclays in 2010, managing the credit card business across the UK, Europe and the Nordics, becoming chairman of Entercard. He went on to manage Barclays in Africa, Barclays Retail Business Bank globally and Barclays Personal and Corporate Banking. Ashok represents Barclays as a Non-Executive director on the Board of Barclays Africa Group Limited and is a member of the Board of Directors of Telenor ASA and a member of the Trustee Board at Citizens Advice. He also sits on the advisory boards of a number of institutions such as Rutberg & Co and is Founder Director of Lend-a-Hand, a non-profit organisation focused on rural education in India. Ashok has previously served on the advisory boards of SP Jain Institute of Management, Insead Singapore and Visa Asia Pacific. Prior to Barclays, Ashok was a partner with a J P Morgan Chase funded private equity firm - Brysam Global Partners, which focused on building retail financial service businesses in emerging markets. Ashok also spent 20 years with Citigroup where his last position was as CEO, Asia Pacific. He was also a member of the Citigroup Operating Committee, the Citigroup Management Committee and the Global Consumer Planning Group.

 

336  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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338  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Summary of Barclays Group share and cash plans and long-term incentive plans

Barclays operates a number of share, cash and long-term incentive plans. The principal plans used for awards made in or, in respect of, the 2016 performance year are shown in the table below. Awards are granted by the Board Remuneration Committee, and are subject to the applicable plan rules. Barclays has a number of employee benefit trusts which operate with these plans. In some cases the trustee purchases shares in the market to satisfy awards; in others, new issue or treasury shares may be used to satisfy awards where the appropriate shareholder approval has been obtained. Maria Ramos, Chief Executive of Barclays Africa Group Limited, also participates in share and cash plans and long-term incentive plans of Barclays Africa Group Limited.

 

Summary of principal share and cash plans and long-term incentive plans
Name of plan		Eligible employees		Executive Directors eligible		Delivery		Design details
Deferred Share Value Plan (DSVP)		All employees (excluding Directors)		No		Deferred share bonus typically released in annual instalments over a three, five or seven year period, dependent on future service and subject to malus provisions		–  Plan typically used for mandatory deferral of a proportion of bonus into Barclays shares where bonus is above a threshold (set annually by the Committee)   –  This plan typically works in tandem with the CVP   –  Deferred share bonus vests over three, five or seven years in equal annual instalments dependent on future service   –  Vesting is subject to malus, and suspension provisions and the other provisions of the rules of the plan   –  Dividend equivalents may be released based on the number of shares under award that are released   –  On cessation of employment, eligible leavers normally remain eligible for release (on the scheduled release dates) subject to the Committee and/or trustee discretion. For other leavers, awards will normally lapse   –  On change of control, awards may vest at the Committee’s and/or trustee’s discretion   –  For SVP awards made in respect of 2016 to Material Risk Takers (“MRTs”), a holding period of 6 months will apply to shares (after tax) on release

 

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Share Value Plan (SVP)		All employees (including executive Directors)		Yes		Deferred share bonus typically released in annual instalments over a three, five or seven year period, dependent on future service and subject to malus provisions		–  The SVP is in all material respects the same as the DSVP described above. The principle differences are that executive Directors may only participate in the SVP and under the DSVP, if a MRT whose award is deferred over five or seven years resigns after the third anniversary of grant, they will be treated as an eligible leaver in respect of any unvested tranches of that award.
Cash Value Plan (CVP)		All employees (excludingDirectors)		No		Deferred cash bonus paid in annual instalments over a three, five or seven year period, dependent on future service and subject to malus provisions		–  Plan typically used for mandatory deferral of a proportion of bonus where bonus is above a threshold (set annually by the Committee)   –  This plan typically works in tandem with the DSVP   –  Deferred cash bonus vests over three years in equal annual instalments dependent on future service   –  Vesting is subject to malus, suspension provisions and the other provisions of the rules of the plan   –  Participants may be awarded a service credit of 10% of the initial value of the award on the third anniversary of a grant   –  Change of control and leaver provisions are as for SVP
Barclays LTIP		Selected employees (including executive Directors)		Yes		Awards over Barclays shares or over other capital instruments, subject to risk-adjusted performance conditions and malus provisions		–  Awarded on a discretionary basis with participation reviewed by the Committee   –  Awards only vest if the risk-adjusted performance conditions are satisfied over a three year period   –  Vesting is subject to malus, suspension provisions and the other provisions of the rules of the plan   –  Any Barclays shares released under the Barclays LTIP award (after payment of tax) will be subject to an additional holder period of no less than the minimum regulatory requirements (currently 6 months).
								–  On cessation of employment, eligible leavers normally remain eligible for release (on the scheduled release dates) pro-rated for time and performance. For other leavers, awards will normally lapse   –  On change of control, awards may vest at the Committee’s discretion

 

340  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Sharesave		All employees in the UK and Ireland		Yes		Options over Barclays shares at a discount of 20%, with shares or cash value of savings delivered after three to five years		–  HMRC tax advantaged plan in the UK and approved by the Revenue Commissioners in Ireland   –  Opportunity to purchase Barclays shares at a discount price (currently a 20% discount) set on award date with savings made over three, five or seven year term   –  Maximum individual savings of £250 per month (€315 in Ireland)   –  On cessation of employment, eligible leavers may exercise options and acquire shares to the extent of their savings for six months   –  On change of control, participants may exercise options and acquire shares to the extent of their savings for six months   –
Sharepurchase		All employees in the UK		Yes		Barclays shares and dividend/matching shares held in trust for three to five years		–  HMRC tax advantaged plan   –  Participants may purchase up to £1,800 of Barclays shares each tax year   –  Barclays matches the first £600 of shares purchased by employees on a one for one basis for each tax year   –  Dividends received are awarded as additional shares
								–  Purchased shares may be withdrawn at any time (though if removed prior to three years from award, the corresponding matching shares are forfeited).   –  On cessation of employment, participants must withdraw shares   –  Depending on reason for and timing of leaving, matching shares may be forfeited   –  On change of control, participants are able to instruct the Sharepurchase trustee how to act or vote on their behalf
Global Sharepurchase		Employees in certain non-UK jurisdictions		Yes		Barclays shares and dividend/matching shares held in trust for three to five years		–  Global Sharepurchase is an extension of the Sharepurchase plan offered in the UK   –  Operates in substantially the same way as Sharepurchase (see above)

 

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Barclays’ approach to managing risks

Contents

        

 

 

 

342  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Risk management strategy, governance and risk culture

        

 

 

 

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Risk management strategy, governance and risk culture

        

 

 

 

 

 

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Risk management strategy, governance and risk culture

 

 

 

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Barclays’ approach to managing risks

Risk management strategy, governance and risk culture

    

 

 

 

 

 

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Risk management strategy, governance and risk culture

    

 

 

Summary of methodologies for Group-wide stress testing by risk type
Principal Risk		Stress testing approach
Credit risk		§  Credit risk impairment: For retail portfolios businesses use regression models to establish a relationship between arrears movements and key macroeconomic parameters such as interest rates, inflation and unemployment, incorporating roll-rate analysis to estimate stressed levels of arrears by portfolio. In addition, house price reductions (for mortgages) and increased customer drawdowns (for revolving facilities) lead to higher LGDs which also contribute to increased impairment levels. For wholesale portfolios the stress shocks on credit risk drivers (PDs, LGDs and EADs) are primarily calibrated using historical and expected relationships with key macro-economic parameters such as GDP, inflation and interest rates.   §   Counterparty credit risk losses: The scenarios include market risk shocks that are applied to determine the market value under stress of contracts that give rise to Counterparty Credit Risk (CCR). Counterparty losses, including from changes to the Credit Valuation Adjustment and from defaults, are modelled based on the impact of these shocks as well as using stressed credit risk drivers (PDs and LGDs). The same approach is used to stress the market value of assets held as available for sale or at fair value in the banking book.   §   Credit risk weighted assets: The impact of the scenarios is calculated via a combination of business volumes and using similar factors to impairment drivers above, as well as the regulatory calculation and the level of pro-cyclicality of underlying regulatory credit risk models.
Market risk		§  Trading book losses: All market risk factors on the balance sheet are stressed using specific market risk shocks (and are used for the CCR analysis, above). The severity of the shocks applied are dependent on the liquidity of the market under stress, e.g. illiquid positions are assumed to have a longer holding period than positions in liquid markets.
Treasury and Capital Risk		Interest Rate Risk in the Banking Book & Liquidity Risk: §  The risk of a mismatch between assets and liabilities, leading to funding difficulties, is assessed. Businesses apply scenario variables to forecasts of customer loans and advances and deposits levels, taking into account management actions to mitigate the impact of the stress which may impact business volumes. The Group funding requirement under stress is then estimated and takes into account lower availability of funds in the market.   §  The analysis of funding risk also contributes to the estimate of stressed income and costs:
		–		Stress impact on non-interest income is primarily driven by lower projected business volumes and hence lower income from fees and commissions
		–		Impact on net interest income is driven by stressed margins, which depend on the level of interest rates under stress as well as funding costs, and on stressed balance sheet volumes. This can be partly mitigated by management actions that may include repricing of variable rate products, taking into account interbank lending rates under stress
		–		The impact on costs is mainly driven by business volumes and management actions to partly offset profit reductions (due to impairment increases and decreases in income) such as headcount reductions and lower performance costs.
		Capital Risk: §  Capital risk is assessed by taking all key risks (as listed above) into consideration when assessing Barclays’ ability to withstand a severe stress. The stressed results are considered against internally agreed risk appetite levels but also regulatory minima and perceived market expectations. The MTP can only be agreed by the Board if this is within the agreed risk appetite levels under stress.   §  The funding position of pension funds is also stressed as part of the capital risk assessment, taking into account key economic drivers impacting future obligations (e.g. long-term inflation and interest rates) and the impact of the scenarios on the value of fund assets.
Operational risk, and Conduct risk		§  Operational risk is generally not impacted as there is no direct link to the stress economic scenario. However, it is included as part of the reverse stress testing framework that incorporates assessment of idiosyncratic operational risk events.

 

 

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Risk management strategy, governance and risk culture

    

 

 

 

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Management of credit risk and the internal ratings-based approach

    

 

 

 

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

Board oversight and flow of risk related information

 

 

 

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Management of credit risk and the internal ratings-based approach

 

 

 

Loan loss rate (bps) – Longer-term trends

 

Note

a	Restated to reflect the impact of IFRS10, which results in some former Exit Quadrant exposures being recorded at fair value from 2012 onwards

b	2015 and 2016 figures exclude Africa

 

 

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Note

1	Includes certain Business Banking facilities which are recorded as Retail for

management purposes.

 

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Management of credit risk and the internal ratings-based approach

    

 

 

 

356  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

358  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

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Management of credit risk and the internal ratings-based approach

    

 

 

 

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Management of credit risk and the internal ratings-based approach

    

 

 

 

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

Table 84 IRB credit risk models’ selected features

Size of associated portfolio

Applicable

Component

(RWAs)

Number of

Basel asset

industry-wide

modelled

Portfolio

BUK (£m)

BI (£m)

Model description and methodology

years loss data

classes measured

regulatory thresholds

PD

Publicly traded corporate

121

28,104

Statistical model using a Merton-based methodology. It takes quantitative factors as inputs.

> 10 Years

Corporate

PD floor of 0.03%

PD

Customers rated by Moody’s and S&P

11

27,009

Rating Agency Equivalent model converts agency ratings into estimated equivalent PIT default rates using credit cycles based on Moody’s data.

> 10 Years

Corporate, Financial Institutions and Sovereigns

PD floor of 0.03% for corporate and institutions

PD

Corporate and SME customers with turnover < £20m

4,977

4,548

Statistical models that uses regression techniques to derive relationship between observed default experience and a set of behavioral variables.

6 - 10 Years

Corporate, Corporate SME,

PD floor of 0.03%

PD

Corporate customers with turnover >= £20m

221

10,618

Statistically derived models sourced from an external vendor (Moody’s RiskCalc)

6 - 10 Years

Corporate

PD floor of 0.03%

PD

Home Finance

16,043

–

Statistical scorecards estimated using regression techniques, segmented along arrears status and portfolio type.

6 - 10 Years

Secured By Real Estate (residential and buy-to-let mortgages)

PD floor of 0.03%

PD

Barclaycard UK

15,110

–

Statistical scorecards estimated using regression techniques, segmented along arrears status and portfolio type.

6 - 10 Years

Qualifying Revolving Retail (QRRE)

PD floor of 0.03%

 

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Management of credit risk and the internal ratings-based approach

 

 

 

Table ## IRB credit risk models’ selected features continued

Size of associated portfolio

Applicable industry-wide regulatory thresholds

Component modelled

(RWAs)

Number of years loss data

Basel asset classes measured

Portfolio

BUK (£m)

BI (£m)

Model description and methodology

LGD

Corporate and Financial Institutions

–

53,992

Model based on a statistical regression that outputs a long run average LGD by estimating the expected value of recovery. Inputs include industry, seniority, instrument, collateral and country.

> 10 Years

Corporate, Financial Institutions

LGD floor of 45% based on low default portfolio criteria

LGD

All business customers (excluding certain specialised sectors)

4,938

29,292

Model is based on a function estimated using actual recoveries experience. It takes account of collateral value and an allowance for non collateral recovery.

> 10 Years

Corporate,

LGD floor of 5%

LGD

UK Home Finance

16,043

–

Data driven estimates of loss and probability of possession

6 - 10 Years

Secured By Real Estate (residential and buy-to-let mortgages)

The portfolio average downturn LGD is floored at 10%

LGD

Barclaycard UK

15,110

–

Statistical models combining segmented regression and other forecasting techniques

6 - 10 Years

Qualifying Revolving Retail (QRRE)

–

 

 

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Management of credit risk and the internal ratings-based approach

 

 

Table 85: Analysis of expected performance versus actual results

This table provides an overview of credit risk model performance, assessed by the analysis of average PDs and average LGDs.

The table compares the raw model output to the actual experience in our portfolios. Such analysis is used to assess and enhance the adequacy and accuracy of models. The raw outputs are subject to a number of adjustments before they are used in the calculation of capital, for example to allow for the position in the credit cycle and the impact of stress on recovery rates.

 

Asset Class
								Weighted Average PD				Arithmetic Average PD by obligors				Number of obligors				Defaulted obligors in the year				of which: new defaulted in the year				Average historical annual default %
				External Ratings Equivalent												As at Nov’15		As at Nov’16
Wholesale		EBA PD Range (%)		Moody’s		S&P		%				%												£m
Central		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.02%				0.03%			132		97			–				–				0.00%
governments				A1, A2, A3, Baa1		A+, A, A-, BBB+
or central		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.18%				0.22%			6		7			–				–				0.00%
banks		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.36%				0.37%			7		8			–				–				0.00%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.00%				0.65%			3		1			–				–				0.00%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			0.86%				1.39%			11		10			–				–				0.00%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			0.00%				6.58%			6		7			–				–				0.00%
		10.00 to <100.00		Caa1, Caa2, Caa3, Ca, C		CCC+, CCC, CCC-, CC, C			0.00%				23.24%			4		4			–				–				0.00%
		100.00 (default)		D		D			100.00%				100.00%			–		–			–				–				0.00%
Institutions		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.03%				0.03%			7,098		8,661			–				–				0.00%
				A1, A2, A3, Baa1		A+, A, A-, BBB+
		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.20%				0.19%			731		880			–				–				0.00%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.37%				0.39%			320		386			–				–				0.00%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.61%				0.65%			123		111			–				–				0.00%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.53%				1.34%			264		222			–				–				0.00%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			6.42%				5.26%			191		141			–				–				0.00%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			17.64%				25.21%			98		72			2				–				0.46%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			47		15			–				–				0.00%
Corporate		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.04%				0.05%			1525		1383			–				–				0.00%
				A1, A2, A3, Baa1		A+, A, A-, BBB+
		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.20%				0.20%			300		364			–				–				0.03%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.36%				0.38%			713		636			4				–				0.25%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.61%				0.62%			398		297			2				–				0.13%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.25%				1.32%			1,109		841			4				–				0.35%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			4.57%				4.78%			845		1,263			29				–				1.85%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			23.94%				21.88%			323		247			18				–				3.99%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			311		276			–				–				0.00%
Corporate		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.07%				0.08%			964		748			–				–				0.06%
SME				A1, A2, A3, Baa1		A+, A, A-, BBB+
		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.19%				0.19%			1,310		1,508			–				–				0.20%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.36%				0.36%			2,826		2,904			4				–				0.13%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.64%				0.64%			2,056		2,194			2				1				0.22%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.28%				1.35%			4,146		4,405			19				1				0.51%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			5.24%				4.96%			3,698		4,719			72				5				3.60%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			23.28%				23.01%			732		528			48				1				10.18%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			214		134			–				–				0.00%
Specialist		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.07%				0.07%			30		29			–				–				0.00%
Lending				A1, A2, A3, Baa1		A+, A, A-, BBB+
		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.19%				0.19%			107		35			–				–				0.00%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.37%				0.37%			180		145			–				–				0.00%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.61%				0.64%			137		169			–				–				0.76%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.18%				1.29%			142		218			–				–				0.00%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			5.02%				5.09%			152		135			1				–				2.43%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			28.12%				25.71%			14		12			1				–				13.96%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			69		60			–				–				0.00%

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  365

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

 

 

Table 85: Analysis of expected performance versus actual results continued
Asset Class
												Arithmetic Average PD by obligors
																								of which: new				Average historical
								Weighted								Number of obligors				Defaulted
								Average								As at		As at		obligors				defaulted				annual
				External Ratings Equivalent				PD								Nov’15		Nov’16		in the year				in the year				default
Retail		EBA PD Range (%)		Moody’s		S&P		%				%				£m		£m		£m				£m				%
SMEa		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.04%				0.06%			33,578		34,933			21				1				0.04%
				A1, A2, A3, Baa1		A+, A, A-, BBB+
		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.20%				0.20%			23,989		25,288			28				1				0.07%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.37%				0.37%			54,759		57,747			69				4				0.07%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.64%				0.64%			43,467		61,414			99				6				0.13%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.48%				1.54%			210,081		172,631			448				83				0.19%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			4.68%				5.54%			305,063		313,511			1,374				288				0.43%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			20.67%				23.61%			303,665		339,375			7,206				1,136				3.46%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			5,606		5,097			–				–				0.00%
Secured		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.09%				0.09%			700,161		745,590			510				–				0.08%
by Real				A1, A2, A3, Baa1		A+, A, A-, BBB+
Estate		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.19%				0.19%			191,114		137,113			314				–				0.15%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.33%				0.33%			105,224		60,859			365				–				0.29%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.63%				0.62%			17,538		12,575			145				–				0.69%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.23%				1.25%			21,316		18,452			450				–				2.03%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			5.12%				5.05%			6,085		5,467			465				–				7.06%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			38.18%				37.73%			6,102		5,270			2,024				–				49.52%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			11,983		11,694			–				–				–
Qualifying		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.07%				0.05%			10,391,483		10,551,296			3,453				893				0.04%
Revolving				A1, A2, A3, Baa1		A+, A, A-, BBB+
Retail		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.20%				0.20%			1,927,465		1,814,853			3,015				682				0.18%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.36%				0.36%			2,244,780		2,166,187			6,625				1,038				0.34%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.62%				0.61%			1,158,422		1,140,628			6,018				564				0.60%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.44%				1.38%			2,652,087		2,703,357			31,720				1,293				1.29%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			4.88%				4.81%			1,499,071		1,591,182			71,475				1,470				4.70%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			25.47%				28.16%			433,988		494,297			129,694				96				28.13%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			591,116		476,487			–				–				0.00%
Other		0.00 to <0.15		Aaa, Aa1, Aa2, Aa3,		AAA, AA+, AA, AA-,			0.13%				0.12%			351		60			2				–				0.58%
Retail				A1, A2, A3, Baa1		A+, A, A-, BBB+
		0.15 to <0.25		Baa1, Baa2		BBB+, BBB			0.21%				0.21%			2,259		1,958			5				–				0.56%
		0.25 to <0.50		Baa3, Ba1		BBB-, BB+			0.41%				0.40%			19,001		46,054			66				–				0.58%
		0.50 to <0.75		Ba1, Ba2		BB+, BB			0.64%				0.64%			38,663		87,272			155				–				0.64%
		0.75 to <2.50		Ba2, Ba3, B1, B2		BB, BB-, B+, B			1.58%				1.54%			326,841		335,910			2,784				–				1.30%
		2.50 to <10.00		B1, B2, B3		B+, B, B-			3.99%				3.98%			161,800		124,689			6,406				–				4.47%
		10.00 to <100.00		Caa1, Caa2, Caa3,		CCC+, CCC, CCC-,			45.12%				41.24%			18,055		25,917			8,251				–				35.54%
				Ca, C		CC, C
		100.00 (default)		D		D			100.00%				100.00%			59,108		43,731			–				–				0.00%

 

 

Asset Class
			Number of
			resolved cases over
			last one year				Predicted LGD				Actual LGD
			(Dec’15 to Nov’16)				(Simple Average)				(Simple Average)
							%				%
Wholesale
Investment Bank			19				30%				11%
Corporate Bank			89				42%				22%
Retail
SME			2,116				82%				67%
Secured by Real Estate			4,168				4%				4%
Qualifying Revolving Retail			357,342				74%				72%
Other retail			36,968				79%				77%

Note

a Refer to the notes below for an explanation of data limitations relating to the Retail SME figures presented in this table

 

366  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of credit risk and the internal ratings-based approach

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  367

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Barclays’ approach to managing risks

Management of credit risk mitigation techniques and counterparty credit risk

    

 

 

 

368  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of credit risk mitigation techniques and counterparty credit risk

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  369

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Barclays’ approach to managing risks

Management of credit risk mitigation techniques and counterparty credit risk

    

 

 

 

370  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of credit risk mitigation techniques and counterparty credit risk

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  371

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Barclays’ approach to managing risks

Management of market risk

 

 

 

372  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of market risk

 

 

 

Organisation and structure

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  373

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Barclays’ approach to managing risks

Management of market risk

 

 

 

374  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of market risk

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  375

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Barclays’ approach to managing risks

Management of market risk

 

 

 

376  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of market risk

    

 

 

 

Table 86: Market risk models selected features

Component modelled		Number of significant models and size of associated portfolio (RWAs)		Model description and methodology		Applicable regulatory thresholds
Regulatory VaR		1 model; £3.5bn		Equally-weighted historical simulation of potential daily P&L arising from market moves		Regulatory VaR is computed with ten-day holding period and 99% confidence level
SVaR		1 model; £6.6bn		Same methodology as used for VaR model, but using a different time series		Regulatory SVaR is computed with ten-day holding period and 99% confidence level
IRC		1 model; £2.1bn		Monte Carlo simulation of P&L arising from ratings migrations and defaults		IRC is computed with one-year holding period and 99.9% confidence level
Comprehensive Risk Measure		1 model; £0.4bn		Same approach as IRC, but it incorporates market-driven movements in spreads and correlations for application to correlation trading portfolios.		Comprehensive Risk Measure is computed with one-year holding period and 99.9% confidence level. As required in CRD IV, the Comprehensive Risk Measure charge is subject to a floor set with reference to standard rules charge

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  377

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Barclays’ approach to managing risks

Management of market risk

    

 

 

 

 

 

378  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of market risk

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  379

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Barclays’ approach to managing risks

Management of securitisation exposures

    

 

 

 

380  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of securitisation exposures

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  381

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Barclays’ approach to managing risks

Management of securitisation exposures

 

 

 

382  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of securitisation exposures

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  383

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

            

 

 

    

 

 

384  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

 

 

 

Organisation and structure

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  385

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

 

 

 

 

386  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

    

 

 

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  387

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Barclays’ approach to managing risks
Management of Treasury and Capital Risk

 

 

388  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

    

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  389

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

        

 

 

 

390  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of Treasury and Capital Risk

                

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  391

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Barclays’ approach to managing risks

Management of operational risk

        

 

 

 

392  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of operational risk

        

 

 

 

Organisation and structure

Organisation and structure

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  393

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Barclays’ approach to managing risks

Management of operational risk

        

 

 

 

394  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of operational risk

        

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  395

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Barclays’ approach to managing risks

Management of model risk

        

 

 

 

396  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of model risk

        

 

 

 

Organisation and structure

 

Roles and responsibilities

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  397

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Barclays’ approach to managing risks

Management of conduct risk

        

 

 

 

398  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of conduct risk

    

 

 

 

Organisation and structure

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  399

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Barclays’ approach to managing risks

Management of reputation risk

    

 

 

 

400  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of reputation risk

    

 

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  401

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Barclays’ approach to managing risks

Management of legal risk

    

 

 

 

402  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays’ approach to managing risks

Management of legal risk

    

 

 

 

 

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  403

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Deposits and short-term borrowings

Deposits

Deposits include deposits from banks and customer accounts.

 

Average for the year ended 31 Decembera			2016 £m				2015 £m				2014 £m
Deposits from banks
UK			5,552				7,402				6,002
Europe			38,180				40,389				41,101
Americas			6,633				7,439				6,191
Asia			6,611				6,744				6,524
Africa			2,705				3,710				3,735
Total deposits from banks			59,681				65,684				63,553
Customer Accounts
UK			301,730				283,482				274,468
Europe			41,718				44,474				55,121
Americas			76,909				70,924				65,433
Asia			7,914				10,279				13,444
Africa			12,258				39,159				43,101
Customer Accounts			440,529				448,318				451,567

Deposits from banks in offices in the United Kingdom received from non-residents amounted to £36,976m (2015: £31,976m). The balances below are on a spot basis as at 31 December 2016, rather than the average basis per the tables included above.

 

Year ended 31 December			2016 £m				2015 £m				2014 £m
Customer Accounts			423,178				418,242				427,704
In offices in the United Kingdom:
Current and Demand Accounts
- interest free			85,296				73,987				68,647
Current and Demand Accounts
- interest bearing			37,200				33,467				34,047
Savings accounts			123,833				119,838				114,828
Other time deposits- retail			14,526				13,903				12,100
Other time deposits- wholesale			84,805				70,399				72,150
Total repayable in offices in the United Kingdom			345,660				311,594				301,772
In offices outside the United Kingdom:
Current and Demand Accounts
- interest free			9,722				12,777				17,236
Current and Demand Accounts
- interest bearing			5,986				26,891				23,127
Savings accounts			9,511				15,729				16,335
Other time deposits			52,299				51,251				69,234
Total repayable in offices outside the United Kingdom			77,518				106,648				125,932

Customer accounts deposits in offices in the United Kingdom received from non-residents amounted to £51,161m (2015: £41,924m^b).

Note

a	Calculated based on month-end balances. The average balance differs to the average balance sheets as the latter excludes non-interest bearing settlement balances.

b	Amounts for 2015 have been revised by £5,205m to better reflect amounts due from non-residents.

 

404  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Short-term borrowings   Short-term borrowings include deposits from banks, commercial paper, negotiable certificates of deposit and repurchase agreements.   Deposits from banks   Deposits from banks are taken from a wide range of counterparties and generally have maturities of less than one year.
			2016 £m				2015 £m				2014 £m
Year-end balance			48,214				47,080				58,390
Average balancea, b			59,681				65,684				63,553
Maximum balancea			66,404				84,270				72,810
Average interest rate during year			0.4%				0.3%				0.3%
Year-end interest rate			0.4%				0.2%				0.4%

Notes

a	Calculated based on month-end balances.

b	The average balance differs to the average balance sheet as the latter excludes non-interest bearing settlement balances.

 

Commercial paper

Commercial paper is issued by the Group, mainly in the United States, generally in denominations of not less than $100,000, with maturities of up to 270 days.

 

			2016 £m				2015 £m				2014 £m
Year-end balance			8,132				6,689				7,125
Average balancea			7,711				9,192				11,797
Maximum balancea			8,471				13,407				16,891
Average interest rate during year			0.8%				0.3%				0.3%
Year-end interest rate			1.0%				0.3%				0.2%

Note

a	Calculated based on month-end balances.

Negotiable certificates of deposit

Negotiable certificates of deposits are issued mainly in the United Kingdom and United States, generally in denominations of not less than $100,000.

 

			2016 £m				2015 £m				2014 £m
Year-end balance			20,373				14,312				23,928
Average balancea			15,540				22,298				23,947
Maximum balancea			20,373				29,216				29,100
Average interest rate during year			0.4%				1.0%				0.9%
Year-end interest rate			0.5%				1.0%				0.9%

Note

a	Calculated based on month-end balances.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  405

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Repurchase Agreements

Repurchase agreements are entered into with both customers and banks and generally have maturities of not more than three months.

 

			2016				2015				2014
			£m				£m				£m
Year-end balanced			19,760				25,035				124,479
Average balancea, b, c, d			24,966				114,933				191,181
Maximum balancea, d			28,057				167,343				218,523
Average interest rate during year			0.8%				0.3%				0.2%
Year-end interest rate			0.7%				0.3%				0.2%

Notes

a	Calculated based on month-end balances.

b	The average balance differs to the average balance sheet as the latter excludes non-interest bearing settlement balances.

c	The average balance differs to the average balance sheet as the latter is stated on a gross basis prior to any offsetting of liabilities against assets.

d	During 2015, reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment to better align to the way the business manages the portfolio’s risk and performance.

Commitments and contractual obligations

Commercial commitments include guarantees, contingent liabilities and standby facilities.

 

Commercial commitments			Amount of commitment expiration per period
			Less than   one year				Between   one to three   years				Between   three to five   years				After five   years				Total   amounts   committed
			£m				£m				£m				£m				£m
As at 31 December 2016
Guarantees and letters of credit pledged as collateral security			14,498				403				25				377				15,304
Performance guarantees, acceptances and endorsements			4,400				140				64				32				4,636
Documentary credits and other short-term trade related transactions			1,005				-				-				-				1,005
Forward starting reverse repurchase agreements			24				-				-				-				24
Standby facilities, credit lines and other commitments			302,335				102				150				70				302,657
As at 31 December 2015
Guarantees and letters of credit pledged as collateral security			15,227				499				47				292				16,065
Performance guarantees, acceptances and endorsements			4,350				83				114				10				4,557
Documentary credits and other short-term trade related transactions			718				119				8				-				845
Forward starting reverse repurchase agreements			93				-				-				-				93
Standby facilities, credit lines and other commitments			278,923				1,426				906				114				281,369

Note

Commercial commitments for 2016 exclude BAGL balances now held for sale but are included for 2015

 

406  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Contractual obligations include debt securities, operating lease and purchase obligations.

 

Contractual obligations			Payments due by period
			Less than   one year				Between   one to   three years				Between   three to   five years				After five   years				Total
			£m				£m				£m				£m				£m
As at 31 December 2016
Long-term debta			46,528				20,005				19,829				31,044				117,406
Operating lease obligations			364				547				450				1,520				2,881
Purchase obligations			342				206				122				127				797
Total			47,234				20,758				20,401				32,691				121,084
As at 31 December 2015
Long-term debta			30,525				23,101				17,773				31,978				103,377
Operating lease obligations			377				603				535				1,874				3,389
Purchase obligations			485				434				262				276				1,457
Total			31,387				24,138				18,570				34,128				108,223

Notes

 

a	Long-term debt has been prepared to reflect cash flows on an undiscounted basis, which includes interest payments.

Net cash flows from derivatives used to hedge long-term debt amount to £3.5bn (2015: £5.5bn).

Further information on the contractual maturity of the Group’s assets and liabilities is given in the Funding section of the Risk Review.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  407

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Securities

 

Securities at fair value			2016				2015				2014
As at 31 December			£m				£m				£m
Investment securities – Financial Investments
United Kingdom government			15,351				17,947				18,849
Other government			28,750				49,427				41,700
Other public bodies and US Agencies			1,635				5,462				6,034
Mortgage and asset backed securities			804				1,082				1,230
Bank and building society certificates of deposit			–				–				38
Corporate and other issuers			16,339				15,360				17,688
Debt securities			62,879				89,278				85,539
Equity securities			438				989				527
Investment securities – Financial Investments			63,317				90,267				86,066
Other securities – held for trading
United Kingdom government			4,793				4,020				7,450
Other government			15,134				19,503				29,720
Other public bodies and US Agencies			5,396				8,683				9,879
Mortgage and asset backed securities			1,568				2,927				7,165
Bank and building society certificates of deposit			23				559				240
Corporate and other issuers			11,875				9,884				11,544
Debt securities			38,789				45,576				65,998
Equity securities			38,329				29,055				44,576
Other securities – held for trading			77,118				74,631				110,574

Investment debt securities include government securities held as part of the Group’s treasury management portfolio for asset and liability, liquidity and regulatory purposes and are for use on a continuing basis in the activities of the Group. In addition, the Group holds as investments listed and unlisted corporate securities.

 

Maturities and yield of Financial Investments
As at 31 December 2016			Maturing with one   year								Maturing one but   within five years								Maturing after five   but within ten   years								Maturing after ten   years								Total
			Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield
			£m				%				£m				%				£m				%				£m				%				£m				%
Government			3,014				1.4%				22,635				1.4%				10,153				1.3%				8,300				2.8%				44,102				1.6%
Other public bodies and US Agencies			157				1.3%				1,469				0.9%				-				0.0%				-				0.0%				1,626				0.9%
Other issuers			4,249				1.0%				10,024				2.0%				2,585				2.0%				293				2.0%				17,151				1.7%
Total book value			7,420				1.2%				34,128				1.5%				12,738				1.5%				8,593				2.7%				62,879				1.6%

The yield for each range of maturities is calculated by dividing the annualised interest income prevailing at 31 December 2016 by the fair value of securities held at that date.

 

408  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Average balance sheet

Average balances are based upon monthly averages.

 

Assets							2016
							Average   balance				Interest   presented   within net   interest   income				Interest   presented   elsewhere				Total interest				Rate
							£m				£m				£m				£m				%
Loans and advances to banks			UK				55,902				588				3				591				1.1
Loans and advances to banks			Non-UK				65,549				197				-				197				0.3
Loans and advances to banksa			Total				121,451				785				3				788				0.6
Loans and advances to customers			UK				290,751				9,665				136				9,801				3.4
Loans and advances to customers			Non-UK				92,044				3,293				89				3,382				3.7
Loans and advances to customersa			Total				382,795				12,958				225				13,183				3.4
Financial investments			UK				71,697				520				43				563				0.8
Financial investments			Non-UK				7,661				220				-				220				2.9
Financial investments			Total				79,358				740				43				783				1.0
Reverse repurchase agreements			UK				5,949				(7)				71				64				1.1
Reverse repurchase agreements			Non-UK				14,752				34				287				321				2.2
Reverse repurchase agreementsb			Total				20,701				27				358				385				1.9
Other interest incomec											31				-				31				-
Total interest earning assets not at fair value through P&L							604,305				14,541				629				15,170				2.5
Less interest expense											(4,004)				(214)				(4,218)				-
Net interest							604,305				10,537				415				10,952				1.8
Interest earning assets at fair value through P&L			UK				65,449
Interest earning assets at fair value through P&L			Non-UK				78,470
Interest earning assets at fair value through P&L			Total				143,919
Total interest earning assets							748,224
Impairments							(4,669)
Non-interest earning assets							550,299
Total							1,293,854
Percentage of total average interest earning assets in offices outside the UK							35%

Notes

 

a

Loans and advances to banks and customers include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group.

 

b

Average balances for reverse repurchase agreements and cash collateral on securities borrowed have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. Reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment to better align to the way the business manages the portfolio’s risk and performance.

 

c	Other interest income principally includes interest income relating to hedging activity.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  409

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Assets							2015
							Average   balance				Interest   presented   within net   interest   income				Interest   presented   elsewhere				Total interest				Rate
							£m				£m				£m				£m				%
Loans and advances to banks			UK				51,597				513				1				514				1.0
Loans and advances to banks			Non-UK				48,521				131				60				191				0.4
Loans and advances to banksa			Total				100,118				644				61				705				0.7
Loans and advances to customers			UK				283,191				9,686				84				9,770				3.4
Loans and advances to customers			Non-UK				120,252				2,825				3,420				6,245				5.2
Loans and advances to customersa			Total				403,443				12,511				3,504				16,015				4.0
Financial investments			UK				84,291				494				-				494				0.6
Financial investments			Non-UK				9,436				204				144				348				3.7
Financial investments			Total				93,727				698				144				842				0.9
Reverse repurchase agreements			UK				86,322				18				187				205				0.2
Reverse repurchase agreements			Non-UK				96,187				(239)				479				240				0.2
Reverse repurchase agreementsb			Total				182,509				(221)				666				445				0.2
Other interest incomec							-				321				-				321				-
Total interest earning assets not at fair value through P&L							779,797				13,953				4,375				18,328				2.4
Less interest expense							-				(3,345)				(2,371)				(5,716)				-
Net interest							779,797				10,608				2,004				12,612				1.6
Interest earning assets at fair value through P&L			UK				48,360
Interest earning assets at fair value through P&L			Non-UK				81,031
Interest earning assets at fair value through P&L			Total				129,391
Total interest earning assets							909,188
Impairments							(5,273)
Non-interest earning assets							526,448
Total							1,430,363
Percentage of total average interest earning assets in offices outside the UK							39%

Notes

 

a

Loans and advances to banks and customers include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group.

 

b

Average balances for reverse repurchase agreements and cash collateral on securities borrowed have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously.

 

c	Other interest income principally includes interest income relating to hedging activity.

 

d.	Net Interest Income from discontinued operations is included within Interest presented elsewhere.

 

410  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Assets							2014
							Average   balance				Interest   presented   within net   interest   income				Interest   presented   elsewhere				Total interest				Rate
							£m				£m				£m				£m				%
Loans and advances to banks			UK				48,162				380				-				380				0.8
Loans and advances to banks			Non-UK				47,375				185				77				262				0.6
Loans and advances to banksa			Total				95,537				565				77				642				0.7
Loans and advances to customers			UK				272,463				10,021				74				10,095				3.7
Loans and advances to customers			Non-UK				137,122				2,744				3,338				6,082				4.4
Loans and advances to customersa			Total				409,585				12,765				3,412				16,177				3.9
Financial investments			UK				74,868				686				-				686				0.9
Financial investments			Non-UK				11,130				117				175				292				2.6
Financial investments			Total				85,998				803				175				978				1.1
Reverse repurchase agreements			UK				155,170				31				589				620				0.4
Reverse repurchase agreements			Non-UK				127,670				(316)				658				342				0.3
Reverse repurchase agreementsb			Total				282,840				(285)				1,247				962				0.3
Other interest incomec							-				346				-				346				-
Total interest earning assets not at fair value through P&L							873,960				14,194				4,911				19,105				2.2
Less interest expense							-				(4,108)				(2,763)				(6,871)				-
Net interest							873,960				10,086				2,148				12,234				1.4
Interest earning assets at fair value through P&L			UK				57,070
Interest earning assets at fair value through P&L			Non-UK				56,477
Interest earning assets at fair value through P&L			Total				113,547
Total interest earning assets							987,507
Impairments							(6,770)
Non-interest earning assets							515,020
Total							1,495,757
Percentage of total average interest earning assets in offices outside the UK							38%

Notes

 

a

Loans and advances to banks and customers include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group.

 

b

Average balances for reverse repurchase agreements and cash collateral on securities borrowed have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously.

 

c	Other interest income principally includes interest income relating to hedging activity.

 

d.	Net Interest Income from discontinued operations is included within Interest presented elsewhere.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  411

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Liabilities							2016
							Average   balance				Interest   presented   within net   interest   income				Interest   presented   elsewhere				Total interest				Rate
							£m				£m				£m				£m				%
Deposits by banks			UK				44,890				145				2				147				0.3
Deposits by banks			Non-UK				9,469				120				-				120				1.3
Deposits by banks			Total				54,359				265				2				267				0.5
Customer accounts			UK				251,738				400				(84)				316				0.1
Customer accounts			Non-UK				62,127				1,113				74				1,187				1.9
Customer accounts			Total				313,865				1,513				(10)				1,503				0.5
Debt securities in issue			UK				39,956				757				-				757				1.9
Debt securities in issue			Non-UK				25,712				232				-				232				0.9
Debt securities in issue			Total				65,668				989				-				989				1.5
Subordinated liabilities			UK				22,437				1,104				-				1,104				4.9
Subordinated liabilities			Non-UK				228				-				-				-				-
Subordinated liabilities			Total				22,665				1,104				-				1,104				4.9
Repurchase agreements			UK				13,736				116				110				226				1.6
Repurchase agreements			Non-UK				11,424				47				112				159				1.4
Repurchase agreementsa			Total				25,160				163				222				385				1.5
Other interest expenseb											(30)				-				(30)				-
Total interest bearing liabilities not at fair value through P&L							481,717				4,004				214				4,218				0.9
Interest bearing liabilities at fair value through P&L			UK				78,036
Interest bearing liabilities at fair value through P&L			Non-UK				69,976
Interest bearing liabilities at fair value through P&L			Total				148,012
Total interest bearing liabilities							629,729
Interest free customer deposits			UK				78,788
Interest free customer deposits			Non-UK				10,074
Interest free customer deposits			Total				88,862
Other non-interest bearing liabilities							510,767
Shareholders’ equity							64,496
Total							1,293,854
Percentage of total average interest bearing liabilities in offices outside the UK							28%

Notes

 

a

Average balances for repurchase agreements and cash collateral on securities lent have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously. Reverse repurchase and repurchase agreements including other similar lending and borrowing in certain businesses have been designated at fair value following a change in accounting treatment to better align to the way the business manages the portfolio’s risk and performance.

 

b	Other interest expense principally includes interest expense relating to hedging activity.

 

c.	Net Interest Income from discontinued operations is included within Interest presented elsewhere.

 

412  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Liabilities							2015
							Average   balance				Interest   presented   within net   interest   income				Interest   presented   elsewhere				Total interest				Rate
							£m				£m				£m				£m				%
Deposits by banks			UK				46,577				72				8				80				0.2
Deposits by banks			Non-UK				12,716				59				49				108				0.8
Deposits by banks			Total				59,293				131				57				188				0.3
Customer accounts			UK				237,723				2,185				28				2,213				0.9
Customer accounts			Non-UK				84,304				(781)				1,401				620				0.7
Customer accounts			Total				322,027				1,404				1,429				2,833				0.9
Debt securities in issue			UK				45,625				346				58				404				0.9
Debt securities in issue			Non-UK				35,507				205				431				636				1.8
Debt securities in issue			Total				81,132				551				489				1,040				1.3
Subordinated liabilities			UK				20,015				1,007				-				1,007				5.0
Subordinated liabilities			Non-UK				818				8				72				80				9.8
Subordinated liabilities			Total				20,833				1,015				72				1,087				5.2
Repurchase agreements			UK				94,660				-				232				232				0.2
Repurchase agreements			Non-UK				93,438				52				231				283				0.3
Repurchase agreementsa			Total				188,098				52				463				515				0.3
Other interest expenseb							-				192				(139)				53				-
Total interest bearing liabilities not at fair value through P&L							671,383				3,345				2,371				5,716				0.9
Interest bearing liabilities at fair value through P&L			UK				51,164
Interest bearing liabilities at fair value through P&L			Non-UK				63,779
Interest bearing liabilities at fair value through P&L			Total				114,943
Total interest bearing liabilities							786,326
Interest free customer deposits			UK				71,763
Interest free customer deposits			Non-UK				14,182
Interest free customer deposits			Total				85,945
Other non-interest bearing liabilities							490,992
Shareholders’ equity							67,100
Total							1,430,363
Percentage of total average interest bearing liabilities in offices outside the UK							37%

Notes

 

a

Average balances for repurchase agreements and cash collateral on securities lent have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously.

 

b	Other interest expense principally includes interest expense relating to hedging activity.

 

c.	Net Interest Income from discontinued operations is included within Interest presented elsewhere.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  413

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Liabilities							2014
							Average   balance				Interest   presented   within net   interest   income				Interest   presented   elsewhere				Total interest				Rate
							£m				£m				£m				£m				%
Deposits by banks			UK				41,931				89				-				89				0.2
Deposits by banks			Non-UK				15,388				44				70				114				0.7
Deposits by banks			Total				57,319				133				70				203				0.4
Customer accounts			UK				231,792				2,761				6				2,767				1.2
Customer accounts			Non-UK				92,337				(557)				1,516				959				1.0
Customer accounts			Total				324,129				2,204				1,522				3,726				1.1
Debt securities in issue			UK				51,218				456				82				538				1.1
Debt securities in issue			Non-UK				38,515				236				425				661				1.7
Debt securities in issue			Total				89,733				692				507				1,199				1.3
Subordinated liabilities			UK				19,575				989				-				989				5.1
Subordinated liabilities			Non-UK				1,151				17				64				81				7.0
Subordinated liabilities			Total				20,726				1,006				64				1,070				5.2
Repurchase agreements			UK				166,224				64				376				440				0.3
Repurchase agreements			Non-UK				126,347				9				230				239				0.2
Repurchase agreementsa			Total				292,571				73				606				679				0.2
Other interest expenseb											-				(6)				(6)				-
Total interest bearing liabilities not at fair value through P&L							784,478				4,108				2,763				6,871				0.9
Interest bearing liabilities at fair value through P&L			UK				37,722
Interest bearing liabilities at fair value through P&L			Non-UK				28,755
Interest bearing liabilities at fair value through P&L			Total				66,477
Total interest bearing liabilities							850,955
Interest free customer deposits			UK				65,294
Interest free customer deposits			Non-UK				15,033
Interest free customer deposits			Total				80,327
Other non-interest bearing liabilities							498,675
Shareholders’ equity							65,800
Total							1,495,757
Percentage of total average interest bearing liabilities in offices outside the UK							36%

Notes

 

a

Average balances for repurchase agreements and cash collateral on securities lent have been stated on a gross basis prior to any offsetting to provide a more meaningful comparison to the related interest income and expense. The Group balance sheet offsets financial assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise an asset and liability simultaneously.

 

b	Other interest expense principally includes interest expense relating to hedging activity.

 

c.	Net Interest Income from discontinued operations is included within Interest presented elsewhere.

 

414  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Changes in total interest – volume and rate analysis

The following tables allocate changes in interest between changes in volume and changes in interest rates for the last two years. Volume and rate variances have been calculated on the movement in the average balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities. Where variances have arisen from changes in both volumes and interest rates, these have been allocated proportionately between the two.

 

Interest income							2016/2015 Change due to   increase/(decrease) in:												2015/2014 Change due to     increase/(decrease) in:
							Total   change				Volume				Rate				Total   change				Volume			Rate
							£m				£m				£m				£m				£m			£m
Loans and advances to banks			UK				77				45				32				134				28			106
Loans and advances to banks			Non-UK				6				57				(51)				(71)				7			(78)
Loans and advances to banks			Total				83				102				(19)				63				35			28
Loans and advances to customers			UK				31				258				(227)				(325)				387			(712)
Loans and advances to customers			Non-UK				(2,863)				(1,274)				(1,589)				163				(802)			965
Loans and advances to customers			Total				(2,832)				(1,016)				(1,816)				(162)				(415)			253
Financial investments			UK				69				(82)				151				(192)				78			(270)
Financial investments			Non-UK				(128)				(59)				(69)				56				(49)			105
Financial investments			Total				(59)				(141)				82				(136)				29			(165)
Reverse repurchase agreements			UK				(141)				(332)				191				(415)				(216)			(198)
Reverse repurchase agreements			Non-UK				81				(358)				439				(102)				(79)			(22)
Reverse repurchase agreements			Total				(60)				(690)				630				(517)				(295)			(220)
Other interest income							(290)				-				(290)				(25)				-			(25)
Total interest receivable							(3,158)				(1,745)				(1,413)				(777)				(646)			(129)
Interest expense							2016/2015 Change due to   increase/(decrease) in:												2015/2014 Change due to     increase/(decrease) in:
							Total   change				Volume				Rate				Total   change				Volume			Rate
							£m				£m				£m				£m				£m			£m
Deposits by banks			UK				67				(1)				68				(9)				10			(19)
Deposits by banks			Non-UK				12				(31)				43				(6)				(21)			15
Deposits by banks			Total				79				(32)				111				(15)				(11)			(4)
Customer accounts			UK				(1,897)				124				(2,021)				(554)				69			(623)
Customer accounts			Non-UK				567				(201)				768				(339)				(78)			(261)
Customer accounts			Total				(1,330)				(77)				(1,253)				(893)				(9)			(884)
Debt securities in issue			UK				353				(56)				409				(134)				(55)			(79)
Debt securities in issue			Non-UK				(404)				(145)				(259)				(25)				(53)			28
Debt securities in issue			Total				(51)				(201)				150				(159)				(108)			(51)
Subordinated liabilities			UK				97				121				(24)				18				23			(5)
Subordinated liabilities			Non-UK				(80)				(33)				(47)				(1)				(27)			26
Subordinated liabilities			Total				17				88				(71)				17				(4)			21
Repurchase agreements			UK				(5)				(344)				339				(208)				(177)			(31)
Repurchase agreements			Non-UK				(124)				(423)				299				44				(73)			117
Repurchase agreements			Total				(129)				(767)				638				(164)				(250)			86
Other interest expense							(83)				-				(83)				59				-			59
Total interest payable							(1,497)				(989)				(508)				(1,155)				(382)			(773)

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  415

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

 

Credit risk additional disclosure

This section of the report contains supplementary information that is more detailed or contains longer histories than the data presented in the credit risk management section.

A. Impairment

 

Movements in allowance for impairment by geography
			2016   £m				2015   £m				2014   £m				2013   £m			2012   £m
Allowance for impairment as at 1 January			4,921				5,455				7,258				7,799			10,597
Effects of the adoption of IFRS 10			-				-				-				-			(1,701)
Acquisitions and disposals			(5)				-				13				(5)			(80)
Unwind of discount			(75)				(149)				(153)				(179)			(211)
Exchange and other adjustments			(736)				(617)				(1,047)				(260)			(206)
Amounts written off:
United Kingdom			(1,272)				(1,354)				(1,313)				(1,548)			(1,972)
Europe			(218)				(200)				(742)				(957)			(1,119)
Americas			(664)				(411)				(535)				(276)			(311)
Africa and Middle East			(20)				(300)				(423)				(534)			(655)
Asia			(19)				(12)				(24)				(28)			(62)
Recoveries:
United Kingdom			241				281				147				119			127
Europe			18				15				27				18			31
Americas			104				52				-				-			-
Africa and Middle East			1				52				46				63			51
Asia			1				-				1				1			3
New and increased impairment allowance:
United Kingdom			1,659				1,559				1,596				1,687			1,728
Europe			350				399				757				1,131			1,566
Americas			1,164				649				378				514			250
Africa and Middle East			73				438				449				566			853
Asia			13				11				50				31			50
Reversals of impairment allowance:
United Kingdom			(288)				(320)				(381)				(302)			(356)
Europe			(90)				(141)				(337)				(323)			(463)
Americas			(139)				(59)				(38)				(4)			(23)
Africa and Middle East			(29)				(22)				(45)				(45)			(70)
Asia			(5)				(5)				(8)				(9)			(16)
Recoveries:
United Kingdom			(241)				(281)				(147)				(119)			(127)
Europe			(18)				(15)				(27)				(18)			(31)
Americas			(104)				(52)				-				-			-
Africa and Middle East			(1)				(52)				(46)				(63)			(51)
Asia			(1)				-				(1)				(1)			(3)
Allowance for impairment as at 31 December			4,620				4,921				5,455				7,258			7,799
Average loans and advances for the year			504,246				503,561				505,122				525,995			564,128

 

416  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Analysis of impairment charges
As at 31 December			2016   £m				2015   £m				2014   £m				2013   £m			2012   £m
Impairment charges:
United Kingdom			1,130				960				1,071				1,262			1,245
Europe			242				244				392				790			1,072
Americas			921				539				339				510			227
Africa and Middle East			43				7				9				( 12	)		37
Asia			7				6				41				21			31
Impairment on loans and advances			2,343				1,756				1,852				2,571			2,612
Impairment on available for sale assets			21				18				( 31	)			-			40
Impairment on reverse repurchase agreements			-				-				( 5	)			8			( 3)
Impairment charges			2,364				1,774				1,816				2,579			2,649
Other credit provisions charge			9				( 12	)			5				17			( 4)
Impairment charges			2,373				1,762				1,821				2,596			2,645
The industry classifications in the tables below have been prepared at the level of the borrowing entity. This means that a loan to a subsidiary of a major corporation is classified by the industry in which the subsidiary operates, even though the Parent’s predominant business may be in a different industry.
Total impairment charges on loans and advances by industry
As at 31 December			2016   £m				2015   £m				2014   £m				2013   £m			2012   £m
United Kingdom:
Financial institutions			(1)				(4)				(9)				2			30
Manufacturing			39				(8)				1				44			12
Construction			7				10				8				23			25
Property			(13)				11				10				25			82
Energy and water			12				42				-				-			1
Wholesale and retail distribution and leisure			38				38				54				52			109
Business and other services			56				110				76				82			138
Home loans			(4)				27				28				38			18
Cards, unsecured and other personal lending			975				735				893				980			799
Other			20				(1)				10				16			31
Total United Kingdom			1,129				960				1,071				1,262			1,245
Overseas			1,214				796				781				1,309			1,367
Total Impairment charges			2,343				1,756				1,852				2,571			2,612

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  417

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

Allowance for impairment by industry
			2016								2015								2014								2013								2012
As at 31 December			£m				%				£m				%				£m				%				£m				%				£m			%
United Kingdom:
Financial institutions			5				0.1				10				0.2				9				0.2				23				0.3				411			5.3
Manufacturing			60				1.3				30				0.6				32				0.6				84				1.2				37			0.5
Construction			35				0.8				32				0.7				33				0.6				45				0.6				31			0.4
Property			89				1.9				122				2.5				140				2.6				73				1.0				118			1.5
Government and central bank			-				-				-				-				-				-				18				0.2				-			-
Energy and water			114				2.5				90				1.8				-				-				1				-				-			-
Wholesale and retail distribution and leisure			143				3.1				124				2.5				137				2.5				124				1.7				243			3.1
Business and other services			252				5.5				238				4.8				205				3.8				202				2.8				217			2.8
Home loans			144				3.1				157				3.2				123				2.3				111				1.5				129			1.7
Cards, unsecured and other personal lending			1,653				35.8				1,652				33.6				1,912				35.1				2,228				30.7				2,043			26.2
Other			49				1.1				37				0.8				61				1.1				71				1.0				41			0.5
Total United Kingdom			2,544				55.1				2,492				50.6				2,652				48.6				2,980				41.1				3,270			41.9
Overseas			2,076				44.9				2,429				49.4				2,803				51.4				4,278				58.9				4,529			58.1
Total			4,620				100.0				4,921				100.0				5,455				100.0				7,258				100.0				7,799			100.0
Amounts written off and recovered by industry
			Amounts written off																				Recoveries of amounts previously written off
As at 31 December			2016   £m				2015   £m				2014   £m				2013   £m				2012   £m				2016   £m				2015   £m				2014   £m				2013   £m			2012    £m
United Kingdom:
Financial institutions			2				3				1				13				55				1				8				11				1			4
Manufacturing			15				6				13				55				76				3				2				6				4			2
Construction			5				13				21				26				52				1				3				3				2			4
Property			18				24				19				34				95				11				13				17				1			7
Energy and water			-				-				-				1				1				2				2				-				-			-
Wholesale and retail distribution and leisure			25				94				48				78				246				5				17				13				4			13
Business and other services			52				65				59				138				200				10				15				10				19			22
Home loans			11				22				15				39				36				-				3				2				2			2
Cards, unsecured and other personal lending			1,134				1,113				994				1,127				1,184				206				214				81				82			73
Other			10				14				144				37				27				2				4				4				4			-
Total United Kingdom			1,272				1,354				1,314				1,548				1,972				241				281				147				119			127
Overseas			921				923				1,723				1,795				2,147				125				119				74				82			85
Total			2,193				2,277				3,037				3,343				4,119				366				400				221				201			212
Impairment ratios
																							2016   %				2015   %				2014   %				2013   %			2012    %
Impairment charges as a percentage of average loans and advances																							0.46				0.42				0.44				0.58			0.59
Amounts written off (net of recoveries) as a percentage of average loans and advances																							0.36				0.37				0.56				0.60			0.69
Allowance for impairment balance as a percentage of loans and advances as at 31 December																							1.05				1.10				1.15				1.54			1.65

 

418  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

B. Potential credit risk loans

 

Credit risk loans summary
As at 31 December			2016   £m				2015   £m				2014   £m				2013   £m				2012   £m
Impaired loans			4,614				5,635				6,854				10,510				11,747
Accruing loans which are contractually overdue 90 days or more as to principal or interest			1,474				1,744				1,912				1,903				2,490
Impaired and restructured loans			403				438				723				885				788
Credit risk loans			6,491				7,817				9,489				13,298				15,025

 

Credit risk loans   As at 31 December			2016   £m				2015   £m				2014   £m				2013   £m				2012   £m
Impaired loans:
United Kingdom			2,688				2747				3090				3986				4717
Europe			1,078				1198				2011				4137				4433
Americas			641				499				317				683				357
Africa and Middle East			140				1106				1353				1626				2167
Asia			67				85				83				78				73
Total			4,614				5,635				6,854				10,510				11,747
Accruing loans which are contractually overdue 90 days or more as to principal or interest:
United Kingdom			810				848				971				953				1,227
Europe			331				300				354				503				476
Americas			320				185				149				81				96
Africa and Middle East			13				411				437				364				688
Asia			-				-				1				2				3
Total			1,474				1,744				1,912				1,903				2,490
Impaired and restructured loans:
United Kingdom			217				286				559				734				615
Europe			6				33				31				13				27
Americas			180				117				90				81				116
Africa and Middle East			-				2				42				56				25
Asia			-				-				1				1				5
Total			403				438				723				885				788
Total credit risk loans:
United Kingdom			3,715				3,881				4,620				5,673				6,559
Europe			1,415				1,531				2,396				4,653				4,936
Americas			1,141				801				556				845				569
Africa and Middle East			153				1,519				1,832				2,046				2,880
Asia			67				85				85				81				81
Credit risk loans			6,491				7,817				9,489				13,298				15,025

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  419

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Additional information

Additional financial disclosure (unaudited)

 

 

 

Potential problem loans   As at 31 December			2016   £m				2015   £m				2014   £m				2013   £m				2012   £m
United Kingdom			1,302				983				942				1,112				1,035
Europe			209				158				208				285				430
Americas			599				487				146				99				80
Africa and Middle East			32				408				306				310				314
Asia			54				14				10				2				1
Potential problem loans			2,196				2,050				1,612				1,808				1,860

 

			2016				2015			2014
Interest foregone on credit risk loans			£m				£m			£m
Interest income that would have been recognised under the original contractual terms
United Kingdom			91				139			195
Rest of the World			196				151			173
Total			287				290			368

 

Total impairment allowance coverage of credit risk loans			2016				2015				2014				2013				2012
As at 31 December			%				%				%				%				%
United Kingdom			68.5				64.2				57.4				52.5				49.9
Europe			48.4				53.3				50.9				53.4				52.8
Americas			109.3				89.2				89.7				77.4				83.0
Africa and Middle East			58.2				55.3				54.7				52.7				48.0
Asia			82.1				70.3				96.5				72.8				86.4
Total coverage of credit risk lending			71.2				63.0				57.5				54.6				51.9
Total impairment allowance coverage of potential credit risk loans			2016				2015				2014				2013				2012
As at 31 December			%				%				%				%				%
United Kingdom			50.7				51.2				48.7				43.9				43.1
Europe			42.2				48.3				46.9				50.3				48.6
Americas			71.7				55.5				71.1				69.3				72.7
Africa and Middle East			48.1				43.6				46.9				45.8				43.2
Asia			45.5				60.4				86.3				71.1				85.4
Total coverage of potential credit risk lending			53.2				49.9				49.7				48.0				46.2

 

420  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

 

 

 

 

C. Maturity Analysis of Loans and Advances

 

Maturity analysis of loans and advances to customers
As at 31 December 2016		On   demand   £m				Not more   than   three   months   £m				Over   three   months   but not   more   than six   months   £m				Over six   months   but not   more   than one   year   £m				Over one   year but   not more   than   three   years   £m				Over   three   years but   not more   than five   years   £m				Over five   years but   not more   than ten   years   £m				Over ten   years   £m				Total   £m
United Kingdom
Corporate lending			14,810				20,056				1,127				2,929				14,917				14,123				4,478				13,626				86,066
Other lending to customers in the United Kingdom			3,544				3,768				2,489				5,181				19,484				16,020				34,367				85,377				170,230
Total United Kingdom			18,354				23,824				3,616				8,110				34,401				30,143				38,845				99,003				256,296
Europe			5,295				21,497				1,076				1,948				5,618				4,917				2,870				4,515				47,736
Americas			3,442				35,518				2,330				4,781				13,982				8,822				6,646				6,771				82,292
Africa and Middle East			210				861				200				307				578				870				93				59				3,178
Asia			895				4,482				454				764				912				307				74				14				7,902
Total loans and advances to customers			28,196				86,182				7,676				15,910				55,491				45,059				48,528				110,362				397,404
As at 31 December 2015
United Kingdom
Corporate lending			14,634				14,957				2,791				3,301				12,692				13,922				4,585				11,307				78,189
Other lending to customers in the United Kingdom			3,811				4,157				2,454				5,248				18,925				15,911				33,604				79,279				163,389
Total United Kingdom			18,445				19,114				5,245				8,549				31,617				29,833				38,189				90,586				241,578
Europe			4,459				19,236				4,639				1,957				4,865				4,400				3,351				5,281				48,188
Americas			3,090				30,144				2,788				5,336				10,987				8,450				4,926				4,807				70,528
Africa and Middle East			4,034				3,021				1,503				2,435				7,057				5,855				4,485				5,910				34,300
Asia			509				5,169				578				1,410				1,092				544				175				67				9,544
Total loans and advances to customers			30,537				76,684				14,753				19,687				55,618				49,082				51,126				106,651				404,138

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  421

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Additional information

Additional financial disclosure (unaudited)

        

 

 

 

 

Maturity analysis of loans and advances to banks
As at 31 December 2016		On   demand   £m				Not more   than   three months £m				Over   three   months   but not   more   than six   months   £m				Over six   months   but not   more   than one   year   £m				Over one   year but   not more   than   three   years   £m				Over   three   years but   not more   than five   years   £m				Over five   years but   not more   than ten   years   £m				Over ten   years   £m				Total   £m
United Kingdom			270				5,624				1,485				34				45				-				-				-				7,458
Europe			1,178				11,398				12				25				61				-				-				-				12,674
Americas			1,887				14,329				136				211				313				18				-				-				16,894
Africa and Middle East			224				772				305				331				146				-				-				-				1,778
Asia			1,299				2,224				815				12				83				1				13				-				4,447
Total loans and advances to banks			4,858				34,347				2,753				613				648				19				13				-				43,251
As at 31 December 2015
United Kingdom			441				9,520				560				-				199				13				-				-				10,733
Europe			1,109				7,885				832				26				66				-				-				-				9,918
Americas			1,193				10,980				244				327				308				26				-				-				13,078
Africa and Middle East			1,173				880				102				306				404				1				-				34				2,900
Asia			1,438				2,274				216				175				602				3				12				-				4,720
Total loans and advances to banks			5,354				31,539				1,954				834				1,579				43				12				34				41,349

 

422  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

        

 

 

 

 

D. Industrial and Geographical Concentrations of Loans and Advances

 

Loans and advances to customers by industry			2016				2015				2014				2013				2012
As at 31 December			£m				£m				£m				£m				£m
Financial institutions			91,826				80,785				103,503				103,703				93,745
Manufacturing			12,470				12,444				11,849				10,632				11,907
Construction			3,525				3,798				3,767				4,245				4,625
Property			20,856				20,019				19,544				20,844				22,575
Government and central bank			12,029				5,942				7,127				4,999				4,809
Energy and water			7,565				7,874				8,557				7,547				7,638
Wholesale and retail distribution and leisure			13,143				14,034				13,635				13,288				15,070
Business and other services			22,135				26,092				22,803				20,663				24,722
Home loans			145,184				156,384				167,520				180,295				172,875
Cards, unsecured loans and other personal lending			59,851				63,217				58,914				55,806				58,863
Other			8,820				13,549				16,003				19,463				21,530
Loans and advances to customers			397,404				404,138				433,222				441,485				438,359
Loans and advances to customers in the UK			2016				2015				2014				2013				2012
As at 31 December			£m				£m				£m				£m				£m
Financial institutions			22,214				18,530				23,728				22,101				22,290
Manufacturing			6,816				5,735				6,274				5,411				6,078
Construction			3,254				3,164				2,957				3,195				3,108
Property			18,145				15,556				15,053				15,096				15,283
Government and central bank			6,654				512				276				819				198
Energy and water			2,348				1,922				2,096				1,715				2,286
Wholesale and retail distribution and leisure			10,586				10,382				9,997				9,734				9,810
Business and other services			16,427				16,314				13,944				13,052				15,971
Home loans			131,945				132,324				132,864				129,703				119,781
Cards, unsecured loans and other personal lending			31,260				30,452				28,061				30,396				31,772
Other			6,647				6,687				8,944				8,444				9,476
Loans and advances to customers in the UK			256,296				241,578				244,194				239,666				236,053
Loans and advances to customers in Europe			2016				2015				2014				2013				2012
As at 31 December			£m				£m				£m				£m				£m
Financial institutions			19,803				16,918				22,126				17,791				20,245
Manufacturing			2,613				2,352				1,641				2,051				2,827
Construction			30				68				193				625				663
Property			1,047				796				1,175				2,652				3,242
Government and central bank			3,545				3,415				3,759				1,583				2,458
Energy and water			1,497				1,280				2,612				3,119				2,376
Wholesale and retail distribution and leisure			944				711				1,105				1,524				2,588
Business and other services			1,170				3,355				1,878				2,882				2,985
Home loans			12,189				12,503				19,933				35,110				36,965
Cards, unsecured loans and other personal lending			4,283				5,047				5,226				7,146				6,346
Other			615				1,743				1,589				2,014				2,471
Loans and advances to customers in Europe			47,736				48,188				61,237				76,497				83,166

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  423

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Additional information

Additional financial disclosure (unaudited)

        

 

 

 

 

Loans and advances to customers in the Americas							2016				2015				2014				2013				2012
As at 31 December							£m				£m				£m				£m				£m
Financial institutions							45,193				39,798				49,171				49,457				43,428
Manufacturing							2,516				1,562				1,458				1,308				1,229
Construction							204				120				119				19				1
Property							1,472				1,720				1,542				944				686
Government and central bank							125				3				320				371				785
Energy and water							2,720				2,914				2,487				1,496				1,761
Wholesale and retail distribution and leisure							985				934				490				473				739
Business and other services							3,904				3,363				3,262				2,227				2,368
Home loans							595				624				770				783				480
Cards, unsecured loans and other personal lending							23,700				18,140				15,666				12,936				12,047
Other							878				1,350				1,775				1,301				1,235
Loans and advances to customers in the Americas							82,292				70,528				77,060				71,315				64,759
Loans and advances to customers in Africa and Middle East							2016				2015				2014				2013				2012
As at 31 December							£m				£m				£m				£m				£m
Financial institutions							427				1,860				4,169				6,298				4,546
Manufacturing							60				2,320				1,856				1,229				1,252
Construction							2				363				403				379				829
Property							96				1,780				1,579				2,029				3,117
Government and central bank							483				613				997				1,090				1,368
Energy and water							494				1,025				645				739				822
Wholesale and retail distribution and leisure							328				1,837				1,831				1,378				1,833
Business and other services							237				2,685				3,358				2,058				2,760
Home loans							357				10,689				13,591				14,347				15,376
Cards, unsecured loans and other personal lending							494				8,081				8,605				4,043				7,540
Other							200				3,047				3,210				7,073				7,827
Loans and advances to customers in Africa and Middle East							3,178				34,300				40,244				40,663				47,270
Loans and advances to customers in Asia							2016				2015				2014				2013				2012
As at 31 December							£m				£m				£m				£m				£m
Financial institutions							4,189				3,679				4,309				8,056				3,236
Manufacturing							465				475				620				633				521
Construction							35				83				95				27				24
Property							96				167				195				123				247
Government and central bank							1,222				1,399				1,775				1,136				-
Energy and water							506				733				717				478				393
Wholesale and retail distribution and leisure							300				170				212				179				100
Business and other services							397				375				361				444				638
Home loans							98				244				362				352				273
Cards, unsecured loans and other personal lending							114				1,497				1,356				1,285				1,158
Other							480				722				485				631				521
Loans and advances to customers in Asia							7,902				9,544				10,487				13,344				7,111
Interest rate sensitivity of loans and   advances							2016												2015
As at 31 December			Fixed rate   £m				Variable rate   £m				Total   £m				Fixed rate   £m				Variable rate   £m				Total   £m
Banks			14,047				29,204				43,251				12,348				29,001				41,349
Customers			124,995				272,409				397,404				121,960				282,178				404,138

 

424  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional information

Additional financial disclosure (unaudited)

            

 

 

 

 

Foreign outstandings in currencies other than the local currency of the borrower for countries where this exceeds 0.75% of total Group assets
		As % of				Total				Banks   and other   financial   institutions				Government   and official   institutions				Commercial   industrial   and other   private   sectors
		assets				£m				£m				£m				£m
As at 31 December 2016a
United States			7.5				91,365				11,749				10,149				69,468
Germany			1.6				18,044				10,204				4,685				3,155
France			1.8				19,153				8,120				2,872				8,161
Cayman Islands			2.0				14,192				28				2				14,162
Switzerland			0.8				9,884				651				7,533				1,700
As at 31 December 2015a
United States			6.9				76,744				11,648				18,422				46,674
Germany			1.7				18,564				10,054				5,916				2,594
France			1.6				18,388				6,250				7,694				4,444
Netherlands			0.9				10,574				1,074				3,208				6,292
Cayman Islands			1.0				10,748				78				1				10,669
Switzerland			0.8				9,336				1,452				6,642				1,242
As at 31 December 2014
United States			6.2				84,606				7,196				23,409				54,001
Germany			1.4				19,481				8,381				8,620				2,480
France			2.0				26,884				12,632				5,919				8,333
Netherlands			1.1				15,080				1,437				3,279				10,364
Cayman Islands			0.9				12,480				49				1				12,430
Note   a  Figures are net of short securities.

 

Off-Balance Sheet and other Credit Exposures			2016				2015				2014
As at 31 December			£m				£m				£m
Off-balance sheet exposures
Contingent liabilities			19,939				20,621				21,324
Commitments			303,686				282,307				291,262
On-balance sheet exposures
Trading portfolio assets			80,240				77,348				114,717
Financial assets designated at fair value			78,608				76,830				38,300
Derivative financial instruments			346,626				327,709				439,909
Financial investments			63,318				90,267				86,066

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  425

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Additional information

Additional financial disclosure (unaudited)

            

 

 

 

 

Notional principal amounts of credit derivatives			2016				2015				2014
As at 31 December			£m				£m				£m
Credit derivatives held or issued for trading purposesa			947,800				948,646				1,183,963

Note

 

a	Includes credit derivatives held as economic hedges which are not designated as hedges for accounting purposes.

Additional Related Parties disclosures

For US disclosure purposes, the aggregate emoluments of all Directors and Officers of Barclays PLC who held office during the year (2016:32, 2015: 32 persons, 2014: 33 persons) for the year ended 31st December 2016 amounted to £71m (2015: £52.2m, 2014: £56.9m). In addition, the aggregate amount set aside for the year ended 31st December 2016, to provide pension benefits for the Directors and Officers amounted to £0.2m (2015:£ 0.3m 2014: £0.3m).

 

Ratio of earnings to fixed charges – Barclays Plc
			2016				2015				2014				2013				2012
			(In £m except for ratios)
Fixed charges
Interest expense			4,004				3,345				4,108				4,904				5,330
Rental expense			208				157				207				221				213
Total Fixed charges			4,212				3,502				4,315				5,125				5,543
Earnings
Income before taxes and non-controlling interests			3,230				1,146				1,313				1,879				(175)
Less: unremitted pre-tax income of associated companies and joint ventures			(53)				(26)				(34)				102				(94)
Total earnings excluding fixed charges			3,177				1,120				1,279				1,981				(269)
Fixed charges			4,212				3,502				4,315				5,125				5,543
Total earnings including fixed charges			7,389				4,622				5,594				7,106				5,274
Ratio of earnings to fixed charges			1.75				1.32				1.30				1.39				0.95
Ratio of earnings to fixed charges and preference shares – Barclays Plc
			2016				2015				2014				2013				2012
			(In £m except for ratios)
Fixed charges, preference share dividends and similar appropriations
Interest expense			4,004				3,345				4,108				4,904				5,330
Rental expense			208				157				207				221				213
Fixed charges			4,212				3,502				4,315				5,125				5,543
Preference share dividends and similar appropriations			343				345				443				412				466
Total fixed charges			4,555				3,847				4,758				5,537				6,009
Earnings
Income before taxes and non-controlling interests			3,230				1,146				1,313				1,879				(175)
Less: unremitted pre-tax income of associated companies and joint ventures			(53)				(26)				(34)				102				(94)
Total earnings excluding fixed charges			3,177				1,120				1,279				1,981				(269)
Fixed charges			4,555				3,847				4,758				5,537				6,009
Total earnings including fixed charges			7,732				4,967				6,037				7,518				5,740
Ratio of earnings to fixed charges, preference share dividends and similar appropriations			1.70				1.29				1.27				1.36				0.96

 

426  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Independent Registered Public Accounting Firm’s Report

    

 

 

 

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Barclays Bank PLC

In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flow statements present fairly, in all material respects, the financial position of Barclays Bank PLC (“the Bank”) and its subsidiaries at 31 December 2016 and 31 December 2015, and the results of their operations and their cash flows for each of the three years in the period ended 31 December 2016 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

London, United Kingdom

22 February 2017

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  427

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Presentation of information

 

 

[•••] Consolidated income statement

[•••] Consolidated statement of comprehensive income

[•••] Consolidated balance sheet

[•••] Consolidated statement of changes in equity

[•••] Consolidated cash flow statement

[•••] Notes to the accounts

[•••] Financial data

Barclays Bank PLC is a public limited company, registered in England under company number 1026167. The bank was incorporated on 7 August 1925 under the Colonial Bank Act 1925 and on the 4 October 1971 was registered as a company limited by shares under the Companies Act 1948 to 1967. Pursuant to The Barclays Bank Act 1984, on 1 January 1985 the Bank was registered as a public limited company and its name was changed from Barclays Bank International Limited to Barclays Bank PLC.

All of the issued ordinary share capital of Barclays Bank PLC is owned by Barclays PLC.

Barclays approach to disclosures

The Group aims to continually enhance its disclosures and their usefulness to the readers of the financial statements in the light of developing market practice and areas of focus. Consequently Barclays disclosures go beyond the minimum standards required by accounting standards and other regulatory requirements.

Barclays continue to support the recommendations and guidance made by the Enhanced Disclosure Taskforce (EDTF). The EDTF was formed by the Financial Stability Board with a remit to broaden and deepen the risk disclosures of global banks in a number of areas, including liquidity and funding, credit risk and market risk. Barclays has adopted the recommendations across the Annual Report and Pillar 3 report.

In line with the Financial Reporting Council’s guidance on Clear and Concise reporting. Barclays has focused reporting on material items and sought to reorganise information to aid users understanding.

It is Barclays view that best in class disclosures will continue to evolve in light of ongoing market and stakeholder engagement with the banking sector. Barclays are committed to engaging with a published Code for Financial Reporting Disclosure (the Code). The Code sets out five disclosure principles together with supporting guidance which states that UK banks will:

 

●

Provide high quality, meaningful and decision-useful disclosures;

 

●

Review and enhance their financial instrument disclosures for key areas of interest;

 

●

Assess the applicability and relevance of good practice recommendations to their disclosures acknowledging the importance of such guidance;

 

●

Seek to enhance the comparability of financial statement disclosures across the UK banking sector; and

 

●

Clearly differentiate in their annual reports between information that is audited and information that is unaudited.

On 1 March 2016, Barclays announced its intention to sell down the Group’s interest in BAGL. This sell down is intended to be to a level which will permit deconsolidation from an accounting and regulatory perspective, subject to shareholder and regulatory approvals as required. As the Africa Banking Business meets requirements for presentation as a discontinued operation, these results have been presented as two lines on the face of the Group income statement, representing the profit after tax and non-controlling interest in respect of the discontinued operation.

British Bankers’ Association (BBA) Code for Financial Reporting Disclosure

Barclays has adopted the BBA Code for Financial Reporting Disclosure and has prepared the 2016 Annual Report and Accounts in compliance with the Code.

Statutory Accounts

The consolidated accounts of Barclays PLC and its subsidiaries are set out on pages 216 to 316 along with the accounts of Barclays PLC itself on pages 224 to 225. The accounting policies on pages 226 to 230 and the Notes commencing on page 226 apply equally to both sets of accounts unless otherwise stated.

The financial statements have been prepared on going concern basis, in accordance with The Companies Act 2006 as applicable to companies using IFRS.

Capital Requirements Country-by Country Reporting

HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country-by-Country Reporting Regulations 2013. The legislation requires Barclays PLC to publish additional information in respect of the year ended 31 December 2016. This information is available on the Barclays’s website: barclays.com/citizenship/reports-and-publications/country-snapshot.html

 

428  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

 

 

More extensive disclosures are contained in the Barclays PLC Results Announcement for the period ended 31 December 2016, attached, including risk exposures and business performance, which are materially the same as those for Barclays Bank PLC.

Barclays Bank PLC is a wholly owned subsidiary of Barclays PLC, which is the Group’s ultimate parent company. The business activities of Barclays Bank PLC Group and Barclays PLC Group are fundamentally the same as the only differences are the holding company, Barclays PLC and following a restructure in November 2016, the Group Service Company transferring from Barclays Bank PLC to Barclays PLC.

Differences between Barclays PLC and Barclays Bank PLC results can be summarised as follows:

 

–

Balance Sheet Asset size – Barclays PLC £1,213,126m, Barclays Bank PLC £1,213,955m

 

–

Income Statement Profit before tax – Barclays PLC £2,828m, Barclays Bank PLC £3,729m

The differences occur primarily due to the following reasons:

 

–

Funding structures

 

–

Cash flow hedging

 

–

Group Service Company

More detail regarding the main differences is described below.

Funding structures

 

Instrument Type		Barclays PLC           £m		Barclays Bank PLC         £m
Preference shares		-		5,836
Other shareholders’ equity		-		271
Non-controlling interests (NCI)		6,492		3,522

Preference shares and capital notes issued by Barclays Bank PLC are included within share capital in Barclays Bank PLC, and where still outstanding are presented as non-controlling interests in the financial statements of Barclays PLC Group.

 

Instrument Type		Barclays PLC           £m		Barclays Bank PLC         £m
Treasury shares		(42)		-

Barclays PLC shares held for the purposes of employee share schemes and for trading are recognised as available for sale investments and trading portfolio assets respectively within Barclays Bank PLC. Barclays PLC deducts these treasury shares from shareholders’ equity.

 

Instrument Type		Barclays PLC           £m		Barclays Bank PLC         £m
Capital Redemption Reserve (CRR)		394		38

Arising from the redemption or exchange of Barclays PLC or Barclays Bank PLC shares respectively

 

Instrument Type		Barclays PLC £m		Barclays Bank PLC       £m
Derivative financial instruments		346,626		346,820
Loans and advances to banks		43,251		43,634
Subordinated liabilities		(23,383)		(23,871)

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  429

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Barclays Bank PLC data

 

 

Barclays Bank PLC has in issue two series of contingent capital notes (CCNs). These both pay interest and principal to the holder unless the consolidated CRD IV CET 1 ratio (FSA October 2012 transitional statement) of Barclays PLC falls below 7%, in which case they are cancelled from the Barclays PLC consolidated perspective. The coupon payable on the CCNs is higher than a market rate of interest for a similar note without this risk. Barclays Bank PLC holds a derivative asset and loan relating to these issuances. The CCN is included in subordinated liabilities and has a higher carrying value in Barclays Bank PLC due to the higher fair value on initial recognition.

 

Cash flow hedging
Instrument Type		Barclays PLC   £m				Barclays Bank PLC         £m
Income Statement
Net interest income			10,537				11,457
Tax			(993)				(1,245)
Equity
Cash flow hedging reserve			2,105				954

Barclays PLC cash flow hedging reserve is larger than Barclays Bank PLC as it is no longer exposed to the same variable rate cash flows. This is as a direct result of anticipated bank ring fencing and transfer of assets to an entity which is not expected to be consolidated by Barclays Bank PLC (although is expected to be consolidated by Barclays PLC). There is also a difference in the income statement due to variance in income and tax due to cash flow hedging not included in Barclays Bank PLC.

Group Service Company

The ownership of the Group service company was transferred in November 2016 contributing to the following key differences between Barclays PLC and Barclays Bank PLC.

 

Instrument Type		Barclays PLC   £m		Barclays Bank PLC         £m
Staff costs		(9,423)		(9,211)
Administration and general expenses		(2,917)		(3,200)

Employees within the Group Service Company reallocated from Barclays Bank PLC as part of the restructure. Therefore these staff costs are only shown in Barclays PLC. Group Service Company recharged costs to Barclays Bank PLC leading to higher expenses. These are eliminated on consolidation in Barclays PLC.

 

Instrument Type		Barclays PLC   £m		Barclays Bank PLC         £m
Prepayments, accrued income and other assets		2,893		4,011

Barclays Bank PLC recognises a receivable from the Group Service Company which is eliminated on consolidation in Barclays PLC. The Bank funded acquisition of shares on behalf of the Group Service Company to satisfy employee share awards creating a receivable of £1bn.

 

Instrument Type		Barclays PLC         £m		Barclays Bank PLC         £m
Goodwill and intangibles		7,726		7,348
Property, plant and equipment		2,825		2,466
Customer accounts		(423,178)		(424,703)
Debt securities in issue		(75,932)		(75,369)
Provisions		(4,134)		(3,909)

Differences driven by Group Service Company balances reflected in Barclays PLC only, or in the case of customer accounts, intercompany balances between Group Service Company and Barclays Bank Plc, which eliminate on consolidation in Barclays PLC.

 

430  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Consolidated income statement

 

 

 

For the year ended 31 December 2016			Notes				2016   £m				2015   £m				2014   £m
Continuing operations
Interest income			a				14,423				13,947				14,200
Interest expense			a				(2,966)				(2,584)				(4,056)
Net interest income							11,457				11,363				10,144
Fee and commission income			b				8,625				8,494				8,636
Fee and commission expense			b				(1,789)				(1,611)				(1,500)
Net fee and commission income							6,836				6,883				7,136
Net trading income			c				2,795				3,430				3,064
Net investment income			d				1,324				1,097				1,309
Other income							57				35				157
Total income							22,469				22,808				21,810
Credit impairment charges and other credit provisions			7				(2,373)				(1,762)				(1,821)
Net operating income							20,096				21,046				19,989
Staff costs			8				(9,211)				(8,853)				(9,860)
Infrastructure costs			e				(2,937)				(2,691)				(2,895)
Administration and general expenses			e				(3,200)				(2,983)				(3,063)
Provisions for UK customer redress			27				(1,000)				(2,772)				(1,110)
Provision for ongoing investigations and litigation including Foreign Exchange			27								(1,237)				(1,250)
Operating expenses							(16,348)				(18,536)				(18,178)
Share of post-tax results of associates and joint ventures							70				41				28
Loss/(gains) on disposal of subsidiaries, associates and joint ventures			9				565				(637)				(473)
Profit before tax from continuing operations							4,383				1,914				1,366
Tax			f				(1,245)				(1,302)				(1,165)
Profit after tax from continuing operations							3,138				612				201
Profit after tax from discontinued operations							591				626				653
Profit after tax							3,729				1,238				854
Equity holders of the Parent							2,867				566				85
Other equity holders			n				457				345				443
Non-controlling interests
Profit attributable to non-controlling interests in respect of continuing operations							3				3				6
Profit attributable to non-controlling interests in respect of discontinued operations							402				324				320
Profit after tax							3,729				1,238				854

The note numbers refer to the notes on pages 226 to 316, whereas the note letters refer to Barclays Bank PLC supplementary notes on pages 436 to 446.

Barclays Bank PLC supplementary notes provided on pages 436 to 446 cover the line items where there is a difference to Barclays PLC.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  431

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Barclays Bank PLC data

Consolidated statement of comprehensive income

 

 

For the year ended 31 December			2016 £m				2015 £m				2014 £m
Profit after tax			3,729				1,238				854
Profit after tax from continuing operations			3,138				612				201
Profit after tax from discontinued operations			591				626				653
Other comprehensive income/(loss) for continuing operations:
Currency translation reservea
- Currency translation differences			3,027				748				774
Available for sale reservea
- Net gains from changes in fair value			2,178				60				5,352
- Net losses transferred to net profit on disposal			(912)				(377)				(619)
- Net losses/(gains) transferred to net profit due to impairment			20				17				(31)
- Net losses transferred to net profit due to fair value hedging			(1,677)				(148)				(4,074)
- Changes in insurance liabilities			53				86				(94)
- Tax			(18)				132				(103)
Cash flow hedging reservea
- Net gains/(losses) from changes in fair value			689				(990)				2,651
- Net losses transferred to net profit			(431)				(276)				(713)
- Tax			(59)				221				(384)
Other			47				19				(19)
Total comprehensive income/(loss) that may be recycled to profit and loss			2,917				(508)				2,740
Other comprehensive income/(loss) not recycled to profit and loss:
Retirement benefit remeasurements			(1,309)				1,179				268
Tax			329				(260)				(63)
Total comprehensive income for the year, net of tax from continuing operations			5,075				1,023				3,146
Total comprehensive income/(loss) for the year, net of tax from discontinued operations			2,111				(720)				346
Total comprehensive income for the year			7,186				303				3,492
Attributable to:
Equity holders of the Parent			5,947				457				3,245
Non-controlling interests			1,239				(154)				247
			7,186				303				3,492

Notes

a	For further details refer to Note l

 

432  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Consolidated balance sheet

 

 

							31 December   2016				31 December   2015			31 December   2014
As at 31.12.2016			Notes				£m				£m			£m
Assets
Cash and balances at central banks							102,328				49,711			39,695
Items in the course of collection from other banks							1,467				1,011			1,210
Trading portfolio assets			g				80,255				77,398			114,755
Financial assets designated at fair value			13				78,608				76,830			38,300
Derivative financial instruments			j				346,820				327,870			440,076
Financial investments			h				63,365				90,304			86,105
Loans and advances to banks			i				43,634				41,829			42,657
Loans and advances to customers			i				392,783				399,217			427,767
Reverse repurchase agreements and other similar secured lending			21				13,454				28,187			131,753
Prepayments, accrued income and other assets							4,011				3,027			3,604
Investments in associates and joint ventures			39				684				573			711
Property, plant and equipment			22				2,466				3,468			3,786
Goodwill and intangible assets			23				7,348				8,222			8,180
Current tax assets			f				501				385			334
Deferred tax assets			10				4,763				4,495			4,130
Retirement benefit assets			35				14				836			56
Assets in disposal groups classified as held for disposal			46				71,454				7,364			15,574
Total assets							1,213,955				1,120,727			1,358,693
Liabilities
Deposits from banks							48,214				47,080			58,390
Items in the course of collection due to other banks							636				1,013			1,177
Customer accounts							424,703				418,307			427,868
Repurchase agreements and other similar secured borrowing			21				19,760				25,035			124,479
Trading portfolio liabilities			12				34,687				33,967			45,124
Financial liabilities designated at fair value			16				96,032				91,745			56,972
Derivative financial instruments			j				340,487				324,252			439,320
Debt securities in issue							75,369				69,150			86,099
Subordinated liabilities			29				23,871				21,955			21,685
Accruals, deferred income and other liabilities			25				8,951				10,612			11,432
Provisions			26				3,909				4,142			4,135
Current tax liabilities			f				708				930			1,023
Deferred tax liabilities							4				100			255
Retirement benefit liabilities			35				377				423			1,574
Liabilities included in disposal groups classified as held for sale			45				65,292				5,997			13,115
Total liabilities							1,143,000				1,054,708			1,292,648
Total equity
Called up share capital and share premium			31				14,462				14,472			14,472
Other equity instruments			31				6,486				5,350			4,350
Other reserves			32				4,295				933			2,322
Retained earnings							42,190				43,350			42,650
Total equity excluding non-controlling interests							67,433				64,105			63,794
Non-controlling interests			n				3,522				1,914			2,251
Total equity							70,955				66,019			66,045
Total liabilities and equity							1,213,955				1,120,727			1,358,693

The note numbers refer to the notes on pages 226 to 316, whereas the note letters refer to those on pages 436 to 446.

These financial statements have been approved for issue by the Board of Directors on 29 February 2016.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  433

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Barclays Bank PLC data

Consolidated statement of changes in equity

 

 

			Called up   share   capital   and share   premiuma   £m				Other   equity   instrumentsa   £m				Available   for sale   reserveb   £m				Cash   flow   hedging   reserveb   £m				Currency   translation   reserveb   £m				Other   reserves and   other   shareholders’   equitya   £m				Retained   earnings   £m				Total   equity   excluding   non-   controlling   interests   £m				Non-   controlling   interests   £m				Total   equity   £m
Balance at 1 January 2016			14,472				5,350				338				709				(623)				509				43,350				64,105				1,914				66,019
Profit after tax			-				457				-				-				-				-				2,678				3,135				3				3,138
Currency translation movements			-				-				-				-				3,025				-				-				3,025				2				3,027
Available for sale investments			-				-				(356)				-				-				-				-				(356)				-				(356)
Cash flow hedges			-				-				-				199				-				-				-				199				-				199
Pension remeasurement			-				-				-				-				-				-				(980)				(980)				-				(980)
Other			(17)				-				-				-				-				-				64				47				-				47
Other comprehensive income for the period from continuing operations			(17)				457				(356)				199				3,025				-				1,762				5,070				5				5,075
Other comprehensive income for the period from discontinued operations			-				-				(4)				46				652				-				183				877				1,234				2,111
Total comprehensive income for the year			(17)				457				(360)				245				3,677				-				1,945				5,947				1,239				7,186
Issue and exchange of equity instruments			-				1,136				-				-				-				-				-				1,136				-				1,136
Other equity instruments coupons paid			-				(457)				-				-				-				-				128				(329)				-				(329)
Equity settled share schemes			-				-				-				-				-				-				577				577				-				577
Redemption of preference shares			-				-				-				-				-				(199)				(1,378)				(1,577)				-				(1,577)
Vesting of shares under employee share schemes			-				-				-				-				-				-				(414)				(414)				-				(414)
Dividends paid			-				-				-				-				-				-				(978)				(978)				(235)				(1,213)
Capital contribution from Barclays PLC			-				-				-				-				-				-				114				114				-				114
Net equity impact of partial BAGL disposal			-				-				-				-				-				-				(349)				(349)				601				252
Net equity impact of Group Service Company disposal			-				-				-				-				-				-				(806)				(806)				-				(806)
Other reserve movements			7				-				-				-				-				(1)				1				7				3				10
Balance at 31st December 2016			14,462				6,486				(22)				954				3,054				309				42,190				67,433				3,522				70,955
Balance at 1 January 2015			14,472				4,350				578				1,817				(582)				509				42,650				63,794				2,251				66,045
Continuing Operations
Profit after tax			-				345				-				-				-				-				264				609				3				612
Currency translation movements			-				-				-				-				748				-				-				748				-				748
Available for sale investments			-				-				(230)				-				-				-				-				(230)				-				(230)
Cash flow hedges			-				-				-				(1,045)				-				-				-				(1,045)				-				(1,045)
Pension remeasurement			-				-				-				-				-				-				919				919				-				919
Other			-				-				-				-				-				-				19				19				-				19
Other comprehensive income for the period from continuing operations			-				345				(230)				(1,045)				748				-				1,202				1,020				3				1,023
Other comprehensive income for the period from discontinued operations			-				-				(10)				(63)				(789)				-				299				(563)				(157)				(720)
Total comprehensive income for the year			-				345				(240)				(1,108)				(41)				-				1,501				457				(154)				303
Issue of shares under employees share schemes			-				-				-				-				-				-				571				571				-				571
Issue and exchange of equity instruments			-				1,000				-				-				-				-				-				1,000				-				1,000
Other equity instruments coupons paid			-				(345)				-				-				-				-				70				(275)				-				(275)
Vesting of shares under employee share schemes			-				-				-				-				-				-				(755)				(755)				-				(755)
Dividends paid			-				-				-				-				-				-				(1,219)				(1,219)				(209)				(1,428)
Capital contribution from Barclays PLC			-				-				-				-				-				-				560				560				-				560
Other reserve movements			-				-				-				-				-				-				(28)				(28)				26				(2)
Balance at 31st December 2015			14,472				5,350				338				709				(623)				509				43,350				64,105				1,914				66,019
Balance at 1 January 2014			14,494				2,078				151				273				(1,142)				485				44,670				61,009				2,211				63,220
Continuing Operations
Profit after tax			-				250				-				-				-				-				(55)				195				6				201
Currency translation movements			-				-				-				-				773				-				-				773				1				774
Available for sale investments			-				-				431				-				-				-				-				431				-				431
Cash flow hedges			-				-				-				1,554				-				-				-				1,554				-				1,554
Pension remeasurement			-				-				-				-				-				-				205				205				-				205
Other			-				-				-				-				-				-				(19)				(19)				-				(19)
Other comprehensive income for the period from continuing operations			-				250				431				1,554				773				-				131				3,139				7				3,146
Other comprehensive income for the period from discontinued operations			-				-				(4)				(10)				(213)								333				106				240				346
Total comprehensive income for the year			-				250				427				1,544				560				-				464				3,245				247				3,492
Issue and exchange of equity instruments			(15)				2,272				-				-				-				16				(1,683)				590				-				590
Other equity instruments coupons paid			-				(250)				-				-				-				-				54				(196)				-				(196)
Redemption of preference shares			(7)				-				-				-				-				8				(792)				(791)				-				(791)
Equity settled share schemes			-				-				-				-				-				-				693				693				-				693
Vesting of shares under employee share schemes			-				-				-				-				-				-				(866)				(866)				-				(866)
Dividends paid			-				-				-				-				-				-				(1,262)				(1,262)				(190)				(1,452)
Capital contribution from Barclays PLC			-				-				-				-				-				-				1,412				1,412				-				1,412
Other reserve movements			-				-				-				-				-				-				(40)				(40)				(17)				(57)
Balance at 31st December 2014			14,472				4,350				578				1,817				(582)				509				42,650				63,794				2,251				66,045

Notes

 

a	For further details refer to Note l

b	For further details refer to Note m

 

434  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Consolidated cash flow statement

 

 

For the year ended 31 December			2016   £m				2015   £m				2014   £m
Continuing operations
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax			4,383				1,914				1,365
Adjustment for non-cash items:
Allowance for impairment			2,357				1,752				1,816
Depreciation, amortisation and impairment of property, plant, equipment and intangibles			1,232				1,215				1,108
Other provisions, including pensions			1,726				4,243				3,487
Net profit on disposal of investments and property, plant and equipment			(912)				(374)				(620)
Other non-cash movements including exchange rate movements			20,780				(1,189)				(1,486)
Changes in operating assets and liabilities
Net (increase)/decrease in loans and advances to banks and customers			(25,439)				22,705				3,933
Net decrease in reverse repurchase agreements and other similar lending			14,733				103,471				54,380
Net increase/(decrease) in deposits and debt securities in issue			49,961				(33,219)				(2,189)
Net (decrease) in repurchase agreements and other similar borrowing			(4,852)				(99,602)				(72,107)
Net (increase)/decrease in derivative financial instruments			(2,351)				(3,309)				2,954
Net (increase)/decrease in trading assets			(5,542)				37,079				18,633
Net increase/(decrease) in trading liabilities			880				(10,877)				(8,565)
Net decrease/(increase) in financial investments			807				(3,064)				(5,882)
Net (increase) in other assets			(3,731)				(2,680)				(14,642)
Net (increase)/decrease in other liabilities			(452)				(1,772)				7,360
Corporate income tax paid			(742)				(1,643)				(1,590)
Net cash from operating activities			11,278				14,650				(12,045)
Purchase of available for sale investments			(65,086)				(120,061)				(109,290)
Proceeds from sale or redemption of available for sale investments			102,515				114,529				119,129
Purchase of property, plant and equipment and intangibles			(2,054)				(1,928)				(1,690)
Proceeds from sale of property, plant and equipment and intangibles			234				393				354
Proceeds from part disposal of investment in BAGL			595				-				-
Other cash flows associated with investing activities			32				516				(68)
Net cash from investing activities			36,236				(6,551)				8,435
Dividends paid			(1,186)				(1,428)				(1,452)
Issuance of subordinated debt			1,457				879				848
Redemption of subordinated debt			(1,143)				(556)				(869)
Net redemption of shares and other equity instruments			1,125				655				(1,100)
Capital contribution from Barclays PLC			114				560				1,412
Repurchase of shares and other equity instruments			(1,378)				-				-
Net cash from financing activities			(1,011)				110				(1,161)
Net cash from discontinued operations			405				(1,821)				1,809
Effect of exchange rates on cash and cash equivalents			10,468				1,689				(313)
Net increase in cash and cash equivalents			57,376				8,077				(3,275)
Cash and cash equivalents at beginning of year			86,556				78,479				81,754
Cash and cash equivalents at end of year			143,932				86,556				78,479
Cash and cash equivalents comprise:
Cash and balances at central banks			102,328				49,711				39,695
Loans and advances to banks with original maturity less than three months			38,099				35,876				36,282
Available for sale treasury and other eligible bills with original maturity less than three months			356				816				2,322
Trading portfolio assets with original maturity less than three months			-				153				180
Cash and cash equivalents held for sale			3,149				-				-
			143,932				86,556				78,479

Interest received by The Group was £21,981m (2015: £20,370m; 2014: £21,372m) and interest paid by The Group was £7,812m (2015: £6,992m; 2014: £8,566m).

The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £4,254m at 31 December 2016 (2015: £4,369m; 2014: £4,448m).

For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  435

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Barclays Bank PLC data

Notes to the accounts

 

 

a Net interest income
			2016   £m				2015   £m				2014   £m
Cash and balances with central banks			186				157				186
Financial investments			740				698				803
Loans and advances to banks			483				481				382
Loans and advances to customers			12,957				12,512				12,768
Other			57				99				61
Interest incomea			14,423				13,947				14,200
Deposits from banks			(204)				(123)				(138)
Customer accounts			(1,808)				(1,510)				(2,166)
Debt securities in issue			(690)				(422)				(684)
Subordinated liabilities			(988)				(978)				(995)
Other			724				449				(73)
Interest expensea			(2,966)				(2,584)				(4,056)
Net interest income			11,457				11,363				10,144
b Net fee and commission income
			2016   £m				2015   £m				2014   £m
Banking, investment management and credit related fees and commissions			8,507				8,365				8,483
Foreign exchange commission			118				129				139
Fee and commission income			8,625				8,494				8,622
Fee and commission expense			(1,789)				(1,611)				(1,500)
Net fee and commission income			6,836				6,883				7,122
c Net Trading Income
			2016   £m				2015   £m				2014   £m
Trading income			2,830				3,000				3,030
Own credit gains/(losses)			(35)				430				34
Net trading income			2,795				3,430				3,064

Note

a

Both interest income and interest expenses for 2015 and 2014 have been adjusted by £442m and £605m respectively, in order to better align the effect of hedge accounting relationships with the related hedged items. The following categories were restated: financial investments by £(545)m (2014: £(637)m), loans and advances to customers by £987m (2014: £1,242m), customer accounts by £(1,783m) (2014: £(2,016)m), debt securities in issues by £784m (2014: £859m) and subordinated liabilities by £557m (2014: £552m).

 

436  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Notes to the accounts

 

 

d Net investment income
			2016   £m				2015   £m				2014   £m
Net gain from disposal of available for sale assets			912				385				622
Dividend income			8				8				9
Net gain from financial instruments designated at fair value			158				193				203
Other investment income			246				511				475
Net investment income			1,324				1,097				1,309
e Administrative and general expenses
			2016   £m				2015   £m				2014   £m
Infrastructure costs
Property and equipment			1,147				1,082				1,281
Depreciation of property, plant and equipment			482				475				495
Operating lease rentals			550				411				512
Amortisation of intangible assets			661				570				454
Impairment of property, equipment and intangible assets			97				150				153
Gain on property disposals			-				3				-
Total infrastructure costs			2,937				2,691				2,895
Administration and general costs
Consultancy, legal and professional fees			1,079				1,078				997
Subscriptions, publications, stationery and communications			638				678				756
Marketing, advertising and sponsorship			430				451				470
Travel and accommodation			132				188				185
UK bank levy			410				425				418
Goodwill Impairment			-				102				-
Other administration and general expenses			511				61				237
Total administration and general costs			3,200				2,983				3,063
Staff costsa			9,211				8,853				9,860
Provision for UK customer redress			1,000				2,772				1,110
Provision for ongoing investigations and litigation including Foreign Exchange			-				1,237				1,250
Operating expensesb			16,348				18,536				18,178

 

a

The Group has realigned outsourcing costs from administration and general expenses to staff costs in order to more appropriately reflect the nature and internal management of these costs. The net effect of these movements is to reduce administration and general expenses and to increase staff costs to £1,063m in 2016 and £1,014m in 2015.

 

b

Total operating expenses of £16,348m (2015: £18,536m; 2014: £18,178m) include depreciation of property, plant and equipment of £482m (2015: £475m; 2014: £495m), amortisation of intangible assets of £661m (2015: £570m; 2014: £454m),goodwill impairment nil( 2015 : £102m; 2014 : nil) and administration and other expenses of £15,205m (2015 £17,389m; 2014: £17,229m).

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  437

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Barclays Bank PLC data

Notes to the accounts

 

 

f Tax

 

			2016   £m				2015   £m				2014   £m
Current tax charge/(credit)
Current year			1,147				1,772				1,158
Adjustment for prior years			(359)				(188)				(19)
			788				1,584				1,139
Deferred tax charge/(credit)
Current year			392				(360)				92
Adjustment for prior years			65				78				(66)
			457				(282)				26
Tax charge			1,245				1,302				1,165

 

Tax relating to each component of other comprehensive income can be found in the consolidated statement of comprehensive income which additionally includes within Other a tax credit of £49m (2015: £19m credit) principally relating to share based payments.   The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to The Group’s profit before tax.

 

			2016   £m				2015   £m				2014   £m
Profit before tax from continuing operations			4,383				1,914				1,366
Tax charge based on the standard UK corporation tax rate of 20% (2015: 20.25%, 2014: 21.50%)			877				387				293
Impact of profits/losses earned in territories with different statutory rates to the UK (weighted average tax rate is 29.5% (2015: 28.1%, 2014: 29.0%))			415				151				103
Recurring items:
Non-creditable taxes including withholding taxes			277				309				329
Non-deductible expenses			114				67				146
Impact of UK bank levy being non-deductible			82				96				99
Banking surcharge on UK profits			75				-				-
Other items			49				(16)				75
Tax adjustments in respect of share based payments			34				30				21
Impact of change in tax rates			32				158				9
Adjustments in respect of prior years			(294)				(110)				(85)
Non-taxable gains and income			(208)				(197)				(212)
Changes in recognition of deferred tax and effect of unrecognised tax losses			(178)				(71)				(115)
Impact of BB PLC’s overseas branches being taxed both locally and in the UK			(128)				(35)				(68)
Non-recurring items:
Non-deductible provisions for UK customer redress			203				283				-
Non-deductible impairments and losses on divestments			27				39				234
Non-deductible provisions for investigations and litigation			48				261				387
Non-taxable gains and income on divestments			(180)				(50)				(51)
Tax charge			1,245				1,302				1,165
Effective tax rate			28.4%				68.0%				85.3%

 

438  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Notes to the accounts

 

 

Current tax assets and liabilities

Movements on current tax assets and liabilities were as follows:

 

			2016   £m				2015   £m
Assets			385				334
Liabilities			(930)				(1,023)
As at 1 January			(545)				(689)
Income statement from continuing operations			(788)				(1,584)
Income statement in relation to BAGL disposal group			-				(301)
Other comprehensive income			295				145
Corporate income tax paid			742				1,643
Other movements			89				241
			(207)				(545)
Assets			501				385
Liabilities			(708)				(930)
As at 31 December			(207)				(545)
Other movements include the impact of changes in foreign exchange rates, as well as deferred tax amounts relating to acquisitions, disposals and transfers to held for sale.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  439

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Barclays Bank PLC data

Notes to the accounts

    

 

 

g Trading portfolio assets
			2016   £m				2015   £m
Debt securities and other eligible bills			38,804				45,626
Equity securities			38,329				29,055
Traded loans			2,975				2,474
Commodities			147				243
Trading portfolio assets			80,255				77,398
h Financial Investments
			2016   £m				2015   £m
Available for sale debt securities and other eligible bills			57,704				89,278
Available for sale equity securities			485				1,206
Held to maturity debt securities			5,176				-
Financial Investments			63,365				90,304
i Loans and advances to banks and customers
			2016   £m				2015   £m
Gross loans and advances to banks			43,634				41,829
Less: allowance for impairment			-				-
Loans and advances to banks			43,634				41,829
Gross loans and advances to customers			397,403				404,138
Less: allowance for impairment			(4,620)				(4,921)
Loans and advances to customers			392,783				399,217

 

j Derivative financial instruments
			Notional   contract   amount   £m				Fair value   Assets   £m				Liabilities   £m
Year ended 31 December 2016
Total derivative assets/(liabilities) held for trading			36,261,030				345,834				(339,647)
Total derivative assets/(liabilities) held for risk management			261,314				986				(840)
Derivative assets/(liabilities)			36,522,344				346,820				(340,487)
Year ended 31 December 2015
Total derivative assets/(liabilities) held for trading			29,437,102				326,933				(323,788)
Total derivative assets/(liabilities) held for risk management			316,605				937				(464)
Derivative assets/(liabilities)			29,753,707				327,870				(324,252)

 

440  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Notes to the accounts

    

 

 

k Subordinated liabilities
			2016   £m				2015   £m
Undated subordinated liabilities			4,495				5,248
Dated subordinated liabilities			19,376				16,707
Total subordindated liabilities			23,871				21,955

l Ordinary shares, share premium, and other equity

Called up share capital, allotted and fully paid

 

			Ordinary   share   capital   £m				Preference   share   capital   £m				Share   premium   £m				Total share   capital and   share   premium   £m				Other   equity   instruments   £m
As at 1 January 2016			2,342				38				12,092				14,472				5,350
AT1 securities issuance			-				-				-				-				1,136
Redemptions			-				(10)				-				(10)				-
As at 31 December 2016			2,342				28				12,092				14,462				6,486
As at 1 January 2015			2,342				38				12,092				14,472				4,350
AT1 securities issuance			-				-				-				-				1,000
As at 31 December 2015			2,342				38				12,092				14,472				5,350

Ordinary shares

The issued ordinary share capital of Barclays Bank PLC, as at 31 December 2016, comprised 2,342 million ordinary shares of £1 each (2015: 2,342 million).

Ordinary share capital constitutes 60% (2015: 60%) of total share capital issued.

Preference shares

The issued preference share capital of Barclays Bank PLC, as at 31 December 2016, comprised 1,000 Sterling Preference Shares of £1 each (2015: 1,000); 31,856 Euro Preference Shares of € 100 each (2015: 31,856); 20,930 Sterling Preference Shares of £100 each (2015: 20,930); 58,133 US Dollar Preference Shares of $100 each (2015: 58,133); and 161 million US Dollar Preference Shares of $0.25 each (2015: 237 million). In the second quarter of 2016, 46 million US Dollar Preference Shares of $0.25 each were redeemed. In the third quarter of 2016, 30 million US Dollar Preference Shares of $0.25 were redeemed.

Preference share capital constitutes 40% (2015: 40%) of total share capital issued.

Sterling £1 Preference Shares

1,000 Sterling cumulative callable preference shares of £1 each (the £1 Preference Shares) were issued on 31 December 2004 at nil premium.

The £1 Preference Shares entitle the holders thereof to receive Sterling cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a rate reset semi-annually equal to the Sterling interbank offered rate for six-month sterling deposits.

Barclays Bank PLC shall be obliged to pay such dividends if: (1) it has profits available for the purpose of distribution under the Companies Act 2006 as at each dividend payment date; and (2) it is solvent on the relevant dividend payment date, provided that a capital regulations condition is satisfied on such dividend payment date. The dividends shall not be due and payable on the relevant dividend payment date except to the extent that Barclays Bank PLC could make such payment and still be solvent immediately thereafter. Barclays Bank PLC shall be considered solvent on any date if: (1) it is able to pay its debts to senior creditors as they fall due; and (2) its auditors have reported within the previous six months that its assets exceed its liabilities. If Barclays Bank PLC shall not pay, or shall pay only in part, a dividend for a period of seven days or more after the due date for payment, the holders of the £1 Preference Shares may institute proceedings for the winding-up of Barclays Bank PLC. No remedy against Barclays Bank PLC shall be available to the holder of any £1 Preference Shares for the recovery of amounts owing in respect of £1 Preference Shares other than the institution of proceedings for the winding-up of Barclays Bank PLC and/or proving in such winding-up.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  441

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Barclays Bank PLC data

Notes to the accounts

    

 

 

On a winding-up or other return of capital (other than a redemption or purchase by Barclays Bank PLC of any of its issued shares, or a reduction of share capital, permitted by the Articles of Barclays Bank PLC and under applicable law), the assets of Barclays Bank PLC available to shareholders shall be applied in priority to any payment to the holders of ordinary shares and any other class of shares in the capital of Barclays Bank PLC then in issue ranking junior to the £1 Preference Shares on such a return of capital and pari passu on such a return of capital with the holders of any other class of shares in the capital of Barclays Bank PLC then in issue (other than any class of shares in the capital of Barclays Bank PLC then in issue ranking in priority to the £1 Preference Shares on a winding-up or other such return of capital), in payment to the holders of the £1 Preference Shares of a sum equal to the aggregate of: (1) an amount equal to the dividends accrued thereon for the then current dividend period (and any accumulated arrears thereof) to the date of the commencement of the winding-up or other such return of capital; and (2) an amount equal to £1 per £1 Preference Share. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the £1 Preference Shares will have no right or claim to any of the remaining assets of Barclays Bank PLC and will not be entitled to any further participation in such return of capital.

The £1 Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, subject to the Companies Act 2006 and its Articles. Holders of the £1 Preference Shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC.

Euro Preference Shares

140,000 Euro 4.75% non-cumulative callable preference shares of € 100 each (the 4.75% Preference Shares) were issued on 15 March 2005 for a consideration of € 1,383.3m (£966.7m), of which the nominal value was € 14m and the balance was share premium. The 4.75% Preference Shares entitle the holders thereof to receive Euro non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 4.75% per annum on the amount of € 10,000 per preference share until 15 March 2020, and thereafter quarterly at a rate reset quarterly equal to 0.71% per annum above the Euro interbank offered rate for three-month Euro deposits.

The 4.75% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 March 2020, and on each dividend payment date thereafter at € 10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.

Sterling Preference Shares

75,000 Sterling 6.0% non-cumulative callable preference shares of £100 each (the 6.0% Preference Shares) were issued on 22 June 2005 for a consideration of £743.7m, of which the nominal value was £7.5m and the balance was share premium. The 6.0% Preference Shares entitle the holders thereof to receive Sterling non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 6.0% per annum on the amount of £10,000 per preference share until 15 December 2017, and thereafter quarterly at a rate reset quarterly equal to 1.42% per annum above the London interbank offered rate for three-month Sterling deposits.

The 6.0% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 December 2017, and on each dividend payment date thereafter at £10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.

US Dollar Preference Shares

100,000 US Dollar 6.278% non-cumulative callable preference shares of $100 each (the 6.278% Preference Shares), represented by 100,000 American Depositary Shares, Series 1, were issued on 8 June 2005 for a consideration of $995.4m (£548.1m), of which the nominal value was $10m and the balance was share premium. The 6.278% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a fixed rate of 6.278% per annum on the amount of $10,000 per preference share until 15 December 2034, and thereafter quarterly at a rate reset quarterly equal to 1.55% per annum above the London interbank offered rate for three-month US Dollar deposits.

The 6.278% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 December 2034, and on each dividend payment date thereafter at $10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.

55 million US Dollar 7.1% non-cumulative callable preference shares of $0.25 each (the 7.1% Preference Shares), represented by 55 million American Depositary Shares, Series 3, were issued on 13 September 2007 for a consideration of $1,335m (£657m), of which the nominal value was $13.75m and the balance was share premium. The 7.1% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 7.1% per annum on the amount of $25 per preference share.

 

442  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Notes to the accounts

    

 

 

The 7.1% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole or in part, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.

106 million US Dollar 8.125% non-cumulative callable preference shares of $0.25 each (the 8.125% Preference Shares), represented by 106 million American Depositary Shares, Series 5, were issued on 11 April 2008 and 25 April 2008 for a total consideration of $2,650m (£1,345m), of which the nominal value was $26.5m and the balance was share premium. The 8.125% Preference Shares entitle the holders thereof to receive US Dollar non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 8.125% per annum on the amount of $25 per preference share.

The 8.125% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole or in part, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.

No redemption or purchase of any 4.75% Preference Shares, the 6.0% Preference Shares, the 6.278% Preference Shares, the 6.625% Preference Shares, the 7.1% Preference Shares, the 7.75% Preference Shares and the 8.125% Preference Shares (together, the Preference Shares) may be made by Barclays Bank PLC without the prior approval of the UK PRA and any such redemption will be subject to the Companies Act 2006 and the Articles of Barclays Bank PLC.

On a winding-up of Barclays Bank PLC or other return of capital (other than a redemption or purchase of shares of Barclays Bank PLC, or a reduction of share capital), a holder of Preference Shares will rank in the application of assets of Barclays Bank PLC available to shareholders: (1) junior to the holder of any shares of Barclays Bank PLC in issue ranking in priority to the Preference Shares; (2) equally in all respects with holders of other preference shares and any other shares of Barclays Bank PLC in issue ranking pari passu with the Preference Shares; and (3) in priority to the holders of ordinary shares and any other shares of Barclays Bank PLC in issue ranking junior to the Preference Shares.

The holders of the £13m 6% Callable Perpetual Core Tier One Notes and the $569m 6.86% Callable Perpetual Core Tier One Notes of Barclays Bank PLC (together, the TONs) and the holders of the £35m 5.3304% Step-up Callable Perpetual Reserve Capital Instruments, the $159m 5.926% Step-up Callable Perpetual Reserve Capital Instruments, the £33m 6.3688% Step-up Callable Perpetual Reserve Capital Instruments, the $117m 7.434% Step-up Callable Perpetual Reserve Capital Instruments and the £3,000m 14% Step-up Callable Perpetual Reserve Capital Instruments of Barclays Bank PLC (together, the RCIs) would, for the purposes only of calculating the amounts payable in respect of such securities on a winding-up of Barclays Bank PLC, subject to limited exceptions and to the extent that the TONs and the RCIs are then in issue, rank pari passu with the holders of the most senior class or classes of preference shares then in issue in the capital of Barclays Bank PLC. Accordingly, the holders of the preference shares would rank equally with the holders of such TONs and RCIs on such a winding-up of Barclays Bank PLC (unless one or more classes of shares of Barclays Bank PLC ranking in priority to the preference shares are in issue at the time of such winding-up, in which event the holders of such TONs and RCIs would rank equally with the holders of such shares and in priority to the holders of the preference shares).

Subject to such ranking, in such event, holders of the preference shares will be entitled to receive out of assets of Barclays Bank PLC available for distributions to shareholders, liquidating distributions in the amount of € 10,000 per 4.75% Preference Share, £10,000 per 6.0% Preference Share, $10,000 per 6.278% Preference Share, $25 per 6.625% Preference Share, $25 per 7.1% Preference Share, $25 per 7.75% Preference Share and $0.25 per 8.125% Preference Share, plus, in each case, an amount equal to the accrued dividend for the then current dividend period to the date of the commencement of the winding-up or other such return of capital. If a dividend is not paid in full on any preference shares on any dividend payment date, then a dividend restriction shall apply.

This dividend restriction will mean that neither Barclays Bank PLC nor Barclays PLC may (a) declare or pay a dividend (other than payment by Barclays PLC of a final dividend declared by its shareholders prior to the relevant dividend payment date, or a dividend paid by Barclays Bank PLC to Barclays PLC or to a wholly owned subsidiary) on any of their respective ordinary shares, other preference shares or other share capital or (b) redeem, purchase, reduce or otherwise acquire any of their respective share capital, other than shares of Barclays Bank PLC held by Barclays PLC or a wholly owned subsidiary, until the earlier of: (1) the date on which Barclays Bank PLC next declares and pays in full a preference dividend; and (2) the date on or by which all the preference shares are redeemed in full or purchased by Barclays Bank PLC.

Holders of the preference shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC. Barclays Bank PLC is not permitted to create a class of shares ranking as regards participation in the profits or assets of Barclays Bank PLC in priority to the preference shares, save with the sanction of a special resolution of a separate general meeting of the holders of the preference shares (requiring a majority of not less than three-fourths of the holders of the preference shares voting at the separate general meeting) or with the consent in writing of the holders of three-fourths of the preference shares.

Except as described above, the holders of the preference shares have no right to participate in the surplus assets of Barclays Bank PLC.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  443

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Barclays Bank PLC data

Notes to the accounts

    

 

 

Other equity instruments

Other equity instruments of £6,486m (2015: £5,230m) include AT1 securities issued by Barclays Bank PLC. In 2016, there was one issuance of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities, with a principal amount of £1.1bn.

The AT1 securities are perpetual securities with no fixed maturity and are structured to qualify as AT1 instruments under CRD IV.

 

Other shareholders’ equity
		The Group						The Bank
		2016			2015			2016			2015
		£m			£m			£m			£m
As at 1 January		485			485			549			549
Redemption		(214)			-			(214)			-
As at 31 December		271			485			335			549

Included in other shareholders’ equity are capital notes which bear interest at rates fixed periodically in advance, based on London interbank rates. These notes are repayable in each case, at the option of the Bank, in whole on any interest payment date. The Bank is not obliged to make a payment of interest on its capital notes if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC.

Upper Tier 2 Capital instruments were redeemed in full during 2016, resulting in a reduction in other shareholders’ equity of £214m.

Reserves

Currency translation reserve

The currency translation reserve represents the cumulative gains and losses on the retranslation of the Group’s net investment in foreign operations, net of the effects of hedging.

As at 31 December 2016 there was a credit balance of £3,054m (2015: £623m debit) in the currency translation reserve. The increase in the credit balance of £3,677m (2015: £41m debit) principally reflected the strengthening of all major currencies against GBP. The currency translation reserve movement associated with non-controlling interests was a £801m credit (2015: £435m debit) reflecting the appreciation of ZAR against GBP.

During the year a £94m net gain (2015: £65m net loss) from recycling of the currency translation reserve was recognised in the income statement.

Available for sale reserve

The available for sale reserve represents the unrealised change in the fair value of available for sale investments since initial recognition.

As at 31 December 2016 there was a debit balance of £22m in the available for sale reserve (2015: £338m credit). The decrease of £360m (2015: £240m decrease) primarily due to £2,223m gain from changes in fair value on Government Bonds, predominantly held in the liquidity pool, £1,677m of losses from related hedging, £912m of net gains transferred to net profit, mainly due to £615m gain on disposal of Barclays’ share of Visa Europe Limited. A tax charge of £28m was recognised in the period relating to these items.

Cash flow hedging reserve

The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss.

As at 31 December 2016 there was a credit balance of £954m (2015: £709m credit) in the cash flow hedging reserve. The increase of £245m (2015: £1,108m decrease) principally reflected a £829m increase in the fair value of interest rate swaps held for hedging purposes as interest rate forward curves decreased, partially offset by £516m gains recycled to the income statement in line with when the hedged item affects profit or loss and a tax credit of £93m.

m  Non-controlling interests

 

			Profit attributable to Non-   Controlling interest								Equity attributable to Non-   Controlling interest								Dividends paid to Non-   Controlling interest
			2016				2015				2016				2015				2016				2015
			£m				£m				£m				£m				£m				£m
Barclays Africa Group Limited			402				324				3,507				1,902				235				209
Other non-controlling interests			3				3				15				12				-				-
Total			405				327				3,522				1,914				235				209

Barclays Bank PLC owns 50.2% (2015: 62.5%) of Barclays Africa Group Limited.

 

444  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Barclays Bank PLC data

Notes to the accounts

    

 

 

n Dividends on ordinary shares

Ordinary dividends were paid to enable Barclays PLC to fund its dividend to shareholders.

The 2016 financial statements include £638m (2015: £876m) of dividends paid. This includes the final dividend declared in relation to the prior year of £502m (2015: £476m) and interim dividends of £119m (2015: £400m), resulting in interim dividends of 5p (2015: 17p) per ordinary share and a total dividend for the year of 27p (2015: 37p) per ordinary share paid during the year. There was a £18m dividend in specie paid to Barclays PLC in respect of the distribution of Group Service Company to Barclays Bank PLC.

Dividends paid on the 4.75% €100 preference shares amounted to £370.20 per share (2015: £339.67). Dividends paid on the 6.0% £100 preference shares amounted to £600.00 per share (2015: £600.00). Dividends paid on the 6.278% US$100 preference shares amounted to £467.05 per share (2015: £410.28). Dividends paid on the 6.625% US$0.25 preference shares amounted to £1.19 per share (2015: £1.09). Dividends paid on the 7.1% US$0.25 preference shares amounted to £1.30 per share (2015: £1.17). Dividends paid on the 7.75% US$0.25 preference shares amounted to £1.35 per share (2015: £1.28). Dividends paid on the 8.125% US$0.25 preference shares amounted to £1.49 per share (2015: £1.34).

Dividends paid on preference shares amounted to £339m (2015: £343m). Dividends paid on other equity instruments amounted to £462m (2015: £346m).

o Capital

The Barclays Bank PLC Group’s policies and objectives for managing capital are the same as those for the Barclays PLC Group, disclosed on page 388.

The table below provides details of the Barclays Bank PLC Group at 31 December 2016.

 

Regulatory capital			2016
			£m
Fully loaded Common Equity Tier 1			46,450
PRA Transitional Tier 1			58,652
PRA Transitional Total Capital Resources			74,871

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  445

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Barclays Bank PLC data

Notes to the accounts

 

 

 

p Segmental reporting

Segmental reporting by Barclays Bank PLC is the same as that presented in the Barclays PLC financial statements, except for:

– the difference in profit before tax of £1.2bn (2015: £0.8bn) between Barclays PLC and Barclays Bank PLC is included in Head Office; and

– the difference in total assets of £0.9bn (2015: £0.8bn) is mainly due to loan notes issued by Barclays Bank PLC to fund the derivatives in Barclays PLC.

q Related Parties

The aggregate emoluments of all Directors and Officers of Barclays Bank PLC who held office during the year (2016: 33 persons, 2015: 33 persons, 2014: 34 persons) for the year ended 31st December 2016 amounted to £71.3m (2015: £52.5m, 2014: £57.0m). In addition, the aggregate amount set aside by the Bank and its subsidiaries for the year ended 31st December 2016, to provide pension benefits for the Directors and Officers amounted to £0.2m (2015: £0.3m 2014: £0.3m).

 

446  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Additional Financial data

Additional financial disclosure (unaudited)

    

 

 

 

Selected financial statistics			2016				2015				2014				2013				2012
			%				%				%				%				%
Return on average shareholders’ equitya			4.5				0.9				0.1				1.7				(0.5)
Return on average total assetsb			0.2				-				-				0.1				-
Average shareholders’ equity as a percentage of average total assets			5.1				4.9				4.6				3.9				3.8
			2016				2015				2014				2013				2012
Selected income statement data			£m				£m				£m				£m				£m
Continuing operations
Interest income			14,423				13,947				14,200				14,361				14,772
Interest expense			(2,966)				(2,584)				(4,056)				(4,851)				(5,334)
Non-interest income			11,012				11,445				11,665				14,553				11,251
Operating expenses			(16,348)				(18,536)				(18,178)				(19,534)				(18,474)
Impairment charges			(2,373)				(1,762)				(1,821)				(2,601)				(2,659)
Share of post-tax results of associates and joint ventures			70				41				28				(65)				92
Profit on disposal of subsidiaries, associates and joint ventures			565				(637)				(473)				6				28
Gain on acquisitions			-				-				-				26				2
Profit before tax			4,383				1,914				1,365				1,896				(322)
Profit attributable to equity holders of the parent			2,867				566				85				963				(306)
			2016				2015				2014				2013				2012
Selected balance sheet data			£m				£m				£m				£m				£m
Total shareholders’ equity			60,947				64,105				59,444				58,931				57,067
Subordinated liabilities			23,871				21,955				21,685				22,249				24,422
Deposits from banks, customer accounts and debt securities in issue			548,286				534,537				572,357				574,340				587,787
Loans and advances to banks and customers			436,417				441,046				470,424				474,059				472,809
Total assets			1,213,955				1,120,727				1,358,693				1,344,201				1,512,777

Notes

a	Return on average shareholders’ equity represents profit attributable to the equity holders of the parent as a percentage of average shareholders’ equity.

 

b	Return on average total assets represents profit attributable to the equity holders of the parent as a percentage of average total assets.

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  447

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Additional Financial data

Additional financial disclosure (unaudited)

    

 

 

 

Ratio of earnings to fixed charges – Barclays Bank Plc			2016				2015				2014				2013				2012
			(In £m except for ratios)
Ratio of earnings to fixed charges
Fixed charges
Interest expense			2,966				2,584				4,056				4,851				5,334
Rental expense			204				157				207				219				216
Total fixed charges			3,170				2,741				4,263				5,070				5,550
Earnings
Income before taxes and non-controlling interests			4,383				1,914				1,365				1,896				322
Less: unremitted pre-tax income of associated companies and joint ventures			(53)				(26)				(34)				102				(94)
Total earnings excluding fixed charges			4,330				1,888				1,331				1,998				(416)
Fixed charges			3,170				2,741				4,263				5,070				5,550
Total earnings including fixed charges			7,500				4,629				5,594				7,068				5,134
Ratio of earnings to fixed charges			2.37				1.69				1.31				1.39				0.93
Ratio of earnings to fixed charges and preference shares – Barclays Bank Plc			2016				2015				2014				2013				2012
			(In £m except for ratios)
Combined fixed charges, preference share dividends and similar appropriations
Interest expense			2,966				2,584				4,056				4,851				5,334
Rental expense			204				157				207				219				216
Fixed charges			3,170				2,741				4,263				5,070				5,550
Preference share dividends and similar appropriations			343				345				443				412				466
Total fixed charges			3,513				3,086				4,706				5,482				6,016
Earnings
Income before taxes and non-controlling interests			4,383				1,914				1,365				1,896				322
Less: unremitted pre-tax income of associated companies and joint ventures			(53)				(26)				(34)				102				(94)
Total earnings excluding fixed charges			4,330				1,888				1,331				1,998				416
Fixed charges			3,513				3,086				4,706				5,482				6,016
Total earnings including fixed charges			7,843				4,974				6,037				7,480				5,600
Ratio of earnings to fixed charges, preference share dividends and similar appropriations			2.23				1.61				1.28				1.36				0.93

 

448  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  449

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450  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  451

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452  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  453

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454  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  455

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456  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  457

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458  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  459

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460  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  461

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462  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  463

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464  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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Shareholder information

Resources for shareholders including

contact details for shareholder enquiries

 

 

Shareholder information					Page
		§  Your Barclays shareholding			466
		§  Useful contact details			467

 

 

 

		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  465

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Shareholder information

Your Barclays shareholding

 

 

 

 

Note

1	Please note that this date is provisional and subject to change.

 

466  |  Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F

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		Barclays PLC and Barclays Bank PLC 2016 Annual Report on Form 20-F  |  467

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Signatures

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.

 

Date February 23rd, 2017				Barclays PLC   (Registrant)
				By
						/s/ Tushar Morzaria
						Tushar Morzaria, Group Finance Director

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.

 

Date February 23rd, 2017				Barclays Bank PLC   (Registrant)
				By
						/s/ Tushar Morzaria
						Tushar Morzaria, Group Finance Director

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EXHIBIT INDEX

 

Exhibit		Description
1.1		Articles of Association of Barclays PLC (incorporated by reference to the Form 6-K filed on May 2nd, 2013)
1.2		Articles of Association of Barclays Bank PLC (incorporated by reference to the Form 6-K filed on May 13th, 2010)
2.1		Long Term Debt Instruments: Neither Barclays PLC nor Barclays Bank PLC is party to any single instrument relating to long-term debt pursuant to which a total amount of securities exceeding 10% of either Barclays PLC’s or Barclays Bank PLC’s total assets (on a consolidated basis) is authorised to be issued. Each of Barclays PLC and Barclays Bank PLC hereby agrees to furnish to the Securities and Exchange Commission (the “Commission”), upon its request, a copy of any instrument defining the rights of holders of its long-term debt or the rights of holders of the long-term debt of any of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed with the Commission.
4.0		Rules of the Barclays Group Performance Share Plan (2005) (incorporated by reference to the 2006 Form 20-F filed on March 26th, 2007)
4.1		Rules of the Barclays PLC Renewed 1986 Executive Share Option Scheme (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008)
4.2		Rules of the Barclays PLC Approved Incentive Share Option Plan (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008)
4.3		Rules of the Barclays PLC Unapproved Incentive Share Option Plans (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008)
4.4		Rules of the Barclays PLC Executive Share Award Scheme - Incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-173899) filed on May 3rd, 2011)
4.5		Rules of the Barclays Group Special Award Performance Share Plan (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008
4.6		Rules of the Barclays Group Incentive Share Plan (incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-153723) filed on September 29th, 2008)
4.7		Rules of Barclays Bank PLC 1999 Directors Deferred Compensation Plan (amended and restated, effective January 1st, 2008) (incorporated by reference to Barclays Bank PLC’s Registration Statement on Form S-8 (File no. 333-149301) filed on February 19th, 2008)
4.8		Rules of Barclays Bank PLC Senior Management Deferred Compensation Plan (amended and restated, effective January 1st, 2008) (incorporated by reference to Barclays Bank PLC’s Registration Statement on Form S-8 (File no. 333-149302) filed on February 19th, 2008)
4.9		Rules of the Barclays Group Share Value Plan (incorporated by reference to the 2013 Form 20-F filed on

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		March 14th. 2014)
4.10		Rules of the Barclays PLC Long Term Incentive Plan (Incorporated by reference to the Barclays PLC Registration Statement on Form S-8 (File no. 333-173899) filed on May 3rd, 2011)
4.11		Rules of the Barclays Group Deferred Share Value Plan
4.12		Contract of Employment – Tushar Morzaria (Incorporated by reference to the 2014 Form 20-F filed on March 14th, 2014)
4.13		Appointment Letter – Reuben Jeffery III (incorporated by reference to the 2009 Form 20-F filed on March 19th, 2010)
4.14		Appointment Letter – Dambisa Moyo (incorporated by reference to the 2010 Form 20-F filed on March 21st, 2011)
4.15		Appointment Letter – Tim Breedon (incorporated by reference to the 2012 Form 20-F filed on March 13th, 2013)
4.16		Appointment Letter – Diane de Saint Victor (incorporated by reference to the 2012 Form 20-F filed on March 13th, 2013)
4.17		Appointment Letter – Michael Ashley (Incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014)
4.18		Appointment Letter – Stephen Thieke (Incorporated by reference to the 2013 Form 20-F filed on March 14th, 2014)
4.19		Appointment Letter - Crawford Gillies (Incorporated by reference to the 2014 Form 20-F filed on March 3rd, 2015)
4.20		Appointment Letter - John McFarlane (Incorporated by reference to the 2014 Form 20-F filed on March 3rd, 2015)
4.21		Appointment Letter – Sir Gerry Grimstone (incorporated by reference to the 2015 Form 20-F filed on March 1st, 2016)
4.22		Appointment Letter – Diane Schueneman (incorporated by reference to the 2015 Form 20-F filed on March 1st, 2016)
4.23		Contract of employment – James E Staley (incorporated by reference to the 2015 Form 20-F filed on March 1st, 2016)
4.24		Transfer of Employment – James E Staley
4.25		Transfer of Employment – Tushar Morzaria
4.26		Appointment Letter – Mary Francis

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7.1		Ratios of earnings to fixed charges. The calculations can be found in the Barclays Bank PLC financial data on page 448 of the Form 20-F.
7.2		Ratios of earnings to combined fixed charges, preference share dividends and similar appropriations. The calculations can be found in the Barclays Bank PLC financial data on page 448 of the Form 20-F.
7.3		Ratios of earnings to fixed charges. The calculations can be found in the Barclays PLC financial data on page 426 of the Form 20-F.
7.4		Ratios of earnings to combined fixed charges, preference share dividends and similar appropriations. The calculations can be found in the Barclays PLC financial data on page 426 of the Form 20-F.
8.1		List of subsidiaries – The list of subsidiaries of Barclays PLC can be found in Note 46 of the Barclays PLC financial statements on pages 308 to 316 of the Form 20-F.
11.1		Code of Ethics
12.1		Certifications filed pursuant to 17 CFR 240. 13(a)-14(a)
13.1		Certifications filed pursuant to 17 CFR 240. 13(a) and 18 U.S.C 1350(a) and 1350(b)
15.1		Consent of PricewaterhouseCoopers LLP for incorporation by reference of reports in certain securities registration statements of Barclays PLC and Barclays Bank PLC.
99.2		A table setting forth the issued share capital of Barclays PLC and the Barclays PLC Group’s total shareholders’ equity, indebtedness and contingent liabilities as at 31 December 2016
99.3		A table setting forth the issued share capital of Barclays Bank PLC and the Barclays Bank PLC Group’s total shareholders’ equity, indebtedness and contingent liabilities as at 31 December 2016