TIDM12ZB
RNS Number : 6719Q
Barclays Bank UK PLC
21 February 2019
Barclays Bank UK PLC
Annual Report and Accounts 2018
21 February 2019
UK Listing Authority submission
In compliance with Disclosure Guidance & Transparency Rule
(DTR) 4.1, Barclays Bank UK PLC announces that its Annual Report
2018 will today be submitted to the National Storage Mechanism and
will shortly be available for inspection at:
http://www.morningstar.co.uk/uk/NSM
The document may also be accessed via Barclays PLC's website at
home.barclays/investorrelations
Additional information
The following information is extracted from the Barclays Bank UK
PLC Annual Report 2018 (page references are to pages in the Annual
Report) which can be found at home.barclays/investorrelations and
constitutes the material required by DTR 6.3.5 to be communicated
to the media in unedited full text through a Regulatory Information
Service. This material is not a substitute for reading the Barclays
Bank UK PLC Annual Report 2018 in full.
Strategic Report
Performance review
The Strategic report was approved by the Board of Directors on
20 February 2019 and signed on their behalf by the Chairman.
Overview
Barclays Bank UK PLC was established to meet the regulatory
ring-fencing requirements in accordance with the Financial Services
(Banking Reform) Act 2013 and related legislation. The set-up of
the ring-fenced bank involved the transfer to Barclays Bank UK PLC
of employees, businesses and various legal entities connected with
the UK banking business. Following the stand-up of the ring-fenced
bank, consolidated statutory financial statements have been
produced for Barclays Bank UK Group for the first time.
In September 2017, c.25,000 colleagues were legally transferred
to Barclays Bank UK PLC and subsequently seconded back to Barclays
Bank PLC until 1 April 2018, the date of the stand-up of the
ring-fenced bank. The majority of entity and business transfers
comprising 24 million customers and clients, combined with GBP254bn
of assets, took place in 2018.
The UK banking business, largely comprising of Personal Banking,
Barclaycard Consumer UK and Business Banking, was transferred from
Barclays Bank PLC to Barclays Bank UK PLC under the single
ring-fencing transfer scheme.
The total net assets transferred to Barclays Bank UK PLC were
GBP16.2bn. Net assets of GBP13.0bn were transferred in exchange for
three ordinary shares issued by Barclays Bank UK PLC and the
remaining assets were transferred for no consideration. As a result
of the transfer the share capital, reserves and other equity
instruments of Barclays Bank UK PLC increased by GBP16.2bn.
The legal entity Barclays Bank UK PLC is the wholly-owned
ring-fenced bank of Barclays PLC. Barclays UK refers to businesses
of Barclays Bank UK PLC and its subsidiaries, comprised largely of
Personal Banking, Barclaycard Consumer UK and Business Banking.
Strategy
Our strategy is centred on building long term, meaningful
relationships with our customers. This is achieved through
colleagues, empowered by technology, passionate about the customer,
delivering perfect and personalised experiences to help customers
move forward with confidence, every day.
The Barclays PLC Group purpose is Creating Opportunities to
Rise. In Barclays Bank UK Group we express this as #letsgoforward -
helping people move forward and do the things they want to do, with
confidence, every day.
Business Model
Barclays Bank UK PLC's ring-fenced UK bank business model offers
products and services designed for UK retail and business
customers, and provides Barclays PLC's shareholders a mix of
revenue streams that benefit from different stages of the economic
cycle, and wider financial and non-financial value for our
stakeholders.
Our Personal Banking business includes Community and Premier
Banking, as well as Savings, Investments & Wealth Management.
Barclaycard Consumer UK is a leading credit card provider, offering
flexible borrowing and payment solutions. Business Banking serves a
spectrum of clients, from high growth start-ups to small and
medium-sized enterprises (SMEs) who need specialist advice,
products and services.
Market and operating environment
The current political and economic environment poses a number of
challenges through the impact on our customers of continuing
uncertainty, modest economic growth and volatile exchange rates,
while ongoing low interest rates constrain overall profitability.
Against this backdrop, competition, customer behaviour and
regulatory expectations continue to evolve rapidly, requiring a
high degree of business change. Barclays Bank UK Group, however,
continues to deliver solid financial performance, with profit
before tax of GBP1,548m. This has been achieved through the
delivery of customer-centric solutions and franchise-led deposit
growth, matched by low risk, high quality secured asset growth
while maintaining a stable net interest margin.
Risks to the operating model
The uncertainty around Brexit has been a challenge throughout
2018 and remains so, impacting both customer confidence and the
market environment. We closely monitor the environment in which we
operate and key indicators within our business, while proactively
planning for numerous potential outcomes, in order to minimise the
risks associated with the UK's withdrawal from the European Union.
We remain conservative in our outlook, supported by our strong risk
management framework and oversight.
The threats of organised crime and cyber-attacks remain key
risks to our operating model and we invest to ensure the
operational resilience and reliability of our technological
infrastructure, while simplifying our technological estate in order
to remain agile and drive technological advancement for the benefit
of our customers.
We remain focused on reducing the volume of operational
incidents through continued investment in our technology and
controls. The volume of operational incidents caused by technology
are becoming less frequent across Barclays Group year-on-year, with
a 13% reduction in the last 12 months. Where incidents do occur, we
are resolutely focused on minimising any impact on customers.
There have been a number of significant regulatory developments
around retail banking business models and pricing in 2018 that have
the potential to impact our business models going forward, while
potential new market entrants such as Fintechs and established
large technology companies threaten to take market share from
traditional banks.
As the deadline for Payment Protection Insurance (PPI) enquiries
approaches, we continue to monitor responses and resource
appropriately for any increase in the lead up to the August 2019
date, in order to ensure the right outcomes for our customers.
Key highlights of the year
Throughout 2018, we have demonstrated our position as leaders in
innovation, providing customers with solutions to better serve
their financial needs. Through automation and digitisation, over
half of the products we delivered in 2018 were taken out digitally
and 90% of our service transactions are now completed in a
self-service fashion by our customers.
We have continued to develop the capabilities of our mobile
banking app, Barclays Mobile Banking (BMB) to allow our customers
to manage their finances more easily and effectively, with BMB
becoming the most used banking app in the UK (eBenchmarkers). We
now have around 10.8 million digitally active customers across
mobile and online banking, around 5 million of whom are digital
only.
We are proud to be the first major UK high street bank to allow
customers to aggregate their other current accounts into our mobile
banking app through Open Banking API technology, meaning that
customers do not have to share their online banking log-in
credentials with us in order to do this. We will continue to
harness the opportunities that Open Banking provides in order to
deliver new and exciting applications for our customers in the
future.
By focusing our efforts on improving the end-to-end journeys for
our customers, we have reduced the number of complaints we receive.
Despite this, the level of complaints we receive is too high and
reducing them further will be a key priority for us in 2019.
This year has seen further progress in ensuring we continue to
properly support older, disabled or potentially vulnerable
customers. A number of new services were launched including; the
ability for deaf customers to contact us by telephone with the
assistance of a third party interpreter, an online support page for
people experiencing mental health concerns and a wide-range of
considerations for older customers including fraud & scams
awareness and accessible banking services.
We are investing in personalised ways to support customers who
are showing that they may be experiencing early stages of financial
stress. Enabled by a new sophisticated data engine, we have
developed a suite of tailored contact to direct customers towards
tools and information that could help them improve their financial
health.
We have already helped over 6.7 million young people develop the
core, transferable skills they need for the world of work through
our LifeSkills program and we have committed to upskill another ten
million people over the next five years to support all generations,
across the whole of the UK.
Performance overview
Personal Banking
Our Community and Premier Banking team develop transparent and
innovative solutions for our customers. We help customers move
forward by putting them at the heart of everything we do,
connecting the different aspects of their lives to their financial
lives, at the time that suits them. This ranges from opening their
first bank account to completing a mortgage on their dream
home.
Savings, Investments & Wealth Management serves a spectrum
of clients - from those who manage their own investments, requiring
an execution service, to those who require a dedicated and holistic
service through our Wealth Management business.
Community & Premier Banking
Throughout the year, we have helped our Community and Premier
customers go forward through a range of both new products and
propositions, as well as enhancements to existing ones.
We have made a range of enhancements to BMB in order to help our
customers manage their finances more effectively. As well as being
able to view current accounts from other banks, we continue to give
customers more control of their financial lives. Misplaced debit
cards can now be temporarily frozen through BMB, preventing any
cash machine withdrawals and online or in-store debit card
purchases. We have also implemented a calendar view feature showing
regular payments scheduled for the month ahead to assist in better
financial planning, as well as an improved view of transaction
details, including a map view, so our customers can identify with
whom they have spent their money more quickly and easily.
We continued to reward customers who chose to bank with us,
launching two switching campaigns in 2018 based on our Blue Rewards
proposition. Our first campaign offered double rewards for a year
for switching, followed by a subsequent campaign offering double
Rewards for Community and triple Rewards for Premier customers for
switching to a Barclays Current Account through the Current Account
Switch Service. 1.4 million customers now benefit from Blue
Rewards, including Cashback.
In 2018, we helped over 110,000 customers take out a mortgage or
further borrowing on their property, 22,000 of which were first
time buyers. Demonstrating our commitment to Barclays Group's green
finance agenda, we were the first major UK bank to offer a Green
Mortgage product. The Barclays Green Home Mortgage rewards
customers with lower rates on certain deals when purchasing new
energy efficient homes and builds upon Barclays Group's green
offering.
Savings, Investments & Wealth Management
In 2018, we brought our Savings proposition together with our
Wealth and Investments business so that we can seek to offer our
customers and clients a flawless experience, whatever stage they
are at in their savings and investments journey.
We launched our Flexible Monthly Income Bond, which enables
customers to deposit a lump sum for a 3-year term and then drawdown
the capital on a monthly basis to supplement their income. This is
a unique and innovative product designed for customers in the
retirement segment, with the launch linked to National Pension
Awareness Day.
Customers who want instant access to their savings can now open
an Everyday Saver account entirely through BMB. We have seen a huge
customer response to this, with over 60% of Everyday Saver accounts
opened digitally in 2018.
In our Wealth Management business, we continued our focus on
growth throughout 2018, with a number of new hires and continued
strong levels of new client acquisition, although market conditions
have been challenging, impacting our overall assets under
management. Investment will be made to improve the client
experience and productivity of our Wealth Managers during 2019.
After a difficult start to the year, with issues relating to the
migration of customers to our digital investing proposition, Smart
Investor, we have worked to enhance the platform in 2018 - for
example customers can now sign up to Smart Investor via BMB.
However, there remains work to do in 2019 to turn the platform into
a leading digital investments offering. To this end, we have a
confirmed 2019 delivery roadmap, based on client feedback, that
will see significant upgrades to the platform throughout the
year.
Barclaycard Consumer UK
Barclaycard Consumer UK is a leading credit card provider,
providing flexible borrowing and payment solutions to around 10
million customers in the UK. We help people move forward, by
helping them to borrow and pay, in the way that suits them. We are
a responsible lender, providing credit based on credit history,
ability to afford credit and our risk appetite, while seeking to
deliver a leading customer experience.
In 2018, we have looked at further ways to meet the needs of our
customers. At Barclaycard Consumer UK, we inspire confidence by
making sure everything we do is secure, reliable and useful to our
customers and clients, like giving our customers 24/7 fraud
protection to keep their money safe and equipping customers with
the knowledge to protect themselves from fraud. Our Fraud Fighter
campaign highlights that fraud is not always so easy to spot and
encourages customers to use our Fraud Fighter Tool.
We worked to better understand the needs of different customer
circumstances and help put the customer in control. We launched a
credit build tool that offers tips and advice to help customers
build their credit score. We helped customers move forward this
year with our first ever product upgrade from Initial to Platinum
for qualifying price promise customers - we upgraded customers who
kept their accounts in order for 12 months to help them further
build their credit score and go forward to do the things they want
to do, with confidence, every day.
We are also committed to ensuring more transparency with our
customers, not just in the ways that we communicate with them, but
by simplifying the ways that our products work. Over the last year,
we have waived interest charges on purchases that are paid in full
if a card also has a promotional balance. Under this new scheme,
cardholders that make new purchases during the billing cycle and
pay them off in full by their payment due date will no longer pay
any interest on those transactions, thus removing the need for
customers to use separate cards for their spending and balance
transfers.
We challenge ourselves to think differently, and create a model
that lowers complaints and provides better customer experience
while delivering sustainable returns. Customers want relevant,
personalised payment and borrowing options, coupled with perfect
digital-driven experiences and they want those experiences to come
to them, in the digital channels they choose, at the moment that's
right for them. In a first for any of Barclays Bank UK Group's
retail banking products, customers can now acquire a Barclaycard
credit card on an external Open Banking Mobile app.
Business Banking
Business Banking offers products, services and specialist advice
to over one million clients in the UK, ranging from start-ups to
mid-sized businesses, to help them achieve their goals.
Business Banking provides support to clients across the UK at
all stages of their business cycle through a relationship-based and
digitally-driven service.
Our UK-wide network of experts has helped thousands of
businesses get started and grow, with access to specialist industry
insights across key segments such as Agriculture and Real Estate.
We also support Education, Social Housing and Local Authorities
(ESHLA). Although new lending to ESHLA clients is met through
Barclays Bank PLC, Barclays Bank UK PLC continues to support ESHLA
clients, for example by agreeing a number of mergers within Social
Housing, which gives clients the capacity to continue building more
new homes to address UK housing needs.
Innovation is an integral part of our strategy for growth and
continues to be at the forefront of our services. In 2018, we
announced a number of key partnerships with fintech businesses,
such as our industry-leading collaboration with PayPal, enhancing
customers' digital payments, saving SMEs time and putting them in
control, with access to marketing, inventory and other valuable
data all in one place. We collaborated with MarketInvoice, Europe's
largest online invoice financing platform, providing small
businesses with access to invoice financing products and
transforming the way SMEs manage cash flow and accelerate
growth.
We also launched GBP100,000 unsecured lending limits for SMEs,
doubling our maximum limits for unsecured business loans for
eligible clients, making small business lending faster, simpler and
easier. This adds to our existing unsecured lending offering which
allows qualifying SME clients to access pre-assessed affordable
lending up to GBP25,000 via our mobile app and through online
banking, often receiving the cash that same day.
Performance measurement
The performance measures of Barclays Bank UK Group contribute to
the overall Barclays PLC Group performance measures. Barclays Bank
UK Group provides diversification and balance to the Barclays
Group. For the purposes of subsidiary reporting, the relevant
measures have been isolated and disclosed below.
Financial performance measures
Barclays Bank UK Group financial performance measures are
calculated at a specific legal entity basis, and disclosed below
along with the Financial Review to provide further context.
Income Statement
Barclays Bank UK Group results 2018(a) 2017
For the year ended 31 December GBPm GBPm
----------------------------------------------- ------- ----
Total income 5,606 27
Credit impairment charges and other provisions (624) -
----------------------------------------------- ------- ----
Net operating Income 4,982 27
Operating expenses (3,356) (8)
Litigation and conduct (78) -
Total operating expenses (3,434) (8)
Profit before tax 1,548 19
Tax charge (433) (4)
----------------------------------------------- ------- ----
Profit after tax 1,115 15
Other equity instrument holders (105) -
----------------------------------------------- ------- ----
Attributable profit 1,010 15
----------------------------------------------- ------- ----
Note
a Barclays Bank UK PLC acquired the UK banking business from Barclays
Bank PLC on 1 April 2018.
Balance Sheet Information
2018 2017
As at 31 December GBPm GBPm
------------------------------------- ------- ----
Assets
Loans and advances at amortised cost 188,565 53
Liabilities
Deposits at amortised cost 197,485 -
------------------------------------- ------- ----
The financial information above is extracted from the published
accounts. The balance sheet information disclosed represents the
key customer balances in Barclays Bank UK Group. This information
should be read together with the information included in the
accompanying consolidated financial statements.
Throughout 2018, Barclays Bank UK PLC was regulated by the
Prudential Regulation Authority (PRA) on an individual basis. The
disclosures below provide key capital metrics for Barclays Bank UK
PLC on an individual basis with further information on its risk
profile included in the Barclays PLC Pillar 3 Report 2018. Barclays
Bank UK Group became regulated by the PRA from 1 January 2019.
Other Metrics and Capital(a)
2018
------
GBPm
----------------------------------------------------- ------
Common equity tier 1 (CET1) ratio(b) 14.2%
Total risk weighted assets (RWAs) 75,327
Capital Requirements Regulation (CRR) leverage ratio 4.9%
----------------------------------------------------- ------
Note
a Capital, RWAs and leverage are calculated applying the transitional
arrangements of the CRR. This includes IFRS 9 transitional arrangements.
b The CET1 ratio includes foreseeable charges.
In 2018, Barclays officially stood up Barclays Bank UK PLC as
part of structural reform, being the first bank in the UK to become
legally ring-fenced. Throughout 2018, Barclays Bank UK PLC has
maintained its position in the market as a leader in innovation,
investing to transform customer interactions. Building long term,
meaningful customer and client relationships continues to deliver
sustainable balance sheet growth and returns, within a prudent risk
appetite. This is further enhanced by investment to automate and
digitise the provision of tailored products and services, meeting
customers' needs on their terms.
Income Statement
Profit before tax was GBP1,548m and comprised of Personal
Banking profit of GBP769m, Barclaycard Consumer UK profit of
GBP565m and Business Banking profit of GBP363m, partially offset by
a loss in Head Office of GBP149m.
Total income was GBP5,606m and comprised of Personal Banking
income of GBP3,152m, Barclaycard Consumer UK income of GBP1,578m
and Business Banking income of GBP991m, reflecting a focus on
sustainable growth, continued momentum in mortgage lending and
growth in customer deposits. This was partially offset by an
expense of GBP115m in Head Office due to hedge arrangements and
treasury operations.
Credit impairment charges were GBP624m including a Q4 2018
GBP100m specific charge for the impact of the anticipated economic
uncertainty in the UK. This comprised of Personal Banking charges
of GBP100m, Barclaycard Consumer UK charges of GBP477m, and
Business Banking charges of GBP48m.
Operating expenses excluding litigation and conduct were
GBP3,356m and comprised of GBP2,271m in Personal Banking, GBP486m
in Barclaycard Consumer UK, GBP571m in Business Banking and GBP28m
in Head Office. Operating expenses included investment to grow the
business, including digitisation of the bank and improvements to
future operating efficiency, offset by cost efficiencies.
Balance sheet and Capital
Loans and advances at amortised cost amounts to GBP188.6bn
reflecting continued momentum in mortgage lending since the
acquisition of the UK banking business on 1 April 2018. This
comprised of Personal Banking GBP146.3bn, Business Banking
GBP26.6bn and Barclaycard GBP15.7bn.
Deposits at amortised cost amounts to GBP197.5bn primarily
including Personal Banking GBP154.1bn and Business Banking
GBP43.3bn reflecting continued strong deposit growth.
Non-financial performance measures
Barclays Bank UK Group has addressed the Non-Financial Reporting
requirements contained in sections 414CA and 414CB of the Companies
Act 2006 through the disclosure contained in the Barclays PLC
Annual report on pages 44 to 46.
Non-financial performance measures are defined and tracked at
the Barclays Group level. Below is a selection of measures
applicable to the Barclays UK division of the Barclays Group, upon
which compliance is measured.
Customer and Client:
Key outcomes we will look to achieve include:
-- Building trust with our customers and clients, so that they are
happy to recommend us to others
-- Successfully innovating and developing products and services that
meet their needs
-- Offering suitable products and services in an accessible way, ensuring
excellent customer and client experience.
How we measure success
Measures used in our evaluation include, but are not limited
to:
-- Net Promoter Scores(R) (NPS)
-- Lending volumes provided to customers and clients
-- Digital engagement
-- Complaints performance
How we are doing
Areas of encouragement:
Net Promoter Scores (NPS)(a)
The NPS across our brands are a view of how willing customers
are to recommend our products and services to others, indicating
how satisfied they are with their overall experience with us.
Barclays Group NPS was +17 which reflected continued investment
into our customer experience, value propositions and consumer
campaigns that not only strengthen our brand but work to improve
the financial and security awareness of our customers. Barclaycard
UK relationship NPS stayed flat over the year, closing at +9 at
year-end.
Lending volumes provided to customers and clients(b)
A vibrant small and medium-sized enterprise (SME) sector is a
vital ingredient for a healthy market economy. Barclays UK provided
new lending of GBP2.8bn to SMEs, 3% more than last year and
completed over 110,000 mortgages for customers, worth over
GBP23bn.
Digital engagement(c)
In the era of constant technological development, it is crucial
for us to provide a market leading digital offering and digitally
engage with our customers. By the end of 2018, over 10.8 million
customers and clients in the UK were using our digital services on
a regular basis, with our BMB user base consisting of nearly 6.2
million users. In the Open Banking environment, we are committed to
serve a new type of client: developers. Through our API Exchange,
we received more than 8.4 million calls to our open APIs in
2018.
BMB is the most used mobile banking app in the UK (source:
eBenchmarkers) and was the first app from a major UK high street
bank to enable account aggregation through Open Banking technology.
This means that customers can now view their balances and
transactions from other banks in BMB without having to share their
online or mobile banking credentials. Further to this, we also
improved the functionality of our app throughout 2018 to better
help our customers manage their money, with a temporary card-freeze
feature for misplaced debit cards, a calendar view of regular
payments and the ability to open an Everyday Saver account entirely
in BMB. This has proved particularly popular, with over 60% of
Everyday Saver accounts being opened digitally this year. We will
continue to add great new features to BMB in the near future,
including Spend categorisation and Financial insights.
Areas of continued focus:
Complaints performance
In Barclays UK, we continue to focus on customer experience by
transforming customer journeys. Our underlying complaint volumes
reduced 9% year-on-year. However, we have seen an increase in PPI
complaints of 2%. Total Barclays UK complaint volumes (including
PPI) were down 1% year-on-year.
Colleague
Further information on our people at Barclays Bank UK Group is
on page 19 and 20 of this report.
Citizenship
Further information on our Citizenship and Environmental, Social
and Governance (ESG) activity is available in the Barclays PLC 2018
Annual Report. Barclays PLC also publishes an annual ESG Report,
where additional detail on material ESG themes are available.
Reports are available at home.barclays/annualreport.
Notes
a NPS measures customer experience and facilitates benchmarking.
It is widely used in banking and other industries and utilises
a mixed-methodology to ensure full representativeness of financial
behaviours across the UK population. The basis of Barclays Relationship
NPS has been a 12-month rolling average to minimise data fluctuations.
Source: GfK FRS, 12 months ending December 2018. Adults interviewed:
8,765 Barclays main Current Account holders (Barclays Relationship
NPS), and 4,741 Barclays main Credit Card holders (Barclaycard
UK Relationship NPS).
b Mortgage awards - Best Lender for Buy to Let (Moneywise), Best
lender for Remortgage (Moneywise), Best Lender for Large loans
(Moneywise), Best National Bank (Mortgage Strategy Gazette), Best
Intermediary Lender (Mortgage Strategy Gazette), Best Overall Lender
(Mortgage Strategy Gazette), Best Buy to Let Lender (Mortgage Strategy
Gazette), Mortgage Lender of the Year (Mortgage Introducer), Best
Offset Mortgage Lender (What Mortgage), Best remortgage lender
(Personal Finance).
c Open APIs are publicly available application programming interfaces
that provide developers programmatic access to our products and
services and use them in third-party applications.
Governance
Directors' Report
Directors' responsibility statement
The Directors have responsibility for ensuring that Barclays
Bank UK PLC keeps accounting records which disclose with reasonable
accuracy the financial position of Barclays Bank UK PLC and which
enable them to ensure that the financial statements comply with the
Companies Act 2006.
The Directors are also responsible for preparing a Strategic
Report and Directors' Report in accordance with applicable law and
regulations.
The Directors are responsible for the maintenance and integrity
of the Annual Report and Financial Statements as they appear on
Barclays PLC's website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors have a general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of
Barclays Bank UK PLC and to prevent and detect fraud and other
irregularities.
The Directors, whose names and functions are set out, confirm to
the best of their knowledge that:
-- The financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of Barclays
Bank UK PLC and the undertakings included in the consolidation
taken as a whole; and
-- The management report on pages 1 to 18 which is incorporated in
the Directors' Report, includes a fair review of the development
and performance of the business and the position of Barclays Bank
UK PLC and the undertakings included in the consolidation taken
as a whole, together with a description of the principal risks
and uncertainties that they face.
Signed on 20 February 2019 on behalf of the Board by
Ashok Vaswani Angela Anna Cross
Barclays Bank UK Group Chief Executive Barclays Bank UK Group Chief Financial
Officer
Barclays Bank UK PLC Board of Directors:
Chairman Executive Directors Non-executive Directors
Sir Ian Cheshire Ashok Vaswani Avid Larizadeh Duggan
Angela Anna Cross Michael Jary
Kathryn Matthews
Chris Pilling
Andrew Ratcliffe
David Thorburn
Sir John Timpson
Risk review
Material existing and emerging risks
Material existing and emerging risks to Barclays Bank UK Group's
future performance
Material risks are those to which senior management pay
particular attention and which could cause the delivery of Barclays
Bank UK Group's strategy, results of operations, financial
condition and/or prospects to differ materially from current
expectations.
Emerging risks are those which have largely unknown components,
the impact of which could crystallise over a longer time horizon.
These could currently be considered immaterial but over time may
individually or cumulatively affect Barclays Bank UK Group's
strategy and cause the same outcomes as material risks. In
addition, certain factors beyond Barclays Bank UK Group's control,
including escalation of terrorism or global conflicts, natural
disasters and similar calamities, although not detailed below,
could have a similar impact on Barclays Bank UK Group.
The risks described below are material existing and emerging
risks which senior management has identified with respect to
Barclays Bank UK Group.
Material existing and emerging risks potentially impacting more
than one principal risk
i) Business conditions, general economy and geopolitical
issues
Barclays Bank UK Group's business mix spreads across multiple
client types. The breadth of these operations means that
deterioration in the economic environment, or an increase in
political instability where Barclays Bank UK Group is active, or in
any systemically important economy, could adversely affect Barclays
Bank UK Group's operating performance, financial condition and
prospects.
Although economic activity continued to strengthen globally in
2018, a change in global/UK economic conditions and the reversal of
the improving trend and/or the rising consumer debt environment may
result in lower client activity in Barclays Bank UK Group,
including lower demand for borrowing from creditworthy customers,
and/or a reduction in the value of related collateral and/or an
increase of Barclays Bank UK Group's default rates, delinquencies,
write-offs, and impairment charges, which in turn could adversely
affect Barclays Bank UK Group's performance and prospects.
Deteriorating economic conditions could also impact the ability of
Barclays Bank UK Group to raise funding from external investors. In
addition, a shift in the forward looking consensus view of economic
conditions may materially impact the models used to calculate
expected credit losses (ECL), where an increase in ECLs could
adversely affect Barclays Bank UK Group's profitability.
In the UK, the vote in favour of leaving the European Union
(EU), see ii) Process of UK withdrawal from the European Union
below, has given rise to political uncertainty with potential
consequences for investment and market confidence. The initial
impact was a depreciation of Sterling resulting in higher costs for
companies exposed to imports and a more favourable environment for
exporters. Rising domestic costs resulting from higher import
prices may impact household incomes and the affordability of
consumer loans and mortgages, resulting in reduced business and,
thereby, negatively impacting Barclays Bank UK Group's
profitability. In turn this may affect businesses dependent on
consumers for revenue, exacerbated by current pressures on
businesses dependent on discretionary purchases. There has also
been a reduction in activity in both commercial and residential
real estate markets which has the potential to impact the value of
real estate assets and adversely affect mortgage assets.
New entrants to the UK financial services market, the
implementation of Open Banking (see (iv) Regulatory change agenda
and impact on business model) and the requirement to reflect and
lead on new and emerging technologies may result in increased
competition, lower client activity due to market dilution and
increased costs.
ii) Process of UK withdrawal from the European Union
The uncertainty around Brexit spanned the whole of 2018, and
intensified in the second half of the year. The full impact of the
withdrawal may only be realised in years to come, as the economy
adjusts to the new regime, but Barclays Bank UK Group continues to
monitor the most relevant risks, including those that may have a
more immediate impact, for its business:
-- Potential UK financial institutions credit spread widening could
lead to reduced investor appetite for Barclays Bank UK Group's
debt securities; this could negatively impact the cost of and/or
access to funding. There is potential for continued market and
interest rate volatility. This volatility could affect underlying
interest rate risk, value of the assets in the banking book, and
securities held by Barclays Bank UK Group for liquidity purposes.
-- A credit rating agency downgrade applied directly to Barclays Bank
UK Group, or indirectly as a result of a credit rating agency downgrade
to the UK Government, could significantly increase Barclays Bank
UK Group's borrowing costs, credit spreads and materially adversely
affect Barclays Bank UK Group's interest margins and liquidity
position.
-- Increased risk of a UK recession with lower growth, higher unemployment
and falling UK house prices. This would likely negatively impact
a number of Barclays Bank UK Group's portfolios, notably: higher
Loan to Value mortgages, UK unsecured lending including credit
cards and commercial real estate exposures.
-- The implementation of trade and customs barriers between the UK
and EU could lead to delays and increased costs in the passage
of goods for business banking customers. This could negatively
impact the levels of customer defaults and business volumes which
may result in an increase in Barclays Bank UK Group's impairment
charges and a reduction in revenues.
-- The ability to attract, or prevent the departure of, qualified
and skilled employees may be impacted by the UK's and the EU's
future approach to the EU freedom of movement and immigration from
the EU countries and this may impact Barclays' access to the EU
talent pool.
-- The legal framework within which Barclays Bank UK Group operates
could change and become more uncertain if the UK takes steps to
replace or repeal certain laws currently in force, which are based
on EU legislation and regulation (including EU regulation of the
banking sector) following its withdrawal from the EU. Certainty
around the ability to perform existing contracts, enforceability
of certain legal obligations and uncertainty around the jurisdiction
of the UK courts may be affected until the impacts of the loss
of the current legal and regulatory arrangements between the UK
and EU and the enforceability of UK judgements across the EU are
fully known.
-- Should the UK lose automatic qualification to be part of Single
Euro Payments Area there could be a resultant impact on the efficiency
of, and access to, European payment systems. In addition, loss
of automatic qualification to the European Economic Area (EEA)
could impact service provision for clients, likely resulting in
reduced market share and revenue and increased operating costs
for Barclays Bank UK Group.
iii) Interest rate rises adversely impacting credit
conditions
To the extent that the Bank of England increases interest rates,
there could be an impact on consumer debt affordability and
corporate profitability. Consumer affordability has been further
impacted by household borrowing overtaking savings during 2018 for
the first time since the late 1980s.
While interest rate rises could positively impact Barclays Bank
UK Group's profitability due to margin de-compression, future
interest rate increases, if larger or more frequent than
expectations, could cause stress in the lending portfolio. Higher
credit losses driving an increased impairment allowance would most
notably impact retail unsecured portfolios.
Changes in interest rates could have an adverse impact on the
value of high quality liquid assets which are part of Barclays Bank
UK Group Treasury function's investment activity. Consequently,
this could create more volatility than expected through Barclays
Bank UK Group's FVOCI reserves.
iv) Regulatory change agenda and impact on business model
Barclays Bank UK Group remains subject to ongoing significant
levels of regulatory change and scrutiny. As a result, regulatory
risk will remain a focus for senior management and consume
significant levels of business resources. Furthermore, a more
intensive regulatory approach and enhanced requirements may
adversely affect Barclays Bank UK Group's business, capital and
risk management strategies and/or may result in Barclays Bank UK
Group deciding to modify its legal entity, capital and funding
structures and business mix, or to exit certain business activities
altogether or not to expand in areas despite otherwise attractive
potential.
Barclays Bank UK Group was established on 1 April 2018 as the
ring-fenced entity under Barclays Group. The relevant rules
required to comply with the UK ring-fencing regime are complex and
will continue to entail significant costs and operational and legal
risks. There may be a risk associated with the uncertainty around
interpretation, administration and enforcement of the ring fencing
regime as the regulatory requirements develop. This risk is
compounded by the potential for different regulatory interpretation
as standards are developed, the impact of the UK's withdrawal from
the EU and internal factors, such as Barclays Group's strategy.
Failure to maintain ongoing compliance, including from the
implementation of any new regulatory requirements that may
potentially be enforced, could result in regulatory censure or
penalties for Barclays Bank UK Group.
Given Barclays Bank UK Group is now a ring-fenced entity, its
risk-profile and key risk drivers support the assessment of credit
rating agencies. Following the restructuring of the Barclays Group
to establish Barclays Bank UK Group, Barclays Group and its
subsidiaries are assessed by the credit rating agencies at their
respective legal entity level which can result in differing credit
ratings. The differences in credit ratings between the legal
entities, could impact access and cost of funding for Barclays Bank
UK Group in relation to the Barclays Group.
There are several other significant pieces of legislation and
areas of focus which will require significant management attention,
cost and resource, including:
-- Changes in prudential requirements (including the risk reduction
measures package recently adopted in the EU to amend the Capital
Requirements Directive (CRD IV) and the Bank Recovery and Resolution
Directive (BRRD)) may impact minimum requirements for own funds
and eligible liabilities (MREL) (including requirements for internal
MREL), leverage, liquidity or funding requirements, applicable
buffers and/or add-ons to such minimum requirements and risk weighted
assets calculation methodologies all as may be set by international,
EU or national authorities. Such or similar changes to prudential
requirements or additional supervisory and prudential expectations,
either individually or in aggregate, may result in, among other
things, a need for further management actions to meet the changed
requirements, such as: increasing capital, MREL or liquidity resources,
reducing leverage and risk weighted assets; restricting distributions
on capital instruments; modifying the terms of outstanding capital
instruments; modifying legal entity structure (including with regard
to issuance and deployment of capital, MREL and funding); changing
Barclays Bank UK Group's business mix or exiting other businesses;
and/or undertaking other actions to strengthen Barclays Bank UK
Group's position. (See Treasury and capital risk on pages 74 to
84 and Supervision and regulation on pages 91 to 96 for more information).
-- The Barclays Group is subject to supervisory stress testing of
which Barclays Bank UK Group forms a component part. These exercises
currently include the programmes of the Bank of England and the
European Banking Authority (EBA). These exercises are designed
to assess the resilience of banks to adverse economic or financial
developments and enforce robust, forward looking capital and liquidity
management processes that account for the risks associated with
their business profile. Assessment by regulators is on both a quantitative
and qualitative basis, the latter focusing on Barclays Group's
or certain of its members' business model, data provision, stress
testing capability and internal management processes and controls.
The stress testing requirements to which Barclays Group and its
members are subject are becoming increasingly stringent. Failure
to meet requirements of regulatory stress tests, or the failure
by regulators to approve the stress test results and capital plans
of Barclays Group, could result in Barclays Group being required
to enhance its capital position, limit capital distributions or
position additional capital in specific subsidiaries. For more
information on stress testing, please see Supervision and regulation
on page 93.
-- The EU Benchmarks Regulation, which came into force in January
2018, regulates the use of benchmarks in the EU. In particular,
after 1 January 2020 certain Barclays Bank UK Group entities will
not be permitted to use benchmarks unless the relevant administrator
is authorised, registered or qualifies under a third party regime.
This may necessitate adapting processes and systems to transition
to new alternative benchmarks, which would be a very time-consuming
and costly process. Separately, the transition to risk-free rates
as part of a wider benchmark reform is also expected to be impactful
to Barclays Bank UK Group in respect of the timing of the development
of a robust risk free rate market, an unfavourable market reaction
and/or inconsistencies in the adoption of products using the new
risk free rates, and also in respect of the costs and uncertainties
involved in managing and/or changing historical products to reference
risk free rates as a result of the proposed discontinuation of
certain existing benchmarks.
-- The introduction and implementation of both Payments Service Directive
2 (PSD2) and the Open API standards and data sharing remedy from
the UK Competition and Markets Authority following its Retail Banking
Market Investigation Order (together 'Open Banking') from January
2018 with delivery across 2019 provides third parties and banks
with opportunities to change and enhance the relationship between
a customer and their bank. It does this by providing customers
with the ability to share their transactional data with authorised
third party service providers either for aggregation or payment
services. It is anticipated that both aggregation and payment services
will be offered by third parties to Barclays Bank UK Group's customers
and Barclays Bank UK Group itself has launched an aggregation service.
PSD2 will also introduce new requirements to the authentication
process for a number of actions customers take, including ecommerce
transactions. A failure to comply with Open Banking requirements
could expose Barclays Bank UK Group to regulatory sanction. Further,
the data sharing regime could mean that actions or omissions by
third party service providers could expose Barclays Bank UK Group
to potential financial loss from third party fraud, misuse of customer
data, litigation and reputational detriment, amongst other things.
The changes to authentication may change the fraud environment
across the industry as providers implement different approaches
to comply.
-- In addition to the above, Barclays Bank UK Group is also subject
to increasing technical regulation from both existing and new legislation,
including but not limited to, the Consumer Credit Act and Consumer
Credit Sourcebook Interpretation Manual and Regulatory Developments,
the EU Benchmark Regulation, the EU General Data Protection Regulation
(GDPR), the Payment Account Directive 2, The Wire Transfer Regulation,
the revised Markets in Financial Instruments Directive (MiFID2)
and the Anti Money Laundering Directives. Barclays Bank UK Group
may be subject to enforcement or reputation risk from failure to
properly implement or embed such legislation either due to process
or legislative interpretation failures. Such risk could give rise
to regulatory fines or sanctions, financial loss, litigation and
reputational detriment, amongst other things.
Material existing and emerging risks impacting individual
principal risks
i) Credit risk
a) Impairment
The introduction of the impairment requirements of IFRS 9
Financial Instruments, implemented on 1 January 2018, results in
impairment loss allowances that are recognised earlier, on a more
forward looking basis and on a broader scope of financial
instruments than has been the case under IAS 39 and has had, and
may continue to have, a material impact on Barclays Bank UK Group's
financial condition.
Measurement involves increased complex judgement and impairment
charges will tend to be more volatile, particularly under stressed
conditions. Unsecured products with longer expected lives, such as
revolving credit cards, are the most impacted. Taking into account
the transitional regime, the capital treatment on the increased
reserves has the potential to adversely impact regulatory capital
ratios.
In addition, the move from incurred to expected credit losses
has the potential to impact Barclays Bank UK Group's performance
under stressed economic conditions or regulatory stress tests. For
more information, please refer to Note 1 on pages 114 to 118.
b) Specific sectors and concentrations
Barclays Bank UK Group is subject to risks arising from changes
in credit quality and recovery rate of loans and advances due from
borrowers and counterparties in a specific portfolio. Any
deterioration in credit quality could lead to lower recoverability
and higher impairment in a specific sector. The following are areas
of uncertainties to Barclays Bank UK Group's portfolio which could
have a material impact on performance:
-- Consumer affordability has remained a key area of focus for regulators,
particularly in unsecured lending, driven by the growth in levels
of borrowing. Macroeconomic factors, such as rising unemployment,
that impact a customer's ability to service unsecured debt payments
could lead to increased arrears in unsecured products.
-- UK real estate market. UK property represents a significant portion
of the overall Barclays Bank UK Group retail credit exposure. In
2018, house price growth across the UK continued, however, this
growth has slowed in London and the South East where Barclays Bank
UK Group's exposure has high concentration. Barclays Bank UK Group
is at risk of increased impairment from a material fall in property
prices due to the depreciation in value of the underlying loan
security.
ii) Treasury and capital risk
Barclays Bank UK Group may not be able to achieve its business
plans due to: a) inability to maintain appropriate capital ratios;
b) inability to meet its obligations as they fall due; c) rating
agency downgrades; d) adverse changes in foreign exchange rates on
capital ratios; e) non-traded market risk/interest rate risk in the
banking book.
a) Inability to maintain prudential ratios and other regulatory
requirements
This could lead to Barclays Bank UK Group's inability to support
business activity; a failure to meet regulatory capital
requirements including any additional capital add-ons or the
requirements set for regulatory stress tests; increased cost of
funding due to deterioration in investor appetite or credit
ratings; restrictions on distributions including the ability to
meet dividend targets; and/or the need to take additional measures
to strengthen Barclays Bank UK Group's capital or leverage
position.
b) Inability to manage liquidity and funding risk
effectively
This may result in Barclays Bank UK Group either not having
sufficient financial resources to meet its payment obligations as
they fall due or, although solvent, only being able to meet these
obligations at excessive cost. This could cause Barclays Bank UK
Group to fail to meet regulatory liquidity standards or be unable
to support day-to-day banking activities.
The stability of Barclays Bank UK Group's current funding
profile, in particular that part which is based on accounts and
deposits payable on demand or at short notice, could be affected by
general UK economic conditions and Barclays Bank UK Group failing
to preserve the current level of customer and investor confidence
in the financial services sector. Barclays Bank UK Group benefits
from the additional deposit stability generated as a result of the
guarantees provided under the Financial Services Compensation
Scheme. Barclays Bank UK Group recognises that there is the
potential for outflow of deposits or the reduction of the ability
to access retail deposit funding on reasonable terms if the
arrangement is altered or removed in future.
In the interest of generating greater resilience to liquidity
stress events and to benefit from diversified sources of funding,
Barclays Bank UK Group holds distinct relations with various
counterparties with the intention of creating issuance capability
for debt instruments which is independent of Barclays Group and to
support its own funding requirements in addition to funding
provided by the Barclays Group. Counterparties are likely however
to incorporate an assessment of the health of the Barclays Group in
addition to Barclays Bank UK Group specifically when making
investment decisions. As with all financial institutions arranging
funding, several factors, including adverse macroeconomic
conditions, adverse outcomes in legal, regulatory or conduct
matters and loss of confidence by investors, counterparties and/or
customers in Barclays Bank UK Group, can affect the ability of
Barclays Bank UK Group to access the capital markets and/or the
cost and other terms upon which Barclays Bank UK Group is able to
obtain market funding.
c) Credit rating changes and the impact on funding costs
Any potential or actual credit rating agency downgrades could
significantly increase Barclays Bank UK Group's borrowing costs,
credit spreads and materially adversely affect Barclays Bank UK
Group's interest margins and liquidity position. Consequently, this
may result in reduced profitability for Barclays Bank UK Group.
d) Adverse changes in FX rates impacting capital ratios
Barclays Bank UK Group equity is held in Sterling. However, some
capital resources (e.g. MREL) are denominated in foreign
currencies. Changes in foreign currency exchange rates may
adversely impact the Sterling equivalent values of these items. As
a result, some of Barclays Bank UK Group's regulatory capital
ratios are sensitive to foreign currency movements. Failure to
appropriately manage Barclays Bank UK Group's balance sheet to take
account of foreign currency movements could result in an adverse
impact on regulatory capital.
e) Non-traded market risk/interest rate risk in the banking
book
A shortfall in the liquidity pool investment return could
increase Barclays Bank UK Group's cost of funds and impact the
capital ratios. Barclays Bank UK Group's structural hedge
programmes for interest rate risk in the banking book rely on
behavioural assumptions, as a result, the success of the hedging
strategy is not guaranteed. A potential mismatch in the balance or
duration of the hedge assumptions could lead to earnings
deterioration.
iii) Operational risk
a) Cyber threat
The frequency of cyber-attacks continues to grow and is a global
threat which is inherent across all industries, including the
financial sector and is a key area of focus for Barclays Bank UK
Group. The financial sector remains a primary target for cyber
criminals. There is an increasing level of sophistication in both
criminal and nation state hacking for the purpose of stealing
money, stealing, destroying or manipulating data, including
customer data, and/or disrupting operations, where multiple threats
exist including threats arising from malicious emails, distributed
denial of service (DDoS) attacks, payment system compromises,
supply chain and vulnerability exploitation. Other events have a
compounding impact on services and customers, e.g. data breaches in
social networking sites, retail companies and payments
networks.
Failure to adequately manage this threat could result in
increased fraud losses, inability to perform critical economic
functions, customer detriment, potential regulatory censure or
penalties, legal liability, reduction in shareholder value and
reputational damage.
b) Fraud
The level and nature of fraud threats continues to evolve,
particularly with the increasing use of digital products and the
greater functionality available online. Criminals continue to adapt
their techniques and are increasingly focused on targeting
customers and clients through ever more sophisticated methods of
social engineering. External data breaches also provide criminals
with the opportunity to exploit the growing levels of compromised
data. These threats could lead to customer detriment, loss of
business, regulatory censure, missed business opportunity and
reputational damage.
Recent changes in the regulatory landscape will see increased
levels of liability being taken by Barclays Bank UK Group as part
of a voluntary code in the UK to provide additional protection to
customers and clients who are victims of Authorised Push Payment
scams.
c) Operational resilience
The loss of or disruption to Barclays Bank UK Group's business
processing is a material inherent risk theme within Barclays Bank
UK Group and across the financial services industry, whether
arising through impacts on technology systems, real estate
services, personnel availability or the support of major
suppliers.
Failure to build resilience into business processes or into the
services of technology, real estate or suppliers on which the
business processes depend may result in significant customer
detriment, costs to reimburse losses incurred by our customers,
potential regulatory censure or penalties, and reputational
damage.
d) Supplier exposure
Barclays Bank UK Group depends on suppliers, including Barclays
Services Limited, for the provision of many of its services and the
development of technology. Even though Barclays Bank UK Group
depends on suppliers, it continues to be accountable for risk
arising from the actions of such suppliers.
Failure to monitor and control Barclays Bank UK Group's
suppliers could potentially lead to client information or critical
infrastructures and services, not being adequately protected or
available when required. The dependency on suppliers and
sub-contracting of outsourced services introduces concentration
risk where the failure of specific suppliers could have an impact
on our ability to continue to provide services that are material to
Barclays Bank UK Group.
Failure to adequately manage outsourcing risk could result in
increased losses, inability to perform critical economic functions,
customer detriment, potential regulatory censure, legal liability
and reputational damage.
e) Processing error
Barclays Bank UK Group faces the risk of material errors in
operational processes, including payments and client
transactions.
Material operational or payment errors could disadvantage
Barclays Bank UK Group's customers, clients or counterparties and
could result in regulatory censure, legal liability, reputational
damage and financial loss for Barclays Bank UK Group.
f) New and emergent technology
Technological advancements present opportunities to develop new
and innovative ways of doing business across Barclays Bank UK
Group, with new solutions being developed both in-house and in
association with third party companies. Introducing new forms of
technology, however, also has the potential to increase inherent
risk.
Failure to evaluate, actively manage and closely monitor risk
exposure during all phases of business development could lead to
customer detriment, loss of business, regulatory censure, missed
business opportunity and reputational damage.
g) Ability to hire and retain appropriately qualified
employees
As a regulated financial institution, Barclays Bank UK Group
requires diversified and specialist skilled colleagues. Barclays
Bank UK Group's ability to attract, develop and retain a diverse
mix of talent is key to the delivery of its core business activity
and strategy. This is impacted by a range of external and internal
factors, such as the UK's decision to leave the EU and the enhanced
individual accountability applicable to the banking industry.
Failure to attract or prevent the departure of appropriately
qualified and skilled employees could negatively impact our
financial performance, control environment and level of employee
engagement. Additionally, this may result in disruption to service
which could in turn lead to disenfranchising certain customer
groups, customer detriment and reputational damage.
h) Tax risk
Barclays Bank UK Group is required to comply with domestic and
international tax laws and practices. There is a risk that Barclays
Bank UK Group could suffer losses due to additional tax charges,
other financial costs or reputational damage as a result of failing
to comply with such laws and practice, or by failing to manage its
tax affairs in an appropriate manner. In addition, increasing
customer tax reporting requirements and the digitisation of the
administration of tax has potential to increase Barclays Bank UK
Group's tax compliance obligations further.
i) 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 relevant 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 include effective interest rate
methods for loans measured at amortised cost, credit impairment
charges for amortised cost assets, taxes, fair value of financial
instruments, and provisions including conduct and legal,
competition and regulatory matters. There is a risk that if the
judgement exercised, or the estimates or assumptions used,
subsequently turn out to be incorrect, this could result in
significant loss to Barclays Bank UK Group, beyond what was
anticipated or provided for.
The further development of standards and interpretations under
IFRS could also significantly impact the financial results,
condition and prospects of Barclays Bank UK Group.
j) Data management and information protection
Barclays Bank UK Group holds and processes large volumes of
data, including personally identifiable information, intellectual
property, and financial data. Failure to accurately collect and
maintain this data, protect it from breaches of confidentiality and
interference with its availability exposes Barclays Bank UK Group
to the risk of loss or unavailability of data (including customer
data covered under v), c) Data protection and privacy, below) or
data integrity issues. This could result in regulatory censure,
legal liability and reputational damage, including the risk of
substantial fines under the General Data Protection Regulation
(GDPR), which strengthens the data protection rights for customers
and increases the accountability of Barclays Bank UK Group in its
management of that data.
iv) Model risk
Enhanced model risk management requirements
Barclays Bank UK Group relies on models to support a broad range
of business and risk management activities, including informing
business decisions and strategies, measuring and limiting risk,
valuing exposures (including the calculation of impairment),
conducting stress testing, assessing capital adequacy, supporting
new business acceptance and risk and reward evaluation, managing
client assets, and meeting reporting requirements.
Models are, by their nature, imperfect and incomplete
representations of reality because they rely on assumptions and
inputs, and so they may be subject to errors affecting the accuracy
of their outputs. For instance, the quality of the data used in
models across Barclays Bank UK Group has a material impact on the
accuracy and completeness of our risk and financial metrics.
Models may also be misused. Model errors or misuse may result in
Barclays Bank UK Group making inappropriate business decisions and
being subject to financial loss, regulatory risk, reputational risk
and/or inadequate capital reporting.
v) Conduct risk
There is the risk of detriment to customers, clients, market
integrity, effective competition or Barclays Bank UK Group from the
inappropriate supply of financial services, including instances of
wilful or negligent misconduct. This risk could manifest itself in
a variety of ways:
a) Product governance and life cycle
Ineffective product governance, including design, approval and
review of products, inappropriate controls over internal and third
party sales channels and post sales services, such as complaints
handling, collections and recoveries, could lead to poor customer
outcomes, as well as regulatory sanctions, financial loss and
reputational damage.
b) Financial crime
Barclays Bank UK Group may be adversely affected if it fails to
effectively mitigate the risk that third parties or its employees
facilitate, or that its products and services are used to
facilitate financial crime (money laundering, terrorist financing
and proliferation financing, breaches of economic and financial
sanctions, bribery and corruption, and the facilitation of tax
evasion). UK and US regulations concerning financial institutions
continue to focus on combating financial crime. Failure to comply
may lead to enforcement action by Barclays Bank UK Group's
regulators together with severe penalties, affecting Barclays Bank
UK Group's reputation and financial results.
c) Data protection and privacy
Proper handling of personal data is critical to sustaining
long-term relationships with our customers and clients and to
meeting privacy laws and obligations. Failure to protect personal
data can lead to potential detriment to our customers and clients,
reputational damage, regulatory sanctions and financial loss, which
under the GDPR may be substantial (see iii (j) Data management and
information protection, above).
d) Regulatory focus on culture and accountability
Regulators around the world continue to emphasise the importance
of culture and personal accountability and the adoption and
enforcement of adequate internal reporting and whistleblowing
procedures in helping to promote appropriate conduct and drive
positive outcomes for customers, colleagues, clients and markets.
Failure to meet the requirements and expectations of the UK Senior
Managers Regime, Certification Regime and Conduct Rules may lead to
regulatory sanctions, both for the individuals and Barclays Bank UK
Group.
vi) Reputation risk
Barclays' association with sensitive sectors and its impact on
reputation
A risk arising in one business area can have an adverse effect
upon Barclays Bank UK Group's overall reputation; any one
transaction, investment or event that, in the perception of key
stakeholders reduces their trust in Barclays Bank UK Group's
integrity and competence.
Barclays Bank UK Group's association with sensitive topics and
sectors is an area of concern for stakeholders, including:
-- Disclosure of climate risks and opportunities, including the activities
of certain sections of the client base, which has become the subject
of increased scrutiny from regulators, NGOs and other stakeholders.
-- The risks of association with human rights violations through the
perceived indirect involvement in human rights abuses committed
by clients and customers.
-- The manufacture and export of military and riot control goods and
services by clients and customers.
These associations have the potential to give rise to reputation
risk for Barclays Bank UK Group and may result in loss of business,
regulatory censure and missed business opportunity.
In addition to the above, Reputation risk has the potential to
arise from operational issues or conduct matters which cause
detriment to customers, clients, market integrity, effective
competition or Barclays Bank UK Group (see iv a) Cyber threat, iv
j) Data management and information protection, and v) Conduct risk,
above).
vii) Legal risk and legal, competition and regulatory
matters
Legal disputes, regulatory investigations, fines and other
sanctions relating to conduct of business and breaches of
legislation and/or regulations may negatively affect Barclays Bank
UK Group's results, reputation and ability to conduct its
business.
Barclays Bank UK Group conducts diverse activities in a highly
regulated market and therefore is exposed to the risk of fines and
other sanctions. Authorities have continued to investigate past
practices, pursued alleged breaches and imposed heavy penalties on
financial services firms. A breach of applicable legislation and/or
regulations could result in Barclays Bank UK Group or its staff
being subject to criminal prosecution, regulatory censure, fines
and other sanctions in the jurisdictions in which it operates.
Where clients, customers or other third parties are harmed by
Barclays Bank UK Group's conduct, this may also give rise to legal
proceedings, including class actions. Other legal disputes may also
arise between Barclays Bank UK Group and third parties relating to
matters such as breaches, enforcement of legal rights or
obligations arising under contracts, statutes or common law.
Adverse findings in any such matters may result in Barclays Bank UK
Group being liable to third parties or may result in Barclays Bank
UK Group's rights not being enforced as intended.
Details of legal, competition and regulatory matters to which
Barclays Bank UK Group is currently exposed are set out in Note 25.
In addition to matters specifically described in Note 25, Barclays
Bank UK Group is engaged in various other legal proceedings which
arise in the ordinary course of business. Barclays Bank UK Group is
also subject to requests for information, investigations and other
reviews by regulators, governmental and other public bodies in
connection with business activities in which Barclays Bank UK Group
is, or has been, engaged.
The outcome of legal, competition and regulatory matters, both
those to which Barclays Bank UK Group is currently exposed and any
others which may arise in the future, is difficult to predict. In
connection with such matters Barclays Bank UK Group may incur
significant expense, regardless of the ultimate outcome, and any
such matters could expose Barclays Bank UK Group to any of the
following outcomes: substantial monetary damages, settlements
and/or fines; remediation of affected customers and clients; other
penalties and injunctive relief; additional litigation; criminal
prosecution; the loss of any existing agreed protection from
prosecution; regulatory restrictions on Barclays Bank UK Group's
business operations including the withdrawal of authorisations;
increased regulatory compliance requirements; suspension of
operations; public reprimands; loss of significant assets or
business; a negative effect on Barclays Bank UK Group's reputation;
loss of confidence by investors, counterparties, clients and/or
customers; risk of credit rating agency downgrades; potential
negative impact of the availability and/or cost of funding and
liquidity; and/or dismissal or resignation of key individuals. In
light of the uncertainties involved in legal, competition and
regulatory matters, there can be no assurance that the outcome of a
particular matter or matters will not be material to Barclays Bank
UK Group's results of operations or cash flow for a particular
period.
In January 2017, Barclays was sentenced to serve three years of
probation from the date of the sentencing order in accordance with
the terms of its May 2015 plea agreement with the US Department of
Justice (DOJ). During the term of probation, Barclays Group must
among 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. Potential consequences of
Barclays Group including Barclays Bank UK Group breaching the plea
agreement include the imposition of additional terms and conditions
on Barclays Group, an extension of the agreement, or the criminal
prosecution of Barclays Group, which could, in turn, entail further
financial penalties and collateral consequences and have a material
adverse effect on Barclays Group's business, operating results or
financial position.
There is also a risk that the outcome of any legal, competition
or regulatory matters in which Barclays Bank UK Group is involved
may give rise to changes in law or regulation as part of a wider
response by relevant law makers and regulators. A decision in any
matter, either against Barclays Bank UK Group or another financial
institution facing similar claims, could lead to further claims
against Barclays Bank UK Group.
Consolidated financial statements
Consolidated income statement
2018 2017
For the year ended 31 December Notes GBPm GBPm
----------------------------------------------- ----- ------- ----
Interest income 4 5,267 -
Interest expense 4 (830) -
----------------------------------------------- ----- ------- ----
Net interest income 4,437 -
----------------------------------------------- ----- ------- ----
Fee and commission income 5 1,315 27
Fee and commission expense 5 (273) -
----------------------------------------------- ----- ------- ----
Net fee and commission income 1,042 27
----------------------------------------------- ----- ------- ----
Net trading income 6 30 -
Net investment income 7 86 -
Other income 11 -
----------------------------------------------- ----- ------- ----
Total income 5,606 27
Credit impairment charges and other provisions 8 (624) -
----------------------------------------------- ----- ------- ----
Net operating income 4,982 27
----------------------------------------------- ----- ------- ----
Staff costs 29 (1,016) -
Infrastructure costs 9 (307) -
Administration and general expenses 9 (2,033) (8)
Provisions for litigation and conduct 23 (78) -
----------------------------------------------- ----- ------- ----
Operating expenses (3,434) (8)
----------------------------------------------- ----- ------- ----
Profit before tax 1,548 19
Taxation 10 (433) (4)
----------------------------------------------- ----- ------- ----
Profit after tax 1,115 15
----------------------------------------------- ----- ------- ----
Attributable to:
----------------------------------------------- ----- ------- ----
Equity holders of the parent 1,010 15
Other equity instrument holders 105 -
----------------------------------------------- ----- ------- ----
Profit after tax 1,115 15
----------------------------------------------- ----- ------- ----
Note
a As permitted by section 408(3) of the Companies Act 2006 an income
statement for the parent company has not been presented.
Consolidated statement of comprehensive income
2018 2017
For the year ended 31 December GBPm GBPm
-------------------------------------------------------------------------- ----- ----
Profit after tax 1,115 15
-------------------------------------------------------------------------- ----- ----
Other comprehensive income/(loss) that may be recycled to profit or loss:
Fair value through other comprehensive income reserve
Net losses from changes in fair value (73) -
Net gains transferred to net profit on disposal (27) -
Net losses transferred to net profit due to fair value hedging 72 -
Tax 11 -
Cash flow hedging reserve
Net gains from changes in fair value 26 -
Net losses transferred to net profit 1 -
Tax (7) -
-------------------------------------------------------------------------- ----- ----
Other comprehensive income that may be recycled to profit or loss 3 -
Other comprehensive income/(loss) not recycled to profit or loss:
-------------------------------------------------------------------------- ----- ----
Tax - -
-------------------------------------------------------------------------- ----- ----
Other comprehensive income not recycled to profit or loss - -
-------------------------------------------------------------------------- ----- ----
Other comprehensive income for the year 3 -
-------------------------------------------------------------------------- ----- ----
Total comprehensive income for the year 1,118 15
-------------------------------------------------------------------------- ----- ----
Consolidated balance sheet
2018(a) 2017
As at 31 December Notes GBPm GBPm
--------------------------------------------------------------------- ----- ------- ----
Assets
Cash and balances at central banks 40,669 -
Cash collateral and settlement balances 3,349 -
Loans and advances at amortised cost(b) 18 188,565 53
Reverse repurchase agreements and other similar secured lending 1,759 -
Trading portfolio assets 12 151 -
Financial assets at fair value through the income statement 13 3,880 -
Derivative financial instruments 14 241 -
Financial investments - 5
Financial assets at fair value through other comprehensive income(c) 15 6,710 -
Goodwill and intangible assets 20 3,534 -
Property, plant and equipment 19 498 -
Deferred tax assets 10 792 -
Other assets 1,157 2
--------------------------------------------------------------------- ----- ------- ----
Total assets 251,305 60
--------------------------------------------------------------------- ----- ------- ----
Liabilities
Deposits at amortised cost 18 197,485 -
Cash collateral and settlement balances 239 -
Repurchase agreements and other similar secured borrowing 11,978 -
Debt securities in issue 11,172 -
Subordinated liabilities 26 7,548 -
Trading portfolio liabilities 12 1,269 -
Derivative financial instruments 14 419 -
Current tax liabilities 10 984 5
Other liabilities 22 1,888 8
Provisions 23 1,380 1
--------------------------------------------------------------------- ----- ------- ----
Total liabilities 234,362 14
--------------------------------------------------------------------- ----- ------- ----
Equity
Called up share capital and share premium 27 5 5
Other equity instruments 27 2,070 -
Other reserves 28 76 20
Retained earnings 14,792 21
--------------------------------------------------------------------- ----- ------- ----
Total equity 16,943 46
--------------------------------------------------------------------- ----- ------- ----
Total liabilities and equity 251,305 60
--------------------------------------------------------------------- ----- ------- ----
The Board of Directors approved the financial statements on
pages 106 to 169 on 20 February 2019.
Ashok Vaswani
Group Chief Executive
Angela Anna Cross
Group Finance Director
Notes
a Barclays Bank UK PLC acquired the UK banking business from Barclays
Bank PLC on 1 April 2018.
b On 1 January 2018, GBP53m of loans and advances to banks were reclassified
to loans and advances at amortised cost, due to changes to the
balance sheet presentation as at 31 December 2017. Further detail
on the adoption of new accounting policies can be found in Note
1, Basis of preparation on pages 114 to 118 and the Credit risk
disclosure on page 33.
c Following the adoption of IFRS 9 on 1 January 2018, the transitional
impact of which was immaterial, GBP5m of financial investments
were reclassified to financial assets at fair value through other
comprehensive income. Further detail on the adoption of new accounting
policies can be found in Note 1, Basis of preparation on pages
114 to 118 and the Credit risk disclosure on page 33.
Consolidated statement of changes in equity
Called up Other
share Fair value through Cash reserves
capital Other other flow and other
and share equity comprehensive hedging shareholders' Retained Total
premium(a) instruments(a) income reserve(b) reserve(b) equity(b) earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Balance as at 31
December 2017 5 - - - 20 21 46
Effects of changes
in accounting
policies - - - - - - -
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Balance as at 1
January 2018 5 - - - 20 21 46
Profit after tax - 105 - - - 1,010 1,115
Financial assets at
fair value through
other
comprehensive
income - - (17) - - - (17)
Cash flow hedges - - - 20 - - 20
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Total comprehensive
income for the
year - 105 (17) 20 - 1,010 1,118
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Issue of new
ordinary shares 13,044 - - - - - 13,044
Equity settled
share schemes - - - - - 19 19
Net equity impact
of the UK banking
business transfer - 2,070 (16) - 69 46 2,169
Capital
reorganisation (13,044) - - - - 13,044 -
Other equity
instruments
coupons paid - (105) - - - 28 (77)
Vesting of employee
share schemes - - - - - (10) (10)
Dividends paid - - - - - (350) (350)
Capital
contribution from
Barclays Bank PLC - - - - - 983 983
Other reserve
movements - - - - - 1 1
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Balance as at 31
December 2018(c) 5 2,070 (33) 20 89 14,792 16,943
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Balance as at 1
January 2017 - - - - - - -
Profit after tax - - - - - 15 15
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Total comprehensive
income for the
year - - - - - 15 15
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Issue of new
ordinary shares 5 - - - - - 5
Capital
contribution from
Barclays Bank PLC - - - - - 6 6
Other reserve
movements - - - - 20 - 20
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Balance as at 31
December 2017 5 - - - 20 21 46
------------------- ----------- --------------- ------------------ ----------- -------------- --------- -------
Notes
a For further details, refer to Note 27.
b For further details, refer to Note 28.
c Barclays Bank UK PLC acquired the UK banking business from Barclays
Bank PLC on 1 April 2018.
Consolidated cash flow statement
2018 2017
For the year ended 31 December Notes GBPm GBPm
----------------------------------------------------------------------------------------------- ------ ------- ----
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax 1,548 19
Adjustment for non-cash items:
Allowance for impairment 624 -
Depreciation, amortisation and impairment of property, plant, equipment and intangibles 50 -
Other provisions 104 -
Net loss on disposal of investments and property, plant and equipment 4 -
Other non-cash movements (43) -
Changes in operating assets and liabilities
Net (increase) in cash collateral and settlement balances (130) -
Net (increase) in loans and advances at amortised cost (4,022) -
Net (increase) in reverse repurchase agreements and other similar lending (421) -
Net increase in deposits and debt securities in issue 6,532 -
Net (decrease) in repurchase agreements and other similar borrowing (171) -
Net (increase) in derivative financial instruments (5,854) -
Net (increase) in trading assets (151) -
Net (decrease) in trading liabilities (496) -
Net decrease in financial assets and liabilities at fair value 1,736 -
Net decrease in other assets 1,852 -
Net (decrease) in other liabilities (1,291) (15)
Corporate income tax paid (128) (1)
Net cash from operating activities (257) 3
------------------------------------------------------------------------------------------------------- ------- ----
Net cash acquired from the acquisition of the UK banking business 45,940 -
Purchase of financial assets at fair value through other comprehensive income (8,483) 44
Proceeds from sale or redemption of financial assets at fair value through other comprehensive
income 7,584 -
Purchase of property, plant and equipment and intangibles (40) -
Proceeds from sale of property, plant and equipment and intangibles 2 -
------------------------------------------------------------------------------------------------------- ------- ----
Net cash from investing activities 45,003 44
------------------------------------------------------------------------------------------------------- ------- ----
Dividends paid and other coupon payments on equity instruments (455) -
Vesting of employee share schemes (10) -
Capital contribution from Barclays Bank PLC - 6
Net cash from financing activities (465) 6
------------------------------------------------------------------------------------------------------- ------- ----
Net increase in cash and cash equivalents 44,281 53
------------------------------------------------------------------------------------------------------- ------- ----
Cash and cash equivalents at beginning of year 53 -
------------------------------------------------------------------------------------------------------- ------- ----
Cash and cash equivalents at end of year 44,334 53
------------------------------------------------------------------------------------------------------- ------- ----
Cash and cash equivalents comprise:
Cash and balances at central banks 40,669 -
Loans and advances to banks with original maturity less than three months 491 53
Cash collateral and settlement balances with banks with original maturity less than three
months 3,174 -
44,334 53
------------------------------------------------------------------------------------------------------ ------- ----
Interest received by Barclays Bank UK Group was GBP5,267m (2017:
GBPnil) and interest paid by Barclays Bank UK Group was GBP830m
(2017: GBPnil).
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.
Financial statements of Barclays Bank UK PLC
Parent company accounts
Balance sheet
--------------------------------------------------------------------- ----- -------------
2018(a) 2017
As at 31 December Notes GBPm GBPm
--------------------------------------------------------------------- ----- ------- ----
Assets
Cash and balances at central banks 40,664 -
Cash collateral and settlement balances 3,364 -
Loans and advances at amortised cost(b) 18 188,606 33
Reverse repurchase agreements and other similar secured lending 1,759 -
Trading portfolio assets 12 151 -
Financial assets at fair value through the income statement 13 3,880 -
Derivative financial instruments 14 241 -
Financial investments - 5
Financial assets at fair value through other comprehensive income(c) 15 6,710 -
Investment in subsidiaries 463 122
Goodwill and intangible assets 20 3,386 -
Property, plant and equipment 19 498 -
Deferred tax assets 10 790 -
Other assets 939 -
--------------------------------------------------------------------- ----- ------- ----
Total assets 251,451 160
--------------------------------------------------------------------- ----- ------- ----
Liabilities
Deposits at amortised cost 199,031 -
Cash collateral and settlement balances 239 -
Repurchase agreements and other similar secured borrowing 11,978 -
Debt securities in issue 9,912 -
Subordinated liabilities 26 7,548 -
Trading portfolio liabilities 12 1,269 -
Derivative financial instruments 14 436 -
Current tax liabilities 10 990 -
Other liabilities 22 1,676 1
Provisions 23 1,348 -
--------------------------------------------------------------------- ----- ------- ----
Total liabilities 234,427 1
--------------------------------------------------------------------- ----- ------- ----
Equity
Called up share capital and share premium 27 5 5
Other equity instruments 27 2,070 -
Other reserves 28 178 121
Retained earnings 14,771 33
--------------------------------------------------------------------- ----- ------- ----
Total equity 17,024 159
--------------------------------------------------------------------- ----- ------- ----
Total liabilities and equity 251,451 160
--------------------------------------------------------------------- ----- ------- ----
The Board of Directors approved the financial statements on
pages 111 to 113 on 20 February 2019.
Ashok Vaswani
Group Chief Executive
Angela Anna Cross
Group Finance Director
Notes
a Barclays Bank UK PLC acquired the UK banking business from Barclays
Bank PLC on 1 April 2018.
b On 1 January 2018, GBP33m of loans and advances to banks were reclassified
to loans and advances at amortised cost, due to changes to the
balance sheet presentation as at 31 December 2017. Further detail
on the adoption of new accounting policies can be found in Note
1, Basis of preparation on pages 114 to 118 and the Credit risk
disclosure on page 33.
c Following the adoption of IFRS 9 on 1 January 2018, the transitional
impact of which was immaterial, GBP5m of financial investments
were reclassified to financial assets at fair value through other
comprehensive income. Further detail on the adoption of new accounting
policies can be found in Note 1, Basis of preparation on pages
114 to 118 and the Credit risk disclosure on page 33.
d As permitted by section 408 of the Companies Act 2006 an income
statement for the parent company has not been presented. Included
in shareholders' equity for the Bank is a profit after tax for
the year ended 31 December 2018 of GBP1,126m (2017: GBP14m).
Statement of changes in equity
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Called up Other
share reserves
capital Other and other
and share equity shareholders' Retained
premium instruments equity earnings Total equity
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Balance as at 31 December 2017 5 - 121 33 159
Effects of changes in accounting policies - - - - -
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Balance as at 1 January 2018 5 - 121 33 159
Profit after tax - 105 - 1,021 1,126
Financial assets at fair value through other
comprehensive income - - (17) - (17)
Cash flow hedges - - 20 - 20
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Total comprehensive income for the year - 105 3 1,021 1,129
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Issue of new ordinary shares 13,044 - - - 13,044
Equity settled share schemes - - - 19 19
Net equity impact of the UK banking business
transfer - 2,070 54 46 2,170
Capital reorganisation (13,044) - - 13,044 -
Other equity instruments coupons paid - (105) - 28 (77)
Vesting of employee share schemes - - - (10) (10)
Dividends paid - - - (350) (350)
Capital contribution from Barclays Bank PLC - - - 941 941
Other movements - - - (1) (1)
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Balance as at 31 December 2018(a) 5 2,070 178 14,771 17,024
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Balance as at 1 January 2017 - - - - -
Profit after tax - - - 14 14
Total comprehensive income for the year - - - 14 14
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Issue of new ordinary shares 5 - - - 5
Capital contribution from Barclays Bank PLC - - - 6 6
Issue of shares in consideration of subsidiary - - 134 - 134
Release of merger reserve - - (13) 13 -
Balance as at 31 December 2017 5 - 121 33 159
--------------------------------------------------- ---------- ------------ -------------- --------- ------------
Note
a Barclays Bank UK PLC acquired the UK banking business from Barclays
Bank PLC on 1 April 2018.
Cash flow statement
----------------------------------------------------------------------------------------------- ------ -------------
2018 2017
For the year ended 31 December Notes GBPm GBPm
----------------------------------------------------------------------------------------------- ------ ------- ----
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax 1,554 14
Adjustment for non-cash items:
Allowance for impairment 622 12
Depreciation, amortisation and impairment of property, plant, equipment and intangibles 50 -
Other provisions 105 -
Net loss on disposal of investments and property, plant and equipment 4 -
Other non-cash movements (32) -
Changes in operating assets and liabilities
Net (increase) in cash collateral and settlement balances (124) -
Net (increase) in loans and advances at amortised cost (4341) -
Net (increase) in reverse repurchase agreements and other similar lending (421) -
Net increase in deposits and debt securities in issue 6,478 -
Net (decrease) in repurchase agreements and other similar borrowing (171) -
Net (increase) in derivative financial instruments (5,836) -
Net (increase) in trading assets (151) -
Net (decrease) in trading liabilities (496) -
Net decrease in financial assets and liabilities at fair value 1,718 -
Net decrease in other assets 1,878 -
Net (decrease) in other liabilities (1,288) 1
Corporate income tax paid (132) -
Dividend received - (27)
------------------------------------------------------------------------------------------------------- ------- ----
Net cash from operating activities (583) -
------------------------------------------------------------------------------------------------------- ------- ----
Net cash acquired from the acquisition of the UK banking business 45,936 -
Purchase of financial assets at fair value through other comprehensive income (8,483) -
Proceeds from sale or redemption of financial assets at fair value through other comprehensive
income 7,584 -
Purchase of property, plant and equipment and intangibles (40) -
Proceeds from sale of property, plant and equipment and intangibles 2 -
Dividend received - 27
------------------------------------------------------------------------------------------------------- ------- ----
Net cash from investing activities 44,999 27
------------------------------------------------------------------------------------------------------- ------- ----
Dividends paid and other coupon payments on equity instruments (455) -
Vesting of employee share schemes (10) -
Capital contribution from Barclays Bank PLC - 6
------------------------------------------------------------------------------------------------------- ------- ----
Net cash from financing activities (465) 6
------------------------------------------------------------------------------------------------------- ------- ----
Net increase in cash and cash equivalents 43,951 33
------------------------------------------------------------------------------------------------------- ------- ----
Cash and cash equivalents at beginning of year 33 -
------------------------------------------------------------------------------------------------------- ------- ----
Cash and cash equivalents at end of year 43,984 33
------------------------------------------------------------------------------------------------------- ------- ----
Cash and cash equivalents comprise:
Cash and balances at central banks 40,664 -
Loans and advances to banks with original maturity less than three months 146 33
Cash collateral and settlement balances with banks with original maturity less than three
months 3,174 -
------------------------------------------------------------------------------------------------------- ------- ----
43,984 33
------------------------------------------------------------------------------------------------------ ------- ----
Interest received by Barclays Bank UK PLC was GBP5,170m (2017:
GBPnil) and interest paid by Barclays Bank UK PLC was GBP741m
(2017: GBPnil).
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.
Notes to the financial statements
For the year ended 31 December 2018
This section describes Barclays Bank UK Group's significant
policies and critical accounting estimates that relate to the
financial statements and notes as a whole. If an accounting policy
or a critical accounting estimate relates to a particular note, the
accounting policy and/or critical accounting estimate is contained
within the relevant note.
1 Significant accounting policies
1. Reporting entity
Barclays Bank UK PLC is a public limited company, registered in
England under company number 9740322.
These financial statements are prepared for Barclays Bank UK PLC
and its subsidiaries (the Barclays Bank UK Group) under Section 399
of the Companies Act 2006. The Barclays Bank UK Group is a major UK
financial services provider engaged in retail banking, credit
cards, wholesale 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 Barclays Bank UK
Group, and the individual financial statements of Barclays Bank UK
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 with the exception of the
adoption of IFRS 9 Financial Instruments including the early
adoption of Prepayment Features with Negative Compensation
(Amendments to IFRS 9), IFRS 15 Revenue from Contracts with
Customers and the amendments to IFRS 2 Share-based Payment from 1
January 2018.
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 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
(GBPm), the functional currency of Barclays Bank UK PLC. The 31
December 2018 Barclays Bank UK PLC financial statements represent
the first consolidated financial statements prepared by Barclays
Bank UK Group.
The financial statements have been prepared on a going concern
basis, in accordance with the Companies Act 2006 as applicable to
companies using IFRS.
4. Accounting policies
The Barclays Bank UK Group prepares financial statements in
accordance with IFRS. The Barclays Bank UK 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 Bank UK Group applies IFRS 10 Consolidated financial
statements.
The consolidated financial statements combine the financial
statements of Barclays Bank UK PLC and all its subsidiaries.
Subsidiaries are entities over which Barclays Bank UK PLC has
control. The Barclays Bank UK Group has control over another entity
when the Barclays Bank UK 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 Barclays Bank UK 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. Consistent accounting policies are used throughout
the Barclays Bank UK 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.
None of the Barclays Bank UK Group's subsidiaries are
significant in the context of the Barclays Bank UK Group's
business, results or financial position. A complete list of all
subsidiaries is presented in Note 36.
In the individual financial statements of Barclays Bank UK PLC,
investments in subsidiaries are stated at cost less impairment.
(ii) Foreign currency translation
The Barclays Bank UK Group applies IAS 21 The Effects of Changes
in Foreign Exchange Rates. Transactions in foreign currencies are
translated into Sterling at the rate ruling on the date of the
transaction. Foreign currency monetary balances are translated into
Sterling at the period end exchange rates. Exchange gains and
losses on such balances are taken to the income statement.
Non-monetary foreign currency balances are carried at historical
transaction date exchange rates.
(iii) Financial assets and liabilities
The Barclays Bank UK Group applies IFRS 9 Financial Instruments
to the recognition, classification and measurement, and
derecognition of financial assets and financial liabilities and the
impairment of financial assets. The Barclays Bank UK Group applies
the requirements of IAS 39 Financial Instruments: Recognition and
Measurement for hedge accounting purposes.
Recognition
The Barclays Bank UK Group recognises financial assets and
liabilities when it becomes a party to the terms of the contract.
Trade date or settlement date accounting is applied depending on
the classification of the financial asset.
Classification and measurement
Financial assets are classified on the basis of two
criteria:
i) the business model within which financial assets are managed; and
ii) their contractual cash flow characteristics (whether the cash flows
represent 'solely payments of principal and interest' (SPPI)).
The Barclays Bank UK Group assesses the business model criteria
at a portfolio level. Information that is considered in determining
the applicable business model includes (i) policies and objectives
for the relevant portfolio, (ii) how the performance and risks of
the portfolio are managed, evaluated and reported to management,
and (iii) the frequency, volume and timing of sales in prior
periods, sales expectation for future periods, and the reasons for
such sales.
The contractual cash flow characteristics of financial assets
are assessed with reference to whether the cash flows represent
SPPI. In assessing whether contractual cash flows are SPPI
compliant, interest is defined as consideration primarily for the
time value of money and the credit risk of the principal
outstanding. The time value of money is defined as the element of
interest that provides consideration only for the passage of time
and not consideration for other risks or costs associated with
holding the financial asset. Terms that could change the
contractual cash flows so that it would not meet the condition for
SPPI are considered, including: (i) contingent and leverage
features, (ii) non-recourse arrangements and (iii) features that
could modify the time value of money.
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 SPPI.
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 SPPI.
Other financial assets are measured at fair value through profit
and loss. There is an option to make an irrevocable election on
initial recognition 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 policy for each type of financial asset or
liability is included within the relevant note for the item. The
Barclays Bank UK Group's policies for determining the fair values
of the assets and liabilities are set out in Note 16.
Derecognition
The Barclays Bank UK 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 de-recognised 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.
Transactions in which the Barclays Bank UK 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 Barclays Bank UK 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.
Accounting for reverse repurchase and repurchase agreements
including other similar lending and borrowing
Reverse repurchase agreements (and stock borrowing or similar
transaction) are a form of secured lending whereby the Barclays
Bank UK 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
Barclays Bank UK Group obtains such loans or cash collateral, in
exchange for the transfer of collateral.
The Barclays Bank UK 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 Barclays Bank UK 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 Barclays Bank UK 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 Barclays Bank UK 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.
(iv) Issued debt and equity instruments
The Barclays Bank UK 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
Barclays Bank UK Group having an 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.
5. New and amended standards and interpretations
The accounting policies adopted are consistent with those of the
previous financial year, with the exception of the adoption of IFRS
9 Financial Instruments including the early adoption of Prepayment
Features with Negative Compensation (Amendments to IFRS 9), IFRS 15
Revenue from Contracts with Customers and the amendments to IFRS 2
Share-based Payment from 1 January 2018.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 introduces key
changes in the following areas:
-- Classification and measurement - requiring asset classification
and measurement based upon both business model and product characteristics
-- Impairment - introducing an expected credit loss model using forward
looking information which replaces an incurred loss model. The
expected credit loss model introduces a three-stage approach to
impairment as follows:
Stage 1 - the recognition of 12 month expected credit losses
(ECL), that is the portion of lifetime expected credit losses from
default events that are expected within 12 months of the reporting
date, if credit risk has not increased significantly since initial
recognition;
Stage 2 - lifetime expected credit losses for financial
instruments for which credit risk has increased significantly since
initial recognition; and
Stage 3 - lifetime expected credit losses for financial
instruments which are credit impaired.
Refer to Note 8 for further details regarding the impairment
requirements of IFRS 9.
As required by IFRS 9 the Barclays Bank UK Group applied IFRS 9
retrospectively by adjusting the opening balance sheet at the date
of initial application, and comparative periods have not been
restated. There were no significant impacts from the adoption of
IFRS 9.
The following voluntary changes in presentation have been made
as a result of the review of accounting presentation following the
adoption of IFRS 9, and is expected to provide more relevant
information to the users of the financial statements. These
presentational changes have no effect on the measurement of these
items and therefore had no impact on retained earnings or profit
for any period. The effect of these presentational changes on
transition are included in the consolidated balance sheet on pages
108 and are noted below.
-- 'Loans and advances to banks' and 'loans and advances to customers'
have been disaggregated and are now reported in 'loans and advances
at amortised cost' and 'cash collateral and settlement balances';
and
-- The available for sale assets which were previously reported in
'financial investments/available for sale investments' are now
reported in 'financial assets at fair value through other comprehensive
income'.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers replaces IAS 18
Revenue and IAS 11 Construction Contracts. IFRS 15 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. There were no
significant impacts from the adoption of IFRS 15 in relation to the
timing of when the Barclays Bank UK Group recognises revenues or
when revenue should be recognised gross as a principal or net as an
agent.
IFRS 2 Share-based Payment-- Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that
address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the
classification of a share-based payment transaction with net
settlement features for withholding tax obligations; and accounting
where a modification to the terms and conditions of a share-based
payment transaction changes its classification from cash settled to
equity settled. The amendments are effective for annual periods
beginning on or after 1 January 2018. Adoption of the amendments
did not have a significant impact on the Barclays Bank UK
Group.
Future accounting developments
There have been and are expected to be a number of significant
changes to the Barclays Bank UK Group's financial reporting after
2018 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 16 - Leases
In January 2016 the IASB issued IFRS 16 Leases, which was
subsequently endorsed by the EU in November 2017, and will replace
IAS 17 Leases for period beginning on or after 1 January 2019. 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. A lessee may elect not to apply
IFRS 16 to remaining assets within the scope of IAS 38 Intangible
Assets.
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. Lessees will be
required to recognise both:
-- a lease liability, measured at the present value of remaining cash
flows on the lease; and
-- a right of use (ROU) asset, measured at the amount of the initial
measurement of the lease liability, plus any lease payments made
prior to commencement date, initial direct costs, and estimated
costs of restoring the underlying asset to the condition required
by the lease, less any lease incentives received.
There is a recognition exception for leases with a term not
exceeding 12 months which allows the lessee to apply similar
accounting as an operating lease under IAS 17.
Subsequently the lease liability will increase for the accrual
of interest, resulting in a constant rate of return throughout the
life of the lease, and reduce when payments are made. The right of
use asset will amortise to the income statement over the life of
the lease.
The Barclays Bank UK Group IFRS 16 implementation and governance
programme has been led by Finance with representation from all
impacted departments. The project has identified the contracts
impacted by IFRS 16, which are predominantly existing property
leases. Other lease types are not material. The project has also
established appropriate accounting policies, determined the
appropriate transition options to apply, and updated Finance
systems and processes to reflect the new accounting and disclosure
requirements.
As permitted by the standard, the Barclays Bank UK Group intends
to apply IFRS 16 on a retrospective basis but to take advantage of
the option not to restate comparative periods by applying the
modified retrospective approach. The Barclays Bank UK Group intends
to take advantage of the following transition options available
under the modified retrospective approach:
-- To calculate the right of use asset equal to the lease liability,
adjusted for prepaid or accrued payments;
-- To rely on the previous assessment of whether leases are onerous
in accordance with IAS 37 immediately before the date of initial
application as an alternative to performing an impairment review.
The Barclays Bank UK Group will adjust the carrying amount of the
ROU asset at the date of initial application by the previous carrying
amount of its onerous lease provision;
-- Apply the recognition exception for leases with a term not exceeding
12 months; and
-- Use hindsight in determining the lease term if the contract contains
options to extend or terminate the lease.
The expected impact of adopting IFRS 16 is an increase in assets
of GBP0.5bn, an increase in liabilities of GBP0.5bn with no
material impact to retained earnings. This impact assessment has
been estimated under an interim control environment. The
implementation of the comprehensive end state control environment
will continue as the Barclays Bank UK Group introduces business as
usual controls through 2019.
IFRS 17 - Insurance contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a
comprehensive new accounting standard for insurance contracts
covering recognition and measurement, presentation and disclosure.
Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts
that was issued in 2005.
IFRS 17 applies to all types of insurance contracts (i.e. life,
non-life, direct insurance and re-insurance), regardless of the
type of entities that issue them, as well as to certain guarantees
and financial instruments with discretionary participation
features. A few scope exceptions will apply. The standard is
currently effective from 1 January 2021, and the standard has not
yet been endorsed by the EU. The Barclays Bank UK Group is
currently assessing the expected impact of adopting this
standard.
IFRIC Interpretation 23 - Uncertainty over Income Tax
Treatment
IFRIC 23 clarifies the application of IAS 12 to accounting for
income tax treatments that have yet to be accepted by tax
authorities, in scenarios where it may be unclear how tax law
applies to a particular transaction or circumstance, or whether a
taxation authority will accept an entity's tax treatment. The
effective date is 1 January 2019. The Barclays Bank UK Group has
considered the guidance included within the interpretation and
concluded that the prescribed approach under IFRIC 23 is not
expected to have a material impact on the Barclays Bank UK Group's
financial position.
IAS 12 Income Taxes-Amendments to IAS 12
In December 2017, as part of the Annual Improvements to IFRS
Standards 2015-2017 Cycle, the IASB amended IAS 12 in order to
clarify the accounting treatment of the income tax consequences of
dividends. Effective from 1 January 2019 the tax consequences of
all payments on financial instruments that are classified as equity
for accounting purposes, where those payments are considered to be
a distribution of profit, will be included in, and will reduce, the
income statement tax charge. Refer to Note 10 for the expected
impact of adopting the amendments to IAS 12.
IAS 19 Employee Benefits - Amendments to IAS 19
In February 2018 the IASB issued amendments to the guidance in
IAS 19 Employee Benefits, in connection with accounting for plan
amendments, curtailments and settlements. The amendments must be
applied to plan amendments, curtailments or settlements occurring
on or after the beginning of the first annual reporting period that
begins on or after 1 January 2019. The amendments have not yet been
endorsed by the EU.
Adoption of the amendments is not expected to have significant
impact on the Barclays Bank UK Group.
6. 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:
-- Net interest income on page 122
-- Credit impairment charges on page 125
-- Tax on page 128
-- Fair value of financial instruments on page 138
-- Provisions including conduct and legal, competition and regulatory
matters on page 153.
7. Other disclosures
To improve transparency and ease of reference, by concentrating
related information in one place, certain disclosures required
under IFRS have been included within the Risk review section as
follows:
-- Credit risk on page 33 and the tables on pages 48 to 70
-- Market risk on page 36 and the tables on pages 71 to 73
-- Treasury and capital risk - capital on page 39 and the tables on
page 80
-- Treasury and capital risk - liquidity on page 38 and the tables
on pages 75 to 79.
These disclosures are covered by the Audit opinion (included on
pages 98 to 105) where referenced as audited.
8. Presentation of prior year comparative information
For notes where all prior year comparative figures round to nil
when presented in rounded millions, no prior year disclosure has
been provided.
2 Acquisition of business
Accounting for acquisition of business under common control
Transactions under common control are transactions under which
all the combining entities or businesses are ultimately controlled
by the same party both before and after the transaction and that
control is not transitory.
Barclays Bank UK Group has adopted predecessor book value
accounting for common control transactions involving businesses.
Acquisition accounting, which involves restatement at fair value of
assets and liabilities of the business transferred, is therefore
not applied.
Barclays Bank UK Group's application of predecessor book value
accounting requires the acquiring entity's financial statements to
be prepared using predecessor carrying values from the highest
level of consolidation as at the date of the transaction. No
adjustments are made to reflect fair values and no new goodwill is
recognised. The comparative periods prior to the transaction date
are not restated, such that the transferred businesses results and
carrying amounts of assets and liabilities are reported
prospectively from the date of the acquisition. The acquiring
entity will also generally recognise the other comprehensive income
reserves of the transferring entity, except in situations where the
acquiring entity does not recognise the related underlying assets
or liabilities.
Other transactions under common control not involving the
acquisition of a business would be accounted for in accordance with
other IFRS standards as applicable.
Following the court approval of the ring-fencing transfer scheme
on 9 March 2018, the UK banking business of Barclays Bank PLC
largely comprising Personal Banking, Barclaycard Consumer UK and
Business Banking customers, and related assets and liabilities was
acquired by Barclays Bank UK PLC on 1 April 2018, to meet the
regulatory ring-fencing requirement under the Financial Services
(Banking Reform) Act 2013 and related legislation.
The assets and liabilities, including goodwill were recognised
by Barclays Bank UK PLC at their predecessor book values in the
consolidated financial statements of Barclays PLC on the date of
transfer. The total net assets transferred to Barclays Bank UK PLC
were GBP16.2bn. Net assets of GBP13.0bn were transferred in
exchange for three ordinary shares issued by Barclays Bank UK PLC
and the remaining assets were transferred for no consideration.
The acquisition from Barclays Bank PLC has resulted in a
material change to the financial position and results of Barclays
Bank UK PLC in comparison to the prior period. The individual
assets acquired and liabilities assumed as part of the acquisition
are detailed below:
Acquisition of UK banking
Barclays Bank UK Group As at 01.01.18 business(a) Movement for the period As at 31.12.18
Assets GBPm GBPm GBPm GBPm
------------------------------ -------------- ----------------------------- ----------------------- --------------
Cash and balances at central
banks - 37,380 3,289 40,669
Cash collateral and settlement
balances - 8,649 (5,300) 3,349
Loans and advances at
amortised cost 53 184,825 3,687 188,565
Reverse repurchase agreements
and other similar secured
lending - 1,338 421 1,759
Trading portfolio assets - - 151 151
Financial assets at fair value
through the income statement - 5,616 (1,736) 3,880
Derivative financial
instruments - 2,777 (2,536) 241
Financial assets at fair value
through other comprehensive
income 5 5,539 1,166 6,710
Goodwill and intangible assets - 3,537 (3) 3,534
Property, plant and equipment - 510 (12) 498
Deferred tax assets - 747 45 792
Other assets 2 3,007 (1,852) 1,157
------------------------------ -------------- ----------------------------- ----------------------- --------------
Total assets 60 253,925 (2,680) 251,305
Liabilities
------------------------------ -------------- ----------------------------- ----------------------- --------------
Deposits at amortised cost - 194,150 3,335 197,485
Cash collateral and settlement
balances - 432 (193) 239
Repurchase agreements and
other similar secured
borrowing - 12,149 (171) 11,978
Debt securities in issue - 12,303 (1,131) 11,172
Subordinated liabilities - 3,001 4,547 7,548
Trading portfolio liabilities - 1,765 (496) 1,269
Derivative financial
instruments - 8,809 (8,390) 419
Current tax liabilities 5 671 308 984
Other liabilities 8 2,145 (265) 1,888
Provisions 1 2,304 (925) 1,380
------------------------------ -------------- ----------------------------- ----------------------- --------------
Total liabilities 14 237,729 (3,381) 234,362
Note
a The capital contribution recorded on 1 April 2018, when the majority
of the UK banking business was transferred from Barclays Bank PLC,
reflected subsequent true-up adjustments that were recognised between
the parties as required by the terms of the 1 April transfers.
Certain such adjustments, amounting to GBP66m, were not recorded
at the time of the half year results as they had not been verified
by that date, and therefore were not reflected in the capital contribution.
The window for adjustments has now closed.
The narrative below provides further granularity of the items
transferred as part of the acquisition of the UK banking business
from Barclays Bank PLC. The items transferred included (but were
not limited to):
-- Loans and advances at amortised cost of GBP184,825m relating to
the UK banking business were transferred, including home loans
of GBP133,641m, credit cards and unsecured loans of GBP22,621m,
and corporate loans of GBP27,396m
-- Derivative assets and liabilities consisted of hedges for assets
held at fair value as well those designated in hedge accounting
relationships. The fair value of the derivative assets was GBP2,777m
and the fair value of the derivative liabilities was GBP8,809m.
Subsequent to acquisition, the majority of the derivative hedge
positions have been cleared through a central clearing house, also
reducing the cash collateral and settlement balances
-- Financial assets at fair value through other comprehensive income
consisted of debt securities of GBP5,539m
-- Property, plant and equipment relating to the UK banking business
with a net book value of GBP510m (gross cost of GBP971m and accumulated
depreciation of GBP461m)
-- Goodwill relating to the UK banking business with a net book value
of GBP3,526m and licences and other intangible assets with a net
book value of GBP11m (gross cost of GBP90m and accumulated amortisation
of GBP79m)
-- Other assets of GBP3,007m consisted of sundry receivables of GBP2,167m
predominately relating to balances held with Barclays Bank PLC,
items in the course of collection of GBP588m, accrued income of
GBP146m and prepayments of GBP106m
-- Deposits at amortised cost of GBP194,150m consisted of current,
saving and time deposits of UK banking business customers and deposits
with banks
-- Debt securities in issue consisted of covered bonds of GBP8,302m
and other debt securities of GBP4,001m
-- Other liabilities consisted of sundry creditors of GBP1,867m and
accruals and deferred income of GBP278m
The share capital, share premium and reserves of Barclays Bank
UK PLC have been impacted as follows as a result of the acquisition
of the UK banking business: share capital and share premium have
increased GBP13,044m, other equity instruments have increased
GBP2,070m, other reserves and retained earnings have increased
GBP1,082m.
Materially all of the current year revenue and profit for
Barclays Bank UK Group was generated by the acquired UK banking
business.
Had the acquisition of the UK banking business occurred on 1
January, an additional three months of income and expenses would be
recognised in the current period. The operations acquired made a
profit before tax for the three months to 31 March 2018 of GBP91m,
which included a GBP400m charge for PPI.
Acquisition of UK banking
Barclays Bank UK PLC As at 01.01.18 business Movement for the period As at 31.12.18
Assets GBPm GBPm GBPm GBPm
------------------------------ -------------- ----------------------------- ----------------------- --------------
Cash and balances at central
banks - 37,380 3,284 40,664
Cash collateral and settlement
balances - 8,670 (5,306) 3,364
Loans and advances at
amortised cost 33 184,885 3,688 188,606
Reverse repurchase agreements
and other similar secured
lending - 1,338 421 1,759
Trading portfolio assets - 151 151
Financial assets at fair value
through the income statement - 5,598 (1,718) 3,880
Derivative financial
instruments - 2,777 (2,536) 241
Financial investments 5 - (5) -
Financial assets at fair value
through other comprehensive
income - 5,539 1,171 6,710
Investment in Subsidiaries 122 341 - 463
Goodwill and intangible assets - 3,389 (3) 3,386
Property, plant and equipment - 510 (12) 498
Current tax assets - - - -
Deferred tax assets - 747 43 790
Other assets - 2,820 (1,881) 939
------------------------------ -------------- ----------------------------- ----------------------- --------------
Total assets 160 253,994 (2,703) 251,451
Liabilities
------------------------------ -------------- ----------------------------- ----------------------- --------------
Deposits at amortised cost - 195,240 3,791 199,031
Cash collateral and settlement
balances - 431 (192) 239
Repurchase agreements and
other similar secured
borrowing - 12,149 (171) 11,978
Debt securities in issue - 11,552 (1,640) 9,912
Subordinated liabilities - 3,001 4,547 7,548
Trading portfolio liabilities - 1,765 (496) 1,269
Derivative financial
instruments - 8,809 (8,373) 436
Current tax liabilities - 676 314 990
Other liabilities 1 1,986 (311) 1,676
Provisions - 2,230 (882) 1,348
------------------------------ -------------- ----------------------------- ----------------------- --------------
Total liabilities 1 237,839 (3,413) 234,427
Notes to the financial statements
Performance/return
The notes included in this section focus on the results and
performance of the Barclays Bank UK Group. Information on the
income generated, expenditure incurred, segmental performance, tax
and dividends are included here.
3 Segmental reporting
Presentation of segmental reporting
The Barclays Bank UK Group's segmental reporting is 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. Income and expenses directly associated
with each segment are included in determining business segment
performance.
Following the acquisition of the UK banking business on 1 April
2018 from Barclays Bank PLC, for segmental reporting purposes the
Barclays Bank UK Group divisions have been defined as:
-- Personal Banking which comprises Personal and Premier banking,
Mortgages, Savings, Investments and Wealth management.
-- Barclaycard Consumer UK which comprises the Barclaycard UK consumer
credit cards business.
-- Business Banking which offers products, services and specialist
advice to clients ranging from start-ups to medium-sized businesses
and is where the Education, Social Housing and Local Authority
(ESHLA) loan portfolio is held.
The below table also includes Head Office which comprises head
office and central support functions.
Analysis of results by business
----------------------------------------------------------------------------------- --------- ------- -------------
Personal Business Head Barclays Bank
Banking Barclaycard Consumer UK Banking Office UK Group
GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ---------- ----------------------- --------- ------- -------------
For the year ended 31 December 2018
Total income 3,152 1,578 991 (115) 5,606
Credit impairment charges and other provisions (100) (477) (48) 1 (624)
---------------------------------------------- ---------- ----------------------- --------- ------- -------------
Net operating income/(expenses) 3,052 1,101 943 (114) 4,982
Operating expenses (2,271) (486) (571) (28) (3,356)
Litigation and conduct (12) (50) (9) (7) (78)
---------------------------------------------- ---------- ----------------------- --------- ------- -------------
Total operating expenses (2,283) (536) (580) (35) (3,434)
Profit/(loss) before tax 769 565 363 (149) 1,548
---------------------------------------------- ---------- ----------------------- --------- ------- -------------
Total assets GBP179.4bn GBP16.5bn GBP55.4bn - GBP251.3bn
---------------------------------------------- ---------- ----------------------- --------- ------- -------------
Number of employees (full time equivalent) 19,000 300 3,300 200 22,800
---------------------------------------------- ---------- ----------------------- --------- ------- -------------
The above segments have been in place since 1 April 2018,
following the acquisition of the UK banking business. Prior to the
acquisition of the UK banking business, all income and expenses
were associated with Personal Banking.
Income by geographic region
Income from Barclays Bank UK Group is earned from the UK
region.
5 Net fee and commission income
Accounting for net fee and commission income under IFRS 15
effective from 1 January 2018
The Barclays Bank UK Group applies IFRS 15 Revenue from
Contracts with Customers. The standard establishes a five-step
model governing revenue recognition. The five-step model requires
Barclays Bank UK Group to (i) identify the contract with the
customer, (ii) identify each of the performance obligations
included in the contract, (iii) determine the amount of
consideration in the contract, (iv) allocate the consideration to
each of the identified performance obligations and (v) recognise
revenue as each performance obligation is satisfied.
Barclays Bank UK Group recognises fee and commission income
charged for services provided by the Barclays Bank UK Group as the
services are provided, for example on completion of the underlying
transaction.
Accounting for net fee and commission income under IAS 18 for
2017
The Barclays Bank UK Group applies IAS 18 Revenue. Fees and
commissions charged for services provided or received by the
Barclays Bank UK Group are recognised as the services are provided,
for example on completion of the underlying transaction.
Fee and commission income is disaggregated below by fee types
that reflect the nature of the services offered across the Barclays
Bank UK Group and operating segments, in accordance with IFRS 15.
It includes a total for fees in scope of IFRS 15. Refer to Note 3
for more detailed information about operating segments.
2018
-------------------------------------------------------------------------------
Personal Banking Barclaycard Consumer UK Business Banking Head Office Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------------- ----------------------- ---------------- ----------- -----
Fee type
Transactional 516 176 129 - 821
Advisory 188 - - - 188
Other 189 3 114 - 306
------------------------------------- ---------------- ----------------------- ---------------- ----------- -----
Total revenue from contracts with
customers 893 179 243 - 1,315
Other non-contract fee income - - - - -
------------------------------------- ---------------- ----------------------- ---------------- ----------- -----
Fee and commission income 893 179 243 - 1,315
------------------------------------- ---------------- ----------------------- ---------------- ----------- -----
Fee and commission expense (240) (24) (9) - (273)
------------------------------------- ---------------- ----------------------- ---------------- ----------- -----
Net fee and commission income 653 155 234 - 1,042
------------------------------------- ---------------- ----------------------- ---------------- ----------- -----
2017(a)
GBPm
----------------------------------------------------------------------- -------
Fee and commission income
Banking, investment management and credit related fees and commissions 27
Fee and commission income 27
----------------------------------------------------------------------- -------
Fee and commission expense -
----------------------------------------------------------------------- -------
Net fee and commission income 27
----------------------------------------------------------------------- -------
Note
a Barclays Bank UK Group elected the cumulative effect transition
method on adoption of IFRS 15 from 1 January 2018, and recognised
in retained earnings without restating comparative periods. The
comparative figures are reported under IAS 18.
Fee types
Transactional
Transactional fees are service charges on deposit accounts, cash
management services and transactional processing fees including
interchange and merchant fee income generated from credit and bank
card usage. Transaction and processing fees are recognised at the
point in time the transaction occurs or service is performed. They
include banking services such as Automated Teller Machine (ATM)
fees, wire transfer fees, balance transfer fees, overdraft or late
fees and foreign exchange fees, among others. Interchange and
merchant fees are recognised upon settlement of the card
transaction payment.
Barclays Bank UK Group incurs certain card related costs
including those related to cardholder reward programmes. To the
extent cardholder reward programmes costs are attributed to
customers that settle their outstanding balance each period
(transactors) they are expensed when incurred and presented in fee
and commission expense while costs related to customer who
continuously carry an outstanding balance (revolvers) are included
in the effective interest rate of the receivable (refer to Note
4).
Advisory
Advisory fees are generated from wealth management services.
Wealth management advisory fees primarily consists of asset-based
fees for advisory accounts of wealth management clients and are
based on the market value of client assets. They are earned over
the period the services are provided and are generally recognised
quarterly when the market value of client assets is determined.
Contract assets and contract liabilities
The Barclays Bank UK Group had no material contract assets or
contract liabilities as at 31 December 2018.
Impairment on fee receivables and contract assets
During 2018, there have been no material impairments recognised
in relation to fees receivable and contract assets. Fees in
relation to transactional business can be added to outstanding
customer balances. These amounts may be subsequently impaired as
part of the overall loans and advances balance.
Remaining performance obligations
The Barclays Bank UK Group applies the practical expedient of
IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of
one year or less or because the Barclays Bank UK Group has a right
to consideration that corresponds directly with the value of the
service provided to the client or customer.
Costs incurred in obtaining or fulfilling a contract
The Barclays Bank UK Group expects that incremental costs of
obtaining a contract such as success fee and commission fees paid
are recoverable and therefore capitalised. Such contract costs are
not material as at 31 December 2018.
Capitalised contract costs are amortised based on the transfer
of services to which the asset relates which typically ranges over
the expected life of the relationship. In 2018, the amount of
amortisation was immaterial and there was no impairment loss
recognised in connection with the capitalised contract costs.
11 Dividends on ordinary shares
The 2018 financial statements include GBP350m (2017: GBPnil) of
half year dividend paid. This results in a total dividend for the
year of 0.69p (2017: nil) per ordinary share.
Dividends paid on other equity instruments amounted to GBP105m
(2017: GBPnil). For further detail on other equity instruments,
please refer to Note 27.
16 Fair value of financial instruments
Accounting for financial assets and liabilities - fair
values
Financial instruments that are held for trading are recognised
at fair value through profit or loss. In addition, financial assets
are held at fair value through profit or loss if they do not
contain contractual terms that give rise on specified dates to cash
flows that are SPPI, or if the financial asset is not held in a
business model that is either (i) a business model to collect the
contractual cash flows or (ii) a business model that is achieved by
both collecting contractual cash flows and selling. Subsequent
changes in fair value for these instruments are recognised in the
income statement in net investment income, except if reporting it
in trading income reduces an accounting mismatch.
All financial instruments are initially recognised at fair value
on the date of initial recognition (including transaction costs,
other than financial instruments held at fair value through profit
or loss) 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 Barclays
Bank UK 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 inputs including, for
example, interest rate yield curves, equities and commodities
prices, option volatilities and currency rates.
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 over the
period until all model inputs will become observable where
appropriate; 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,
dependent 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 143.
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.
The following tables show Barclays Bank UK Group and Barclays
Bank UK PLC's 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
------------------------------------------------ ---------------------------------- --------------------------------
2018 2017
---------------------------------- --------------------------------
Valuation technique using Valuation technique using
---------------------------------- --------------------------------
Barclays Bank UK Group Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
As at 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Trading portfolio assets - 151 - 151 - - - -
Financial assets at fair value through the
income statement - 28 3,852 3,880
Derivative financial assets - 241 - 241 - - - -
Available for sale investments - - - - 5 - - 5
Financial assets at fair value through other
comprehensive income 2,901 3,809 - 6,710 - - - -
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Total assets 2,901 4,229 3,852 10,982 5 - - 5
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Trading portfolio liabilities (1,252) (17) - (1,269) - - - -
Derivative financial liabilities - (419) - (419) - - - -
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Total liabilities (1,252) (436) - (1,688) - - - -
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Assets and liabilities held at fair value
------------------------------------------------ ---------------------------------- --------------------------------
2018 2017
---------------------------------- --------------------------------
Valuation technique using Valuation technique using
---------------------------------- --------------------------------
Barclays Bank UK PLC Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
As at 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Trading portfolio assets - 151 - 151 - - - -
Financial assets at fair value through the
income statement - 28 3,852 3,880 - - - -
Derivative financial assets - 241 - 241 - - - -
Available for sale investments - - - - 5 - - 5
Financial assets at fair value through other
comprehensive income 2,901 3,809 - 6,710 - - - -
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Total assets 2,901 4,229 3,852 10,982 5 - - 5
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
- - - -
Trading portfolio liabilities (1,252) (17) - (1,269) - - - -
Derivative financial liabilities - (436) - (436) - - - -
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
Total liabilities (1,252) (453) - (1,705) - - - -
------------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -----
The following tables show Barclays Bank UK Group and Barclays
Bank UK PLC'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
----------------------------- -----------------------------
Barclays Bank UK Group Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
As at 31 December 2018 GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- -------- -------- --------- -------- --------
Interest rate derivatives - 170 - - (337) -
Foreign exchange derivatives - 71 - - (82) -
Government and government sponsored debt 2,901 3,777 - (1,252) (17) -
Corporate debt - 134 - - - -
Non-asset backed loans - 28 3,852 - - -
Asset backed securities - 49 - - - -
----------------------------------------- --------- -------- -------- --------- -------- --------
Total 2,901 4,229 3,852 (1,252) (436) -
----------------------------------------- --------- -------- -------- --------- -------- --------
As at 31 December 2017
Government and government sponsored debt 5 - - - - -
----------------------------------------- --------- -------- -------- --------- -------- --------
Total 5 - - - - -
----------------------------------------- --------- -------- -------- --------- -------- --------
Assets and liabilities held at fair value by product type
-------------------------------------------------------------------------------------------------------
Assets Liabilities
Valuation technique using Valuation technique using
----------------------------- -----------------------------
Barclays Bank UK PLC Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
As at 31 December 2018 GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- -------- -------- --------- -------- --------
Interest rate derivatives - 108 - - (337) -
Foreign exchange derivatives - 133 - - (99) -
Government and government sponsored debt 2,901 3,777 - (1,252) (17) -
Corporate debt - 134 - - - -
Non-asset backed loans - 28 3,852 - - -
Asset backed securities - 49 - - - -
----------------------------------------- --------- -------- -------- --------- -------- --------
Total 2,901 4,229 3,852 (1,252) (453) -
----------------------------------------- --------- -------- -------- --------- -------- --------
As at 31 December 2017
Government and government sponsored debt 5 - - - - -
----------------------------------------- --------- -------- -------- --------- -------- --------
Total 5 - - - - -
----------------------------------------- --------- -------- -------- --------- -------- --------
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: Derivatives linked to interest rates or inflation
indices. The category includes futures, interest rate and inflation
swaps, swaptions, caps, floors and balance guaranteed swaps.
Valuation: Interest rate and inflation derivatives are generally
valued using curves of forward rates constructed from market data
to project and discount the expected future cash flows of trades.
Instruments with optionality are valued using volatilities implied
from market inputs, and use industry standard or bespoke models
depending on the product type.
Observability: In general, inputs are considered observable up
to liquid maturities which are determined separately for each input
and underlying. Unobservable inputs are generally set by
referencing liquid market instruments and applying extrapolation
techniques or inferred via another reasonable method.
Level 3 sensitivity: Sensitivity to unobservable valuation
inputs is based on the dispersion of consensus data services where
available, or alternatively it is based on stress scenarios or
historical data.
Foreign exchange derivatives
Description: Derivatives linked to the foreign exchange (FX)
market. The category includes FX forward contracts, FX swaps and FX
options. The majority are traded as over the counter (OTC)
derivatives.
Valuation: FX derivatives are valued using industry standard and
bespoke models depending on the product type. Valuation inputs
include FX rates, interest rates, FX volatilities, interest rate
volatilities, FX interest rate correlations and others as
appropriate.
Observability: FX correlations, forwards and volatilities are
generally observable up to liquid maturities which are determined
separately for each input and underlying. Unobservable 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 primarily based on the dispersion of consensus
data services.
Government and government sponsored debt
Description: Government bonds, supra sovereign bonds and agency
bonds.
Valuation: Liquid bonds that are actively traded through an
exchange or clearing house are marked to the levels observed in
these markets. Other actively traded bonds are valued using
observable market prices sourced from broker quotes, inter-dealer
prices or other reliable pricing sources.
Observability: Prices for actively traded bonds are considered
observable. Unobservable bonds prices are generally determined by
reference to bond yields for actively traded bonds from the same
(or a similar) issuer.
Level 3 sensitivity: Sensitivity is generally determined by
using a range of observable alternative prices.
Corporate debt
Description: Primarily corporate bonds.
Valuation: Corporate bonds are valued using observable market
prices sourced from broker quotes, inter-dealer prices or other
reliable pricing sources.
Observability: Prices for actively traded bonds are considered
observable. Unobservable bonds prices are generally determined by
reference to bond yields or CDS spreads for actively traded
instruments issued by or referencing the same (or a similar)
issuer.
Level 3 sensitivity: Sensitivity is generally determined by
applying a shift to bond yields using the average ranges of
external levels observed in the market for similar bonds.
Non-asset backed loans
Description: Largely made up of fixed rate loans.
Valuation: Fixed rate loans are valued using models that
discount expected future cash flows based on interest rates and
loan spreads.
Observability: Within this loan population, the loan spread is
generally unobservable. Unobservable loan spreads are determined by
incorporating funding costs, the level of comparable assets such as
gilts, issuer credit quality and other factors.
Level 3 sensitivity: The sensitivity of fixed rate loans is
calculated by applying a shift to loan spreads.
Asset backed securities
Description: Securities that are linked to the cash flows of a
pool of referenced assets via securitisation. The category includes
residential mortgage backed securities, commercial mortgage backed
securities, CDOs, collateralised loan obligations (CLOs) and other
asset backed securities.
Valuation: Where available, valuations are based on observable
market prices 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.
Level 3 movement analysis
The following tables summarise the movements in the Level 3
balances during the period. Transfers have been reflected as if
they had taken place at the beginning of the year.
Asset and liability transfers between Level 2 and Level 3 are
primarily due to 1) an increase or decrease in observable market
activity related to an input or 2) a change in the significance of
the unobservable input, with assets and liabilities classified as
Level 3 if an unobservable input is deemed significant.
Analysis of movements in Level 3 assets and liabilities
-------------------------------------------------------------------------------------------------------------------------
Total gains and
losses in the
period recognised
in the income
statement Transfers
------------------- -----------
Total
gains or
As at 1 losses As at 31
January Trading Other recognised December
2018 Purchases(a) Sales Issues Settlements income income in OCI In Out 2018
Barclays
Bank UK
Group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- -------- ------------ ----- ------ ----------- ------- ---------- ---------- ----- ---- -----------
Non-asset
backed
loans - 4,432 - - (604) 24 - - - - 3,852
---------- -------- ------------ ----- ------ ----------- ------- ---------- ---------- ----- ---- -----------
Financial
assets at
fair
value
through
the
income
statement - 4,432 - - (604) 24 - - - - 3,852
---------- -------- ------------ ----- ------ ----------- ------- ---------- ---------- ----- ---- -----------
Note
a On 1 April 2018, GBP4.4bn of non-asset backed loans were transferred
as part of the acquisition of the UK banking business.
Analysis of movements in Level 3 assets and
liabilities
-------------------------------------------------- ----------- -------- -------- ---------- ----- ---- --------
Total gains and
losses in the
period recognised
in the income
statement Transfers
------------------ -----------
Total
gains or
As at 1 losses As at 31
January Trading Other recognised December
2018 Purchases(a) Sales Issues Settlements income income in OCI In Out 2018
Barclays
Bank UK
PLC GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- --------- ------------ ----- ------ ----------- -------- -------- ---------- ----- ---- --------
Non-asset
backed
loans - 4,432 - - (604) 24 - - - - 3,852
---------- --------- ------------ ----- ------ ----------- -------- -------- ---------- ----- ---- --------
Financial
assets at
fair
value
through
the
income
statement - 4,432 - - (604) 24 - - - - 3,852
---------- --------- ------------ ----- ------ ----------- -------- -------- ---------- ----- ---- --------
Note
a On 1 April 2018, GBP4.4bn of non-asset backed loans were transferred
as part of the acquisition of the UK banking business.
Unrealised gains and losses on Level 3 financial assets and
liabilities
The following tables disclose 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 year end
================================================================================================================
Barclays Bank UK Group 2018
==================================================
Income statement
============================
Other compre-
hensive
Trading income Other income income Total
As at 31 December GBPm GBPm GBPm GBPm
------------------------------------------------------------ -------------- ------------ ------------- -----
Financial assets at fair value through the income statement 24 - - 24
------------------------------------------------------------ -------------- ------------ ------------- -----
Total 24 - - 24
------------------------------------------------------------ -------------- ------------ ------------- -----
Unrealised gains and losses recognised during the period on Level 3 assets and liabilities
held at period end
----------------------------------------------------------------------------------------------------------------------
Barclays Bank UK PLC 2018
----------------------------------------------------------------
Income statement
----------------------------
Trading income Other income Other compre-hensive income Total
As at 31 December GBPm GBPm GBPm GBPm
---------------------------------------------------- -------------- ------------ --------------------------- -----
Financial assets designated at fair value through
the income statement 24 - - 24
---------------------------------------------------- -------------- ------------ --------------------------- -----
Total 24 - - 24
---------------------------------------------------- -------------- ------------ --------------------------- -----
Sensitivity analysis of valuations using unobservable inputs
===========================================================================
2018
--------------------------------------------------
Favourable changes Unfavourable changes
------------------------ ------------------------
Income statement Equity Income statement Equity
GBPm GBPm GBPm GBPm
----------------------- ---------------- ------ ---------------- ------
Non asset backed loans 133 - (248) -
----------------------- ---------------- ------ ---------------- ------
Total 133 - (248) -
----------------------- ---------------- ------ ---------------- ------
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 GBP133m or to decrease fair values by up to GBP248m with all the
potential effect impacting profit and loss rather than
reserves.
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:
2018
Range
----------------------- -------------------------------- -------- --------
Valuation technique(s) Significant unobservable inputs Min Max Units(a)
----------------------- ----------------------- -------------------------------- --- --- --------
Non-asset backed loans Discounted cash flows Loan spread 31 531 bps
----------------------- ----------------------- -------------------------------- --- --- --------
Note
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%.
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 interrelationships can be identified between
significant unobservable inputs used in fair value measurement, a
description of those interrelationships is included below.
Loan spread
Loan spreads typically represent the difference in yield between
an instrument and a benchmark security or reference rate. Loan
spreads typically reflect 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 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 31bps
to 531bps, 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.
In general, a significant increase in loan spreads in isolation
will result in a fair value decrease for a loan.
Portfolio exemptions
The Barclays Bank UK 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
Barclays Bank UK 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 GBP14m for
financial instruments measured at fair value and GBP231m for
financial instruments carried at amortised cost. The balance of
GBP14m in financial instruments measured at fair value reflects a
transfer in of GBP15m from Barclays Bank Group, offset by GBP1m
subsequent amortization and releases. The balance of GBP231m in
financial instruments carried at amortised cost reflects the
transfer in of GBP222m from Barclays Bank Group and subsequent
additions of GBP27m, offset by subsequent amortisation and releases
of GBP18m.
Comparison of carrying amounts and fair values
The following tables summarise the fair value of financial
assets and liabilities measured at amortised cost on Barclays Bank
UK Group's and Barclays Bank UK PLC's balance sheets:
Barclays Bank
UK Group 2018 2017
---------------------------------------------------- -------------------------------------------------
Carrying Carrying
amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3
As at 31
December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ---------- --------- -------- ------- ---------- ---------- ------- ------- -------
Financial
assets
Loans and
advances to
customers at
amortised
cost
- Home loans 137,124 136,304 - - 136,304 - - - - -
- Credit
cards,
unsecured
and other
retail
lending 22,626 23,334 657 - 22,677 - - - - -
- Corporate
loans 28,815 27,253 1,377 3,670 22,206 53 53 - 53 -
Reverse
repurchase
agreements
and other
similar
secured
lending 1,759 1,759 - 1,759 - - - - - -
Financial
liabilities
Deposits at
amortised
cost
- Banks (29) (29) (12) (17) - - - - - -
- Current and
demand
accounts (71,450) (71,450) (71,450) - - - - - - -
- Savings
accounts (110,611) (110,611) (110,611) - - - - - - -
- Other time
deposits (15,395) (15,414) (9,568) - (5,846) - - - - -
Repurchase
agreements
and other
similar
secured
lending (11,978) (11,978) - (11,978) - - - - - -
Debt
securities
in issue (11,172) (11,681) - (10,425) (1,256) - - - - -
Subordinated
liabilities (7,548) (7,548) - (7,548) - - - - - -
------------- ---------- ---------- --------- -------- ------- ---------- ---------- ------- ------- -------
Barclays Bank
UK PLC 2018 2017
---------------------------------------------------- -------------------------------------------------
Carrying Carrying
amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3
As at 31
December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ---------- --------- -------- ------- ---------- ---------- ------- ------- -------
Financial
assets
Loans and
advances at
amortised
cost
- Home loans 137,124 136,304 - - 136,304 - - - - -
- Credit
cards,
unsecured
and other
retail
lending 22,621 23,330 657 - 22,673 - - - - -
- Corporate
loans 28,861 27,298 1,377 3,715 22,206 33 33 - 33 -
Reverse
repurchase
agreements
and other
similar
secured
lending 1,759 1,759 - 1,759 - - - - - -
Financial
liabilities
Deposits at
amortised
cost
- Banks (29) (29) (12) (17) - - - - - -
- Current and
demand
accounts (71,450) (71,450) (71,450) - - - - - - -
- Savings
accounts (110,609) (110,609) (110,609) - - - - - - -
- Other time
deposits (16,943) (16,961) (9,571) (1,544) (5,846) - - - - -
Repurchase
agreements
and other
similar
secured
lending (11,978) (11,978) - (11,978) - - - - - -
Debt
securities
in issue (9,912) (10,425) - (10,425) - - - - - -
Subordinated
liabilities (7,548) (7,548) - (7,548) - - - - - -
------------- ---------- ---------- --------- -------- ------- ---------- ---------- ------- ------- -------
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 18.
Loans and advances at amortised cost
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.
For retail lending (i.e. home loans and credit cards) tailored
discounted cash flow models are predominantly 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 historical and current product
margins and estimated prepayment rates.
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 Bank UK Group charges a
margin over LIBOR depending on credit quality and loss given
default and years to maturity.
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 1.
Deposits at amortised cost
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, mainly
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.
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.
26 Subordinated liabilities
Accounting for subordinated liabilities
Subordinated liabilities are measured at amortised cost using
the effective interest method under IFRS 9.
Barclays
Barclays Bank UK
Bank UK Group PLC
-------------- ---------
2018 2018
GBPm GBPm
----------------------------------- -------------- ---------
Opening balance as at 1 January - -
Acquisition of UK banking business 3,001 3,001
Other 4,547 4,547
----------------------------------- -------------- ---------
Total subordinated liabilities 7,548 7,548
----------------------------------- -------------- ---------
Subordinated liabilities include GBP3,001m of instruments which
were transferred from Barclays Bank PLC as part of the acquisition
of UK banking business. Other movements are largely driven by an
increase of GBP4,328m due to a change in the level of subordination
of certain loans made to Barclays Bank UK PLC by Barclays PLC,
which were previously reported as debt securities in issue. This
was part of amendments made to the loans to meet internal minimum
requirements for own funds and eligible liabilities (MREL) criteria
to ensure they will qualify as internal MREL resources under MREL
requirements applying in 2019.
Subordinated liabilities include accrued interest and none of
the subordinated liabilities are secured.
Barclays Bank UK Group Barclays Bank UK PLC
---------------------- --------------------
2018 2018
Initial call date Maturity date GBPm GBPm
------------------------------------ ------------------ -------------- ---------------------- --------------------
Barclays Bank UK PLC notes issued
intra-group to Barclays PLC
2.625% Fixed Rate Subordinated
Callable Notes (EUR 1,250m) 2020 2025 1,129 1,129
4.375% Fixed Rate Subordinated Notes (USD 1,250m) 2024 985 985
5.20% Fixed Rate Subordinated Notes (USD 683m) 2026 500 500
4.836% Fixed Rate Subordinated
Callable Notes (USD 800m) 2027 2028 607 607
Barclays Bank UK PLC intra-group
loans from Barclays PLC
3.20% Fixed Rate Subordinated Loan (USD 1,350m) 2021 1,026 1,026
3.65% Fixed Rate Subordinated Loan (USD 1,100m) 2025 846 846
Various Fixed and Floating Rate Subordinated Loans 2,455 2,455
------------------------------------------------------------------------ ---------------------- --------------------
Total subordinated liabilities 7,548 7,548
------------------------------------------------------------------------ ---------------------- --------------------
Subordinated Liabilities
Subordinated liabilities are issued by Barclays Bank UK PLC for
the development and expansion of the business and to strengthen the
capital base. The principal terms of these liabilities are
described below:
Currency and Maturity
In addition to the individual subordinated liabilities listed in
the table, the GBP2,455m balance of intra-group loans is made up of
various fixed and floating rate loans from Barclays PLC with
notional amounts denominated in USD (2,027m) and EUR (1,000m), with
maturities ranging from 2021 to 2041. Certain intra-group loans
have a call date one year prior to their maturity.
Subordination
All subordinated liabilities are issued intra-group to Barclays
PLC. Both the subordinated notes and the subordinated loans rank
behind the claims of depositors and other unsecured unsubordinated
creditors but before the claims of the holders of their equity.
However, the subordinated notes rank behind the subordinated
loans.
Interest
Interest on the floating rate loans is set by reference to
market rates at the time of issuance and is fixed periodically in
advance, based on the related interbank rate.
Interest on fixed rate notes and loans is set by reference to
market rates at the time of issuance and fixed until maturity.
Interest on fixed rate callable notes and loans is set by
reference to market rates at the time of issuance and fixed until
the call date. After the call date, in the event that they are not
redeemed, the interest rate will be re-set. The interest rate will
re-set to either a fixed rate until maturity based on a market rate
or will re-set on a floating basis which fixes periodically in
advance, based on the related interbank rates, until maturity.
Repayment
Those notes and loans with a call date are repayable at the
option of the Issuer, on conditions governing the respective
liabilities, some in whole or in part, and some only in whole. The
remaining instruments outstanding at 31 December 2018 are
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.
In certain cases, any repayments prior to maturity may require
the prior approval of the PRA.
There are no committed facilities in existence at the balance
sheet date which permit the refinancing of debt beyond the date of
maturity.
27 Ordinary shares, share premium, and other equity
Called up share
capital, allotted
and fully paid
------------------- ---------------- ------------------ ------------------- ------------------ ------------------
Total share
Ordinary share Ordinary share capital and share Other equity
Number of shares capital premium premium instruments
m GBPm GBPm GBPm GBPm
------------------- ---------------- ------------------ ------------------- ------------------ ------------------
As at 1 January
2018 505 5 - 5 -
Issue of new
ordinary shares - - 13,044 13,044 -
Net equity impact
of Barclays Bank
UK PLC transfer - - - - 2,070
Capital
reorganisation - - (13,044) (13,044) -
As at 31 December
2018 505 5 - 5 2,070
------------------- ---------------- ------------------ ------------------- ------------------ ------------------
As at 1 January
2017 5 - - - -
Issue of new
ordinary shares 500 5 - 5 -
As at 31 December
2017 505 5 - 5 -
------------------- ---------------- ------------------ ------------------- ------------------ ------------------
Ordinary shares
The issued ordinary share capital of Barclays Bank UK PLC, as at
31 December 2018, comprised 505m (2017: 505m) ordinary shares of
GBP0.01 each. The increase of GBP13,044m in share premium is due to
the issuance of 3 ordinary shares to enable the transfer of the
assets and liabilities of the UK banking business from Barclays
Bank PLC to Barclays Bank UK PLC, as well as the transfer of
liquidity.
Capital reorganisation
On 11 September 2018, the High Court of Justice in England and
Wales confirmed the cancellation of the share premium account of
Barclays Bank UK PLC, with the balance of GBP13,044m credited to
retained earnings.
Other equity instruments
Other equity instruments of GBP2,070m includes Additional Tier 1
(AT1) securities issued by Barclays PLC, which were transferred
from Barclays Bank PLC to Barclays Bank UK PLC.
The AT1 securities are perpetual securities with no fixed
maturity and are structured to qualify as AT1 instruments under CRD
IV.
2018
Initial call date GBPm
---------------------------------------------------------------- ------------------ -----
AT1 equity instruments - Barclays Bank UK PLC
7.0% Perpetual Subordinated Contingent Convertible Securities 2019 698
7.25% Perpetual Subordinated Contingent Convertible Securities 2023 750
5.875% Perpetual Subordinated Contingent Convertible Securities 2024 622
---------------------------------------------------------------- ------------------ -----
Total AT1 equity instruments 2,070
------------------------------------------------------------------------------------ -----
28 Reserves
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.
Fair value through other comprehensive income reserve
The fair value through other comprehensive income reserve
represents the changes in the fair value of fair value through
other comprehensive income investments since initial
recognition.
Other reserves and other shareholders' equity
Other reserves and other shareholders' equity relate to the
merger reserve for Barclays Bank UK Group and the Group
Reconstruction Relief for Barclays Bank UK PLC, in respect of the
transfer of the UK banking business.
Barclays Bank UK Group Barclays Bank UK PLC
------------------------ ----------------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------------------------------------ ----------- ----------- ---------- ----------
Fair value through other comprehensive income reserve (33) - (33) -
Cash flow hedging reserve 20 - 20 -
Other reserves and other shareholders' equity 89 20 191 121
------------------------------------------------------ ----------- ----------- ---------- ----------
Total 76 20 178 121
------------------------------------------------------ ----------- ----------- ---------- ----------
34 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 acquisition of the UK banking business from Barclays Bank
PLC has materially affected the financial position and the
performance of the Barclays Bank UK Group during this period with
regards to its related party transactions. Refer to Note 2 for
details of the business acquisition, including intra-group
balances.
Parent company
The parent company, which is also the ultimate parent company,
is Barclays PLC, which holds 100% of the issued ordinary shares of
Barclays Bank UK PLC.
Subsidiaries
Transactions between Barclays Bank UK PLC and its subsidiaries
also meet the definition of related party transactions. Where these
are eliminated on consolidation, they are not disclosed in the
Barclays Bank UK Group's financial statements.
Fellow subsidiaries
Transactions between the Barclays Bank UK Group and other
subsidiaries of the parent company also meet the definition of
related party transactions.
Associates, joint ventures and other entities
There were no material related party transactions with
associates, joint ventures or pension funds during the year.
Amounts included in the Barclays Bank UK Group's financial
statements, in aggregate, by category of related party entity are
as follows:
Parent Fellow subsidiaries
GBPm GBPm
---------------------------------------------- ------ -------------------
For the year ended and as at 31 December 2018
Total income (185) (45)
Credit impairment and other provisions - -
Operating expenses (69) (1,688)
Total assets 5 1,612
Total liabilities 7,723 1,304
---------------------------------------------- ------ -------------------
For the year ended and as at 31 December 2017
Operating expenses (26) -
Total assets 198 -
Total liabilities 8 -
---------------------------------------------- ------ -------------------
Amounts included in Barclays Bank UK PLC's financial statements,
in aggregate, by category of related party entity are as
follows:
Parent Subsidiaries Fellow subsidiaries
GBPm GBPm GBPm
----------------------- ------ ------------ -------------------
As at 31 December 2018
Total assets 5 1,023 1,612
Total liabilities 7,723 1,568 1,293
----------------------- ------ ------------ -------------------
As at 31 December 2017
Total assets 198 - -
Total liabilities 8 - -
----------------------- ------ ------------ -------------------
It is the normal practice of Barclays Bank UK PLC to provide its
subsidiaries with support and assistance by way of guarantees,
indemnities, letters of comfort and commitments, as may be
appropriate, with a view to enabling them to meet their obligations
and to maintain their good standing, including commitment of
capital and facilities. For dividends paid to Barclays PLC see Note
11.
Key Management Personnel
Key Management Personnel are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of Barclays Bank UK PLC (directly or
indirectly) and comprise the Directors and Officers of Barclays
Bank UK PLC, certain direct reports of the Chief Executive Officer
and the heads of major business units and functions.
There were no material related party transactions with entities
under common directorship where a member of Key Management
Personnel (or any connected person) is also a member of Key
Management Personnel (or any connected person) of Barclays Bank UK
PLC.
The Barclays Bank UK Group provides banking services to Key
Management Personnel and persons connected to them. Transactions
during the year and the balances outstanding were as follows:
Loans outstanding
----------------------------------- -----
2018
GBPm
----------------------------------- -----
As at 1 January -
Loans issued during the year(a) 7.0
Loan repayments during the year(b) (3.1)
----------------------------------- -----
As at 31 December 3.9
----------------------------------- -----
Notes
a Includes loans issued to existing Key Management Personnel and
new or existing loans issued to newly appointed Key Management
Personnel.
b Includes loan repayments by existing Key Management Personnel and
loans to former Key Management Personnel.
No allowances for impairment were recognised in respect of loans
to Key Management Personnel (or any connected person).
Deposits outstanding
------------------------------------- ------
2018
GBPm
------------------------------------- ------
As at 1 January -
Deposits received during the year(a) 17.7
Deposits repaid during the year(b) (14.4)
------------------------------------- ------
As at 31 December 3.3
------------------------------------- ------
Notes
a Includes deposits received from existing Key Management Personnel
and new or existing deposits received from newly appointed Key
Management Personnel.
b Includes deposits repaid by existing Key Management Personnel and
deposits of former Key Management Personnel.
Total commitments outstanding
Total commitments outstanding refer to the total of any undrawn
amounts on credit card and/or overdraft facilities provided to Key
Management Personnel. Total commitments outstanding as at 31
December 2018 were GBP0.3m.
All loans to 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 Key Management Personnel
Total remuneration awarded to 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. Costs recognised in the income statement
reflect the accounting charge for the year 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 Key
Management Personnel.
2018
GBPm
---------------------------------------------------------------------------------- -----
Salaries and other short-term benefits 16.8
Pension costs 0.2
Other long-term benefits 2.7
Share-based payments 3.0
Employer social security charges on emoluments 3.0
---------------------------------------------------------------------------------- -----
Costs recognised for accounting purposes 25.7
Employer social security charges on emoluments (3.0)
Other long-term benefits - difference between awards granted and costs recognised 0.8
Share-based payments - difference between awards granted and costs recognised 0.5
---------------------------------------------------------------------------------- -----
Total remuneration awarded 24.0
---------------------------------------------------------------------------------- -----
Disclosure required by the Companies Act 2006
The following information regarding the Barclays Bank UK PLC
Board of Directors is presented in accordance with the Companies
Act 2006:
2018
GBPm
------------------------ ----
Aggregate emoluments(a) 4.6
------------------------ ----
Note
a The aggregate emoluments include amounts paid for the 2018 year.
In addition, deferred cash and share awards for 2018 with a total
value at grant of GBP2.7m will be made to Directors which will
only vest subject to meeting certain conditions.
Pension contributions totalling GBP5,295 were paid to defined
contribution schemes on behalf of Directors (2017: GBPnil). There
were no notional pension contributions to defined contribution
schemes.
As at 31 December 2018, there were no Directors accruing
benefits under a defined benefit scheme (2017: nil).
Of the figures in the table above, the amounts attributable to
the highest paid Director are as follows:
2018
GBPm
------------------------ ----
Aggregate emoluments(a) 2.6
------------------------ ----
Note
a The aggregate emoluments include amounts paid for the 2018 year.
In addition, deferred cash and share awards for 2018 with a total
value at grant of GBP2.4m will be made to highest paid Director
which will only vest subject to meeting certain conditions.
Pension contributions totalling GBP5,295 were paid to defined
contribution schemes (2017: GBPnil). There were no notional pension
contributions to defined contribution schemes.
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 2018 to
persons who served as Directors during the year was GBP0.1m (2017:
GBPnil). The total value of guarantees entered into on behalf of
Directors during 2018 was GBPnil (2017: GBPnil).
Notes
The term Barclays Bank UK Group refers to Barclays Bank UK PLC
together with its subsidiaries. Unless otherwise stated, the income
statement analysis compares the year ended 31 December 2018 to the
corresponding twelve months of 2017 and balance sheet analysis as
at 31 December 2018 with comparatives relating to 31 December 2017.
The abbreviations 'GBPm' and 'GBPbn' represent millions and
thousands of millions of Pounds Sterling respectively.
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.
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 that can be accessed at home.barclays/results.
The information in this announcement, which was approved by the
Board of Directors on 20 February 2019, does not comprise statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2018, which
contain an unqualified audit report under Section 495 of the
Companies Act 2006 (which does not make any statements under
Section 498 of the Companies Act 2006) will be delivered to the
Registrar of Companies in accordance with Section 441 of the
Companies Act 2006.
Barclays Bank UK Group is an issuer in the debt capital markets.
Barclays Bank UK Group expects that from time to time over the
coming year it will meet with investors via formal road shows and
other ad hoc meetings to discuss these results and other matters
relating to the Barclays Bank UK Group.
Forward-looking statements
Barclays Bank UK PLC 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 or relating to the Barclays Bank UK Group's
future financial position, income growth, assets, impairment
charges, provisions, business strategy, capital, leverage and other
regulatory ratios, projected levels of growth in the banking and
financial markets, projected costs or savings, any commitments and
targets, estimates of capital expenditures, plans and objectives
for future operations 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, 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 applicable to
past, current and future periods; macroeconomic and business
conditions in the United Kingdom and in any systemically important
economy which impacts the United Kingdom; the effects of any
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 Barclays Bank UK Group or any
securities issued by such entities; the potential for one or more
countries exiting the Eurozone; the implications of the exercise by
the United Kingdom of Article 50 of the Treaty of Lisbon and the
disruption that may result in the United Kingdom from the
withdrawal of the United Kingdom from the European Union; and the
success of future acquisitions, disposals and other strategic
transactions. A number of these influences and factors are beyond
the Barclays Bank UK Group's control. As a result, the Barclays
Bank UK Group's actual future results and capital and leverage
ratios may differ materially from the plans, goals, expectations
and guidance set forth in the Barclays Bank UK Group's
forward-looking statements.
Subject to our obligations under any applicable laws and
regulations 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.
- Ends -
For further information, please contact:
Investor Relations Media Relations
Lisa Bartrip Tom Hoskin
+44 (0) 20 77730708 +44 (0) 20 7116 6927
About Barclays
Barclays is a transatlantic consumer and wholesale bank offering
products and services across personal, corporate and investment
banking, credit cards and wealth management, with a strong presence
in our two home markets of the UK and the US.
With over 325 years of history and expertise in banking,
Barclays operates in over 40 countries and employs approximately
83,500 people. Barclays moves, lends, invests and protects money
for customers and clients worldwide.
For further information about Barclays, please visit our website
www.barclays.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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