RNS No 6561b
BARCLAYS PLC
16th February 1999
BARCLAYS PLC - SUMMARY PART 2
BARCLAYS PLC - SUMMARY
- Retail Financial Services showed a strong increase in operating profits
of 18% to #1,519 million (1997: #1,287 million*). Total income improved by
8% reflecting, in particular, strong growth in the United Kingdom for
mortgages, consumer lending, retail savings, the insurance business and at
Barclaycard.
- Corporate Banking performed well with operating profits increasing 6%
to #972 million* (1997: #921 million*). Good growth in net interest income
and fees and commissions benefited from improved lending volumes, a rise in
deposit volumes and increased customer related foreign exchange income. The
business benefited from low levels of new and increased specific provisions
and continued releases and recoveries.
- Barclays Capital which sustained an operating loss of #265 million
(1997: operating profit #252 million), was severely impacted by the turmoil
in the global markets during the second half of the year. Dealing losses on
non-customer related proprietary trading (including Russia) were #205
million. There was also a provisions charge against exposure to Russian
counterparties of #130 million (with a further #23 million in Corporate
Banking). Within these poor results a number of core businesses achieved
record profits.
- Barclays Global Investors' profits were #52 million (1997: #51
million). Adjusting for disposals, underlying operating profit increased by
15%. Total assets under management grew to #370 billion at 31st December
1998 (31st December 1997: #308 billion).
- The contribution from Transition businesses (excluding former BZW
businesses) fell to #48 million (1997: #93 million) as the portfolio was
managed down. No significant releases and recoveries are likely in the
future.
- There was an increase of #128 million to #184 million in the deficit
from Other operations, over half of which resulted from increased interest
allocations to businesses, reflecting higher short-term interest rates and
increased levels of regulatory capital employed.
- Costs for the Group's ongoing business increased by 5% in part
reflecting increased spending in respect of euro preparations and Year 2000
compliance.
- Total provisions for bad and doubtful debts excluding exposure to
Russia rose to #339 million from #227 million, primarily because of lower
levels of releases and recoveries. Risk Tendency, the Group's estimated
levels of annualised future credit losses averaged across the cycle,
increased from #670 million to around #700 million reflecting volume growth
particularly in consumer and corporate lending. This was partly offset by
improved quality in the overall portfolio.
- Shareholders' funds were #7.9 billion at 31st December 1998 (31st
December 1997: #7.6 billion) and the tier 1 ratio 7.4% (1997: 7.3%). The
Group estimates it needs shareholders' funds of #6.6 billion to #7.0 billion
to support its current business and to allow for future growth.
- The Group returned #500 million of capital to shareholders through
share buy-backs during the year. Current expectations are to buy back
capital of around #500 million in 1999.
RESULTS FOR YEAR TO 31ST DECEMBER 1998
1998 1997
#m #m
Operating profit before provisions* 2,562 2,715
Provisions for bad and doubtful (492) (227)
debts
Provisions for contingent (76) (4)
liabilities and commitments**
Operating profit for the ongoing 1,994 2,484
business*
Former BZW businesses (33) (219)
Exceptional items (net) 1 (425)
Write-down of leases (40) (77)
Life-fund charge - (28)
Write-down of fixed asset (4) (19)
investments
Profit before tax 1,918 1,716
Tax charge (538) (542)
Profit attributable to shareholders 1,335 1,130
Earnings per share 88.4p 74.4p
Earnings per share for the ongoing 90.9p 109.1p
business*
Dividend per share 43.0p 37.0p
* Figures exclude the results of the former BZW businesses and are stated
prior to the impact of the Finance (No. 2) Act 1997 and the Finance Act
1998.
**The 1998 provision relates to the settlement of the Atlantic litigation.
(Further details are set out on page 38).
- Profit before tax increased by 12% to #1,918 million (1997: #1,716
million). Operating profit for the ongoing business was #1,994 million
(1997: #2,484 million).
- Post-tax return on average shareholders' funds improved to 17% (1997:
15%) and earnings per share rose 19% to 88.4p (1997: 74.4p).
- The dividend increased by 16% with a second interim dividend of 27.5p
(1997: 23.5p) making 43p per share for the year (1997: 37p).
FINANCIAL HIGHLIGHTS
1998 1997
RESULTS #m #m
Net interest income* 4,357 4,107
Non-interest income* 3,063 3,216
Operating income* 7,420 7,323
Operating expenses* (4,858) (4,608)
Operating profit before provisions* 2,562 2,715
Provisions for bad and doubtful (492) (227)
debts
Provisions for contingent (76) (4)
liabilities and commitments
Operating profit* 1,994 2,484
Former BZW businesses (33) (219)
Exceptional items 1 (425)
Write-down of leases (40) (77)
Life-fund charge - (28)
Write-down of fixed asset (4) (19)
investments
Profit before tax 1,918 1,716
Profit attributable to shareholders 1,335 1,130
Profit retained 689 567
*Figures exclude the results of the former BZW businesses and are stated
prior to the impact of the Finance (No. 2) Act 1997 and the Finance Act
1998.
BALANCE SHEET
Shareholders' funds 7,923 7,620
Loan capital 3,734 2,868
Total capital resources 11,971 10,873
Total assets 219,494 232,429
Weighted risk assets 109,781 108,327
PER ORDINARY SHARE p p
Earnings 88.4 74.4
Earnings for the ongoing business 90.9 109.1
Dividend 43.0 37.0
Net asset value 525 498
PERFORMANCE RATIO % %
Post-tax return on average 17.0 15.0
shareholders' funds
Post-tax return on average 17.4 21.8
shareholders' funds for the ongoing
business
RISK ASSET RATIO
Tier 1 7.4 7.3
Total 10.7 10.0
GROUP YIELDS, SPREADS & MARGINS % %
Gross yield 7.81 7.64
Interest spread 2.69 2.67
Interest margin 3.42 3.42
EXCHANGE RATES US$/# US$/#
Period end 1.66 1.65
Average 1.66 1.64
BUSINESS AREA PERFORMANCE: HIGHLIGHTS
Retail Financial Services
Retail Financial Services brings together all of the Group's retail
interests around the world. Its purpose is to serve customers by
understanding their needs as individuals and by offering services and
products that anticipate and satisfy their requirements.
1998 1997
#m #m
Net interest income 2,821 2,592
Net fees and commissions 1,777 1,730
Income from long-term assurance 109 61
business
Other operating income 76 62
Total income 4,783 4,445
Total costs (2,874) (2,786)
Provisions for bad and doubtful (391) (387)
debts
1,518 1,272
Problem country debt management 1 15
Operating profit before impact of 1,519 1,287
Finance Act
Life-fund charge - (28)
Operating profit 1,519 1,259
Retail Financial Services performed strongly with an increased operating
profit of #1,519m. This represents growth of 18% before the one-off life
fund charge, or an increase of 21% after this adjustment.
Net interest income grew by #229m, or 9%, to #2,821m primarily as a result
of an improved contribution in home finance and strong volume growth in UK
consumer lending and extended credit balances at Barclaycard. Overall
lending and deposit margins in UK Retail Banking were maintained. Some
competitive pressure in UK consumer lending and Barclaycard margins was
offset by an improvement in the mortgage margin, partly as a result of the
lower cost of incentives.
Fees and commissions grew by 3% to #1,777m, benefiting from volume growth in
the debit and credit card businesses, particularly in the second half of the
year, and good performances in the continental European operations and
Barclays Private Banking.
Customers' funds, which include assets under management and deposits, grew
by 14% to #112bn (31st December 1997: #98bn), of which #10bn was
attributable to net new business and #4bn to market movements. At 31st
December 1998, loans to customers stood at #37bn, up 9% over 1997.
Total costs rose by 3% to #2,874m reflecting the continued investment in
both branch-based and emerging delivery channels (including telephone,
internet and PC banking). By the year end around 850,000 customers were
using our telephone banking service and over 200,000 had subscribed to the
PC and internet banking offering. Technology spend also increased as a
result of Year 2000 compliance and in preparation for the introduction of
the euro. Other initiatives designed to improve customer service, enhance
sales performance and streamline risk assessment were progressed during the
year. Marketing expenditure grew as a result of increased national
television advertising and cinema campaigns in support of new business
development.
Staff costs increased by 4% partly as a result of rationalisation costs of
#15m at Barclaycard. Within UK Retail Banking, staff numbers have remained
broadly unchanged. The cost impact of growth in business volumes and the
expansion of delivery channels was offset by efficiency savings including
further centralisation initiatives.
Provisions rose by 1% to #391m, as a result of volume growth in UK consumer
lending and extended credit within Barclaycard offset by the absence in 1998
of an additional general provision in Barclaycard, which in 1997 was #43m.
When adjusting for this additional general provision in Barclaycard, the
increase in provision is 14%. Provisions in Africa, the Caribbean and
continental Europe remained at low levels.
Retail Financial Services is organised for reporting purposes into four
major business groupings. The operating profit for these groupings is shown
below:
Analysis of Retail Financial Services operating profit
1998 1997
#m #m
UK Retail Banking 757 672
Barclaycard 338 253
International Premier, Private, 317 221
Savings and Investment
Africa and Caribbean* 107 113
Operating profit 1,519 1,259
*includes contribution of problem country debt of #1m (1997: #15m).
UK Retail Banking
This business provides a wide range of services and products to personal and
small business customers through its UK branch network, ATMs, Barclaycall
(the telephone banking service) and internet and PC Banking.
Profit in UK Retail Banking increased by 13% to #757m. Total income rose by
7%, with particularly strong performances from consumer lending and home
finance. Current accounts, retail savings and the insurance businesses also
achieved good income growth.
Consumer lending maintained strong volume growth with average balances
increasing by 15%. At the year end outstanding balances exceeded #5.5bn.
Consumer lending margins reduced slightly, primarily reflecting competitive
pressure. Growth in the centrally managed Barclayloan product was
particularly buoyant, supported by strong advertising and better
understanding of risk.
Home finance benefited from a 4% growth in average balances and achieved a
further reduction in the cost of incentives to #17m (1997: #48m), which are
expensed as incurred. Gross new lending of #3.5bn in the year was another
record level for the business. This reflects the success of ongoing
initiatives which focus on simplifying the mortgage sanctioning process and
creating new value-added features such as the launch of pre-approved mortgage
limits. Home finance continued to generate sales of complementary products,
such as life assurance, pensions and household insurance in other parts of
Retail Financial Services. The proportion of fixed rate mortgages rose
further and accounted for in excess of 65% of new business.
The current account business performed well with recruitment up by 9%. This
was helped by a successful student campaign and the launch of instant
banking, which allows customers to drawdown against uncleared funds and make
immediate transfers between accounts. Fee income benefited from the
continued success of the fee based current account, Barclays Additions, where
the total numbers of accounts rose to around 645,000 by the end of the year
(1997: 490,000).
Average retail savings balances grew by 10%, benefiting from a competitive
product range and a focus on providing the most appropriate portfolio of
products for the customer in order both to retain and grow balances. Net
interest income on savings products increased by 5% despite some
deterioration in margins as a result of a change in the portfolio mix and
strong competitive pressure.
Barclays Insurance increased overall profitability by 8% largely as a result
of high volumes in associated retail lending products.
Small business income was at similar levels to 1997. Current accounts and
deposits grew by 10%, while lending volumes reduced slightly because of lower
demand. Money transmission income remained at similar levels to 1997.
Provisions have grown from the low levels experienced in 1997, largely
reflecting the gradual deterioration in economic conditions and lower levels
of releases and recoveries. However, the strong liquidity levels of our
customers dampened the overall effect.
Barclaycard
Barclaycard is the largest credit card business in Europe. It offers a full
range of credit card services to individual customers, together with card
payment facilities to retailers and other businesses.
Barclaycard profits increased by 34% to #338m or by 14% excluding the
additional #43m general provision in 1997. Net interest income and
commissions were higher, primarily driven by an 18% increase in average
extended credit balances in the card issuing business. This reflected the
good response by nearly 50% of customers to new product packages. These
included the introduction of new pricing strategies incorporating lower
minimum payments, volume based discounts and payment holidays and the
availability of new added value services in association with Cellnet and
Eastern Electricity and Natural Gas. In continental Europe, Barclaycard
continued to develop its German business and launched a new business in
France.
The overall interest margin was maintained reflecting strong growth in
interest earning balances relative to non-interest earning balances. The
interest spread reduced slightly as a result of the impact of the volume
based pricing policy. The weakening in spreads is expected to continue in
1999.
Total costs in Barclaycard increased by 4% predominantly as a result of
restructuring costs of #15m associated with the change programme announced
in September. This will result in the loss of 1,100 jobs during the course
of the next three years and a step reduction in operating costs.
Adjusting for the additional general provision charge of #43m in 1997,
provisions for bad and doubtful debts increased by 13%, which reflected
volume growth in extended credit balances and slight deterioration in the
economic environment. The credit quality of outstanding balances has been
maintained through a combination of robust initial assessment and ongoing
credit management.
International Premier, Private, Savings and Investment
The businesses in Spain, France, Germany, Greece and Portugal serve the
medium and high net worth personal markets. Barclays Private Banking offers
an integrated asset management service from offices around the world to
private clients. Barclays Offshore Services, with offices in the Channel
Islands, Isle of Man and London, provides specialist banking services for
personal customers and companies which are non-UK based but require banking
services in a sterling territory. This business also includes Barclays Life,
Barclays Stockbrokers, Barclays Funds and b2, which provide pensions, life
assurance, retail stockbroking services, and fund management and mutual
funds.
Operating profit in these businesses rose in aggregate by 43% to #317m. When
adjusted for the #28m life-fund charge in the first half of 1997, profits
rose by 27%. There was a #25m provision in 1997 for the possible cost of
redress to personal pension customers for non-priority cases. Strong income
growth in Barclays Offshore Services and Barclays Private Banking was partly
offset by the continued investment in front office customer servicing
capability in these businesses and the costs incurred in the launch of the
new brand, b2.
Sales of Barclays Life investment, life and pensions products grew by 25%
over 1997 with demand for investment products being particularly strong, up
44%. Cumulative provisions totalling #120m for the cost of redress to
personal pension customers were made up to 31st December 1997, of which
approximately 50% has been paid. The requirements for non-priority cases
have been considered and it is not felt necessary to make any further
provisions at this time.
European Retail Banking saw significant growth in assets under management, up
22% reflecting the favourable market conditions in the first half of the year
and the introduction of enhanced customer behaviour analysis. Fees and
commissions increased by 15% as a result of the continued focus on expanding
the high net worth business. Despite increased investment expenditure on the
conversion of the European retail network for the introduction of the euro,
costs were held below 1997 levels.
Barclays Offshore Services increased profits by 13% mainly as a result of
improved sales performance and continued steady growth in deposits throughout
the year. The business continues to invest in improved services to customers
through the development of initiatives such as telephone banking. Assets
under management increased by 13% during the year to #12bn.
Barclays Private Banking performed well with strong growth in business
volumes in respect of both new and existing clients. Customers' funds were
in excess of #20bn at 31st December 1998, an increase of 18% compared to last
year.
Barclays Stockbrokers operating profit grew 25% as a result of high volumes
in retail stockbroking and despite reduced demutualisation activity and
uncertainty in the equity markets. This growth was assisted by an increased
client base following the acquisition of Fidelity Brokerage Service customers
in the first half of 1998 and a strong increase in new investment management
clients.
Africa and Caribbean
The African and Caribbean banking operations serve both the personal and
business markets. In the Caribbean, the business comprises domestic island
operations and a growing offshore business. In Africa, the major businesses
are in Kenya and Zimbabwe.
Excluding the contribution from problem country debt management, Africa and
Caribbean profits increased by 8%, or #8m, to #106m.
The African businesses continued to make good progress with a 3% improvement
in profits as a result of strong income growth and tight cost controls and
despite turbulent conditions in some local markets. Profit for the
Caribbean operations increased by 26%. Both the domestic and offshore
operations benefited from an expanding deposit base and growing lending
portfolio.
Corporate Banking
Corporate Banking provides relationship banking to the Group's medium sized
and large business customers. The business has an extensive network of
specialist business centres in the United Kingdom as well as offices in
continental Europe, the United States and the Middle East serving both
corporate and institutional customers. In addition, an office in Miami
provides trade finance and correspondent banking services to the Group's
Latin America customers. As well as a full range of conventional banking
services, Corporate Banking provides foreign exchange and hedging products,
factoring and invoice discounting, asset backed financing and contract hire.
Corporate Banking began opening euro current and savings accounts for its
customers in July 1998 and is now able to provide a wide range of euro
products such as cash management, factoring, leasing and treasury management.
The emphasis within Corporate Banking is on harnessing this wide product
range to develop bespoke financial solutions for customers, based on their
individual needs. Corporate Banking also works closely with Barclays
Capital to provide customers with integrated access to investment banking
products.
1998 1997
#m #m
Net interest income 1,212 1,132
Net fees and commissions 599 564
Other operating income 24 14
Total income 1,835 1,710
Total costs (866) (832)
Provisions for bad and doubtful (17) 30
debts
952 908
Problem country debt management 20 13
Operating profit before impact of 972 921
Finance Acts
Write-down of leases (40) (77)
Operating profit 932 844
Corporate Banking profits rose by 6%, or #51m, to #972m, before the impact
of a write-down of lease receivables of #40m (1997: #77m).
Net interest income increased by 7% reflecting strong volume growth in both
assets and liabilities.
Total assets increased by 17% to #43bn in 1998. Average UK lendings rose by
7% year on year. There was strong growth in acquisition related finance
together with a high demand for large corporate lending partly as a result
of adverse conditions in the debt capital markets. Given the increased
liquidity within the bond markets towards the end of the year and an
anticipated reduction in acquisition finance and capital project activity,
growth in the large corporate market is not expected to continue at the same
level in 1999. There was good growth in middle market lending throughout
the year. The restructuring of the front line sales teams and streamlining
of the risk management process has been a main factor in this growth, with
increased customer utilisation of agreed lending lines and take up of new or
extended facilities by existing customers.
Total assets in the international business increased by 16% to #7bn during
the year, particularly in respect of short term facilities to banks and
other financial institutions, reflecting the widening of credit spreads in
the corporate bond market. The Latin America operation, which focuses on
providing finance to top tier banks and financial institutions, performed
well reflecting the switch to traditional bank lending from debt capital
raisings.
Stronger overall growth in high quality, low margin business has resulted in
a reduction in the overall lending margin. Risk adjusted lending margins,
which take account of expected credit losses, have been maintained within
each of the businesses.
Average UK deposit volumes rose by 15%, benefiting from increased corporate
liquidity in the first half of the year. Deposit volumes were particularly
buoyant in treasury deposits, although the changing portfolio mix resulted
in a slight reduction in the overall deposit margin.
Net interest income included a #20m realisation from two debts previously
written off, which was in addition to a #31m specific provision recovery in
respect of these customers. In 1997, there was a benefit from a #13m
adjustment to lease charges.
Net fees and commissions improved by 6% to #599m. Higher risk related
commissions reflected increased lending activity. customer related foreign
exchange income improved strongly benefiting from a new pricing policy.
This competitive product package also resulted in greater transaction
volumes. Overall money transmission income was maintained although it
remains under competitive pressure. It benefited from continued good growth
in electronic based banking products. International payment volumes also
experienced strong growth. This is expected to continue as a result of
opportunities following the introduction of the euro.
Costs grew by 4%, or #34m, to #866m mainly as a result of the preparation
for the introduction of the euro and Year 2000 expenditure and continued
investment in key electronic delivery initiatives. Staff numbers increased
slightly, which together with the pay award, accounted for an increase in
staff costs.
Provisions for bad and doubtful debts of #17m (1997: net credit #30m)
benefited from low levels of new and increased specific provisions and high
levels of releases and recoveries during the first half of the year. new
and increased provisions included a charge of #23m in respect of Russian
counterparty exposure. In 1998 credit risk releases and recoveries remained
at high levels of #155m (1997: #177m including a #44m release in respect of
Imry) although they slowed in the second half of the year and are expected
to continue to reduce in 1999.
Barclays Capital
Barclays Capital conducts the Group's international investment banking
business. The business focuses on areas where it has a competitive
advantage and which are integral to the Group's broader business strategy.
Barclays Capital serves as the Group's principal point of access to the
wholesale markets and also deals in these markets with governments,
supranational organisations, corporates, banks, insurance companies and
other institutional investors.
The activities of Barclays Capital are grouped in two principal areas: Rates
which include sales, trading and research relating to government bonds,
money markets, foreign exchange, commodities, and their related derivative
instruments and Credit which includes origination, sales, trading and
research relating to loans, securitised assets, bonds and their related
derivative instruments and private equity investment and equity derivatives.
Barclays Capital is an important component of the overall Group, providing a
variety of complementary services and products including foreign exchange
and interest rate hedging instruments to all of the Group\'s businesses and
their customers. It also provides a counterbalance to disintermediation of
the traditional corporate lending businesses.
1998 1997
#m #m
Net fees and commissions 159 148
Dealing profits (29) 349
Net interest income 428 337
Other operating income 44 50
Total income 602 884
Total costs (708) (633)
Provisions for bad and doubtful (159) 1
debts
Operating profit (265) 252
Barclays Capital reported an operating loss of #265m compared to an
operating profit of #252m last year. The loss for the year was a result of
the Russian economic crisis and the associated difficulties within other
emerging markets, which led to an increase in credit risk premia across all
markets and the tightening of liquidity, which in turn led to a search by
investors for higher quality assets. The losses were primarily incurred
between August and October and as market conditions stabilised in November
the overall operating performance returned to profitability. Within these
poor overall results, a number of core businesses, such as structured
capital markets and private equity, achieved record profitability.
Dealing losses were #29m during 1998 (1997: dealing profits of #349m). The
fall in dealing income reflected proprietary trading losses incurred as a
result of the Russian government default on its domestic debt obligations,
together with the consequent widening of spreads in all segments of the
corporate bond market, dislocation in the equity markets and a reduction in
general business volumes. This was partially offset by strong dealing
profits within interest rate derivatives and the government bond business.
Overall dealing losses within non-customer related proprietary trading
businesses (including Russia) for the full year totalled #205m, the bulk of
which were incurred in August. In addition the provisions for bad and
doubtful debts by Russian counterparties on currency forward contracts and
repurchase agreements was #130m out of a total charge of #159m for the year.
The country transfer risk provision charge was #10m.
In response to the deterioration in market conditions experienced during
late summer and early autumn management took a number of steps to improve
business performance. The non-customer related proprietary trading
businesses were closed in October and secondary market corporate bond
inventory was substantially reduced during the last three months of the
year. This overall reduction in risk appetite has resulted in a fall in
weighted risk assets and total assets in the second half of the year of 18%
to #31bn and 23% to #117bn respectively.
Significant progress has been made in the core businesses. Primary market
activity has extended the franchise both in terms of product and currency.
As well as maintaining the number one position in sterling bond issuance,
the business has become a leading player in deutschmarks and euro currency
issues. The business is well positioned to take advantage of the
opportunities the introduction of the euro should offer.
Net interest income increased by 27% to #428m as a result of improved
performances in money markets, structured capital markets and corporate
lending activities. The corporate, project finance and other traditional
lending portfolios accounted for 32% or #10bn of weighted risk assets at the
year end.
Overall fees and commissions increased by 7% to #159m as result of increased
lending activity. This offset a beneficial change in the income composition
of the structured capital markets business in the second half of 1997.
Other operating income was at a similar level to 1997, reflecting a strong
performance from the private equity business as a result of a number of
realisations from investments.
Costs rose by 12%. The increase mainly reflected the transfer and
restructuring of the former BZW equity derivatives business from the
beginning of 1998 to complement the interest rate derivative business.
There was also further investment in upgrading technology, including euro
preparations and Year 2000 compliance, and the absorption of certain fixed
costs previously allocated to the former BZW businesses. This was partly
offset by the absence of one-off costs of #20m incurred in 1997 in respect
of the relocation to Canary Wharf and by a significantly lower level of
performance related pay in 1998.
Barclays Global Investors
Barclays Global Investors (BGI) offers advanced active and indexed asset
management services for institutional clients. The objective of advanced
active management is to outperform market benchmarks by the application of
disciplined investment processes. The objective of indexed management is to
replicate the performance of market benchmarks. In addition, BGI is a major
lender of securities. These activities are carried out from thirteen
offices located in seven countries.
1998 1997
#m #m
Net fees and commissions 277 258
Net interest income 9 7
Other operating income 2 2
Total income 288 267
Total costs (236) (216)
Operating profit 52 51
Underlying operating profit increased by 15% after adjusting for the sales
of MasterWorks and a part of the Hong Kong fund management business. These
businesses were sold in August 1997 and June 1998 respectively. The
operating results of these businesses were a combined profit of #5m in 1997
and a loss of #1m in 1998.
Adjusting for these business disposals, fees and commissions increased 20%
to #275m (1997: #230m), benefiting from favourable market conditions in the
early part of the year and new business growth in assets under management
throughout the year. BGI's funds performed well despite the market turmoil
in the second half of the year, in line with most index funds and as a
result fees and commissions were only partially affected. The overall fee
income margin was maintained as a result of increased asset levels, which
generated increased internal crossing opportunities and securities lending
levels.
Total assets under management grew to #370bn from #308bn at 31st December
1997; #21bn of the increase is attributable to net new business and #41bn is
attributable to market movements. Assets under management consist of #286bn
of indexed funds and #84bn under advanced active management.
BGI's business units continued their strong performance from 1997. North
America, Japan and Europe won a record amount of new business mandates
during the year. The volume of new requests for proposals for investment
management services continues to be robust.
Underlying operating expenses increased 9% in line with total costs. This
increase was as a result of a rise in costs to support the increase in
future growth, product development and growth in assets under management.
BGI has continued the integration and infrastructure investment that
reflects the global development of the business.
The acquisition of the LongView Group, Inc. was successfully completed in
the second half of the year. LongView specialises in the creation of
software to support institutional portfolio management and trading. In
addition, the capital markets group within BGI recently entered the
securities lending market in Japan, becoming the first non-custodial agent
to lend securities in Japan. These activities further strengthen BGI's
position as one of the top global investment management firms in the market
place.
SUMMARY OF RESULTS
PROFIT BEFORE TAX 1998 1997
#m #m
Retail Financial Services* 1,519 1,287
Corporate Banking* 972 921
Barclays Capital (265) 252
Barclays Global Investors 52 51
Businesses in Transition** 48 93
Other operations (184) (56)
Head office functions (60) (52)
Goodwill amortisation (12) (12)
Provision for litigation (76) -
settlement***
1,994 2,484
Former BZW businesses (33) (219)
Exceptional items 1 (425)
Write-down of leases (40) (77)
Life-fund charge - (28)
Write-down of fixed asset (4) (19)
investments
1,918 1,716
TOTAL ASSETS #m #m
Retail Financial Services 46,150 41,698
Corporate Banking 42,853 36,505
Barclays Capital 117,194 134,680
Barclays Global Investors 183 161
Businesses in Transition
- former BZW businesses - 8,477
- other 554 771
Other operations and Head office 5,475 4,178
functions
Retail life-fund assets 7,085 5,959
attributable to policyholders
219,494 232,429
WEIGHTED RISK ASSETS
Retail Financial Services 31,493 28,514
Corporate Banking 41,679 35,286
Barclays Capital 31,172 34,942
Barclays Global Investors 207 141
Businesses in Transition
- former BZW businesses - 4,078
- other 594 801
Other operations**** 4,636 4,565
109,781 108,327
* Figures are stated prior to the impact of the Finance (No.2) Act
1997 and the Finance Act 1998.
** Businesses in Transition profit before tax excludes the results of
former BZW businesses which are shown separately.
*** The 1998 provision relates to the settlement of the Atlantic
litigation.
**** Including supervisory adjustments.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
1998 1997
#m #m
Interest receivable 9,952 9,204
Interest payable (5,600) (5,091)
Write-down of leases (40) (77)
Profit on redemption/repurchase of 3 2
loan capital
Net interest income 4,315 4,038
Net fees and commissions 2,779 2,979
receivable
Dealing profits (33) 374
Other operating income 324 228
Life-fund charge - (28)
Total non-interest income 3,070 3,553
Operating income 7,385 7,591
Administration expenses - staff (2,811) (3,035)
costs
Administration expenses - other (1,810) (1,896)
Depreciation and amortisation (275) (269)
Operating expenses (4,896) (5,200)
Operating profit before provisions 2,489 2,391
Provisions for bad and doubtful (492) (227)
debts
Provisions for contingent (76) (4)
liabilities and commitments
Operating profit 1,921 2,160
Exceptional items 1 (425)
Write-down of fixed asset (4) (19)
investments
Profit on ordinary activities 1,918 1,716
before tax
Tax on profit on ordinary (538) (542)
activities
Profit on ordinary activities 1,380 1,174
after tax
Minority interests (equity and non- (45) (44)
equity)
Profit for the financial year 1,335 1,130
attributable to the members of
Barclays PLC
Dividends (646) (563)
Profit retained for the financial 689 567
year
Earnings per ordinary share 88.4p 74.4p
Earnings per ordinary share for 90.9p 109.1p
the ongoing business
Dividend per ordinary share:
First interim 15.5p 13.5p
Second interim (payable 30th April 27.5p 23.5p
1999)
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE ONGOING BUSINESS
1998 1997
#m #m
Interest receivable 9,952 9,196
Interest payable (5,598) (5,091)
Profit on redemption/repurchase of 3 2
loan capital
Net interest income 4,357 4,107
Net fees and commissions 2,771 2,652
receivable
Dealing profits (27) 342
Other operating income 319 222
Total non-interest income 3,063 3,216
Operating income 7,420 7,323
Administration expenses - staff (2,789) (2,633)
costs
Administration expenses - other (1,793) (1,719)
Depreciation and amortisation (276) (256)
Operating expenses (4,858) (4,608)
Operating profit before provisions 2,562 2,715
Provisions for bad and doubtful (492) (227)
debts
Provisions for contingent (76) (4)
liabilities and commitments
Operating profit for the ongoing 1,994 2,484
business
Former BZW businesses (33) (219)
Exceptional items 1 (425)
Write-down of leases (40) (77)
Life-fund charge - (28)
Write-down of fixed asset (4) (19)
investments
Profit on ordinary activities 1,918 1,716
before tax
The consolidated profit and loss account shown on page 7 is affected by the
inclusion of the results of the former BZW businesses, the majority of which
were sold in the first half of 1998. The table above presents the
consolidated profit and loss account for the ongoing business excluding the
impact of the former BZW businesses' results and the 1997 and 1998 Finance
Acts.
CONSOLIDATED BALANCE SHEET
1998 1997
Assets: #m #m
Cash and balances at central banks 942 750
Items in course of collection from 2,475 2,564
other banks
Treasury bills and other eligible 4,748 5,511
bills
Loans and advances to banks
- banking 20,316 21,729
- trading 16,296 15,155
36,612 36,884
Loans and advances to customers
- banking 81,469 74,111
- trading 14,641 25,712
96,110 99,823
Debt and equity securities 50,068 55,956
Interests in associated 150 57
undertakings and joint ventures
Intangible fixed assets - goodwill 196 191
Tangible fixed assets 1,939 2,016
Other assets 19,169 22,718
212,409 226,470
Retail life-fund assets 7,085 5,959
attributable to policyholders
Total assets 219,494 232,429
Liabilities:
Deposits by banks
- banking 25,951 30,511
- trading 8,469 13,968
34,420 44,479
Customer accounts
- banking 96,099 89,647
- trading 12,706 18,791
108,805 108,438
Debt securities in issue 17,824 20,366
Items in course of collection due 1,279 1,676
to other banks
Other liabilities 38,110 40,638
Undated loan capital - convertible 301 304
to preference shares
Undated loan capital - non- 1,441 1,353
convertible
Dated loan capital - non- 1,992 1,211
convertible
Other subordinated liabilities - - 59
non-convertible
204,172 218,524
Minority interests and
shareholders' funds:
Minority interests: equity 51 61
Minority interests: non-equity 263 265
Called up share capital 1,511 1,530
Reserves 6,412 6,090
Shareholders' funds: equity 7,923 7,620
8,237 7,946
212,409 226,470
Retail life-fund liabilities 7,085 5,959
attributable to policyholders
Total liabilities and 219,494 232,429
shareholders' funds
More information on Barclays Financial Results can also be found on Barclays
website - http://www.investor.barclays.com
END
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