This Report is printed on Revive 100 Offset made from 100% FSC certified recycled fibre sourced from de-inked post-consumer waste. The printer and manufacturing mill are both credited with ISO 14001 Environmental Management Systems Standard and both are FSC certified. Barclays Bank PLC Annual Report 2006 Annual Report Bank PLC Barclays Barclays Bank PLC Annual Report 2006 Earn, invest and grow Barclays Bank PLC is authorised and regulated by the Financial Services Authority. Registered in England. Registered No: 1026167 Registered office: 1 Churchill Place, London E14 5HP Designed and produced by Pauffley Ltd, London 9907088 Contents 2 Business review 12 Directors’ report 14 Directors and Officers 14 Statement of Directors’ responsibilities for accounts 15 Independent Auditors’ report 16 Accounting policies 26 Consolidated income statement 27 Balance sheets 28 Statements of recognised income and expense 29 Cash flow statements 30 Notes to the accounts In this document the terms ‘Bank’ and ‘Company’ refer to Barclays Bank PLC and the terms ‘Barclays’ and ‘Group’ refer to Barclays Bank PLC and its subsidiaries. The information in the notes to the accounts relates to the Group unless stated otherwise. Registered and Head office: 1 Churchill Place London E14 5HP Tel: +44 (0)20 7116 1000 Barclays Bank PLC Annual Report 2006 1 Business review Financial highlights and performance indicators 25% 36% Increase in incometo £21,656m Rise in profit before tax to £7,197m Global Retail and Commercial Banking UK Banking Barclaycard International Retail and Commercial Banking 11.5m 9.8m 1,613 Current accounts UK customers International branches including Absa 780,000 6.4m Business customers International cards in issue Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. Operating in over 50 countries and employing 123,000 people, we move, lend, invest and protect money for over 27 million customers and clients worldwide. With over 300 years of history and expertise in banking, Barclays has six major businesses. UK Banking delivers banking products and services to over 14 million Barclays Capital, the investment banking division, provides corporate, retail customers and 780,000 businesses in the UK. institutional and government clients with solutions to their financing and risk management needs. Barclaycard is one of the leading credit card businesses in Europe, and has 9.8 million UK customers and 6.4 million international cards in issue. Barclays Global Investors is one of the world’s largest asset managers and a leading provider of investment management products and International Retail and Commercial Banking operations have over services. Total assets under management at 31st December 2006 2 million clients, in geographies which currently include France, Spain, were US$1.8trn. Portugal, Italy, India, Africa and the Middle East. Absa has an additional 8.3 million retail customers. Barclays Wealth serves affluent, high net worth and intermediary clients worldwide, providing private banking, asset management, stockbroking, offshore banking, wealth structuring and financial planning services. At 31st December 2006, total client assets were £93bn. 3 Year Overview For the year ended 31st December 2006 2005 2004(a) Income statement £m £m £m Total income net of insurance claims 21,656 17,364 14,117 Impairment charges (2,154) (1,571) (1,093) Operating expenses (12,674) (10,527) (8,536) Profit before tax 7,197 5,311 4,589 Profit attributable to equity holders 4,914 3,695 3,263 Notes (a) Does not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective from 1st January 2005. Barclays Bank PLC 2 Annual Report 2006 7. 5 % 11. 5 % Tier 1 capital ratio Risk asset ratio Investment Banking and Investment Management Barclays Capital Barclays Barclays Wealth Global Investors US$409bn US$1,814bn £93bn Value of debt issued globally Assets under management Total client assets “Barclays had an excellent year in 2006. We delivered outstanding performance in Barclays Capital and Barclays Global Investors. Momentum has accelerated in UK Retail Banking and Absa has outperformed our acquisition business plan delivering very strong growth. Conditions in UK cards and consumer loans were difficult but Barclaycard UK consumer credit performance is beginning to improve. We are well positioned to deliver further growth in the years ahead.” John Varley Group Chief Executive Excellent financial results reflect the successful execution of strategy: Barclays Global Investors delivered another year of excellent – Income up 25% to £21,656m • growth. Assets under management increased US$301bn to – Profit before tax up 36% to £7,197m US$1.8trn. Excluding gains on business disposals of £323m: • Absa’s first full year contribution was well ahead of the acquisition – Profit before tax up 29% to £6,874m business plan. Barclaycard profits were affected by industry-wide impairment Income growth of 25% was well ahead of expense growth of 20%. • • pressures in UK cards and unsecured loans; UK consumer credit Expense growth reflected significant investment in organic growth performance is beginning to improve. across the business and performance related costs. • UK Banking delivered a further three percentage points underlying • Capital ratios strengthened through retained earnings and active improvement in the cost:income ratio; the six percentage point balance sheet management; the Tier 1 capital ratio rose to 7.5%. target for 2005-2007 has been achieved a year ahead of schedule; • Approximately 50% of profits came from outside the UK. we still target a further two percentage point improvement in 2007. • Outstanding growth in Barclays Capital was driven by continued expansion of the business, the success of past investment and the focus of our client driven model. Profit before tax £m 8,000 7,000 7,197 6,000 5,311 5,000 4,589 4,000 3,000 2,000 1,000 0 04(a) 05 06 Note (a) Does not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective from 1st January 2005. Barclays Bank PLC Annual Report 2006 3 Business review Financial review Group financial performance International Retail and Commercial Banking achieved a step The Group’s profit before tax in 2006 increased 36% (£1,886m) to change in profitability to £1,270m (2005: £633m), reflecting the £7,197m (2005: £5,311m). Income increased 25% (£4,292m) to inclusion of Absa for a full year, the impact of corporate development £21,656m (2005: £17,364m) whilst operating expenses rose 20% activity and growth in key geographies. (£2,147m) to £12,674m (2005: £10,527m). Impairment charges rose Barclays Capital produced an outstanding performance with profit 37% (£583m) to £2,154m (2005: £1,571m). before tax rising 56% to £2,232m. Income growth of 39% was driven Business performance by doing more business with new and existing clients and was broadly In UK Banking we made significant strides towards our strategic priority based across asset classes and geographies. Growth was particularly of building the best bank in the UK. Strong growth in income enabled strong in areas where we have invested in recent years, including us to increase our profit before tax 17% to £2,578m. The improvement commodities, equity products and credit derivatives. Profit growth in the cost:income ratio was four percentage points in headline terms was accompanied by improvements in productivity: income and to 52% (2005: 56%). Excluding the impact of property gains and profits grew significantly faster than Daily Value at Risk, risk weighted accelerated investment, the improvement in the cost:income ratio was assets, economic capital, regulatory capital and costs. The ratio of three percentage points making a cumulative total for 2005-2006 of compensation costs to net income improved two percentage points six percentage points. This means that we have achieved our target of to 49% and the cost:net income ratio improved three percentage points a six percentage point improvement over the period 2005-2007, one to 64%. We continued to invest for future growth, increasing headcount year ahead of schedule. We continue to target a further two percentage 3,300 including 1,300 from the acquisition of HomEq, a US mortgage point improvement in the cost:income ratio for 2007 to 51%. servicing business. At Barclaycard profit before tax fell 40% to £382m. Good income Barclays Global Investors delivered excellent results, with profit growth of 8%, driven by very strong momentum in Barclaycard before tax up 32% to £714m. Income growth of 26% was attributable International, was more than offset by a further rise in impairment to increased management fees, particularly in the iShares and active charges, principally in the UK lending portfolios, and by higher costs, businesses. Assets under management grew US$301bn to US$1.8trn, mainly as a result of continued investment in Barclaycard US. In the UK, including net new assets of US$68bn, reflecting very strong inflows in high debt levels and changing attitudes to bankruptcy and debt default iShares and active assets. The cost:income ratio improved two contributed to increased impairment charges. As the consumer lending percentage points to 57%. market in the UK changes, Barclaycard is repositioning its business Barclays Wealth profit before tax rose 28% to £213m. to achieve sustainable, profitable growth. Higher borrowing by UK This reflected broadly based income growth and favourable market consumers, lower disposable household incomes and a tougher conditions, partially offset by a significant increase in investment regulatory environment have seen Barclaycard take a number of actions. in people and infrastructure to build a platform for future growth. The business focused on tighter lending criteria and improved Total client assets increased 19% to £93bn. The cost:income ratio collections throughout 2006 and, as a consequence, believes we have improved three percentage points to 79%.