# Annual Review 2008 barclays.com/annualreport08 > We thank our customers and clients for the business they directed to Barclays in 2008. High levels of activity on their behalf have enabled us to report substantial profit generation in difficult conditions. > > Our priorities in 2008 were (and remain): to stay close to customers and clients; to manage our risks; and to progress strategy. > > **John Varley** > Group Chief Executive ## Performance We have managed Barclays carefully through this period. While performances across the Group varied, every one of our businesses was profitable in 2008. This is a good achievement, given the environment. *see page 9* ## Our 4 strategic priorities 1. Build the best bank in the UK 2. Accelerate growth of global businesses 3. Develop retail and commercial banking activities in selected countries outside the UK 4. Enhance operational excellence *see page 2* ## Corporate governance The Board is responsible for managing the Company on behalf of its shareholders and must ensure that an appropriate balance between promoting long-term growth and delivering short-term objectives is achieved. *see page 18* --- ### Contents * Highlights of the year 3 * Barclays today 4 * Group Chairman’s statement 6 * Group Chief Executive’s review 7 * Business review 9 * Summary Financial Statement 14 * Corporate sustainability 16 * Summary corporate governance report 18 * Board of Directors and Executive Committee 20 * Risk management 22 * Summary remuneration report 24 * Shareholder support 26 --- # 2 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 > In a very difficult economic environment in 2008, Barclays has steered a course that has enabled us to be solidly profitable despite strong headwinds. We are well positioned to maintain Barclays competitive strengths through the undoubted challenges that will come in 2009 and beyond. > > **Marcus Agius** > Group Chairman ## Our strategy Our strategy is to achieve good growth through time by diversifying our business base and increasing our presence in markets and segments that are growing rapidly. ### Strategic priorities **Build the best bank in the UK** – 36% share of net new mortgages in UK – Acquisition of Goldfish UK credit card business **Accelerate growth of global businesses** – Strong income growth in interest rate products, currency products, emerging markets, prime services and commodities – Acquisition of Lehman Brothers North American businesses **Develop retail and commercial banking activities in selected countries outside the UK** – Rapid organic growth: 809 new distribution points outside the UK – Acquisition of Expobank in Russia and Bank Akita in Indonesia **Enhance operational excellence** – Conservative risk management and well controlled costs – Strong capital position – maintaining strategic and operational independence --- # Barclays PLC Annual Review 2008 3 ## Highlights of the year Group profit before tax was £6,077m, down 14% on 2007. Profit included: – Gains on acquisitions of £2,406m, including £2,262m relating to Lehman Brothers North American businesses – Profit on disposal of the closed life assurance book of £326m – Gains on Visa IPO and sales of shares in MasterCard of £291m – Gross credit market losses and impairment of £8,053m – Gains on own credit of £1,663m Global Retail and Commercial Banking profit before tax increased 6% to £4,367m – UK lending increased to both retail and corporate customers – Strengthened international presence in Barclaycard, Western Europe and Emerging Markets Investment Banking and Investment Management profit before tax was £2,568m, down 24% reflecting significant gains on acquisition and disposal and the impact of credit market dislocation – Barclays Capital’s strategy of diversification by geography and business accelerated through the acquisition of Lehman Brothers North American businesses – There were strong net new asset flows into Barclays Wealth and Barclays Global Investors despite declines in equity markets Group balance sheet growth was driven by over £900bn derivative gross-up, growth in loans and advances of £124bn and impact of foreign exchange rates on non-Sterling assets Risk weighted assets increased 22% (£79bn) to £433bn reflecting: – the significant depreciation in Sterling relative to both the US Dollar and the Euro – procyclicality: macroeconomic indicators generally, and corporate credit conditions specifically, deteriorated towards the end of 2008 leading to ratings declines Capital ratios were strengthened through the raising of £13.6bn of Tier 1 capital. The year-end pro forma Tier 1 capital ratio was 9.7% and the pro forma Equity Tier 1 ratio was 6.7% Barclays targets reduced adjusted gross leverage, capital ratios significantly ahead of regulatory requirements and recommencing dividend payments during the second half of 2009 ### Income statement highlights | For the year ended 31st December | 2008 £m | 2007 £m | 2006 £m | | :--- | :--- | :--- | :--- | | Total income net of insurance claims | 23,115 | 23,000 | 21,595 | | Impairment charges and other credit provisions | (5,419) | (2,795) | (2,154) | | Operating expenses | (14,366) | (13,199) | (12,674) | | Profit before tax | 6,077 | 7,076 | 7,136 | | Profit attributable to equity holders of the parent | 4,382 | 4,417 | 4,571 | | Basic earnings per share | 59.3p | 68.9p | 71.9p | | Dividend per ordinary share | 11.5p | 34.0p | 31.0p | | Return on average shareholders’ equity | 16.5% | 20.3% | 24.7% | | Cost:income ratio | 62% | 57% | 59% | | Number of staff | 156,300 | 134,900 | 122,600 | ### Income: £23,115m ### Profit before tax: £6,077m --- # 4 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Barclays today Listed in London and New York, Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services with an extensive international presence in Europe, United States, Africa and Asia. With a strong long-term credit rating and over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs 156,000 people. Barclays moves, lends, invests and protects money for 48 million customers and clients worldwide. Americas: 15,700 employees ### Senior management * **Marcus Agius**, Group Chairman * **John Varley**, Group Chief Executive * **Chris Lucas**, Group Finance Director * **Frits Seegers**, Chief Executive, Global Retail and Commercial Banking * **Robert E Diamond Jr**, President, Barclays PLC and Chief Executive, Investment Banking and Investment Management --- # Barclays PLC Annual Review 2008 5 ## Diversified operations * **UK**: 60,700 employees * **Continental Europe**: 13,400 employees * **Africa and Middle East**: 55,700 employees * **Asia Pacific**: 10,800 employees * **Total number of employees**: 156,300 ### GRCB – Absa One of South Africa’s largest financial services groups with over 1,100 distribution points and over 10 million retail customers – offering a complete range of banking, bancassurance and wealth management products. * Profit before tax: £552m * Number of customers: 10.5m ### Investment Banking and Investment Management * **Barclays Capital** Barclays investment banking division with the global reach, advisory services and distribution power to meet the needs of clients worldwide, holding top three positions in US capital markets and globally in commodities, foreign exchange, fund-linked derivatives, interest rate trading and investment. * Profit before tax: £1,302m * Number of clients generating more than £1m income: 1,000+ * **Barclays Global Investors** One of the world’s largest asset managers with US$1.5trn assets under management and the global product leader in exchange traded funds (iShares). * Profit before tax: £595m * Assets under management: $1.5trn * **Barclays Wealth** Barclays Wealth serves clients worldwide, providing international and private banking, fiduciary services, investment management and brokerage. It is the UK’s leading wealth manager by client assets and has offices across the Americas following the acquisition of Lehman Brothers Private Investment Management. * Profit before tax: £671m * Client assets: £145bn --- # 6 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Group Chairman’s statement 2008 was an extraordinarily difficult year for the financial services industry with the second half in particular seeing a period of exceptional instability. Barclays was impacted by the difficult environment – we undertook two significant capital raisings during the year and incurred gross losses from credit market write-downs of approximately £8bn. However, a profit before tax for the year of just over £6bn, whilst benefiting from a number of gains on acquisitions and disposals, remains a resilient performance in such a difficult environment and reflects a continuing focus by all our people on servicing the needs of our customers and clients. We were able to absorb the level of credit market write-downs through the strong income performance of the Group. As a result of raising over £13bn in equity and Tier 1 capital in 2008, our capital base has been substantially strengthened and we have over £37bn of equity capital and reserves. This scale of loss absorption capacity, combined with the underlying profitability of the Group, gives us confidence that our capital resources are sufficient, even in these difficult markets. Our liquidity position remains strong. The share price performance during the year was acutely disappointing. Share prices in the sector as a whole were badly hit during the year by a number of factors. The Board is committed to creating the conditions to allow the share price to recover and to resume dividend payments in the second half of 2009, following the decision not to pay a final dividend for 2008. As a Board, we very much regret what has happened to the banking sector in general and to Barclays share price in particular. We fully recognise that banks must review their internal governance systems and remuneration structures to ensure there can be no repeat of the turmoil that has impacted the industry, and the wider economy, over the last 18 months. The Board is also committed to ensuring that Barclays plays its full part in contributing to the restoration of the health of the global economy and with that the reputation of the industry. In particular, the capital position and ongoing profitability of the Group is enabling us to support our customers in the difficult economic environment. For example, our lending to UK consumers and UK commercial clients increased by 16% and 14% respectively in 2008. We also recognise that some of our shareholders were unhappy about some aspects of the capital raising we announced last October. This unhappiness is a matter of great regret to us. I would like to give my personal assurance that the Board considered the capital raising very carefully. The Board regrets, however, that the capital raising denied Barclays existing shareholders their full rights of pre-emption and that our private shareholders were not able to participate. ### Board changes We announced in January 2009 that Sir Nigel Rudd had advised us that he did not intend seeking re-election at the forthcoming AGM. Sir Nigel has served as a Director for nearly 13 years and Barclays has benefited enormously from his commercial experience and wise counsel. He will be greatly missed. I would also like to pay tribute to Professor Dame Sandra Dawson who will also be retiring as a Director at the AGM. Sandra has served with distinction as both a Director and member of the Board Audit Committee. Stephen Russell will also retire from the Board in October after nine years excellent service, particularly as Chairman of the Board Audit Committee. We have also announced the appointment of Simon Fraser as a new non-executive Director. Simon will bring valuable fund management and institutional shareholder experience to the Board. ### Maintaining our commitment to sustainability We focus our commitment in this important area on our ability to support our customers well in good times and bad; on our role as an equal opportunity company employing all races, creed, colour and orientation; on our commitment to play our part in managing the impact of climate change; and on our role as a responsible global citizen. There is a universal benefit to be obtained from a return to confidence in the banking system and from the restoration of the reputation of the banking industry in general. I give you my assurance that we at Barclays will do our utmost to play our part in procuring this vital objective. **Marcus Agius** Group Chairman Barclays PLC --- # Barclays PLC Annual Review 2008 7 ## Group Chief Executive’s review I reported in our interim results that the conditions in the market in the preceding 12 months were as difficult as any that we had experienced in many years. In the six months since, we have seen the bankruptcy of Lehman Brothers, substantial action taken by the UK and other governments, and a progressive deterioration in the consensus expectations for global economic prospects. The environment has been extraordinarily challenging for nearly two years, and remains so. We have managed Barclays carefully through this period. We have remained solidly profitable. Although the 2008 profit before tax of £6.1bn includes several individually significant and one-off items, our performance during the year has mainly been driven by ongoing business. Where we have had the opportunity to generate non-recurring profits, we have done so, including a gain on the acquisition of Lehman Brothers North American businesses, a gain on the acquisition of the Goldfish credit card business in the UK, gains on selling the UK Closed Life Fund and from the Visa IPO and sale of MasterCard shares. These items, combined with record income generation across the Group, have enabled us to absorb substantial write-downs on our credit market assets and still post substantial profits. But our shareholders have suffered a lot. Although we cannot control the price at which our shares trade in the market, we greatly regret the fact that the total return on our shares during 2008 has been heavily negative, and we acknowledge with regret, also, our decision not to recommend the payment of a final dividend for 2008, which is one of the consequences of the increased capital requirements introduced by the UK Financial Services Authority in October. These facts have influenced significantly our compensation decisions in respect of 2008. This has resulted in the incentive payments across Barclays being significantly lower in 2008 than in 2007; in the application of high differentiation in incentive pools, based both on business and individual performance; and in our delivering a significant proportion of compensation for the most senior individuals across Barclays over multiple years. Executive Directors will receive no bonuses for 2008. For 2009 and beyond, we are reviewing our compensation policies and practices to ensure that they evolve appropriately. Our endeavour as we do this is to maximise the alignment between these and the interests of our owners, as well as to ensure that our compensation policies and practices are appropriately benchmarked to changing best practice in the industry. Our priorities in 2008 were (and remain): to stay close to customers and clients; to manage our risks; and to progress strategy. ### 2008 priorities Our approach of staying close to customers and clients is shown in the number of customers we serve in Global Retail and Commercial Banking, which has increased from 39 million to 48 million; in the increase in our lending volumes, particularly in UK mortgages, where our net lending mortgage market share was 36%, and in the Group as a whole where our loans and advances increased 32% to £510bn; and in sharply increased activity levels in Barclays Capital interest rates, currency products and commodities. Managing our risks through the unfolding crisis has been a significant focus through the year. In the Annual Report we have set out extensive details on the nature and quality of our loans and advances, as well as further detail on our credit market assets. We have worked hard to reduce these during the year. £9.4bn of our exposures were sold or redeemed$^a$ and, in addition, we have announced a total of £8.1bn in gross write-downs of these assets. Managing these exposures will continue to be a priority in 2009. We are confident of the valuations of these assets at the year end: whilst we expect there will be further charges as we work down these assets, we also expect that gross write-downs in 2009 will be lower than the levels of 2008. In progressing strategy in 2008, we have announced a number of acquisitions – Lehman Brothers North American businesses, Goldfish in the UK, Expobank in Russia, Akita Bank in Indonesia – and we also launched or expanded banking platforms in Pakistan and India. These steps will, we believe, have a significant collective impact in the future. We have also, of course, raised large amounts of new equity and other capital, increasing our shareholders’ equity by almost 50% during the year. As we look forward to 2009 it is clear that the economic and business environment will remain very difficult, and the quality of our assets and risk management capability will again be tested. The scale of our market presence in the geographies where we do business means that we will not avoid the consequences of severe downturn. Although we have been careful over recent years to avoid inappropriate risk concentration in our major loan books in retail and commercial banking, our plans for 2009 assume that impairment will continue to be at a high level. $^a$ Includes redemption of £3.1bn leveraged finance exposure in January 2009. --- # 8 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Group Chief Executive’s review continued ### 2009 strategic framework Our framework for moving the strategy forward in 2009 has the following features: 1. **Responsible corporate citizenship.** Governments in the UK and elsewhere have taken significant steps to address the impacts of the financial crisis and recession, and we must work with the authorities and, of course, with our customers, to deal with the crisis in a way which is consistent with our obligations to shareholders. 2. **We have committed to recommencing dividend payments during the second half of 2009.** Thereafter, and as previously announced, dividend payments will be made on a quarterly basis. We will set out our dividend policy at the Annual General Meeting in April. 3. **We must ensure that our capital position is robust and our balance sheet well-managed.** For 2009, returns will rank ahead of growth. 4. **To create good returns at this time, we must preserve strategic and operational choice.** As conditions remain very difficult in 2009, we expect that there will be considerable value at stake for our shareholders in decisions that we take relating to resource utilisation, capital allocation and risk management. Our objective over time is to ensure that the cost of the capital we raised last November is covered many times over by the benefits of pursuing our strategy. 5. **We must deliver solid profitability notwithstanding the global downturn.** Our diversified income streams have served us well in recent years and have enabled us to absorb substantial costs from the financial crisis. We expect them to continue to do so. 6. **We will seek to manage the composition of our profits, and capital allocation, to ensure that we optimise returns from our universal banking business model.** What does this mean? It is clear to us that in the future there will be more capital in the banking system, and less leverage, particularly in capital markets businesses. This will be true at Barclays too, and will govern our approach to capital allocation and expected returns. We expect to see balance sheet utilisation by Barclays Capital fall over time, which will help us to deliver strengthening returns. We believe that the businesses that we have built from the integration of Lehman Brothers North American businesses and Barclays Capital will help in this regard, since the capital intensity of the advisory businesses in M&A and of the flow businesses in fixed income, currencies, equities and credit will be lower, once we have managed down our credit market exposures. ### Goals We set out last year our goals for economic profit for 2008 through 2011. Those were based on, amongst other things, the then regulatory capital requirements for the business and the then cost of equity. The regulatory capital requirements were significantly increased last year by the UK Financial Services Authority. The observed cost of equity has also increased. It is right, therefore, that we revisit our goals, to ensure that they are properly aligned with our new return and balance sheet objectives, and with the interests of our owners. We intend to publish revised goals in due course that reflect the changes to the environment in the past two years. ### 2009 trading Customer and client activity levels were high in the first month of 2009, and we have had a good start to the year. In particular the operating performance of Barclays Capital, benefiting from the now complete integration of the Lehman Brothers North American businesses, was extremely strong. The trends that lie behind the strong operating performance in Global Retail and Commercial Banking in 2008 were again observable in its performance in January. ### Conclusion I end this review by recording the Board’s appreciation of the dedication and hard work of our 150,000 people. We are doing more business with more customers and clients than at any time in our history, and have generated substantial profits. That we have been able to do this reflects the continuing focus of Barclays employees on delivering high-quality service to clients and customers despite the difficult conditions of the year. **John Varley** Group Chief Executive --- # Barclays PLC Annual Review 2008 9 ## Business review ### Group performance Barclays delivered profit before tax of £6,077m in 2008, a decline of 14% on 2007. The results included the following significant items: – gains on acquisition of £2,406m, including £2,262m gain on acquisition of Lehman Brothers North American businesses – profit on disposal of Barclays Closed UK Life assurance business of £326m – gains on Visa IPO and sales of shares in MasterCard of £291m, distributed widely across the Group – gross credit market losses and impairment of £8,053m, or £4,957m net of related income and hedges of £1,433m and gains on own credit of £1,663m Profit after tax increased 4% to £5,287m. This reflected an effective tax rate of 13% (2007: 28%) primarily due to the gain on the acquisition of Lehman Brothers North American businesses of £2,262m, in part being offset by carried forward US tax losses attributable to Barclays businesses. Earnings per share were 59.3p (2007: 68.9p), a decline of 14% from 2007, reflecting the impact of share issuance during 2008 on the weighted average number of shares in issue. Income grew 1% to £23,115m. Income in Global Retail and Commercial Banking increased 17% and was particularly strong in businesses outside of the UK to which we have directed significant resource. Income in Investment Banking and Investment Management was down 19%. Barclays Capital was affected by very challenging market conditions in 2008, with income falling by £1,888m (27%) on 2007. Excluding credit market related losses, gains on own credit and related income and hedges, income in Barclays Capital increased 6%. Impairment charges and other credit provisions of £5,419m increased 94% on the prior year. Impairment charges included £1,763m arising from US sub-prime mortgages and other credit market exposures. Other wholesale impairment charges increased significantly as corporate credit conditions turned sharply worse. In Barclays Capital increased charges also arose in prime services, corporate lending and private equity. In Barclays Commercial Bank, increased impairment charges reflected the UK economy moving into recession. In the UK there was a moderate increase in impairment in UK Retail Banking as a result of book growth and a deteriorating economic environment. UK mortgage impairment charges remained low. There was a lower charge in UK cards as net flows into delinquency and arrears levels reduced. Significant impairment growth in our Global Retail and Commercial Banking businesses outside the UK reflected very strong book growth in recent years, and maturation of those portfolios, together with deteriorating credit conditions and rising delinquency rates in the US, South Africa and Spain. Operating expenses increased 9% to £14,366m. We continued to invest in our distribution network in the Global Retail and Commercial Banking businesses. Expenses fell in Barclays Capital due to lower performance related costs. Underlying cost growth was well controlled. The Group cost:income ratio deteriorated by five percentage points to 62%. ### Shareholders’ equity We increased shareholders’ equity, excluding minority interests, nearly 57% from £23bn at the end of 2007 to £37bn at the end of 2008. The main drivers for this were: equity issuances in July and September of £5.0bn; equity impact of issuing Mandatorily Convertible Notes and Warrants of £4.4bn; and after tax profits of £5.3bn. Other reserves increased £1.6bn and we paid dividends of £2.3bn. ### Capital management At 31st December 2008, on a Basel II basis our equity Tier 1 ratio was 6.7% and our Tier 1 ratio was 9.7%, both stated on a pro forma basis to reflect conversion into ordinary shares of the Mandatorily Convertible Notes and inclusion of all innovative Tier 1 capital. Our capital ratios reflect a 22% increase in risk weighted assets to £433bn during the year. This was driven by the combined impacts on risk weighted assets of the weakening of Sterling and the pro-cyclical effects of the International Basel Accord as well as lending growth in 2008. The pro forma ratios significantly exceed the minimum levels established by the UK Financial Services Authority. We expect a single digit percentage rate of risk weighted asset growth in 2009. We expect to maintain our equity Tier 1 ratio and Tier 1 ratio at levels which significantly exceed the minimum requirements of the UK FSA for the duration of the current period of financial and economic stress. ### Outlook We expect 2009 to be another challenging year with continuing downturns or recessions in many of the economies in which we are represented. In 2008 our profits were reduced by the impact of substantial gross credit market losses. In 2009, we expect the impact of such credit market losses to be lower. Whilst we are confident in the relative quality of our major books of assets, we also expect the recessionary environments in the UK, Spain, South Africa and the US to increase the loan loss rates on our loans and advances. Our planning assumption for 2009 reflects an increase in impairment charges as a percentage of loans and advances to a range of 130-150bps. Governments in the UK and elsewhere have taken significant measures to assist borrowers and lenders in response to the emerging recession. We expect the combined impact of these measures and the lower interest rate environment to be positive for the economy in time. --- # 10 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Business review ### Global Retail and Commercial Banking Barclays Global Retail and Commercial Banking was formed in 2006 with a clear goal: to become a strong growth engine for Barclays by diversifying into high growth markets, while continuing the steady growth in the UK businesses. Barclays believes this global scale will allow it to better serve retail and commercial customers in markets across the world. In 2008, we have continued to make significant progress towards achievement of that goal. Barclays has attracted nine million new customers, mainly through organic growth. It has also continued to improve its offer to customers with the launch of Premier, a tailored exclusive service, with openings in Abu Dhabi, Lisbon, Milan and, in early 2009, London. Barclays has continued the transformation of UK Retail Banking, increasing its share of net new mortgage lending to 36% and it is growing its share of many other UK products, such as instant access savings. Barclays has also continued to invest in upgrading the branch network by opening new flagship branches and renovating older branches. Barclays remains committed to its SME customers. By the end of 2008, we have extended £15bn in loans to the SME market and have committed to lending a further £1.5bn in 2009. In Barclays Commercial Bank, the focus on staying close to customers, combined with our considered approach to risk and deliberate diversification of the lending portfolio, means that Barclays is relatively well-positioned, with less exposure than some other banks to the riskiest market segments. For example, commercial property comprises only 5% of Barclays Commercial Bank’s portfolio. Barclaycard continues to benefit from its investment in markets outside of the UK and, today, has almost as many customers outside the UK as in it. Barclaycard has significantly expanded its cards franchises, with the purchase of Goldfish in the UK and partnerships with, for example, US Air and LL Bean in the US, and Woolworths Finance in South Africa. In GRCB – Western Europe, Barclays has continued to grow the network, adding more than 340 distribution points during 2008. In Italy, Barclays acquired a high-quality residential mortgage portfolio, at a discount to net asset value, that immediately contributed to its profits. The GRCB – Emerging Markets business continued to grow: acquiring Expobank in Russia and Bank Akita in Indonesia, and obtaining a banking licence and commencing operations in Pakistan. The network grew by more than 280 distribution points, which helped attract more than 2.2 million new customers. In South Africa, Absa has continued to grow and now serves more than 10.5 million customers. For the third year running, it has been voted the best banking brand in the Sunday Times/Markinor survey. 2009 will be a challenging year as the global economic downturn puts pressure on Barclays customers and therefore on its profits. However, Barclays has pledged to remain close to its customers and clients and to continue lending. Barclays is committed to playing its part in bringing the UK economy, and all other economies where it operates, out of recession. ### Key facts * Barclays is committed to helping its customers and clients achieve their goals. More than 48 million customers and clients worldwide have entrusted Barclays to help them manage their finances. * It has lent more than £285bn to customers and clients around the world and holds more than £192bn in deposits. * 4,900 distribution points globally with more than 64% of the network outside of the UK. * 816,000 mortgage customers in the UK, with an average loan-to-value of 40%. ### Key stats * Employees outside UK: 60% * Distribution points growth: 20% --- # Barclays PLC Annual Review 2008 11 ### Build the best bank in the UK ## Barclaycard contactless technology In 2008 Barclaycard issued over one million contactless payment cards in the UK, with more than 7,000 shops now having the technology to use the cards installed. The cards enable people to pay for items costing £10 or less by simply swiping them against a sensor and Barclaycard research shows 98% of people with a contactless payment card think it is easy to use and 88% think it speeds up payment times. * Number of contactless cards: 1m+ --- # 12 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Business review ### Investment Banking and Investment Management ### Accelerate growth of global businesses ## Lehman Brothers Acquisition The acquisition of Lehman Brothers North American businesses accelerated the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders. It has created a premier integrated global investment banking company with a leading presence in all major markets and across all major lines of business including: equity capital markets, debt capital markets, mergers and acquisitions, commodities trading and foreign exchange. For Barclays Wealth, the acquisition gives us a strong platform from which to extend our wealth management offering in the Americas. * All-American Equity Business Research Team: No.1 --- # Barclays PLC Annual Review 2008 13 Profit before tax decreased 24% to £2,568m, with positive contributions from all three businesses despite a very challenging market environment. The results included £8,053m of gross credit market losses and gains on acquisition and disposal of £2,588m. Income for Investment Banking and Investment Management was down 19% to £8,399m. Despite the market conditions, each business was able to accelerate its longer term strategy. Through the acquisition of Lehman Brothers North American businesses, Barclays Capital gained a top tier presence in the North American investment banking market, including new product capabilities in cash equities and advisory. Barclays Global Investors continued its product and geographic expansion, including strong asset flows in iShares and good performance in its Fixed Income active funds. Barclays Wealth also gained a significant Americas presence through the acquisition of Lehman’s Private Investment Management business, as well as launching its India onshore business during 2008. ### Barclays Capital In an exceptionally challenging market environment, Barclays Capital generated profit before tax of £1,302m, down 44% from the record 2007 result. Profit was impacted by the continuing dislocation in the credit markets which resulted in gross credit losses of £8,053m, partially offset by gains of £1,663m on the widening of credit spreads on issued notes by Barclays Capital. In addition there was a gain on the acquisition of Lehman Brothers North American businesses of £2,262m. Income of £5,231m was down 27% due to the market dislocation. Underlying income, excluding credit market related losses, gains on own credit and related income and hedges, increased 6% on the prior year with record performances in interest rate products, currency products, emerging markets, prime services and commodities. There was also very strong underlying growth in the US driven by fixed income, prime services and the acquired businesses. Operating expenses decreased 5%, despite absorbing 10,000 staff acquired from Lehman Brothers North American businesses, due to a reduction in performance related pay of more than 50%. In the first month of 2009, the operating performance of Barclays Capital was extremely strong, reflecting high client activity levels and the benefit of the now complete integration of the Lehman Brothers North American businesses. ### Barclays Global Investors Profit before tax decreased 19% to £595m. Profit was impacted by the cost of provision of selective support of liquidity products and an 8% appreciation in the average value of the US Dollar against Sterling. Income fell 4% to £1,844m due to lower incentive fees. Operating expenses increased 5% and included charges of £263m (2007: £80m) related to selective support of liquidity products. Total assets under management were US$1,495bn, reflecting net new assets of US$99bn, negative market moves of US$553bn and adverse exchange rate movements of US$130bn. ### Barclays Wealth Profit before tax grew 119% to £671m, including a £326m profit on disposal of the closed life business. Income growth of 3% to £1,324m reflected strong growth in customer deposits and lending, partially offset by the impact of lower equity markets on fee income. Operating expenses decreased 4% reflecting strong cost control. Total client assets increased 10% (£12.6bn) to £145.1bn, with net new asset inflows and the acquisition of Lehman Brothers North American businesses offsetting the impact of negative market movements and the sale of the closed life business. ### Key facts **Barclays Capital** – No. 1 in Global All Bonds – No. 1 in US government securities survey – No. 3 in Euromoney Foreign Exchange poll – Best structured Products House – Euromoney 2008 Awards for Excellence **Barclays Global Investors** – World’s largest asset manager, Index Manager and ETF Manager – 3,000 institutional clients across 50 countries **Barclays Wealth** – Leading UK wealth manager for the third year running and No. 9 globally (Private Asset Management – PAM) – 25 onshore locations * No. of Barclays Capital clients generating over £1m income: 1,000+ * Countries in which Barclays Wealth clients served: 190+ --- # 14 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Summary Financial Statement ### Summary consolidated income statement | For the year ended 31st December | 2008 £m | 2007 £m | | :--- | :--- | :--- | | Net interest income | 11,469 | 9,610 | | Net fee and commission income | 8,407 | 7,708 | | Other income | 3,476 | 6,174 | | **Total income** | **23,352** | **23,492** | | Net claims and benefits incurred on insurance contracts | (237) | (492) | | **Total income net of insurance claims** | **23,115** | **23,000** | | Impairment charges | (5,419) | (2,795) | | **Net income** | **17,696** | **20,205** | | Operating expenses | (14,366) | (13,199) | | Share of post-tax results of associates and joint ventures | 14 | 42 | | Profit on disposal of subsidiaries, associates and joint ventures | 327 | 28 | | Gains on acquisitions | 2,406 | – | | **Profit before tax** | **6,077** | **7,076** | | Tax | (790) | (1,981) | | **Profit after tax** | **5,287** | **5,095** | | Profit attributable to minority interests | 905 | 678 | | Profit attributable to equity holders of the parent | 4,382 | 4,417 | | | **5,287** | **5,095** | ### Dividends * Interim dividend 11.5p (2007: 11.5p): £906m (2007: £768m) * Proposed final dividend 00.0p (2007: 22.5p): – (2007: £1,485m) ### Earnings per share * Basic earnings per share$^a$: 59.3p (2007: 68.9p) * Diluted earnings per share$^b$: 57.5p (2007: 66.7p) --- # Barclays PLC Annual Review 2008 15 ### Summary consolidated balance sheet | For the year ended 31st December | 2008 £m | 2007 £m | | :--- | :--- | :--- | | **Assets** | | | | Cash and other short-term funds | 31,714 | 7,637 | | Trading and financial assets designated at fair value | 306,836 | 341,171 | | Derivative financial instruments | 984,802 | 248,088 | | Loans and advances to banks | 47,707 | 40,120 | | Loans and advances to customers | 461,815 | 345,398 | | Available for sale financial investments | 64,976 | 43,072 | | Reverse repurchase agreements and cash collateral on securities borrowed | 130,354 | 183,075 | | Other assets | 20,102 | 15,804 | | Property, plant and equipment | 4,674 | 2,996 | | **Total assets** | **2,052,980** | **1,227,361** | | **Liabilities** | | | | Deposits and items in the course of collection due to banks | 116,545 | 92,338 | | Customer accounts | 335,505 | 294,987 | | Trading and financial liabilities designated at fair value | 136,366 | 139,891 | | Liabilities to customers under investment contracts | 69,183 | 92,639 | | Derivative financial instruments | 968,072 | 248,288 | | Debt securities in issue | 149,567 | 120,228 | | Repurchase agreements and cash collateral on securities lent | 182,285 | 169,429 | | Other liabilities | 16,052 | 15,032 | | Insurance contract liabilities, including unit-linked liabilities | 2,152 | 3,903 | | Subordinated liabilities | 29,842 | 18,150 | | **Total liabilities** | **2,005,569** | **1,194,885** | | **Shareholders’ equity$^a$** | | | | Shareholders’ equity excluding minority interests | 36,618 | 23,291 | | Minority interests$^b$ | 10,793 | 9,185 | | **Total shareholders’ equity** | **47,411** | **32,476** | | **Total liabilities and shareholders’ equity** | **2,052,980** | **1,227,361** | --- # 16 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Corporate sustainability ### Sustainability and Barclays At Barclays, we recognise that our sustainability values have increased importance in the current financial climate. We are focused on: supporting our existing customers; being a bank that welcomes all potential customers; being an equal opportunity employer; our commitment to addressing climate change and ensuring we behave at all times as a responsible global citizen. Doing this effectively helps us to reduce our risk and positions us well to capture commercial opportunities arising from the global transition towards a more sustainable future. ### Developing our strategic framework To measure our success in integrating sustainability into our business we have addressed the broad sustainability agenda through five key themes: – Customers and clients – Inclusive banking – Diversity and our people – Environment – Responsible global citizenship ### Customers and clients In 2008, amid widespread uncertainty in financial markets and the wider global economy, staying close to our clients and customers, who we recognise have a choice where they bank, was vital. Our record of lending responsibly has allowed us to continue mortgage lending in the UK, increasing our share of net new lending from 8% in 2007 to 36% in 2008. We increased lending to UK SMEs by 6% to a total of £15bn. ### Inclusive banking We have dedicated accounts for people on low incomes across several countries in Africa. In 2008, these basic accounts made up 27% of our total current and savings accounts in Africa. In the UK, our basic-level Cash Card Account is now held by more than 730,000 customers. In March 2008, Barclays launched the ‘Hello Money’ service in India which allows customers to carry out banking transactions easily and securely over their mobile phones. ### Diversity and our people In 2008, Antony Jenkins, CEO Barclaycard was appointed Diversity and Inclusion Executive Champion to drive the Global Retail and Commercial Banking diversity agenda. Initiatives in 2008 included establishing the requirement that every senior executive has a diversity objective linked to their performance goals. ### Environment In 2008, Barclays set environmental targets that apply to our global operations. The targets are to reduce by 6% per employee (achieving an average of 2% reduction per year): $\mathrm{CO}_2$ emissions; energy use from buildings; and water use. --- # Barclays PLC Annual Review 2008 17 ### Barclays sustainability themes | Theme | Definition | Progress in 2008 | | :--- | :--- | :--- | | **Customers and clients** | Ensuring our products and services meet the needs of customers and clients, and developing innovative solutions to enhance performance, relationships and satisfaction | – Increased share of new mortgages in the UK from 8% to 36% of net new lending from 2007 to 2008
– Increased lending to UK SMEs by 6% to £15 bn | | **Inclusive banking** | Extending the reach of banking services in developing markets and reducing financial exclusion in developed markets | – Absa, which has 10 million customers, is now the market leader for low-income customers in South Africa – those earning less than R3,000 (£200) a month – with a market share of 33%
– In the UK, our basic-level Cash Card Account is held by more than 730,000 customers, of whom over 38,000 live in deprived areas
– In Africa, we have more than 590,000 customers who are on low incomes | | **Diversity and our people** | Attracting employees from the widest possible talent pools and developing and retaining colleagues on the basis of performance and ability | – 15% of senior executives globally are women
– 12% of colleagues in the UK are of an ethnic minority
– 2% of colleagues in the UK have a disability | | **Environment** | Minimising direct environmental impacts by mitigating Barclays energy, water and waste footprints and managing the risks and opportunities associated with climate change | – 31 project finance deals were assessed against the Equator Principles
– 229 non-project finance transactions were assessed by the Environment Risk Management team
– Barclays Capital has traded more than 1 billion tonnes of carbon credits with a notional value of over £20bn | | **Responsible global citizenship** | Managing Barclays indirect economic, ethical, social and environmental impacts, encouraging our supply chain to be more sustainable, and investing in the local communities where we do business | – £52.2m invested in communities
– Over 57,000 employees received direct support for fund-raising, volunteering and giving in 31 countries
– 80% of our key suppliers completed our sustainability screening questionnaire | --- # 18 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Summary corporate governance report The year proved to be extremely challenging for the financial services industry as increasing vulnerabilities exposed in the global financial system created a period of exceptional instability. During October 2008, it became clear that an industry-wide solution to the risks of systemic failure in the UK financial services sector was needed. The outcome of discussions between the UK FSA and the UK banks was that we, along with many of our competitors, were required to raise additional equity and Tier 1 capital. > The Directors wish to place on record both their appreciation of the support received from shareholders in difficult circumstances in completing the Capital Raising and to re-affirm their fundamental commitment to the principle of pre-emption. The Board is clear that the extraordinary circumstances which they were required to deal with were so unusual as to be effectively unique. ### Corporate governance framework – Role of the Board The Board is responsible for managing the Company on behalf of its shareholders and must ensure that an appropriate balance between promoting long-term growth and delivering short-term objectives is achieved. Adverse market conditions during 2008 led to the Board holding an additional 23 meetings, where it discussed the impact of market conditions on performance, liquidity, the three capital raisings that were undertaken during the year and the acquisition of Lehman Brothers North American investment banking and capital markets businesses. ### Board structure and composition The roles of the Group Chairman and Group Chief Executive are separate. There is a strong independent element on the Board and at least half the Board are independent non-executive Directors. At the date of this report, the Board is comprised of the Group Chairman, four executive Directors and 11 non-executive Directors. ### Board allocation of time ```mermaid pie title Board allocation of time "Control Issues" : 9 "Financial Results" : 36 "Internal Audit Matters" : 11 "External Audit Matters" : 9 "Business Control Environment" : 28 "Governance and Compliance" : 6 "Other" : 1 ``` --- # Barclays PLC Annual Review 2008 19 ### Board Audit Committee The Committee’s areas of focus in 2008 were dominated by the continuing disruption to the credit markets and financial services sector as a whole. In early 2008, a separate session of the Committee was held on accounting for and valuation of derivatives and complex financial instruments and the Group’s valuation methodology for these instruments. ### Board Risk Committee 2008 was also a challenging year for risk management and this was reflected in the work of the Committee, which monitored the Group’s sub-prime exposures throughout the year. The reduction in limits and scale of the sub-prime business in 2007 reduced the impact of the crisis, although substantial write-downs were still required during 2008, reflecting a further deterioration in the markets and underlying performance of the assets. ### Board Risk Committee allocation of time ```mermaid pie title Board Risk Committee allocation of time "Risk Profile/Risk Appetite" : 55 "Key Risk Issues" : 35 "Internal Control/Risk Policies" : 4 "Regulatory Frameworks" : 5 "Other" : 1 ``` --- # 20 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Board of Directors and Executive Committee 1. **Marcus Agius**, Group Chairman 2. **David Booth**, Non-executive Director 3. **Sir Richard Broadbent**, Senior Independent Director 4. **Leigh Clifford, AO**, Non-executive Director 5. **Fulvio Conti**, Non-executive Director 6. **Professor Dame Sandra Dawson**, Non-executive Director 7. **Sir Andrew Likierman**, Non-executive Director 8. **Sir Michael Rake**, Non-executive Director --- # Barclays PLC Annual Review 2008 21 9. **Sir Nigel Rudd, DL**, Deputy Chairman 10. **Stephen Russell**, Non-executive Director 11. **Sir John Sunderland**, Non-executive Director 12. **Patience Wheatcroft**, Non-executive Director 13. **John Varley**, Group Chief Executive 14. **Robert E Diamond Jr**, President, Barclays PLC and CEO, Investment Banking and Investment Management 15. **Christopher Lucas**, Group Finance Director 16. **Frederik (Frits) Seegers**, Chief Executive, Global Retail and Commercial Banking --- # 22 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Risk management Risk management is a fundamental part of Barclays business activity and an essential component of its planning process. To keep risk management at the centre of the executive agenda, it is embedded in the everyday management of the business. ### Principal Risks * Retail Credit * Wholesale Credit * Market * Capital * Liquidity * Financial Crime * Operations * Technology * People * Regulatory * Financial Reporting * Legal * Taxation ### Process: Strategy * **Direct**: Understand the principal risks to achieving Group strategy. Establish Risk Appetite. Establish and communicate the risk management framework including responsibilities, authorities and key controls. * **Assess**: Establish the process for identifying and analysing business-level risks. Agree and implement measurement and reporting standards and methodologies. * **Control**: Establish key control processes and practices, including limit structures, impairment allowance criteria and reporting requirements. Monitor the operation of the controls and adherence to risk direction and limits. Provide early warning of control or appetite breaches. Ensure that risk management practices and conditions are appropriate for the business environment. * **Report**: Interpret and report on risk exposures, concentrations and risk-taking outcomes. Interpret and report on sensitivities and Key Risk Indicators. Communicate with external parties. * **Manage and Challenge**: Review and challenge all aspects of the Group’s risk profile. Assess new risk-return opportunities. Advise on optimising the Group’s risk profile. Review and challenge risk management practices. --- # Barclays PLC Annual Review 2008 23 ### Risk Management Structure ```mermaid graph TD Board[Board] Board --> B[Approves overall Group risk appetite] subgraph Board Oversight BA[Board Audit Committee] BR[Board Risk Committee] end BA --> B1[Considers the adequacy and effectiveness of the Group Control Framework] BA --> B2[Reviews reports on control issues of Group-level significance] BR --> B3[Review the Group risk profile] BR --> B4[Approves the Group Control Framework] BR --> B5[Approves minimum control requirements for principal risks] GEC[Group Chief Executive / Group Executive Committee] --> B6[Monitors and manages risk adjusted performance of businesses] subgraph "Governance and Control" GC[Governance and Control Committee] RO[Risk Oversight Committee] TC[Treasury Committee] end GC --> G1[Reviews the adequacy and effectiveness of the Group Control Framework] GC --> G2[Monitors compliance with the Framework including remediation of significant control issues] GC --> G3[Reviews reports on control issues of Group-level significance] RO --> R1[Ensures current risk profile is consistent with Group risk appetite] RO --> R2[Debates and agrees actions on the risk profile and risk strategy across the Group] RO --> R3[Considers issues escalated by Risk Type Heads and Business Risk Directors] TC --> T1[Sets policy/controls for liquidity, maturity transformation and structural interest rate exposure] TC --> T2[Monitors the Group’s liquidity and interest rate maturity mismatch] TC --> T3[Monitors usage of regulatory and economic capital] TC --> T4[Oversees the management of the Group’s capital plan] subgraph Assurance IA[Internal Audit] end IA --> I1[Assesses the adequacy and effectiveness of the Group Control Framework] IA --> I2[Assesses management assurance processes] ``` --- # 24 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Summary remuneration report The disruption in the capital markets that commenced in 2007 deepened in 2008 resulting in one of the most challenging years ever for the global financial services sector. Our guiding principle throughout all decisions has been ‘pay for performance’. ### 2008 Barclays delivered profit of £6,077m, 14% lower than 2007. The variable pay for the Group reduced 48% relative to 2007. Accountability rests at the most senior levels and key factors relating to executive Directors include: – zero annual performance bonus for 2008 – no salary increases for 2009 – the total 2009 long-term awards are 64% lower than last year, with no awards for the Chief Executive and the President. ### Fig 1: Total shareholder return £ (Comparison of £100 investment between Barclays and FTSE 100 Index from 2003 to 2008) | Year | 03 | 04 | 05 | 06 | 07 | 08 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Barclays | 100 | 123 | 134 | 166 | 120 | 41 | | FTSE 100 | 100 | 111 | 134 | 154 | 165 | 118 | --- # Barclays PLC Annual Review 2008 25 ### 2008 annual remuneration | Name | Salary and fees £000 | Annual cash bonus for 2008 £000 | Total cash £000 | Deferred Share Award (ESAS) for 2008 £000 | Fair value long-term incentive award (PSP) for 2008 £000 | Total direct remuneration 2008 £000 | Total direct remuneration 2007 £000 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Group Chairman** | | | | | | | | | Marcus Agius | 750 | – | 750 | – | – | **750** | 750 | | **Executive Directors** | | | | | | | | | John Varley | 1,075 | 0 | 1,075 | 0 | 0 | **1,075** | 4,218 | | Robert E Diamond Jr | 250 | 0 | 250 | 0 | 0 | **250** | 21,125 | | Chris Lucas | 638 | 0 | 638 | 0 | 800 | **1,438** | 1,895 | | Frits Seegers | 700 | 0 | 700 | 0 | 1,600 | **2,300** | 4,182 | | **Non-executive Directors** | | | | | | | | | David Booth | 83 | – | 83 | – | – | **83** | 43 | | Sir Richard Broadbent | 188 | – | 188 | – | – | **188** | 180 | | Leigh Clifford AO | 115 | – | 115 | – | – | **115** | 97 | | Fulvio Conti | 90 | – | 90 | – | – | **90** | 85 | | Prof Dame Sandra Dawson | 90 | – | 90 | – | – | **90** | 85 | | Sir Andrew Likierman | 105 | – | 105 | – | – | **105** | 100 | | Sir Michael Rake | 90 | – | 90 | – | – | **90** | – | | Sir Nigel Rudd DL | 200 | – | 200 | – | – | **200** | 200 | | Stephen Russell | 153 | – | 153 | – | – | **153** | 145 | | Sir John Sunderland | 98 | – | 98 | – | – | **98** | 95 | | Patience Wheatcroft | 78 | – | 78 | – | – | **78** | – | | **Former Directors** | | | | | | | | | Gary Hoffman | 417 | 298 | 715 | – | – | **715** | 1,131 | | Dr Daniel Cronjé | 25 | – | 25 | – | – | **25** | 217 | --- # 26 Barclays PLC Annual Review 2008 | www.barclays.com/annualreport08 ## Shareholder support ### 2009 diary * **23rd April 2009**: Annual General Meeting (The Queen Elizabeth II Conference Centre, London) * **14th May 2009**: Interim Management Statement * **6th August 2009**: Half-Year Results for 2009 ### Online information Barclays has increased the information that shareholders can see online at www.barclays.com/annualreport08 ### Your Dividend As announced on 13th October 2008, in light of the new capital ratios agreed with the FSA and in recognition of the need to maximise capital resources in the current economic climate, the Board concluded that it would not be appropriate to pay a final dividend for 2008. The Board intends to resume dividend payments in the second half of 2009, at which time it is intended to pay dividends quarterly. --- # Barclays PLC Annual Review 2008 27 ## Manage your shareholding * **Barclays Sharestore**: Barclays Sharestore is a convenient way to hold your Barclays shares electronically. * **The Barclays Dividend Reinvestment Plan (DRIP)**: The DRIP is a cost-effective way of using your dividends to build your shareholding. * **If you move house**: Please remember to write to the Registrar if you move house. * **If you lose your share certificate**: Contact the Registrar for a replacement. * **ShareGift your shares**: A free service for shareholders wanting to give shares to charitable causes. ## Contact information * **Our Registrar**: Barclays Shareholder Helpline: 0871 384 2055 (UK), +44 121 415 7004 (overseas) * **Email**: questions@share-registers.co.uk * **Post**: The Registrar to Barclays, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA * **Buying and selling shares**: 0845 604 0077 (UK), +44 141 352 3934 (overseas) --- # 28 Barclays PLC Annual Review 2008 ### Full Annual Report The Annual Review and Summary Financial Statement is only a summary of information in the Barclays PLC Annual Report 2008. Please note that this Annual Review, Summary Financial Statement and Summary remuneration report does not contain sufficient information to allow a full understanding of the results of the Group and the state of affairs of the Company or of the Group. For further information consult the Annual Report 2008. You can obtain a copy of the Annual Report 2008 free of charge, by telephoning our Registrar on 0871 384 2055 or you can view a copy at: www.barclays.com/annualreport08 ### Forward-looking statements This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition and performance. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements.