# Barclays PLC
Annual Report 2018

# Creating opportunities to rise

# Chairman’s letter
## A solid foundation for the future

Dear Fellow Shareholders

I am pleased to report that Barclays is in a very different place than it has been since the global financial crisis, and with the significant restructuring done, we can now for the first time in the recent past look forward to enhancing shareholder returns and distributions.

We have made significant progress, particularly in the past few years:
* we resolved a substantial portion of our major legacy matters putting behind us issues that have to date cost us over £17 billion
* we exited the bulk of our non-core and sub-performing assets at a cost of over £12 billion.

We implemented all elements of structural reform requirements:
* created a new ring-fenced UK bank from scratch, ahead of competitors and time, that is operating strongly
* established a service company that is delivering operational and financial efficiencies, creating the capacity to reinvest in the core businesses, as well as being in a position to provide essential services in the event of a failure of the bank
* finalised the arrangements for an intermediate holding company in the US
* set up arrangements in the EU and a transfer process, such that we are one of the most prepared banks for Brexit
* reflected advanced corporate governance in the major subsidiary banks with new governance arrangements including the introduction of separate boards of directors.

We have also developed a strong values-based culture that enables us to serve our customers, to make a significant contribution to society, to reward shareholders and to protect ourselves from the reputational damage associated with poor industry conduct.

Against a backdrop of very substantial increases in regulatory capital requirements, over time we have built up sufficient capital and financial strength enabling us to achieve our target capital ratio of c.13% of risk-weighted assets, prudently surpassing our mandatory distribution restriction hurdle, and we are in a position to endure severe future economic stress and yet be in a position to extend credit to our customers in that event. Some commentators imply because we are at that level but below other more domestic competitors, our capital is inadequate. However, we do not agree. The aim is to have the right amount of capital to balance safety and returns, rather than the maximum amount possible.

# Chief Executive’s review
## We are delivering on our strategy

2018 represented a very significant period for Barclays.

In the course of the year, having resolved major legacy issues and reduced the drag from low returning businesses, we started to see the true earnings potential of this bank, as the strategy we have implemented began to deliver.

This was evident in the strongly improved performance across the Group compared to 2017.

Excluding litigation and conduct, profit before tax was up 20% – an outcome driven in part by lower impairment as a result of prudent management of credit risk, as well as the benefit from improved macroeconomic forecasts during the year.

Our Group return on tangible equity, was 8.5% for the full year – close to our 2019 financial target of greater than 9%. Achieving our return on tangible equity targets of greater than 9% in 2019 and greater than 10% in 2020 will remain our overriding priority.

BX, our service company, has driven greater efficiency through the business and allowed us to bring costs down to within our guidance range of £13.6-13.9 billion, while creating capacity for investment. We have the ability to flex that investment to support our return on tangible equity targets if the environment requires us to do so.

Excluding litigation and conduct, our earnings per share for the full year were 21.9p.

What these key performance measures demonstrate is that our strategy is working, and momentum is building in Barclays.

As we began the year, we had all but reached the end of the huge restructuring of the business which we commissioned with our strategy in March of 2016:
* we had completed the run-down of our Non-Core Unit, eliminating over £90bn of Risk Weighted Assets – predominantly in our Corporate & Investment Bank – closing operations in a dozen countries, and selling some 20 businesses which were no longer strategically important to Barclays
* we had sold down our interest in Barclays Africa to a level allowing regulatory deconsolidation, which was formally granted in July of 2018
* we had completed our work on structural reform, creating our Intermediate Holding Company in the USA, and standing up our ring-fenced bank in the UK – the successful execution of which in April was the result of an extraordinary effort by colleagues across the bank, and one of the biggest technological shifts ever carried out in financial services; and
* we had created our Service Company, Barclays Execution Services, or ‘BX’, as a state-of-the-art operating platform on which to run and build our business going forward.

# Operating environment
## A constantly evolving operating environment

Barclays is a transatlantic consumer and wholesale bank, anchored in our two home markets of the UK and US, therefore impacted by a wide range of macroeconomic, political, regulatory and accounting, technological and social developments. The evolving operating environment presents opportunities and risks which we continue to monitor and evaluate to ensure that we appropriately adapt our strategy and its delivery.

### Economic growth
The global economy continued to expand in 2018, at an estimated rate of 3.7%. However, there have been noticeable regional differences. US expansion accelerated through higher consumer spending as tax cuts boosted disposable income. On the other hand, growth in Japan, Eurozone and the UK slowed amid political and economic disruption. Significant concerns remain around the sustainability of the sovereign debt level in Italy. Emerging markets diverged due to higher interest rates in the US, volatile oil price and escalating trade tensions.

Central banks continued tightening monetary conditions, notably, the Federal Reserve and Bank of England increased their policy rate and the European Central Bank (ECB) announced the end of its quantitative easing programme. Labour markets have tightened, putting upward pressure on inflation, indicating potential further monetary tightening.

Barclays’ business mix spans multiple geographies and client types – we believe a diversified portfolio lowers volatility and enhances stability in a macro environment such as ours today. As a result, we believe in Barclays’ ability to generate solid returns through economic cycles, even when some areas perform less well than others.

### Political risks
Global political uncertainty continued to manifest itself in 2018. Conflicts remained unresolved in some areas of the world, such as Asia, the Middle East and Eastern Europe. In addition, rising trade tensions across the globe are starting to have a negative impact on economic activity, consumer confidence and general financial conditions. The possibility of an escalating trade conflict between the US and China would likely have significant and wide-ranging economic and political consequences. Separately, Brexit continues to give rise to significant uncertainty across the socio-economic environment in Europe.

The uncertain political environment may impact market dynamics and sentiment – however, we believe in Barclays’ ability to adapt to changes for the benefit of customers, clients and broader stakeholders.

### Regulations
From 1 January 2019, the largest UK banks were required to have separated core retail banking operations from investment banking and international banking activities to comply with the Financial Services (Banking Reform) Act 2013. These banks have had to restructure their activities and operations on a scale rarely seen before to comply with the new legislation. These changes have had implications for almost all stakeholders, with banks particularly focused on minimising disruption for clients and customers.

On 1 April 2018, Barclays’ UK banking business, largely comprising of Personal Banking, Barclaycard Consumer UK and Business Banking, was transferred from Barclays Bank PLC (BBPLC) to Barclays Bank UK PLC under the single ring-fencing transfer scheme. The corresponding products and services including current and savings accounts, consumer lending, credit cards, investment products and services, and business banking solutions, were also transferred.

Separately, as a consequence of the likely departure of the UK from the European Union (EU), financial services firms that previously accessed European markets through the UK, will need to establish new legal entities in Europe to ensure business continuity and minimise disruption to clients. Banks in particular are having to implement significant changes that include but are not limited to; the transfer, or recruitment, of colleagues into the EU; building infrastructure; transfer of balance sheet; and trades.

To help manage the risks related to Brexit, Barclays is expanding its existing banking subsidiary in the EU, Barclays Bank Ireland PLC (BBI). BBI will become a wholly owned subsidiary of BBPLC, through which we will be able to continue to serve our European clients globally and our global clients in Europe. We currently already have branches of BBPLC in key European jurisdictions, which will become branches of BBI as part of our response to the UK exiting the EU. We continue to work closely with our regulators in the UK and Europe to ensure we will be able to support our clients in Europe, and globally, from the moment the UK leaves the EU. However, execution risks remain for the industry as a whole, including but not limited to balance sheet and trade transfers, client readiness and operational resiliency.

The revised Payments Services Directive (PSD2) and Open Banking went live in early 2018. These initiatives require banks to share more customer information, subject to customer consent, with regulated third parties than ever before. Such regulatory changes are designed to bolster innovation and market competition. This poses challenges to the traditional banking business model, however, opportunities exist for banks that develop new products and services to customers, improve customer journeys, and extend beyond traditional financial products.

The EU General Data Protection Regulation (GDPR) came into effect in May 2018. The GDPR aims primarily to give individuals control over their personal data and to simplify the regulatory environment for international business by unifying the regulation within the EU. In today’s modern economy, data is becoming increasingly important and banks are emerging as key custodians of customers’ and clients’ data.

Barclays has a history of innovation spanning three industrial revolutions. We want to lead the change, being technological, regulatory, or customer driven, rather than simply responding to it. We are committed to providing a market leading digital offering to our customers and clients by making customer journeys simpler and more intuitive and offering and building digital platforms that benefit the whole society and economy.

# Our Purpose and values
## We are a company of opportunity makers

Our common Purpose is ‘Creating opportunities to rise’. Because when our customers, clients, colleagues and society rise, Barclays rises too. We measure and reward our people, not just on commercial results, but on how they live our Values and bring them to life every day.

Our Purpose and Values are central to Barclays. They drive everything we say and do. They are fundamental to the relationships we build with our colleagues, customers, clients and stakeholders and have been part of our DNA for over 328 years. They reflect our entrepreneurial spirit; our relentless quest for better; and our commitment to putting people first.

### Our Purpose
Creating opportunities to rise
We are a company of opportunity makers, working together to help people rise – customers, clients, colleagues and society

### Our Values
* **Respect:** We respect and value those we work with and the contribution they make
* **Integrity:** We act fairly, ethically and openly in all we do
* **Service:** We put our customers and clients at the centre of what we do
* **Excellence:** We use our energy, skills and resources to deliver the best sustainable results
* **Stewardship:** We’re passionate about leaving things better than we found them

# Strategy
## Playing to our strengths

As a leading, diversified, transatlantic bank with global reach, our goal is to support our stakeholders via a commercially successful business that generates long-term sustainable returns.

### Building on our strong foundations
Our strategy is to build on our strength as a transatlantic consumer and wholesale bank, anchored in our two home markets of the UK and US, with global reach. Our two clearly defined divisions, Barclays UK and Barclays International, provide diversification to our business model. We believe that combining consumer and wholesale businesses, as well as accessing geographic diversification, provides real advantages to both the Group and our investors and helps contribute to the delivery of more consistent and sustainable returns through the business cycle.

### Completion of the restructuring
In 2018, we successfully concluded our restructuring which saw us run-down the Non-Core, sell-down Barclays Africa, complete the Structural Reform Programme and create BX. These combined actions have significantly contributed to the simplification of the Group, helping to reduce drag on Group profitability and laying the foundations for Barclays to drive sustainable returns in its businesses.

### Delivering the Barclays of the future
Our focus is now on building the Barclays of the future, operating principally through Barclays UK, Barclays International and supported by BX. We remain fully committed to our model as a diversified bank and will remain a well-diversified financial institution providing excellent products and services to our customers and clients, underpinned by world class operations. We believe we are well positioned to deliver future growth and appropriate returns for shareholders.

# Business model
## Working together to help people rise

Our business model enables us to leverage resource and relationships to produce long-term sustainable outputs for our stakeholders. These outputs provide combined value for our stakeholders, helping people to rise.

### We draw on the following to support our activities and deliver value to our stakeholders:
* the strength and reputation of our brand – serving customers and clients for over 328 years
* a strong, well-funded and diversified balance sheet
* customer and client trust and depth of relationships
* our geographic focus: firmly anchored in the two financial centres of London and New York, with global reach
* a track record of successfully innovating for customers and clients
* the skills and expertise of our people and our shared values which inform the way we work and how we act.

### We aim to provide superior services to help customers and clients create, grow and protect wealth in a sustainable way:
* a safe place to save, invest and manage cash and payments
* funding for purchases and growth
* management of business and financial risks
* financial and business support
* innovative digital and technology capabilities.

# Stakeholder engagement
## Engaging stakeholders for feedback and direction

Barclays aims to create value for all of our stakeholders, balanced across both the short and the long term. We engage with our stakeholders to better inform them of our activities to create mutually supportive opportunities and outcomes for them.

### What is our ambition for our stakeholders?

#### Company
Achieving our targets is consistent with our aim of generating long-term sustainable returns for the shareholders:
* Group return on tangible equity* >9% in 2019 >10% in 2020
* CET1 ratio at c.13%
* Group cost guidance of £13.6–£13.9bn in 2019†. Targeting cost:income ratio below 60% over time

#### Customers and clients
* Building trust with our customers and clients, such that they are happy to recommend us to others.
* Successfully innovating and developing products and services that meet their needs.
* Offering suitable products and services in an accessible way, ensuring excellent customer and client experience.

#### Colleagues
Promoting and maintaining:
* a diverse and inclusive workforce in which colleagues of all backgrounds are treated equally and have the opportunity to be successful and achieve their potential
* engaged and enabled colleagues
* a positive conduct and values-based environment.

#### Citizenship
* Making decisions and doing business that provides our clients, customers, shareholders, colleagues and the communities which we serve with access to a prosperous and sustainable future.
* Proactively managing the environmental and societal impacts of our business.

# Measuring performance
## Key performance indicators

Our performance measurement framework undertakes a holistic assessment and sets out our progress towards the strategic goals of the organisation. Our framework is focused on achieving positive and sustainable outcomes for our diverse group of stakeholders.

### Company: How we are doing
* **Group Return on Tangible Equity* (RoTE):** 8.5% (2017: (1.2)%)
* **CET1:** 13.2% (2017: 13.3%)
* **Cost: income ratio:** 77% (2017: 73%)
* **Operating expenses†:** £13.9bn (2017: £14.2bn)

### Customers and Clients: How we are doing
* **Barclays Net Promoter Score® (NPS):** +17 (2017: +14)
* **Lending to UK businesses:** c.£63bn (2017: c.66bn)
* **Barclays UK complaints including PPI:** down 1% YoY (2017: down 7% YoY)

### Colleagues: How we are doing
* **Sustainable engagement of colleagues:** 79% (2017: 78%, 2016: 75%)
* **Women in senior leadership roles:** 24% (2017: 23%)
* **“I would recommend Barclays as a good place to work”:** 86% (2017: 82%)

### Citizenship: How we are doing
* **Access to financing:** £27.3bn (2017: £31.7bn)
* **People helped to improve skill sets through employability partnerships:** 2.4m (2017: 2.1m)
* **Global carbon emissions reduction:** 38% (2017: 26.1%)

# Structure and governance overseeing risk
## Risk management

Barclays is exposed to internal and external risks as part of our ongoing activities. These risks are managed as part of our business model.

### Enterprise Risk Management Framework
At Barclays, risks are identified and overseen through the Enterprise Risk Management Framework (ERMF), which supports the business in its aim to embed effective risk management and a strong risk management culture.

### Risk Appetite
Risk Appetite defines the level of risk we are willing to take across the different risk types, taking into consideration varying levels of financial and operational stress. Risk Appetite is key for our decision making process, including ongoing business planning, new product approvals and business change initiatives.

### Three Lines of Defence
* **First Line of Defence:** revenue generating and client facing areas, including Finance, Treasury, Human Resources and Operations and Technology.
* **Second Line of Defence:** Risk and Compliance.
* **Third Line of Defence:** Internal Audit.

# Principal risk management

| Principal risk | How risks are managed |
| :--- | :--- |
| **Credit risk** | Credit risk teams identify, evaluate, sanction, limit and monitor various forms of credit exposure, individually and in aggregate. |
| **Market risk** | A range of complementary approaches to identify and evaluate market risk are used to capture exposure to market risk. These are measured, controlled and monitored by market risk specialists. |
| **Treasury and Capital risk** | Treasury and capital risk is identified and managed by specialists in Capital Planning, Liquidity, Asset and Liability Management and Market Risk. A range of approaches are used appropriate to the risk, such as: limits; plan monitoring; and stress testing. |
| **Operational risk** | The Group assesses its operational risk and control environment across its businesses and functions with a view to maintaining an acceptable level of residual risk. |
| **Model risk** | Models are evaluated for approval prior to implementation, and on an ongoing basis. |
| **Reputation risk** | Reputation risk is managed by maintaining a controlled culture within the Group, with the objective of acting with integrity, enabling strong and trusted relationships to be built with customers and clients, colleagues and broader society. |
| **Conduct risk** | The Compliance function sets the minimum standards required, and provide oversight to monitor that these risks are effectively managed and escalated where appropriate. |
| **Legal risk** | The Legal function supports colleagues in identifying and limiting legal risks. |

# Barclays UK
## Leaders in innovation

### Operating model
* **Customers and clients:** Individuals, Small and medium-sized enterprises
* **Products and services:** Personal banking services, Credit cards and transactional lending, Mortgages and secured lending, Investment products and services, Business banking solutions
* **Value creation:** To our customers and clients – building meaningful relationships, providing relevant and personalised financial solutions; To society – helping communities move forward; To shareholders – providing sustainable, diversified returns and prudent balance growth
* **Contribution to Barclays:** Income: £7.4bn; Profit before tax: £2.4bn*; RoTE: 16.7%*; Cost: income ratio: 56%*; Risk weighted assets: £75.2bn

# Barclays International
## Strengthening our diversified portfolio

### Operating model
* **Customers and clients:** Consumers, Corporates, Financial institutions, Governments, High and ultra-high net worth individuals and family offices, Money managers and institutional investors
* **Products and services:** Corporate banking, Investment banking, Non-UK consumer banking, cards and lending, Payments, Securities sales, trading and research, Wealth management
* **Value creation:** To our customers and clients – we connect providers and users of capital; To society – we facilitate sustainable economic growth; To shareholders – we deliver sustainable returns from our diversified portfolio of businesses
* **Contribution to Barclays:** Income: £14.0bn; Profit before tax: £3.9bn*; RoTE: 8.7%*; Cost: income ratio: 68%*; Risk weighted assets: £210.7bn

# Barclays Execution Services
## World-class service provider

### Operating model
* **Customers and clients:** BUK and BI businesses – and their customers and clients
* **Products and services:** Technology, Operations, Other functional services
* **Value creation:** To our customers and clients – delivering high quality services and an outstanding experience; To society – safety and continuity of services to the financial system; To shareholders – generating efficiencies by transforming the way we do business

# Governance compliance
## Compliance with The UK Corporate Governance Code 2016

The Barclays PLC Board of Directors (the Board) is responsible for the overall leadership of the Barclays Group, including establishing its Purpose, Values and Strategy and satisfying itself as to the alignment of Barclays’ culture to its Purpose, Values and Strategy.

### The Board Committees
The Board is empowered through its Articles of Association to delegate all or any of its powers, authorities and discretions to any committee or committees as it thinks fit. The principal Board Committees are the Board Audit Committee, the Board Risk Committee, the Board Reputation Committee, the Board Nominations Committee and the Board Remuneration Committee.

# Financial review
## Consolidated summary income statement

| For the year ended 31 December | 2018 £m | 2017 £m | 2016 £m |
| :--- | :--- | :--- | :--- |
| Net interest income | 9,062 | 9,845 | 10,537 |
| Net fee, commission and other income | 12,074 | 11,231 | 10,914 |
| Total income | 21,136 | 21,076 | 21,451 |
| Credit impairment charges and other provisions | (1,468) | (2,336) | (2,373) |
| Operating expenses | (16,243) | (15,456) | (16,338) |
| Profit before tax | 3,494 | 3,541 | 3,230 |
| Attributable profit/(loss) | 1,394 | (1,922) | 1,623 |

# Consolidated balance sheet

| As at 31 December | 2018 £m | 2017a £m |
| :--- | :--- | :--- |
| Total assets | 1,133,283 | 1,133,248 |
| Total liabilities | 1,069,504 | 1,067,232 |
| Total equity | 63,779 | 66,016 |

# Notes to the financial statements

## 32 Share-based payments
The charge for the year arising from share-based payment schemes was as follows:

| Charge for the year | 2018 £m | 2017 £m | 2016 £m |
| :--- | :--- | :--- | :--- |
| Share Value Plan | 45 | 153 | 473 |
| Deferred Share Value Plan | 217 | 166 | – |
| Others | 187 | 186 | 192 |
| Total equity settled | 449 | 505 | 665 |
| Cash settled | 1 | 3 | 1 |
| Total share-based payments | 450 | 508 | 666 |

## 33 Pensions and post-retirement benefits
The value of the assets of the schemes and their percentage in relation to total scheme assets were as follows:

| Analysis of scheme assets (Total) | 2018 Value £m | 2018 % | 2017 Value £m | 2017 % |
| :--- | :--- | :--- | :--- | :--- |
| Equities – quoted | 2,916 | 9.8 | 4,377 | 14.1 |
| Equities – non-quoted | 1,995 | 6.7 | 2,001 | 6.5 |
| Bonds – fixed governmenta | 4,099 | 13.8 | 2,433 | 7.9 |
| Bonds – index-linked governmenta | 11,960 | 40.2 | 13,089 | 42.3 |
| Bonds – corporate and othera | 5,653 | 19.0 | 5,195 | 16.8 |
| Property – commercialb | 1,712 | 5.8 | 1,911 | 6.2 |
| Derivativesb | 266 | 0.9 | 816 | 2.6 |
| Otherc | 1,121 | 3.8 | 1,100 | 3.6 |
| **Fair value of scheme assets** | **29,722** | **100.0** | **30,922** | **100.0** |

```mermaid
graph LR
    A[Purpose and values: We are a company of opportunity makers] --> B[Strategy: Playing to our strengths]
    B --> C[Business model: Working together to help people rise]
    C --> D[Stakeholder engagement: Engaging stakeholders for feedback and direction]
    D --> E[Key performance indicators: Measuring performance]
    E --> F[Risk management: Structure and governance overseeing risk]
```