Barclays PLC Annual Report 2016 Building the bank of the future The Detailed Report Within the Annual Report, these disclosures inform of Barclays 2016 performance. The content meets, and where insightful, goes beyond minimal regulatory reporting standards. Governance Governance contents 49 Who we are 51 What we did 54 How we comply 84 Other statutory information 91 People 95 Remuneration report 99 Risk review Risk review contents 134 Material existing and emerging risks 136 Risk management 145 Risk performance 163 Supervision and regulation 229 Financial review Financial review contents 237 Key performance indicators 238 Consolidated summary income statement 240 Income statement commentary 241 Consolidated summary balance sheet 242 Balance sheet commentary 243 Analysis of results by business 244 Financial statements Financial statements contents 267 Consolidated financial statements 277 Notes to the financial statements 284 Barclays PLC Annual Report 2016 home.barclays/annualreport The Strategic Report An overview of our 2016 performance, a focus on our strategic direction, and a review of the businesses underpinning our strategy. Completing the restructuring of Barclays 02 Chairman’s letter 04 Chief Executive’s review 06 Operating environment 08 Our business model 10 Our strategy 13 Risk management 16 Our key performance indicators A review of our operational performance 26 Barclays UK 28 Personal Banking 29 Barclaycard Consumer UK 30 Wealth, Entrepreneurs and Business Banking 32 Barclays International 34 Corporate and Investment Bank 35 Consumer, Cards and Payments 36 Non-Core and Africa Overview of governance and financial performance 38 Governance overview 41 Viability statement 42 Our culture and our people 44 Remuneration framework 48 Financial performance For shareholder information and contact details see page 375. What’s inside this report The Strategic Report was approved by the Board of Directors on 22 February 2017 and signed on its behalf by the Chairman. Report of the Auditor The Auditor’s report on the full accounts for the year ended 31 December 2016 was unqualified, and their statement under section 496 (whether the Strategic Report and the Directors’ report are consistent with the accounts) of the Companies Act 2006 was unqualified. Notes, Non-IFRS performance measures and forward-looking statements Barclays management believes that the non-IFRS performance measures included in this document provide valuable information to the readers of the financial statements. This document also contains certain forward- looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to the Group. For full details on Notes, Non-IFRS performance measures, and forward-looking statements used within this document, please see the back cover. home.barclays/annualreport Barclays PLC Annual Report 2016  •  01 Completing the restructuring of Barclays Where can I find out more? You can learn about Barclays’ strategy, our businesses and performance, approach to governance and risk online, where latest and archived annual and strategic reports are available to view or download. For further information and a fuller understanding of the results and the state of affairs of the Group, please refer to the full suite of documents at home.barclays/annualreport Strategic report Corporate governance Risk review Financial review Financial statements Shareholder information 02  •  Barclays PLC Annual Report 2016 home.barclays/annualreport Chairman’s letter While much is yet to be done, business restructuring will largely be completed in 2017... Summary Today the Group is smaller, safer, more focused, less leveraged, better capitalised and highly liquid, with the customer at the centre of the business. The sale of Africa, the settlement of legacy conduct matters and the exit of Non-Core will improve this significantly going forward. For further information, see home.barclays/annualreport 2016 was pivotal for Barclays, which is engaged in one of the largest restructurings in history. Jes Staley has had an impressive first year. Initially, he set out a new strategic agenda for the Group as a leading UK and transatlantic bank, with the customer at its heart, placing it at the forefront of our industry, and re-embracing banking as a profession. Under his leadership, the Core business was redefined and reorganised in preparation for structural reform, together with plans to bring its returns above hurdle rates. It was decided to exit Africa and accelerate the reduction in Non-Core. The senior management team was strengthened with key internal and external appointments, and plans put in place to achieve successful structural reform in the UK and the US, as well as a major medium-term initiative to embrace digital technology, to upgrade our systems architecture, to become fully cyber ready and improve our control effectiveness. While much is yet to be done, including the full transfer of business to the UK ring-fenced bank during the first half of 2018, business restructuring will largely be completed in 2017, and subject to the future impact of a number of legacy conduct issues, this should allow the Group to return to a good and more stable financial performance in 2018, and possibly in the late months of 2017. The year itself saw external surprises, including the decision by the UK to exit the EU, a consequent decline in Sterling, as well as a new political climate emerging in the UK and the US. We also faced regulatory pressure to increase capital levels, and the need to improve further our control effectiveness and corporate culture. Notwithstanding such pressures, I’m pleased with the progress that we have made. The Group implemented its geographic refocus around the UK and North America, while retaining international coverage for our clients. The business was reorganised into Barclays International (corporate/investment banking and international consumer) and Barclays UK (local consumer, small business, UK wealth and credit cards) in preparation for structural reform and to leverage the core competitive advantages of the Group. New senior management joined in Risk, Corporate and Investment Banking and Operations and Technology, and a new Group Executive Committee was constituted, with Jes investing heavily in its cohesion and effectiveness. Overall, the Group returned to bottom-line profitability in the year, with attributable profits up £2.0bn and with basic earnings per share of 10.4p. Capital was strengthened, and the Common Equity Tier 1 ratio improved by 100bps to 12.4%. The Cost: Income ratio improved from 84% to 76%. The Core business had a good year with attributable profit doubling to £3.4bn, together with an equivalent improvement in Return on Tangible Equity to 8.4% and basic earnings per share of 20.5p. This was offset significantly by the £1.9bn loss (11.3p per share) associated with the run down of Non-Core, which saw its risk weighted assets reduce by 41% to £32bn with transactions announced in France, Italy, Spain, Portugal and in Asia. Given this progress, we now expect the run down of Non-Core to be completed six months earlier than planned, at the end of the first half of 2017. This will leave an anticipated residual £25bn of RWAs that will be re-absorbed by the Core businesses. home.barclays/annualreport Barclays PLC Annual Report 2016  •  03 A major decision was made to sell down our 62% shareholding in Barclays Africa Group Ltd (BAGL) and the process began with a reduction to just over 50%. This investment became non-viable economically under current regulatory capital rules, and the UK bank levy. BAGL had a reasonable year in 2016, although profits were slightly down on 2015. Our shareholding benefitted from an improvement in the exchange rate and an increase in its stock price. From these statistics, we can see the merits of improving further the Core return, the elimination of the drag from Non-Core, the sale of Africa, and further progressing the resolution of historical conduct matters. It is worth stepping back to remind shareholders of the enormous changes that are taking place at Barclays. At our peak in 2008 we had: ■ ■£2.1trn in assets against £1.2trn today, down over 40% and declining ■ ■shareholders’ equity was £36.6bn, and is now £58.4bn, up 60% ■ ■balance sheet leverage (total assets to ordinary shareholders’ funds) was a stretched 56 times, and has been reduced to 21 times ■ ■shareholders’ capital as a percentage of risk weighted assets was 8.5% and is now almost double at 16%. Today therefore, the Group is smaller, safer, more focused, less leveraged, better capitalised and highly liquid, with the customer at the centre of the business. The sale of Africa, the settlement of legacy conduct matters and the exit of Non-Core will improve this significantly going forward. Despite this progress, significant challenges remain. The interest rate and growth environment remains subdued in our core markets. Our Core business overall is still operating below our cost of equity. In the near term, we need to exit Non-Core and complete the sale of Africa at the best financial outcome possible. UK and US structural reform also needs to be implemented, with a major event involving the transfer of business from Barclays Bank PLC to the ring-fenced bank. A number of potentially material legacy conduct matters need to be resolved at acceptable cost. A way forward to capture the opportunity and mitigate the risk of the UK’s exit from the EU needs to be found, depending on the final international agreement. Finally, we need to reach our required regulatory capital and desired control levels. I am confident we have the capacity to work our way through these. Looking forward therefore, a great deal has changed at Barclays and much will change going forward. We are a major full-service player in the UK, have leadership in several important segments and are the digital banking leader. We also have a major corporate, investment banking and cards presence in the US. For example, our cards and consumer and payments businesses there, now produce more revenues than our equivalent UK business. We also retain a focused international presence to serve our customers internationally and bring overseas customers to our core markets. 12.4% Common Equity Tier 1 ratio 2016 CET1 ratio up 100bps vs 2015 (2015: 11.4%) £58.4bn Shareholders’ equity 2016 shareholders’ equity up 7% vs 2015 (2015: £54.5bn) This foundation gives us a new beginning and subject to the resolution of legacy conduct matters and the satisfactory execution of the near-term agenda. I genuinely believe we can see the light at the end of the tunnel. Restructuring will largely be completed in 2017, and subject to legacy matters, this should allow the Group to return to a good and more stable financial performance in 2018, and possibly in the late months of 2017. This augurs well for completion of the turnaround at Barclays, for future value creation, and at the appropriate time, a reconsideration of the dividend. I would like to take this opportunity to thank our Board for their contribution to our company. I am also grateful for the enormous progress made by our senior management team, and thank our staff across the organisation for coming every day to serve our customers, without whom we would not have an enterprise. Finally, I would pay respect to our shareholders for their ongoing patience and support. John McFarlane Chairman Strategic report Corporate governance Risk review Financial review Financial statements Shareholder information