# Building the ‘Go-To’ bank Barclays PLC Annual Report 2013 *** # Barclays PLC ## Chairman’s letter Barclays is going through a major transition. Critical progress was made in 2013 in putting in place the foundations for sustainable long-term success. The journey is incomplete, with major cultural change well in train but still requiring time to be fully entrenched and, externally, a continuing unsettled economic and financial market environment, and a demanding and changing regulatory agenda. We must focus not only on what we do but on how we do it, and we are committed to embedding a values-driven culture in Barclays. To deliver sustainable performance, we have to balance the needs of all our stakeholders across the short and long-term. You can read elsewhere in this Report how our values: Respect, Integrity, Service, Excellence and Stewardship, are being driven down into the organisation. In 2013 we introduced a balanced scorecard for Barclays which seeks to ensure that we are meeting the needs of all of our stakeholders by measuring performance against metrics in five key areas: * Customer & Client * Colleague * Citizenship * Conduct * Company We have set ourselves stretching but achievable goals in all of these areas which are designed to drive, and which are starting to deliver, mutually reinforcing outcomes. You can read more about the Balanced Scorecard in the following pages. There has been understandable concern and criticism of the increase in the incentive pool in a year in which the bank’s profits were down. The immediate challenge for the Board Remuneration Committee and Board for 2013 was to find the right practical balance between the need to give shareholders a greater share of the income we generate, to bear down on costs, and to meet society’s expectations without eroding the long-term competitiveness of the Investment Bank, and thus damaging the interests of our shareholders. Whilst the conclusion reached was an extremely difficult one, we believe that it was the right decision for shareholders in the long term. Looking forward, we remain committed to achieving a compensation to adjusted net operating income ratio in the mid 30s over the medium term. There is more detail on this in the Remuneration Report in the following pages. There have been a number of changes to both the composition of the Board and to our governance structures during 2013. In particular, we created a new Board Conduct, Reputation and Operational Risk Committee to provide clear and dedicated focus on each of these major areas in complement to the role of the Board Financial Risk Committee. You can read more on these changes in my corporate governance report. Elements in the global economic environment and prospects now seem more favourable than at the beginning of 2013, but financial markets face uncertainty created by structurally lower economic growth over a prolonged period and an uncertain political outlook in many of the areas in which we operate. And, while substantial progress has been made in strengthening the balance sheet, further regulation in prospect, including in particular retail ring-fencing in the UK and rules to be put in place under the Dodd Frank legislation in the United States, and the emerging business environment will inevitably call for rigorous review and adaptation of the mix and structure of the businesses of the Bank. This year the Annual Report incorporates the Strategic Report in line with reporting requirements. The changes are intended to facilitate more effective communication with all our stakeholders, improve corporate accountability and to provide more concise and relevant narrative reports. These objectives are entirely in line with our aim to become more clear and transparent on our journey to be the ‘Go-To’ bank. We will continue to engage with stakeholders to identify ways in which we can further advance this agenda. 2014 will be a critical year for Barclays as we work toward meeting the needs and expectations of all our stakeholders in terms of both the business we do and how we do it. Your Board and the executive team led by Antony Jenkins are encouraged by what was accomplished in 2013 and are focused and determined to complete the Transform Programme, and we are confident of doing so. Sir David Walker Chairman *The Strategic Report was approved by the Board of Directors on 3 March 2014 and signed on its behalf by the Chairman.* *** # The Strategic Report ‘We’ve made some changes to this year’s Strategic Report to give readers a clearer picture of how we operate, what our plans are and how they link to Barclays’ goal and purpose.’ In line with new regulatory reporting requirements and our commitment to transparent disclosures, this year’s Strategic Report gives greater information on the business model and strategy of the Group and its divisions. ### The Strategic Report An overview of our 2013 performance, a focus on our new strategic direction, and a review of the businesses underpinning our strategy * Group overview 02 * Chief Executive’s strategic review 04 * Strategy and operating environment 06 * Business model/Value creation 08 * Balanced Scorecard 10 * Group Finance Director’s review 12 * Strategic risk overview 14 * UK Retail and Business Banking (UK RBB) 18 * Europe Retail and Business Banking (Europe RBB) 22 * Africa 26 * Barclaycard 30 * Investment Bank 34 * Corporate Banking 38 * Wealth and Investment Management 42 * Chairman’s governance overview 46 * Summary remuneration report 48 ### Governance The governance process of Barclays and reports from each of the Board committees presenting how the Board support the delivery of the strategy * Corporate governance report 52 * Directors’ report 78 * Board of Directors 83 * Executive Committee 85 * People 86 * Remuneration report 89 * Implementation of the Salz Review recommendations 126 ### Risk review Insight into the level of risk across Barclays’ businesses and portfolios, the material risks and uncertainties faced and the key areas of management focus. * Risk factors 133 * Credit risk 142 * Market risk 190 * Funding risk – Capital 199 * Funding risk – Liquidity 208 * Operational risk 225 * Reputation risk 226 * Conduct risk 228 * Supervision and regulation 230 ### The Financial review A review of the performance of Barclays, including the key performance indicators, and our businesses’ contribution to the overall performance of the Group * Key performance indicators 238 * Consolidated summary income statement 245 * Income statement commentary 246 * Consolidated summary balance sheet 247 * Balance sheet commentary 248 * Analysis of results by business 249 * Margins and balances 267 ### Financial statements Detailed analysis of our statutory accounts, independently audited and providing in-depth disclosure and transparency on the financial performance of the business * Independent Auditors’ report 271 * Consolidated financial statements 277 * Parent company accounts 282 * Notes to the financial statements 284 ### Risk management A comprehensive overview of Barclays’ approach to risk management and more specific information on policies that the Group determines to be of particular significance in the current operating environment * Barclays risk management strategy 378 * Credit risk management 392 * Market risk management 405 * Operational risk management 415 * Liquidity risk management 418 * Capital risk management 420 ### Shareholder information Resources for shareholders including the Company articles of association, classes of shares and contact details for shareholder enquiries * Shareholder information 424 * Shareholder enquiries 428 * Index 429 *** # Group overview Barclays is a major global financial services provider engaged in personal banking, credit cards, corporate and investment banking, and wealth and investment management with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 140,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide. ### Return on Equity **4.5%** Adjusted return on average shareholders’ equity decreased from 9.0% principally reflecting the decrease in profit before tax, a £440m write down of deferred tax assets and the £5.8bn equity raised from the rights issue ### Dividends per share **6.5p** Full year dividend of 6.5p maintained at same level as 2012 ### Adjusted profit before tax **£5,167m** Down 32% due to costs to achieve Transform and a 4% reduction in income. Statutory profit before tax was up from £797m to £2,868m ### Gross new lending to UK **£88bn** We provided £88bn of Funding for Lending eligible gross new lending to UK households and businesses in 2013 ### CRD IV fully loaded Common Equity Tier 1 Ratio **9.3%** Up from 8.4% in September 2013 principally due to the issuance of additional shares through the rights issue ### Diverse employees **139,600** Of our 139,600 global workforce, 71,300 were female and 68,300 male *** # Chief Executive’s strategic review 2013 has been a year of significant change for Barclays. A year ago we set out the outcome of our strategic review and our Transform plan to make Barclays the ‘Go-To’ bank for all our stakeholders. We continue to take steps to de-risk the business, strengthen the balance sheet, increase the efficiency of our operations and are making good progress against our plan. Our 2013 results clearly demonstrate the benefits of the diversity we enjoy in the Group, as well as the strength of our core franchises. While impacted by the restructuring and de-risking activity, underlying business performance has been resilient, with adjusted income of £28.2bn and adjusted profit before tax of £5.2bn. Our core franchises remain strong, with UK Retail and Business Banking, Barclaycard, UK Corporate Banking, and within the Investment Bank our Equities and Investment Banking businesses all delivering good performances in 2013. Important progress has also been made in repositioning our African, European and Wealth businesses, although further work is required to get returns to acceptable levels. Our Fixed Income, Currency and Commodities business in the Investment Bank saw revenues fall, in line with our European peers, as market conditions remained subdued. We are making good headway across the financial commitments we set out as part of our Transform plan as well as on de-leveraging to meet the PRA’s revised target. I am pleased by our progress on RWAs and leverage. We have been able to move more quickly than anticipated in managing down CRD IV RWAs, bringing us a little below our Transform target well ahead of the 2015 timeline. Through rigorous analysis and focus, we have also virtually achieved the PRA leverage target six months in advance of the June 2014 deadline. We have invested considerably in transforming our businesses. In the months ahead we expect to see the benefits of this coming through. We narrowly missed our cost guidance for 2013, largely due to a £331m increase at year-end in certain litigation provisions, but the true operating performance of Barclays was on track. Costs are a key area of focus for us and we remain committed to our 2015 Transform cost target of £16.8bn. Compensation for key talent is one area that we were prepared to invest in strategically. Our aim is to deliver a greater share of the income we generate to shareholders while remaining competitive on pay. Although profits for 2013 were down, the 38% reduction in incentives in the previous two years had begun to cause demonstrable damage to our business through increased attrition, with a near doubling of resignations of senior staff in the US for example. We concluded that a 2013 incentive pool of £2,378m was appropriate. Whilst this is up 10% on the final 2012 incentive pool, before adjustment for risk and conduct events it is down 18% on 2012 and remains 32% below the pool level in 2010 when we started to reposition Barclays’ remuneration. This was a difficult decision, but the right one for the long term interest of our shareholders. We have also made progress against the two non-financial commitments we made last February. The first of these, culture change, and in particular the process of embedding our Purpose and Values throughout the organisation, is going well. Every colleague has completed a mandatory training programme, and we have integrated our Purpose and Values into the day to day management processes of the Bank. We have developed and published our new Code of Conduct which every colleague must abide by and attest to annually. > ‘We have made good progress in 2013 and we start 2014 in a better position than for several years. While recognising there is much more to do, we have every reason to feel positive about our prospects and confident that we will become the ‘Go-To’ bank for all our stakeholders.’ Antony Jenkins Group Chief Executive *** # Strategy and operating environment The landscape for banks has fundamentally changed and will continue to evolve in the coming years. We believe these changes are not cyclical but represent a structural shift. Our Transform programme, launched in 2013, will reshape Barclays to generate sustainable returns and to meet the needs of all of our stakeholders. ### Transform: delivering our strategy The quality and commitment of the people at Barclays, combined with our underlying financial strength, means we start our transformation from a good position. The Barclays Strategic Review, commenced in Q4 2012, is a part of a long-term programme to transform the culture and performance of Barclays over the next three to five years. The Transform programme is the way in which we will deliver our strategy. With the initial ‘Turnaround’ phase complete, we now look forward to ‘Return Acceptable Numbers’ and to ‘Sustain Forward Momentum’. ```mermaid graph LR A[Where we are now] --> B[0-9 months Turnaround] B --> C[0-3 years Return Acceptable Numbers] C --> D[0-5 years Sustain FORward Momentum] B -- "Stabilise the organisation, provide context for the change to come, maintain short-term momentum" --> E[...] C -- "Improve business returns, define and execute the plan to deliver RoE above CoE" --> F[...] D -- "Become the ‘Go-To’ bank for our stakeholders – customers and clients, colleagues, investors, and wider society" --> G[...] ``` *** # Business model/Value creation ### Delivering value Ensuring we deliver our obligations to shareholders whilst meeting society’s needs in a responsive manner 1. **Barclays helps create, grow and protect wealth** so that individuals, corporations, countries and wider society can achieve their ambitions in the right way 2. **We do this by providing essential banking services** across sectors, regions and around the world 3. **We differentiate ourselves from competitors** in our credentials and our approach 4. **We generate income from supplying these services** in various ways 5. **Our approach delivers broader value** in the unique way we do business > ‘Our customers and clients are at the centre of our goal and purpose.’ *** # Balanced Scorecard The Balanced Scorecard sets out eight specific commitments across our 5Cs (Customer & Client, Colleague, Citizenship, Conduct and Company) and defines what we need to achieve over the next five years to be well on the way to becoming the ‘Go-To’ bank. * **Customer & Client:** We are ‘Go-To’ for our customers and clients * **Colleague:** Our colleagues are fully engaged; We create a diverse and inclusive environment where colleagues can fulfill their potential * **Citizenship:** We positively impact the communities in which we operate * **Conduct:** Our products and services are designed and distributed to meet clients’ needs; We act with integrity in everything we do * **Company:** We create sustainable returns above the cost of equity; We understand and effectively manage our risks, and continuously improve control *** # Strategic Risk overview Maintaining our risk profile at an acceptable and appropriate level is essential to ensure our continued performance. Barclays constantly reviews its exposures in a number of areas including asset quality, industry and geography. ### 2013 performance While the economic environment in Barclays’ main areas of business was marked by generally weak growth in 2013, the loan impairment charges reduced by 7% with the loan loss rate finishing the year 6bp lower at 64bps. The loan impairment charge for wholesale decreased by 27% principally reflecting a reduction in Corporate Banking due to lower exposure to the Spanish property and construction sector and lower charges in the UK. Impairment increased by 4% in retail mainly in UK RBB and Barclaycard as the two businesses grew and expanded their business portfolios and from the non-recurrence of releases in 2012. Market risk remains at moderate levels and the daily value at risk reduced in 2013 from a combination of risk reduction and improved market conditions, notably, tightening of credit spreads. The operational risk profile remained broadly steady while conduct risk relating to legacy issues was evidenced by additional provisions for PPI and interest rate hedging product redress. Our funding profile continued to strengthen during 2013 as reliance on wholesale funding reduced as the loan to deposit ratio decreased to 101%. The Group's capital position was enhanced through the £5.8bn rights issue and £2.1bn AT1 securities as action was taken to move toward regulatory capital and leverage targets. *** # Financial review ## Key performance indicators ### Transform Financial Commitments * **Return on average shareholders’ equity (RoE):** Adjusted 2013 4.5% (2016 Target > Cost of Equity) * **Operating expenses:** Adjusted 2013 £19,893m (2015 Target £16,800m) * **Cost: income ratio:** Adjusted 2013 71% (2015 Target mid-50s) * **CRD IV Risk Weighted Assets (RWAs):** 2013 £436bn (2015 Target £440bn) * **CRD IV fully loaded Common Equity Tier 1 (CET1) ratio:** 2013 9.3% (2015 Target >10.5%) * **Dividend payout ratio:** 2013 38.9% (2014 Target 40-50%) *** # Corporate governance report ### Board Governance Framework The Board has delegated certain responsibilities to Board Committees to assist it in carrying out its functions and to ensure independent oversight of internal control and risk management. | Committee | Role | | :--- | :--- | | Board Enterprise Wide Risk Committee | Takes an enterprise-wide view of risks and controls and brings together the overall risk appetite and risk profile of the business | | Board Audit Committee | Takes a largely backward-looking view, focused on financial reporting and control issues, including overseeing any control issue remediation plans | | Board Conduct, Reputation and Operational Risk Committee | Takes a largely forward-looking view of conduct risk, operational risk and reputation risk, including recommending the level of risk Barclays is prepared to take | | Board Financial Risk Committee | Takes a largely forward-looking view of financial risk appetite and financial risk profile (credit, market, liquidity and funding risk) across Barclays | | Board Remuneration Committee | Sets the overarching principles and parameters of remuneration policy across Barclays and approves remuneration arrangements for executive directors and senior executives and individual remuneration awards | | Board Corporate Governance and Nominations Committee | Makes recommendations on Board and Board Committee composition and effectiveness, Board and executive succession plans, talent management strategy and corporate governance | *** # Consolidated summary income statement | For the year ended 31 December | 2013 £m | 2012 £m | 2011 £m | 2010 £m | 2009 £m | | :--- | :--- | :--- | :--- | :--- | :--- | | Net interest income | 11,600 | 11,654 | 12,201 | 12,523 | 11,918 | | Non-interest income net of claims and benefits on insurance contracts | 16,555 | 17,934 | 16,253 | 18,526 | 17,776 | | Own credit (charge)/gain | (220) | (4,579) | 2,708 | 391 | (1,820) | | Gains on debt buy-backs | – | – | 1,130 | – | 1,249 | | **Total income net of insurance claims** | 27,935 | 25,009 | 32,292 | 31,440 | 29,123 | | Credit impairment charges and other provisions | (3,071) | (3,340) | (3,802) | (5,672) | (8,071) | | Impairment of BlackRock investment | – | – | (1,800) | – | – | | Provision for PPI redress | (1,350) | (1,600) | (1,000) | – | – | | Provision for interest rate hedging products redress | (650) | (850) | – | – | – | | Goodwill impairment | (79) | – | (597) | (243) | (1) | | Operating expenses | (19,893) | (18,562) | (19,289) | (19,794) | (16,603) | | Other | (24) | 140 | (34) | 268 | 248 | | **Profit before tax** | 2,868 | 797 | 5,770 | 5,999 | 4,696 | | Taxation | (1,571) | (616) | (1,902) | (1,500) | (1,103) | | **Profit after tax from continuing operations** | 1,297 | 181 | 3,868 | 4,499 | 3,593 | | Profit for the year from discontinued operations, including gain on disposal | – | – | – | – | 6,777 | | **Profit after tax** | 1,297 | 181 | 3,868 | 4,499 | 10,370 | | Profit/(loss) attributable to equity holders of the parent | 540 | (624) | 2,924 | 3,514 | 9,475 | | Profit attributable to non-controlling interests | 757 | 805 | 944 | 985 | 895 | | | 1,297 | 181 | 3,868 | 4,499 | 10,370 | *** # Consolidated balance sheet | As at | 31 December 2013 £m | 31 December 2012 £m | 1 January 2012 £m | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and balances at central banks | 45,687 | 86,191 | 106,990 | | Items in the course of collection from other banks | 1,282 | 1,473 | 1,812 | | Trading portfolio assets | 133,069 | 146,352 | 153,508 | | Financial assets designated at fair value | 38,968 | 46,629 | 37,767 | | Derivative financial instruments | 324,335 | 469,156 | 538,977 | | Available for sale investments | 91,756 | 75,109 | 68,495 | | Loans and advances to banks | 37,853 | 40,462 | 47,422 | | Loans and advances to customers | 430,411 | 423,906 | 429,559 | | Reverse repurchase agreements and other similar secured lending | 186,779 | 176,522 | 153,030 | | Prepayments, accrued income and other assets | 4,414 | 4,365 | 4,565 | | Investments in associates and joint ventures | 653 | 633 | 487 | | Property, plant and equipment | 4,216 | 5,754 | 7,166 | | Goodwill and intangible assets | 7,685 | 7,915 | 7,846 | | Current tax assets | 219 | 252 | 374 | | Deferred tax assets | 4,807 | 3,563 | 3,611 | | Retirement benefit assets | 133 | 53 | 41 | | **Total assets** | 1,312,267 | 1,488,335 | 1,561,650 | | **Liabilities** | | | | | Deposits from banks | 54,834 | 77,012 | 91,123 | | Items in the course of collection due to other banks | 1,359 | 1,587 | 969 | | Customer accounts | 427,902 | 385,411 | 365,527 | | Repurchase agreements and other similar secured borrowing | 196,748 | 217,178 | 207,292 | | Trading portfolio liabilities | 53,464 | 44,794 | 45,887 | | Financial liabilities designated at fair value | 64,796 | 78,561 | 88,453 | | Derivative financial instruments | 320,634 | 462,721 | 528,249 | | Debt securities in issue | 86,693 | 119,525 | 129,678 | | Subordinated liabilities | 21,695 | 24,018 | 24,870 | | Accruals, deferred income and other liabilities | 12,934 | 12,532 | 12,854 | | Provisions | 3,886 | 2,766 | 1,529 | | Current tax liabilities | 1,042 | 621 | 1,396 | | Deferred tax liabilities | 373 | 341 | 566 | | Retirement benefit liabilities | 1,958 | 1,282 | 243 | | **Total liabilities** | 1,248,318 | 1,428,349 | 1,498,636 | | **Total equity** | 63,949 | 59,986 | 63,014 | | **Total liabilities and equity** | 1,312,267 | 1,488,335 | 1,561,650 |