Overview of reporting changes

This document provides further details of the impact on the Group's financial reporting as a result of the business reorganisation outlined in the Group Strategy Update on 8 May 2014.

Barclays will now focus on four Core businesses:

·      Personal and Corporate Banking;

·      Barclaycard;

·      Africa Banking; and

·      Investment Bank.

A Non-Core segment has also been created, consisting of businesses and assets which are no longer considered a strategic fit with the Core business of Barclays. This segment comprises three main elements:

·      Parts of the Investment Bank;

·      All of Europe Retail; and

·      Parts of the Corporate Bank in Europe and the Middle East, and certain long-dated Corporate loans.

The document outlines the impact on the Group's segmental results from the Group structure changes and the subsequent reallocation of elements of the Head Office results to the businesses post the resegmentation. While the Head Office allocation and resegmentation affects the reported results of the individual businesses, they have no impact on the Group's primary financial statements.

As Management principally reviews adjusting items at a Group level, segmental results are presented on an adjusted basis in accordance with IFRS 8 Operating Segments.  Statutory and adjusted performance is reconciled at a Group level only. 

A summary of the financial results for the resegmented Group for the year ended 31 December 2013 is shown in the table below:

1        Return on average equity and average tangible equity for Head Office and Barclays Non-Core represents the dilution for Barclays Core and the Group respectively. The change in Barclays Non-Core return on average equity dilution, as compared to the Group Strategy Update on 8 May 2014, includes the transfer, to the Investment Bank, of the £259m gain recognised in Q2 2013 in respect of assets not yet received from the 2008 US Lehman acquisition. As the majority of the activities acquired in 2008 form part of the ongoing core Investment Bank activities and as a direct consequence of the acquisition, it has been determined more appropriate to include this gain within the Investment Bank comparative.

Overview of reporting changes

Segmental restatements

Group Structure changes

In this document the Q1 2014, full year 2013 and full year 2012 segmental results have been restated to align to the new organisational structure announced on 8 May 2014:

Personal and Corporate Banking combines core elements of UK Retail and Business Banking, global Wealth and Investment Management, and global Corporate Banking. Transfers to the Non-Core segment include the UK retail insurance underwriting and investment businesses; selected non-core corporate banking in Europe and the Middle East and certain long-dated corporate loans; local Wealth operations in certain overseas locations; and certain asset management businesses. The African businesses of Corporate Banking and Wealth Management have been moved to Africa Banking. 

Barclaycard is largely unchanged, with the exception of the Africa Cards business moving to Africa Banking and the UK secured lending portfolio moving to Non-Core.

Africa Banking aligns the reporting of the business to how it is now managed. The previously reported Africa Retail and Business Banking has been combined with the other businesses across Africa previously reported within Barclaycard, the Investment Bank, Corporate Banking and Wealth Management.  The Africa Head Office function has also been transferred to Africa Banking.  This combined Africa Banking business is managed under three primary businesses: Retail and Business Banking; Wealth, Investment Management and Insurance; and Corporate and Investment Banking.  The resulting African business comprises the Barclays Africa Group Limited (BAGL) listed entity, together with Barclays Egypt and Zimbabwe businesses.

The Investment Bank now consists of origination led and returns focused markets and banking businesses. Non-strategic and lower returning businesses have been moved to the Non-Core segment and the African Investment Banking business has been moved to Africa Banking. Investment Bank treasury operations have been moved to be reported where they are now managed alongside the Group treasury operations within Head Office and Other Operations.

Head Office and Other Operations is largely unchanged with the exception of the addition of Investment Bank treasury operations and the transfer of the Africa Head Office function.

Barclays Non-Core (BNC) groups together businesses and assets that are not strategically attractive to Barclays and that will be exited over time.

Businesses have been placed in BNC on the basis of two criteria:

·   Strategic focus - businesses and portfolios that do not fit with our strategic customer franchise or are a poor fit with our sources of competitive advantage; and

·   Returns on CRD IV capital and leverage exposure - businesses and portfolios that are capital and/or leverage intensive, with high cost structures, and do not expect to meet our return targets over the medium term.

Overview of reporting changes

BNC definition and allocations

Key judgments around the allocation of activity and related financial metrics between Core segments and BNC include the following:

Income

Where entire business lines have been determined not to be strategically attractive, they have been placed within BNC.  In other areas, particularly within the Investment Bank, particular assets or areas of activity have been identified not to be strategically attractive and similarly placed within BNC.  In certain instances, this has involved some judgment including, in particular, the two areas outlined below:

Fixed Income Financing

Following the Strategic Update, the core Fixed Income Financing business has been mandated to operate within limits defined by utilisation of leverage balance sheet.  The Group's overall level of activity in this area will be reduced to come in line with these limits over time.  Until then, activity in excess of the Investment Bank's mandate is Non-Core and BNC has assumed responsibility for that activity.  This principally comprises the transfer of a proportion of the portfolio from the Investment Bank to BNC on arm's length terms.  In addition, over time, specific asset types within the Fixed Income Financing business that are not aligned to the firm's ongoing strategy will be identified and transferred to BNC in their entirety, while being run down or exited. 

Derivative portfolios

A number of derivative portfolios in the Investment Bank reflect activity that is no longer attractive for the bank following changes in the regulatory environment and related market behaviour and pricing.  Such changes have happened over time but in the interests of simplicity, these portfolios have been defined to comprise positions entered into before the principal implementation of CRD IV. Accordingly, responsibility for those portfolios after that point has been transferred to BNC.  The results for those portfolios prior to that point will remain in the historical Investment Bank results.

Expense

Cost allocation 

The direct costs of Non-Core activity are reported within BNC. Where it has been necessary to make allocations of such costs between operating segments, this has been done with the objective of reporting costs in the same operating segment as the related income.  Indirect costs, such as those arising from infrastructure and distribution, have been allocated by reference to the same objective, using appropriate measures of activity such as trade volume and time spent.

Litigation and conduct 

Provisions and contingent liabilities relating to litigation and conduct matters are reported within BNC where they relate to Non-Core businesses.  Payment Protection Insurance and Interest Rate Hedging Products redress provisions have been reported as adjusting items and are not attributed to any operating segment.

Tax

Tax is recognised within the operating segment that has recognised the associated profit or loss.  Deferred tax balances have been allocated to the operating segment that originated the related temporary difference, tax loss or tax credit.

RWAs

RWAs have been allocated to operating segments directly where possible, otherwise using judgemental allocations. Where practicable and appropriate, these methodologies calculate RWAs for Core segments on a standalone basis (such that only the netting and diversification benefits attributable to that segment are incorporated), with the residual allocated to BNC. This would mean that the BNC RWAs are lower than they would be on a standalone basis.  

Overview of reporting changes

Head Office Allocations

The Group allocates elements of the Head Office performance to business segments, so that the aggregate of those businesses' results is closely aligned to the Group's results, including Group return on equity.

The underlying principle of materially allocating all of the Head Office income and costs to businesses is unchanged, although the basis of allocation has been updated as part of the restatement, in particular in relation to the following:

·      In recognition of the local equity listing of the BAGL entity, the significant minority interest in the business and existing local Head Office functionality, Head Office allocations to Africa Banking have been restated to those that are deemed to be incrementally incurred as a consequence of Barclays operations in Africa. Investment Bank treasury operations have been resegmented to Head Office; and

·      Residual Group treasury funding costs have been allocated from Head Office to other segments using appropriate methodologies to reflect business accountability.

Barclays Performance Highlights

1        Attributable profit/(loss) comprises profit/(loss) after tax and non-controlling interests.

2       Return on average equity and average tangible equity for Barclays Non-Core represents the dilution for the Group.

3        Net asset value per share is calculated by dividing shareholders' equity, excluding non-controlling and other equity interests, by the number of issued ordinary shares.  Net tangible asset value per share is calculated by dividing shareholders' equity, excluding non-controlling and other equity interests, less goodwill and intangible assets, by the number of issued ordinary shares.

Barclays Performance Highlights

1        Attributable profit/(loss) comprises profit/(loss) after tax and non-controlling interests.

2       Return on average equity and average tangible equity for Barclays Non-Core represents the dilution for the Group.

3        Net asset value per share is calculated by dividing shareholders' equity, excluding non-controlling and other equity interests, by the number of issued ordinary shares.  Net tangible asset value per share is calculated by dividing shareholders' equity, excluding non-controlling and other equity interests, less goodwill and intangible assets, by the number of issued ordinary shares.

Barclays Performance Highlights

1        Attributable profit/(loss) comprises profit/(loss) after tax and non-controlling interests. 

2       2012 returns calculated using average allocated equity based on CRD III RWAs and capital deductions.

3        Return on average equity and average tangible equity for Barclays Non-Core represents the dilution for the Group.

4       Net asset value per share is calculated by dividing shareholders' equity, excluding non-controlling and other equity interests, by the number of issued ordinary shares.  Net tangible asset value per share is calculated by dividing shareholders' equity, excluding non-controlling and other equity interests, less goodwill and intangible assets, by the number of issued ordinary shares.