Capital, Funding and Liquidity
When I look back over the last few years, one of Barclays best decisions came in October 2008 when regulators made clear that they wanted banks to raise the bar for equity capital. We decided to raise capital swiftly and in scale, to put our ratios ahead of regulatory requirements. We wanted to put a metaphorical sign up for customers and clients saying that Barclays was open for business. Today we’re recognised for our strength in terms of capital, liquidity and funding, and as a result we are seen by customers as a safe haven in times of stress.
Our capital position remains rock solid. Even after absorbing the full impact of the third Capital Requirements Directive, our Core Tier 1 ratio stands at 11% and we have a liquidity pool of £152bn that provides protection against unexpected market fluctuations.
While we use many metrics to manage and measure the business, return on equity is the financial measure that correlates most closely with shareholder value, so it’s extremely important to us. Our 13% return target was a vital factor in helping us make disciplined choices over the last 12 months, but we know that our returns today remain unsatisfactory and that we have a lot more work to do.
Since we set this target last year we have faced some significant external headwinds which are detailed over the page in our review of the . Notwithstanding these, we have made a lot of progress on the journey towards achieving our targets. Through operating as a more integrated business we have been able to begin to drive the cost efficiency that will be necessary to deliver that goal, and as a result have increased our cost target to a saving of £2bn by 2013.
Our portfolio of businesses continued to evolve and strengthen, and most of our businesses increased their return on equity in 2011.
We continue to believe that a return on equity of 13% is the right goal, but our ability to achieve this by 2013 will depend upon economic, market and regulatory developments. We remain fully committed to delivering 13% returns over time, by driving improved business performance, reducing expenses, and maintaining a disciplined approach to capital and funding costs.
Given the difficult economic environment, we’re pleased that we were able to grow income, underlying profit, and market share in many of our businesses. We enter 2012 in a stronger competitive position.
In UK Retail and Business Banking net operating income grew 11%, Barclaycard net income was up 21%, our African business net income grew 11% in local currencies, and Wealth Management had its third successive year of double digit income growth as we continue to build that business.
Income and profits were down in Investment Banking in a very tough market but we continue to have real momentum, which is particularly evident in those areas where we’ve been actively investing, such as Equities and Advisory. This progress was recognized by International Financing Review (IFR) when it named Barclays Capital its “2011 Bank of the Year” for “growing market share across the board, and becoming an increasingly go-to investment bank”.
We have recognized that banks need to become better citizens and that our ability to do this is critical to generate long term value for shareholders. This is not philanthropy – it’s about using Barclays unique skills and resources to deliver real commercial benefits in a way that also creates sustainable value for society.
We have made firm progress against our Citizenship agenda in 2011, delivering benefits to the real economy. We exceeded our Project Merlin targets by 13% and delivered £44bn to UK business; we helped 108,000 businesses start up; we helped corporates and institutions raise US$1 trillion of financing through the capital markets globally, including almost US$400bn for governments and the public sector; we employed almost 1,500 graduates and have committed to creating over 1,000 apprenticeships; and we will continue to do everything we can to support our customers and clients in 2012.
We know we have a responsibility to help generate economic growth and create jobs – and we are fully committed to playing our part.
You will find additional information relating to our Citizenship agenda in this document and a Citizenship Report with detailed information on our goals, our targets and our achievements will be available online from 23 April 2012.
Looking forward to 2012
As I look back at 2011, we made firm progress and right across Barclays we entered 2012 in a stronger position. We recognise that in order to achieve our return target we need to improve profitability substantially going forward and we are determined to do that, using all the means within our control to drive the business.
Turning to the external environment, while there are some positive signs of economic recovery, particularly in the US, and increasing clarity on regulation, the global macro-economic, political and regulatory environment remains uncertain and we must again expect a challenging environment in 2012.
As we have shown in the past year, however, Barclays is well positioned to improve our competitive positioning across businesses in challenging environments. Our universal banking model, as well as our rock solid capital, liquidity and funding positions, give us the balance and flexibility to meet the challenges ahead. We are confident that by putting clients and customers at the center of everything we do, we will support economic growth more broadly and generate the financial returns we’re targeting over time.
When we’re at our best, we serve the real economy by doing our best for all our stakeholders: our customers and clients, the communities we serve, our people and our shareholders. To be anything less than our best is letting all these people down. That’s why we aspire for Barclays to be one of the best organised, best managed and most productive private sector banks in the world.