CAPÍTULO V PROPUESTA
5.7. DESCRIPCIÓ N DE LA PROPUESTA
5.7.5. Lineamiento para evaluar la propuesta
The group The bank
2012 2011 2012 2011
£m £m £m £m
Financial assets designated at fair value:
–not subject to repledge or resale by counterparties ... 15,387 15,332 4,373 4,595
Treasury and other eligible bills ... – 5 – –
Debt securities ... 7,122 7,285 4,373 4,595 Equity securities ... 8,236 7,476 – –
Loans and advances to banks ... 29 70 – –
Loans and advances to customers ... – 496 – –
Notes on the Financial Statements
(continued)At 31 December 2011
Assets Liabilities
Trading Hedging Total Trading Hedging Total
£m £m £m £m £m £m Foreign exchange ... 35,010 115 35,125 (35,597) (8) (35,605) Interest rate ... 299,424 1,174 300,598 (296,347) (2,178) (298,525) Equity ... 8,806 – 8,806 (11,312) – (11,312) Credit ... 9,228 – 9,228 (9,383) – (9,383)
Commodity and other ... 689 – 689 (749) – (749)
Gross total fair values ... 353,157 1,289 354,446 (353,388) (2,186) (355,574)
Netting ... (177,453) 177,453
Total ... 176,993 (178,121) The bank
At 31 December 2012
Assets Liabilities
Trading Hedging Total Trading Hedging Total
£m £m £m £m £m £m
Foreign exchange ... 28,329 – 28,329 (30,905) – (30,905)
Interest rate ... 238,711 645 239,356 (236,121) (1,704) (237,825)
Equity ... 8,450 – 8,450 (10,746) – (10,746)
Credit ... 4,787 – 4,787 (5,121) – (5,121)
Commodity and other ... 652 – 652 (558) – (558)
Gross total fair values ... 280,929 645 281,574 (283,451) (1,704) (285,155)
Netting ... (141,234) 141,234
Total ... 140,340 (143,921)
At 31 December 2011
Assets Liabilities
Trading Hedging Total Trading Hedging Total
£m £m £m £m £m £m Foreign exchange ... 34,972 – 34,972 (35,907) – (35,907) Interest rate ... 209,433 582 210,015 (206,599) (1,737) (208,336) Equity ... 8,430 – 8,430 (10,831) – (10,831) Credit ... 9,229 – 9,229 (9,337) – (9,337)
Commodity and other ... 666 – 666 (728) – (728)
Gross total fair values ... 262,730 582 263,312 (263,402) (1,737) (265,139)
Netting ... (117,888) 117,888
Total ... 145,424 (147,251)
Use of derivatives
The group transacts derivatives for three primary purposes: to create risk management solutions for clients, to manage the portfolio of risks arising from client business, and to manage and hedge the group’s own risks. Derivatives (except for derivatives which are designated as effective hedging instruments as defined in IAS 39) are held for trading. The held for trading classification includes two types of derivatives: those used in sales and trading activities, and those used for risk management purposes but which for various reasons do not meet the qualifying criteria for hedge accounting. The second category includes derivatives managed in conjunction with financial instruments designated at fair value. These activities are described more fully below.
The group’s derivative activities give rise to significant open positions in portfolios of derivatives. These positions are managed constantly to ensure that they remain within acceptable risk levels, with matching deals being used to
Trading includes market-making, positioning and arbitrage activities. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenues based on spread and volume; positioning means managing market risk positions in the expectation of benefiting from favourable movements in prices, rates or indices; arbitrage involves identifying and profiting from price differentials between markets and products.
As mentioned above, other derivatives classified as held-for-trading include non-qualifying hedging derivatives, ineffective hedging derivatives and the components of hedging derivatives that are excluded from assessing hedge effectiveness. Non-qualifying hedging derivatives are entered into for risk management purposes but do not meet the criteria for hedge accounting. These include derivatives managed in conjunction with financial instruments
designated at fair value.
Gains and losses from changes in the fair value of derivatives, including the contractual interest, that do not qualify for hedge accounting are reported in ‘Net trading income’, except for derivatives managed in conjunction with financial instruments designated at fair value, where gains and losses are reported in ‘Net income from financial instruments designated at fair value’, together with the gains and losses on the hedged items. Where the derivatives are managed with debt securities in issue, the contractual interest is shown in ‘Interest expense’ together with the interest payable on the issued debt. Substantially all of the group’s derivatives entered into with the group’s undertakings are managed in conjunction with financial liabilities designated at fair value.
Notional contract amounts of derivatives held for trading purposes by product type
At 31 December
The group The bank
2012 2011 2012 2011 £m £m £m £m Foreign exchange ... 1,752,454 1,586,377 1,787,854 1,586,934 Interest rate ... 10,694,278 10,380,838 7,465,092 7,019,421 Equity ... 285,442 135,985 279,793 129,080 Credit ... 339,538 335,765 339,543 335,755 Commodity ... 41,533 40,766 44,246 40,641 Total derivatives ... 13,113,245 12,479,731 9,916,528 9,111,831 The notional or contractual amounts of these instruments indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had valuation techniques used for subsequent measurement been applied at initial recognition, less
subsequent releases, is as follows:
The group The bank
2012 2011 2012 2011
£m £m £m £m
Unamortised balance at 1 January ... 97 130 91 123 Deferral on new transactions ... 76 118 76 115
Notes on the Financial Statements
(continued)flow hedges, or hedges in net investment of foreign operations. These are described under the relevant headings below.
Notional contract amounts of derivatives held for hedging purposes by product type
The notional contract amounts of these instruments indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
The group At 31 December 2012 At 31 December 2011 Cash flow hedge Fair value hedge Cash flow
hedge Fair value hedge
£m £m £m £m Exchange rate ... 738 69 716 68 Interest rate ... 72,553 19,574 93,203 25,011 The bank At 31 December 2012 At 31 December 2011 Cash flow hedge Fair value hedge Cash flow hedge Fair value hedge £m £m £m £m Exchange rate ... 179 – 214 – Interest rate ... 32,744 16,576 35,138 18,927 Fair value hedges
The group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates. For qualifying fair value hedges, all changes in the fair value of the derivative and in the fair value of the item in relation to the risk being hedged are recognised in the income statement. If the hedge relationship is terminated, the fair value
adjustment to the hedged item continues to be reported as part of the basis of the item and is amortised to the income statement as a yield adjustment over the remainder of the hedging period.
Fair value of derivatives designated as fair value hedges The group
At 31 December 2012 At 31 December 2011
Assets Liabilities Assets Liabilities
£m £m £m £m Foreign exchange ... – – – (1) Interest rate ... 88 (1,500) 197 (1,578) 88 (1,500) 197 (1,579) The bank At 31 December 2012 At 31 December 2011
Assets Liabilities Assets Liabilities
£m £m £m £m
Interest rate ... 162 (1,537) 179 (1,557)
The gains and losses on ineffective portions of fair value hedges are recognised immediately in ‘Net trading income’. Cash flow hedges
The group’s cash flow hedges consist principally of interest rate and cross-currency swaps that are used to protect against exposures to variability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be re-funded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions. Gains and losses are initially recognised in other comprehensive income, in the cash flow hedging reserve, and are transferred to the income statement when the forecast cash flows affect the income statement. Fair value of derivatives designated as cash flow hedges
The group
At 31 December 2012 At 31 December 2011
Assets Liabilities Assets Liabilities
£m £m £m £m Foreign exchange ... 2 (25) 115 (7) Interest rate ... 1,159 (761) 977 (600) 1,161 (786) 1,092 (607) The bank At 31 December 2012 At 31 December 2011
Assets Liabilities Assets Liabilities
£m £m £m £m
Interest rate ... 483 (167) 403 (180)
Forecast principal balances on which interest cash flows are expected to arise The group At 31 December 2012 3 months or less More than 3 months but less than 1 year
5 years or less but more than 1 year More than 5 years £m £m £m £m Assets ... 44,530 34,784 26,234 3,022 Liabilities ... (17,422) (9,948) (6,788) (1,336)
Net cash inflow/(outflow) exposure ... 27,108 24,836 19,446 1,686
At 31 December 2011 3 months
More than 3 months but
5 years or less