2008 was an extraordinarily difficult year for the financial services industry with the second half in particular seeing a period of exceptional instability. It was a year that saw the rescue of a number of banks around the world and significant action being taken by governments globally to rebuild confidence in the sector including, in the UK, the government taking large shareholdings in two major banks.
Barclays was impacted by the difficult environment – we undertook two significant capital raisings during the year and incurred gross losses from credit market write-downs of approximately £8bn. However, a profit before tax for the year of just over £6bn, whilst benefiting from a number of gains on acquisitions and disposals, remains a resilient performance in such a difficult environment and reflects a continuing focus by all our people on servicing the needs of our customers and clients. We were able to absorb the level of credit market write-downs through the strong income performance of the Group. As a result of raising over £13bn in equity and Tier 1 capital in 2008, our capital base has been substantially strengthened and we have over £37bn of equity capital and reserves. This scale of loss absorption capacity, combined with the underlying profitability of the Group, gives us confidence that our capital resources are sufficient, even in these difficult markets. Our liquidity position remains strong.
The share price performance during the year was acutely disappointing. Share prices in the sector as a whole were badly hit during the year by a number of factors, including concerns over the profit outlook given the macroeconomic environment and uncertainty over banks’ capital strength. It is of little consolation that in terms of total shareholder return we outperformed the majority of our UK peers and a number of our global competitors. The Board is committed to creating the conditions to allow the share price to recover and to resume dividend payments in the second half of 2009, following the decision not to pay a final dividend for 2008.
The difficult market conditions for bank shares has continued in 2009. We welcomed the announcements made by HM Treasury and the FSA in January designed to help the UK economy through a number of initiatives in the areas of capital ratios, funding and asset protection. Despite these, market confidence remains extremely fragile.
As a Board, we very much regret what has happened to the banking sector in general and to Barclays share price in particular. We fully recognise that banks must review their internal governance systems and remuneration structures to ensure there can be no repeat of the turmoil that has impacted the industry, and the wider economy, over the last 18 months. The Board HR and Remuneration Committee is reviewing compensation policy and structures across the Group to ensure maximum alignment both with the interests of our shareholders and with best practice. The Board is also committed to ensuring that Barclays plays its full part in contributing to the restoration of the health of the global economy and, with that, the reputation of the industry. In particular, the capital position and ongoing profitability of the Group is enabling us to support our customers in the difficult economic environment. For example, our lending to UK consumers and UK commercial clients increased by 16% and 14% respectively in 2008.
Market Environment
The announcement that Lehman Brothers would file for bankruptcy in September was the start of a period of extreme instability in global stock markets and a crisis of confidence in the banking system. Credit market conditions became very difficult and a number of banks around the world required government assistance. In October, the UK authorities decided to take action to stabilise the UK financial services industry. The capital plans and balance sheets of all the UK banks were subject to severe stress tests and additional capital was required to be raised to ensure that their ratios would remain prudent even in the severest downturn. This represented a significant change in the capital framework across the UK banking industry and obliged Barclays to raise capital well beyond the level we had previously agreed with our regulators.
In my speech at the General Meeting to approve the capital raising in November (which is available at www.barclays.com), we also recognised that some of our shareholders were unhappy about some aspects of the November capital raising. This unhappiness is a matter of great regret to us. I set out in my introduction to the Corporate Governance Report some further information on the background to the November capital raising, the governance processes surrounding the decisions that were taken and the Board's appreciation of the support received from shareholders in very difficult circumstances. I would like to give my personal assurance that the Board considered the capital raising very carefully – there were 12 meetings of the Board in October and November to discuss the matter, ensuring appropriate corporate governance as we sought to react to the circumstances prevailing at the time. The Board regrets, however, that the capital raising denied Barclays existing shareholders their full rights of pre-emption and that our private shareholders were not able to participate in the raising.
Board Changes
As I stated in my report last year, Sir Michael Rake and Patience Wheatcroft joined the Board on 1st January 2008 and Dr Danie Cronjé retired from the Board at the Annual General Meeting. We announced in January 2009 that Sir Nigel Rudd had advised us that he did not intend seeking re-election at the forthcoming AGM. Sir Nigel has served as a Director for nearly 13 years and Barclays has benefited enormously from his commercial experience and wise counsel. He will be greatly missed. I would also like to pay tribute to Professor Dame Sandra Dawson, who will also be retiring as a Director at the AGM. Sandra has served with distinction as both a Director and member of the Board Audit Committee. Stephen Russell will also retire from the Board in October after nine years excellent service, particularly as Chairman of the Board Audit Committee.
We have also announced the appointment of Simon Fraser as a new non-executive Director. Simon held a number of positions during his career at Fidelity International, including President of Fidelity's European and UK institutional business and Global Chief Investment Officer. He will bring valuable fund management and institutional shareholder experience to the Board.
Maintaining our commitment to sustainability
At no other time in our history have the values of sustainability mattered more to our company and to our stakeholders.
We focus our commitment in this important area on our ability to support our customers well in good times and bad; on our role as an equal opportunity company employing all races, creed, colour and orientation; on our commitment to play our part in managing the impact of climate change; and on our role as a responsible global citizen.
We report on our progress on all these areas within the report and in our Sustainability Review 2008, which will be published in April 2009.
Key achievements for 2008 included maintaining responsible lending to individuals and businesses, a steady growth in the number of low income bank accounts in many of our markets including the UK, developing diversity strategies and action plans tailored to local markets across our businesses and maintaining progress towards our goal that the global banking operations of Barclays be carbon neutral by the end of 2009. There is a universal benefit to be obtained from a return to confidence in the banking system and from the restoration of the reputation of the banking industry in general. I give you my assurance that we at Barclays will do our utmost to play our part in procuring this vital objective.
Marcus Agius
Group Chairman
Barclays PLC
