Corporate Markets – Global Banking & Markets
| 2006 £m |
2005 £m |
|
| Net interest income from banking activities | 1,629 | 1,486 |
| Net fees and commissions receivable | 998 | 790 |
| Trading activities | 2,242 | 1,949 |
| Net income from rental assets (net of related funding costs) | 677 | 622 |
| Other operating income (net of related funding costs) | 1,280 | 744 |
| Non-interest income | 5,197 | 4,105 |
| Total income | 6,826 | 5,591 |
| Direct expenses | ||
| – staff costs | 1,975 | 1,518 |
| – other | 427 | 357 |
| – operating lease depreciation | 406 | 398 |
| 2,808 | 2,273 | |
| Contribution before impairment losses | 4,018 | 3,318 |
| Impairment losses | 85 | 139 |
| Contribution | 3,933 | 3,179 |
| Allocation of Manufacturing costs | 143 | 138 |
| Operating profit | 3,790 | 3,041 |
| £bn | £bn | |
| Total assets* | 383.6 | 330.9 |
| Loans and advances to customers – gross* | ||
| – banking book | 94.3 | 82.0 |
| – trading book | 15.4 | 11.8 |
| Rental assets | 12.2 | 11.9 |
| Customer deposits* | 54.1 | 44.7 |
| Risk-weighted assets | 138.1 | 120.0 |
*excluding repos and reverse repos
Global Banking & Markets performed strongly in 2006, delivering excellent growth in income while continuing to build our strong international franchise. Total income rose by 22% to £6,826 million, contribution by 24% to £3,933 million and operating profit by 25% to £3,790 million.
GBM is a leading provider of debt financing and risk management solutions covering the origination, structuring and distribution of a wide range of assets. In 2006 we arranged over $450 billion of financing for our corporate and institutional customers, up 17% from 2005. We ranked first among managers of global asset-backed and mortgage-backed securitisations and fourth among managers of global syndicated loans, while among managers of international bonds we moved from thirteenth place to eighth. These league table positions demonstrate our success in broadening and deepening our franchise.
In 2006 we have further invested in extending our product capabilities and our worldwide reach. Income in North America rose by 18% in local currency, despite flat revenues in our US residential mortgage-backed securities business, as the investments we have made in our debt capital markets, loan markets, rates and credit trading businesses have borne fruit.
In Europe, income increased by 26% in local currency as a result of good performances in Germany, France, Spain, Italy and the Nordic region. We participated in many of the largest cross-border financings in 2006. Asia-Pacific, too, showed marked progress, with income increasing by 35% in US dollar terms. We have established a promising presence in the region, building our product capability and client relationships.
Net interest income from banking activities rose by 10% to £1,629 million, representing 24% of total GBM income. Average loans and advances to customers increased by 20% as we further expanded our customer base outside the UK.
Net fee income rose by 26% to £998 million, reflecting our top tier position in arranging, structuring and distributing large scale private and public financings. We have increased our customer penetration, and in 2006 were the third most active underwriter of bonds for European, including UK, corporates.
Income from trading activities continued to grow steadily, rising by 15% to £2,242 million as a result of good volumes of debt and risk management products provided to our customers. A strong performance in credit products was supplemented by growth in our broadening product range, including equity derivatives and structured credit, partially offset by the impact of a slower US mortgage-backed securities market. Average trading book value at risk remained modest at £14.2 million.
Our rental and other asset-based activities have achieved continuing success in originating, structuring, financing and managing physical assets such as aircraft, trains, ships and real estate for our customers. This success has driven good growth in net income from rental assets, which increased (net of related funding costs and operating lease depreciation) to £271 million from £224 million.
These businesses also generate value through the ownership of a portfolio of assets which we manage actively. Good results from these activities, as well as from principal investments where we work with our corporate customers and with financial sponsors, leveraging our financial capability to structure and participate in a wide variety of investment opportunities, were reflected in other operating income, which increased to £1,280 million (net of related funding costs) from £744 million in 2005.
We have maintained good cost discipline while continuing to invest in extending our geographical footprint, our infrastructure and our product range. Net of operating lease depreciation our cost:income ratio was 39.6%. Total expenses grew by 22% to £2,951 million. Variable performance-related compensation increased and now accounts for 41% of total costs.
Portfolio risk remained stable and the corporate credit environment remained benign. Impairment losses fell to £85 million, with the distribution of impairments over the course of the year reflecting recoveries in the first half.
Average risk-weighted assets grew by 11% and the ratio of operating profit to average risk-weighted assets improved from 2.6% to 2.9%.
© 2007