Group Finance Director's Report
Capital
(The table set out below forms an integral part of the audited financial statements as described in the Accounting Policies section of the Financial Statements on page 160.)
The movement in Tier 1 capital in the year is shown below:
| Movement in Tier 1 capital | 2007 £m |
2006 £m |
| As at 1 January | 22,429 | 20,667 |
| Profit for the year after preference dividends paid | 4,033 | 3,880 |
| Ordinary dividends paid | (1,667) | (1,442) |
| Shares bought back | (500) | (982) |
| Decrease/(increase) in goodwill and intangible assets* | 815 | (745) |
| Preference shares and preferred securities issued | 374 | 842 |
| (Decrease)/increase in minority interests* | (935) | 252 |
| Other, including exchange differences | (161) | (43) |
| As at 31 December | 24,388 | 22,429 |
* The decrease in goodwill and intangible assets and minority interests in 2007 is primarily due to the new prudential rules on the consolidation of participations. As part of Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU), rules on the consolidation of participations have been implemented from 1 January 2007. The change principally requires ‘proportional’ consolidation of jointly controlled entities and associates and results in a reduction of risk weighted assets and minority interests and goodwill balances relating to these participations.
(End of information that forms an integral part of the audited financial statements.)
In addition to retained earnings, Tier 1 capital was strengthened by £374m by the issuance of non-innovative preference shares of US$750m in May 2007. No Tier 1 capital was raised in the second half of the year. Tier 1 capital was reduced by £500m of ordinary shares bought back in the year. Tier 1 gearing at the year end was 24.7% (2006 25.0%).
Tier 2 capital was increased during the year by a dated subordinated debt issue of €1bn in March, AUD$600m in May, US$1bn and CAD$500m in June and £500m and €160m in October. In sterling equivalent terms at 31 December 2007, this new issuance totalled £2,368m.
Supervisory deductions mainly reflect investments in subsidiary undertakings that are not within the banking group for regulatory purposes together with deductions relating to the securitisation of loans. These unconsolidated investments are primarily Clerical Medical, St James’s Place, St. Andrew’s Group, and Heidelberger Leben. Total supervisory deductions increased to £6,085m from £5,666m primarily as a result of increases in the embedded value of life policies held and increased deductions relating to securitisations.
| Capital Structure Basel I | As at 31.12.2007 £m |
As at 31.12.2006 £m |
| Risk weighted assets | ||
| Banking book – on balance sheet | 301,173 | 253,839 |
| Banking book – off balance sheet | 19,692 | 14,272 |
| Trading book | 9,973 | 7,901 |
| Total risk weighted assets | 330,838 | 276,012 |
| Tier 1 capital ratio (%) | 7.4 | 8.1 |
| Total capital ratio (%) | 11.1 | 12.0 |
(The table set out below forms an integral part of the audited financial statements as described in the Accounting Policies section of the Financial Statements on page 160.)
| Capital Resources Basel I | As at 31.12.2007 £m |
As at 31.12.2006 £m |
| Core Tier 1 | ||
| Ordinary share capital | 933 | 941 |
| Eligible reserves | 20,166 | 18,496 |
| Minority interests (equity) | 123 | 1,058 |
| Perpetual non-cumulative preference shares | ||
| Preference share capital | 2,781 | 2,422 |
| Innovative Tier 1 | ||
| Preferred securities | 3,247 | 3,189 |
| Deductions from Tier 1 | ||
| Goodwill & other intangible assets | (2,862) | (3,677) |
| Total Tier 1 capital | 24,388 | 22,429 |
| Upper Tier 2 | ||
| Available for sale reserve | 187 | 168 |
| Undated subordinated debt | 5,591 | 5,598 |
| Collectively assessed impairment provisions | 2,671 | 2,711 |
| Lower Tier 2 | ||
| Dated subordinated debt | 9,900 | 7,914 |
| Total Tier 2 capital | 18,349 | 16,391 |
| Supervisory deductions: | ||
| Unconsolidated investments – life | (4,596) | (4,260) |
| Unconsolidated investments – other | (506) | (510) |
| Investments in other banks and other deductions | (983) | (896) |
| Total supervisory deductions | (6,085) | (5,666) |
| Total Capital Resources | 36,652 | 33,154 |
(End of information that forms an integral part of the audited financial statements.)