Treasury & Asset Management
Operational Performance
Treasury
Funding and Liquidity
During 2007, Treasury continued to support the Group’s capital and funding plans. In respect of capital, Treasury arranged a US$750m Tier 1 perpetual preference share issue and five lower Tier 2 subordinated debt issues.
In respect of funding, £15.7bn was raised from existing programmes in the securitisation and covered bonds market during the year. This comprised £6.6bn from covered bonds and £9.1bn from securitisations. Treasury also completed an unfunded synthetic securitisation in the first half of 2007.
Conduits
HBOS sponsors two conduits, Grampian and Landale, which are special purpose vehicles that invest in highly rated assets and fund via the Asset Backed Commercial Paper (‘ABCP’) market. At 31 December 2007, investments held by Grampian totalled £18.6bn. Grampian is, and always has been, fully consolidated into our balance sheet. £0.6bn of assets held by Landale are also consolidated. Grampian is a long established, high grade credit investment vehicle that invests in diversified Asset Backed Securities of which over 99.9% are rated AAA by S&P and Aaa by Moody’s. Grampian has a liquidity line in place with HBOS which covers all of the assets and programme wide credit enhancement is also provided by HBOS. Landale holds both assets originated from our own balance sheet and third party transactions. Landale has liquidity lines from HBOS and from third party banks, and therefore the former, but not the latter, are consolidated into our balance sheet.
In the latter half of 2007, due to the disruption in the ABCP market, there have been occasions when Grampian and Landale (in respect of assets backed by HBOS liquidity lines) have declined to issue ABCP given the unattractiveness of the spreads and maturities available. At these times we therefore funded the conduits, on a temporary basis, through the available liquidity lines rather than through the ABCP market. At 31 December 2007, HBOS had provided funding to the Grampian and Landale conduits of £8.1bn.
Sales and Trading
Net sales and trading income increased by 45% to £357m (2006 £247m) reflecting a strong performance from our sales and trading operations.
During the year, the UK Sales business area produced consistent revenue growth, especially Corporate Sales, where net revenues have increased by 53% to £121m (2006 £79m), reflecting the strength of our Corporate franchise. Also, the results of our Payment and International Services business are included within the sales revenues from 1 January 2007, accounting for £31m of the reported increase in Sales revenues.
The Trading business includes strong performances by our Interest Rate trading desks.