Salz Review - Wall Street Journal

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221 Salz Review An Independent Review of Barclays’ Business Practices Corporation Tax Charge Barclays’ tax charge, effective tax rate (ETR) and standard UK corporation tax rate, 2002 – 2012 Tax charge (£m) 2,000 1,941 1,981 ETR (%) Standard UK corporation tax rate (%) 1,928 200% 195.9% 1,500 1,000 500 0 2002 29.8% 28.0% 955 1,076 2003 28.0% 1,289 2004 1,439 27.3% 2005 27.2% Low ETR because the gain on the Lehman Brothers acquisition of £2,262 million was calculated net of deferred tax liabilities included in the acquisition balance sheet and thus not subject to further tax in calculating the tax charge for the year together with the benefit of previously unrecognised tax losses. 2006 Tax charge (£’m) 28.0% 2007 ETR (%) 790 13.0% 2008 23.4% 1,074 2009 1,516 25.0% 2010 32.8% High ETR was driven by the combination of losses in the UK, primarily relating to loss on own credit of £4.6bn with tax relief at 24.5%, and profits outside the UK taxed at higher rates 2011 482 Standard UK corporation tax rate (%) 2012 30% 20% 10% 0% Notes: Effective corporation tax rate is defined as tax charged in profit & loss account divided by Profit Before Tax; Amounts exclude taxes included in PBT such as bank levy, bank payroll tax, irrecoverable VAT and employer’s social security costs; Barclays’ cash tax paid on income and profits globally was £1,458 million in 2010, £1,686 million in 2011 and £1,516 million in 2012, including UK corporation tax of £147 million in 2010, £296 million in 2011 and £82 million in 2012 Sources: Barclays annual reports, Barclays Finance
Salz Review An Independent Review of Barclays’ Business Practices 222 Appendix I – Selected Bank Financial Ratios Leverage ‘Leverage’ is a capital ratio commonly used to compare banks’ capital structure. Leverage is defined as the corporation’s total assets (or sometimes risk weighted assets) divided by the amount of equity (or sometimes regulatory capital) used to support it. Over the decade to the financial crisis, banks have been inclined to increase their leverage. Commentators have argued that this occurred for a number of reasons, including taking advantage of rising asset prices to meet shareholders’ rising return on equity expectations and also because Basel II capital rules permitted more leverage. A study from the Financial Stability Committee 315 indeed shows that, if the aggregate banks’ leverage had been constant at the average 1990s level of around 25 times, banks would have achieved their new target levels of return on tangible equity (RoTE) in fewer than half of the past thirty years and not once since 2004. ‘Excessive’ banks’ leverage, combined with increased wholesale funding, has often been quoted as one of the core root causes of the current financial crisis. During this period covered by this Review, Barclays was one of the most highly leveraged UK banks. Its leverage rose from around 20 in 2000 to more than 37 in 2007, and this increased to 43 when the financial crisis hit in 2008, making it the most highly leveraged UK bank in those years. In 2012, Barclays’ leverage fell back to 24, but was still the highest among the major UK banks. Effect of leverage on UK banks’ return on tangible equity, 1980 – 2011 40% 30% 20% 10% 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 -10% Mean return on tangible equity -20% Mean return on tangible equity implied by 1990 leverage -30% Mean target return on tangible equity 2004 2006 2008 2010 Note: Data is backwardly consistent sample of institutions providing banking services in the UK in 2010. The sample includes the following financial groups: Barclays, Bradford & Bingley, HSBC, LBG, National Australia Bank, Nationwide, Northern Rock, RBS and Santander UK Source: Financial Stability Report, Bank of England, June 2011 315 See: Bank of England, interim Financial Policy Committee, Financial Stability Report, June 2011, p. 36.
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Salz Review - Wall Street Journal

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