BARCLAYS BANK PLC

FINAL RESEARCH REPORT

LAHORE BUSINESS SCHOOL

Contents

• About Barclay Bank
• Introduction
• Early History
• Products& Services
• Barclay In Pakistan
• Goal
• Performance In Brief
• Barclays At Glance
• Group Chairman's Statement

• About Barclays Bank

Barclays is a global financial services provider, engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services all over the world.

With a vast, international reach, Barclays offers innovative products and services to meet the needs of its diverse base of customers and clients.

Public Company
Incorporated: 1896 as Barclay & Company, Ltd.
Employees: 74,420
Total Assets: £443.36 billion ($788.51 billion) (2003)
Stock Exchanges: London New York Tokyo
Ticker Symbol: BCS
NAIC: 522110 Commercial Banking; 551111 Offices of Bank Holding Companies

• Introduction

With a rich history dating back almost 300 years, Barclays plc has grown into one of the largest financial services groups in the United Kingdom. The company is involved in banking, investment banking, and investment management and operates 2,000 domestic branches and nearly 850 international branches in over 60 countries across the globe. Barclays is organized into seven business units: Barclays Africa; Barclaycard; Barclays Capital; Barclays Global Investors; Barclays Private Clients; and UK Banking. The company has over 4.5 million registered online bankers and over 10.6 million Barclaycard customers in the United Kingdom. In 2003, Barclays was the world's ninth-largest bank based on market capitalization.

Barclays is a major global financial services provider. It operates in over 50 countries and employs 135,000 people. In 2007, Barclays had an income of £23 billion, generating a profit before tax of just over £7 billion. In the UK, Barclays has 724,000 business customers.

Many of these customers run relatively small enterprises; some are new business start-ups. Barclays offers a dedicated banking service for smaller enterprises called Local Business. This is provided through the bank’s UK retail banking division.

More people are choosing to start their own businesses. Barclays estimated that more than 380,000 new businesses started up in England and Wales in 2007. However, the number of businesses that ceased trading also rose in 2007. While the majority of these businesses closed voluntarily, setting up in business does also carry risks.

This case study looks at the challenges of setting up a new business. It looks at some of the decisions that must be made by a budding entrepreneur. It outlines some of the services and support that are offered to business start-ups by a financial institution like Barclays.

• Early History

Barclays takes it symbol, the spread eagle, from the Quaker goldsmithing and banking firm founded by John Freame in 1728. In 1736, James Barclay, Freame's brother-in-law, became a partner in the Black Spread Eagle.

When two more of Barclay's relatives joined the firm—Silvanus Bevan in 1767 and John Henton Tritton in 1782—the banking firm took the name by which it would be known for more than a century: Barclays, Bevan & Tritton. While fledgling joint-stock banks outside London struggled to establish themselves in the late 18th and early 19th centuries, Barclays, Bevan & Tritton was still occupied with the well-established and highly lucrative commercial life of London.

A series of legislative changes enacted in the late 19th century created a new banking climate that threatened the existence of private banks such as Barclays. First, the Bank Charter Act of 1826 allowed banks with more than six partners to be formed only outside London. In 1833, the geographical restriction was removed. Stockholders of new joint-stock companies were granted limited liability for the first time in 1854. Finally, in 1879, existing joint-stock associations were allowed to convert to a limited-liability structure.

• Products & Services

Barclays is a global financial services provider, engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services all over the world.

With a vast, international reach, Barclays offers innovative products and services to meet the needs of its diverse base of customers and clients.

Personal And Premier Banking

Personal banking

Barclays offers personal banking services to customers in 20 key countries around the world, and provides credit card facilities through Barclaycard to many more.

Products and services for personal customers include:

• Bank accounts, from entry-level through to premier options
• A range of credit cards through Barclaycard
• Savings accounts
• Loans
• Financial advice
• Insurance
• Online banking
• Mortgages through Woolworth.

Premier banking

Barclays also offers a preferential banking service through Barclays Premier to customers in selected countries around the world.

The services available to Premier customers include:

• A preferential service for everyday banking needs
• A local relationship team
• Tailored financial advice
• Exclusive lifestyle membership programmes
• Premier global lounges in key cities across the world
• Preferential banking products.

Corporate and Business Banking

Barclays provides a range of financial services to business customers all over the world, offering, when appropriate,specialist advice and products to meet their diverse demands.

Products and services for corporate and business customers include:

• Support for businesses of any size – from microenterprises to multinationals
• Online banking
• Savings and investments
• Card services
• Risk management
• Access to services from Barclays Investment Banking and Investment Management portfolio
• Leveraged finance
• International trading
• Business loans.

Investment Banking

Barclays Capital is the investment banking division of Barclays Bank PLC. With a distinctive business model, Barclays Capital provides large corporate, government and institutional clients with a full spectrum of solutions to their strategic advisory, financing and risk management needs. Barclays Capital has offices around the world, employs over 25,000 people and has the global reach, advisory services and distribution power to meet the needs of issuers and investors worldwide.

Wealth Management

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of £151.2bn, as at 31 December 2009. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services and brokerage.

• Barclay In Pakistan

The State Bank of Pakistan in December 2007 granted Barclays the licence to operate in the country.

Barclays Bank Pakistan commenced operations in July 2008. It serves its customers and clients across the country through a network of 30 ATMs and 15 branches, including five branches in Lahore, four in Karachi, one in Islamabad and two in Rawalpindi. The Barclays network has extended its presence to the rural centres of Mangla, Rawat and Akora Khattak with a branch in each of these locations.

In Pakistan, the Barclays businesses include:

• Retail banking: offers customers a range of personal accounts, investment options, consumer loans and Reassurance.
• Premier banking: provides preferential banking services to eligible customers.
• Corporate banking: offers business banking services tailored to meet the needs of corporate clients, including cash management, loans, savings and risk management, supported by a dedicated Relationship Manager.

Barclay Premier In Pakistan

Exclusivity & Benefits

Discover designer banking developed exclusively for you, offering customized products & services for Premier & Premier Life customers such as*:

Complimentary Hotel Room Upgrades

Visit some of the most upscale hotels in the country and receive a free room upgrade compliments of Barclays Premier. This special privilege is being offered only to Barclays Premier and Premier Life customers at all PC and Marriott hotels across Pakistan.

10% Discount at PC and Marriott Restaurants across Pakistan

Simply pay through your Barclays Premier Debit Card to avail this benefit.

5% Discount on all Bakery products at all PC and Marriott hotels across Pakistan

Simply pay through your Barclays Premier Debit Card to avail this special privilege.

5% Discount on all Laundry services at all PC and Marriott hotels across Pakistan

Simply pay through your Barclays Premier Debit Card to avail this benefit.

ATM insurance cover

ATM insurance provides you with coverage against snatching and armed hold-up of cash withdrawn from any of the Barclays ATM across Pakistan. Coverage provided to you is up to PKR 50,000.

Debt insurance cover

Debt insurance that takes care of all your outstanding balances of unsecured consumer loans and credit cards in Pakistan, so that there is no liability to pay your outstanding dues in case of accidental death. Coverage provided to you is up to PKR 500,000.

Fee Waivers**

As a Barclays Premier customer you are entitled to

1. Free Cheque Book
2. Free Pay Orders
3. Free Demand Drafts

Premier Lounge

Travelling for business now becomes a pleasure and travelling for pleasure becomes truly wonderful. Enjoy a sanctuary of opulence at Barclays Premier’s exclusive Lounge at Jinnah International Airport, Karachi, and sample world-class services intended to make your wait as comfortable as possible.

The Business Area

Barclays Premier Lounge is equipped with state-of-the-art amenities to facilitate the frequent flyer, including

1. Laptop computers
2. High-Speed Wi-Fi Internet connectivity
3. Printers. Scanners and fax machines
4. LCD televisions with a variety of channels to choose from

Dine at the In-house Eatery

Find everything to your taste with the lounge’s delicious, catered food and selection of tea, coffee and cold beverages.

Pay order requests through phone

You can call us at 111-WEALTH (111-932-584) for immediate assistance any day, any time. Our skilled professionals are always on hand to take care of your enquiries and requests with the utmost priority.

Personalized Service

Experienced Relationship Managers to assist with all financial needs. Savour absolute peace with Barclays Premier Relationship Managers – expert professionals who ensure reliable, individual attention at all times.

Exclusive Invitations

Get invitations to the most exclusive Premier cultural events, music extravaganzas, theatrical productions, concerts and parties.

Valet Parking

In order to make your visit to the branch more convenient, all our Premier Centres will offer you valet parking.

Global Access

Get access to exclusive Barclays Premier Centres and Premier Flagship Branches in countries across the world. Barclays Premier customers travelling abroad to these countries and needing venues for a meeting can pre-book a conference room at flagship Barclays branches or use their lounge. Your Barclays Premier VISA Debit card is all that you need to access the lounge – a sanctum where you can relax and conduct business in a stress-free environment.

• Goal

Listed in London and New York, Barclaysis a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence in Europe, United States, Africa and Asia.

Priorities

– Staying close to our customers and clients

– Managing our risks

– Maintaining strategic momentum

Strategic framework

– Continue to act as responsible corporate citizens

– Maintain a sound financial and organizational footing

– Pursue a progressive dividend policy

– Allocate capital on an economic and strategic basis

– Deliver another year of significant profitability

Goal

• Produce top quartile Total Shareholder Returns (TSR) over time

Performance In Brief

• Group profit before tax was £11,642m, 92% up on 2008, including the £6,331m gain on sale from the disposal of Barclays Global Investors (BGI)
• Global Retail and Commercial Banking generated good income growth of £1,004m (7%) to £16,097m
• Investment Banking and Investment Management recorded very strong profit growth driven by Barclays Capital’s profit before tax increase of 89% to £2,464m (2008: £1,302m) and the sale of BGI
• BGI was sold resulting in a profit on disposal of £6,331m and a retained 19.9% economic interest in the enlarged BlackRock group. The disposed business is treated as discontinued operations below
• Core Tier 1 capital ratio was 10.0% at 31st December 2009 (2008: 5.6%) and Tier 1 capital ratio was 13.0% (2008: 8.6%)

• Barclays At A Glance

Barclays operates a universal banking business model helping the Group to stay strong, profitable and independent throughout the crisis. In November 2009, Barclays restructured the Group so the businesses could better support customers and clients. This Annual Review reflects the Group reporting structure in place during 2009.

• Group Chairman’s Statement

Marcus Agius

“Barclays recognizes the vital economic and social purpose that banks play, and we are committed to meeting our responsibilities to stakeholders and society in general.”

2009 has been another difficult year for a number of the major economies in the world and this has continued to impact not just the banking industry, but also our customers and our clients.

Despite the exceptional efforts of governments, central bankersand regulators to stabilise matters in the second half of 2008 – particularly in the UK – confidence generally continued to decline to dangerously low levels in early 2009. And while conditions improved as the year progressed – such that essential stability in the financial system has now been restored – the resulting impact in terms of higher global economic growth has still to be felt. Good progress has been made within the G20 forum as to the nature and extent of future regulations for the banking industry and there is a reasonable measure of international consensus as to

the future measures which will need to be implemented. Regulation remains the focus of intense international debate, however, and much work remains to be done in order to deliver an effective solution on a co-ordinated basis.

At Barclays we believe it is important that the banking industry itself learns the lessons from the crisis given the economic and financial costs that have arisen. I said in my report to shareholders last year – and I repeat it now

– that we very much regret the problems that banks have caused.We also acknowledge and are grateful for the help and assistance given to the banking sector by governments across the world.We are determined that

there must be no repeat of the turmoil that has affected the industry and wider economy, and fully recognise that changes have to be made. Banks must earn once more the confidence and trust of key stakeholders such as

customers and clients, employees, shareholders, regulators, politicians and society in general. While much remains to be done in this respect, we should not lose sight of what has already been achieved, particularly in the UK, in terms of strengthening capital ratios and improving liquidity across the

sector, whilst also reducing leverage. The regulatory reform agenda is a vital component of rebuilding

confidence and trust and providing a healthy, stable and sound financial system, but it is essential that this agenda produces a level playing field internationally. Both financial and human capital are mobile and in the

absence of internationally agreed standards, such capital will migrate to take advantage of differences in regulation. We therefore welcome the efforts by bodies such as the Financial Stability Board and the Basel Committee to produce internationally agreed standards and we will continue to co-operate with these international agencies as they work towards determining these standards. It is also important that we do not seek to regulate too hastily or, in the understandable desire to avoid a repetition of recent events, go too

far in terms of the reform agenda. Regulation needs to be strengthened but it must not result in a financial system that cannot serve the needs of the global economy. As recent events have shown, the financial sector has

become increasingly interconnected in recent years in support of the trends in globalisation which have occurred. It follows that new solutions must be carefully balanced and fully thought through and agreed before implementation. We must take the time properly to understand the consequences and in particular the cumulative impact of the regulatory reforms being contemplated. We must ensure that the end result achieves three objectives:

- First, a safer and more secure financial system;

-Second, a banking industry that is well equipped to support the needs of the global economy; and

-Third, the ability of the suppliers of capital to earn an economic return on their capital.

All parties need to have confidence that any new regulation will be effective,

but it must not be so heavy-handed as to restrict the banking industry’s

ability to support economic growth or to limit its ability to attract new capital

in the future.

Barclays own focus in 2009 was to maintain strategic momentum

despite the difficult environment. In particular, we have:

– Significantly strengthened our capital and liquidity positions and reduced our leverage;

– Focused on our customers and clients;

–Managed the business through the economic downturn, by a combination of income growth, strong cost control and careful risk management; and

• Contributed to the evolving debate on the future of the industry.

• Leadership And Governance

Board of Director

-Marcus Agius -John Varley

Group Chairman Group Chief Executive

-Robert E Diamond jr -Chris Lucas

President of barclays PLC and Group Finance Director

CEO of Corporate and

investment banking And

Wealth Management

-Sir Richard Broadbent -David Booth

Deputy Chairman And Non-Executive

Senior Independent Director Director

-Leigh Clifford -Fulvio Conti

Non- Executive Non-Executive

Director Director

-Simon Fraser -Reuben Jeffery III

Non-Executive Non-Executive

Director Director

-Sir Andrew Likierman -Sir Michael Rake

Non-Executive Non-Executive

Director Director

-Sir John Sunderland

Non-Executive

Director

• Financial Review

Income Statement Commentary

Barclays delivered net profit for the year of £10,289m in 2009, an increase of 96% on 2008. This included the BGI gain on sale of £6,331m before tax, and was achieved after absorbing: £6,086m in writedowns on credit market exposures (including impairment of £1,669m), other Group impairment of £6,402m and a charge of £1,820m relating to the tightening of own credit spreads. Profit included £1,255m of gains on debt buy-backs and extinguishment.

Total income grew 34% to £30,957m, and income from continuing operations grew 40% to £29,925m, with particularly strong growth in Barclays Capital. Within Global Retail and Commercial Banking (GRCB),

Barclaycard and GRCB –Western Europe also reported good income growth. The aggregate revenue performance of GRCB businesses was, however, affected by the impact of margin compression on deposit income as a result of the very low absolute levels of interest rates. Barclays Capital income was up 122% compared to 2008. Top-line income rose by £8,004m reflecting the successful integration of the acquired Lehman Brothers North American businesses, buoyant market conditions observed across most financial

markets in the first half of 2009 and a good relative performance in the second half of 2009 despite weaker markets. Income in Barclays Capital was impacted by writedowns of £4,417m (2008: £6,290m) relating to credit

market exposures held in its trading books and by a charge of £1,820m (2008: gain of £1,663m) relating to own credit.

Impairment charges against loans and advances, available for sale assets and reverse repurchase agreements increased 49% to £8,071m, reflecting deteriorating economic conditions, portfolio maturation and

currency movements. The impairment charge against credit market exposures included within this total reduced 5% to £1,669m. Impairment charges as a percentage of Group loans and advances as at 31st December

2009 increased to 156bps from 95bps, or 135bps on constant 2008 year end balance sheet amounts and average foreign exchange rates.

Total operating expenses increased 24% to £17,849m, but by 10% less than the rate of increase in Group total income. Operating expenses from continuing operations increased 25% to £16,712m. Expenses in GRCB were

well controlled, with the cost:income ratio improving from 53% to 52% Operating expenses in Barclays Capital increased by £2,818m to £6,592m reflecting the inclusion of the acquired Lehman Brothers North American

businesses. The Group total cost:income ratio improved from 62% to 58% (57% on a continuing basis). At Barclays Capital the compensation:income ratio improved from 44% to 38%.

Analysis Of Results By Business

Business Performance – Global Retail and Commercial Banking UK Retail Banking profit before tax decreased 55% to £612m as economic conditions remained challenging. Income was down 11% reflecting the

impact of deposit margin compression net of hedges, partially offset by good growth in Home Finance. Total loans and advances to customers increased £4.7bn to £99.1bn. Gross new mortgage lending was £14.2bn

during 2009 and net new mortgage lending was £5.7bn. The average loan to value ratio of the mortgage book remained conservative at 43%.

Impairment charges increased 55% due to the deteriorating economic environment. Operating expenses continued to be tightly controlled and decreased 3% reflecting a one-off credit from the closure of the UK final

salary pension scheme offset by a year on year increase in pension costs and the non-recurrence of gains from the sale of property.

Barclays Commercial Bank profit before tax decreased 41% to £749m. Income was broadly flat on 2008 with good growth in net fees and commissions offset by lower income from principal transactions. Net

interest income was broadly flat as margin compression on the deposit book was offset by higher lending and deposit volumes. New term lending extended to UK customers during 2009 was £14bn. Operating expenses

were tightly controlled and fell 3% driven by a one-off credit from the closure of the UK final salary pension scheme partially offset by an increase in pensions and share-based payment costs and the non-recurrence of gains from the sale of property. Impairment charges increased to £974m reflecting the impact of the weak business environment with rising default rates and falling asset values across all business segments.

Barclaycard profit before tax decreased 4% to £761m. Income growth of 26% reflected strong growth across the businesses driven by increased lending and improved margins. Average customer assets increased 19% to

£28.1bn. Impairment charges increased 64% due to the deteriorating global economic environment, although the rate of growth in the second half of the year was lower than in the first half. Impairment grew across both the

international and UK businesses. Cost growth of 5% was largely driven by appreciation of the average value of the US Dollar and the Euro against Sterling and growth in the card portfolios including acquisitions made in 2008.

Global Retail and Commercial Banking –Western Europe profit before tax fell 48% to £130m. Results included Barclays Russia, which incurred a loss of £67m and reflected a gain of £157m on the sale of Barclays life

insurance and pensions business in Iberia. Income grew in all countries, improving 18% as the expanded network continued to mature with customer deposits increasing £7.8bn to £23.4bn. Costs increased 16% reflecting the expansion of the Portuguese and Italian networks, the addition of Barclays Russia, restructuring charges of £24m and reduced gains from the sale of property. Impairment charges increased £370m to £667m,

largely driven by losses in Spain in commercial property, construction and SME portfolios. However, delinquency trends improved throughout the second half of 2009 in both retail and commercial portfolios.

Global Retail and Commercial Banking – Emerging Markets loss before tax of £254m compared to a profit of £141m in 2008. Income increased 5% with significant growth across Africa and the UAE, partially offset by lower income in India. Impairment charges increased £306m to £471m with significant increases in India and the UAE, reflecting the impact of the economic recession across the business with continued pressure on

liquidity, rising default rates and lower asset values. Operating expense growth of 24% reflected continued investment in Indonesia and Pakistan and investment in infrastructure across other markets.

Global Retail and Commercial Banking – Absa profit before tax decreased 8% to £506m. Income growth of 16% was driven by solid balance sheet growth, the appreciation in the average value of the Rand against Sterling and higher fees and commissions. Operating expenses increased at a lower rate of 13% which led to an improvement in the cost:income ratio to 58% (2008: 59%). Impairment charges rose £220m to £567m as a result of higher delinquency levels in the retail portfolios reflecting high consumer indebtedness.

Business Performance – Investment Banking and Investment Management

Barclays Capital profit before tax increased 89% to £2,464m as a result of very strong performances in the UK, Europe and the US, partially offset by a charge of £1,820m relating to own credit (2008: £1,663m gain). Top-line

income increased 81% to £17.9bn reflecting excellent results across the client franchise and a resilient fourth quarter with top-line income of £3.6bn. Fixed Income, Currency and Commodities (FICC) was up £5.6bn to £13.0bn following the expansion of the business and increased client flows. Top-line income in Equities and Prime Services increased 147% and Investment Banking income more than doubled. Total credit market exposures were reduced by £14.1bn to £27.6bn. In addition £5.1bn of credit market assets (and £2.4bn of other assets) were sold to Protium Finance LP. Operating expenses were 75% higher than 2008 given the substantial increase in the overall scale of the business. The cost:income ratio improved to 57% (2008: 72%). Compensation expenses as a proportion of income reduced 38%, down from 44% in 2008. Total assets reduced 37% driven by initiatives to reduce derivative balances.

On 1st December 2009 Barclays completed the sale of Barclays Global Investors to BlackRock, Inc. Included in the consideration were 37.567 million new BlackRock shares giving Barclays an economic interest of 19.9%

of the enlarged BlackRock group. The profit on disposal before tax was £6,331m. Profit before tax, excluding the profit on disposal, increased 26% to £749m (2008: £595m) following a recovery on liquidity support charges

and an 18% appreciation in the average value of the US Dollar against Sterling.

Barclays Wealth profit before tax reduced 78% to £145m principally as a result of the impact of the sale of the closed life business in 2008 and the cost of the integration of Barclays Wealth Americas during 2009. Income

was in line with 2008. Excluding the impact of these transactions there was solid growth in income due to growth in the client franchise and the product offering. Operating expenses grew by 22%, reflecting the integration of the US business, partially offset by the disposal of the closed life business. Total client assets increased by 4% (£6bn) to £151bn.

Balance Sheet and Capital Management

Shareholders’ Equity

Shareholders’ equity, excluding non-controlling interests, increased 35% to

£55.9bn in 2009 driven by profit after tax of £10.3bn. Net tangible asset

value increased by 53% to £47.1bn.

Balance Sheet

Total assets decreased by £674bn to £1,379bn in 2009, primarily reflecting

movements in market rates and active reductions in derivative balances.

Balances attributable to derivative assets and liabilities would have been

£374bn lower (31st December 2008: £917bn lower) than reported under

IFRS if netting were permitted for assets and liabilities with the same

counterparty or for which we hold cash collateral.

Excluding this, assets and liabilities held under investment contracts,

settlement balances, goodwill and intangible assets, our adjusted total

tangible assets were £969bn at 31st December 2009 (31st December

2008: £1,027bn). On this basis, we calculate adjusted gross leverage, being

the multiple of adjusted total tangible assets over total qualifying Tier 1

capital, as 20x as at 31st December (31st December 2008: 28x).

Assets and risk weighted assets were affected by the depreciation in

value of various currencies relative to Sterling during 2009. As at

31st December 2009, the US Dollar and the Euro had depreciated 10%

and 7%, respectively, relative to Sterling.

Capital Management

At 31st December 2009, on a Basel II basis, our Core Tier 1 ratio was

10.1% (31st December 2008: 5.6%) and our Tier 1 ratio was 13.0%

(31st December 2008: 8.6%). Capital ratios reflect a 12% decrease (£51bn)

in risk weighted assets to £383bn in 2009. Key drivers included a reduction

in the overall size of the balance sheet and foreign exchange movements.

Liquidity

The liquidity pool held by the Group increased to £127bn at 31st December

2009 from £43bn at the end of 2008. Whilst funding markets were difficult,

particularly in the first half of 2009, we were able to increase available

liquidity and we extended the average term of unsecured liabilities from

14 months to 26 months. We issued £15bn equivalent in public senior

unguaranteed debt markets, across multiple currencies and maturities.

In addition, we raised £1.8bn equivalent in the covered bond market and

issued £21bn equivalent of structured notes. We have continued to manage

liquidity prudently in the light of market conditions and in anticipation of

ongoing regulatory developments.

Foreign Currency Translation

During 2009, US Dollar and Euro depreciated 10% and 7%, respectively,

relative to Sterling. As a result, foreign currency assets and risk weighted

assets decreased in value in Sterling terms.

The Group’s hedging strategy in respect of net investments in foreign

currencies is designed to minimise the volatility of the capital ratios caused

by changes in the Sterling value of foreign currency capital resources and

risk weighted assets due to movements in foreign currency exchange rates.

In this regard, the Group’s 31st December 2009 Core Tier 1 ratio is hedged

to approximately 75%, 25% and 80% of the movements in US Dollar, Euro

and South African Rand respectively against Sterling.

The currency translation reserve reduced by £1.2bn in 2009. This

reflected movements in foreign currency net investments which are partially

economically hedged through preference share capital (denominated in

US Dollars and Euros) that is not revalued for accounting purposes