Notes to the consolidated financial statements
- « 3 Critical accounting estimates and judgements
- 4 Segmental Analysis
- 5 Net interest income »
4 Segmental analysis
The Group is a leading financial services group, whose businesses provide a wide range of banking and financial services predominantly in the UK.
At 31 December 2008 the Group’s activities were organised into three segments: UK Retail Banking, Insurance and Investments and Wholesale and International Banking. Services provided by UK Retail Banking encompass the provision of banking and other financial services to personal customers, private banking and mortgages. Insurance and Investments offers life assurance, pensions and savings products, general insurance and asset management services. Wholesale and International Banking provides banking and related services for major UK and multinational companies, banks and financial institutions, and small and medium-sized UK businesses. It also provides asset finance to personal and corporate customers, manages the Group’s activities in financial markets through its treasury function and provides banking and financial services in some overseas locations.
Under the Group’s transfer pricing arrangements, inter-segment services are generally recharged at cost, with the exception of the internal commission arrangements between the UK branch and other distribution networks and the insurance product manufacturing businesses within the Group, where a profit margin is also charged. Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds.
For those derivative contracts entered into by business units for risk management purposes, the business unit retains the amount that would have been recognised on an accrual accounting basis (an amount equal to the interest element of the next payment on the swap) and transfers the remainder of the fair value of the swap to the central group segment where the resulting accounting volatility is managed though the establishment of hedge accounting relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central group segment. This allocation of the fair value of the swap and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results, records volatility where it is managed and provides a fair presentation of the segments’ operating performance. It is the basis on which the segments are managed and measured internally and is the basis of the Group’s internal segmental reporting to the board.
As part of its transition to Basel II on 1 January 2008, the Group has updated its capital and liquidity pricing methodology. The main difference in this approach is to allocate a greater share of certain funding costs, previously allocated to the Central group items segment, to individual divisions. To enable a meaningful period-on-period comparison, the segmental analysis for the year ended 31 December 2007 has been restated to reflect these changes.
|
UK Retail |
General |
Life, pensions |
Insurance |
Wholesale |
Central |
Inter-segment |
Total |
||
|---|---|---|---|---|---|---|---|---|---|
|
Year ended 31 December 2008 |
|||||||||
|
Interest and similar income |
9,437 |
25 |
1,048 |
1,073 |
10,561 |
1,742 |
(5,244) |
17,569 |
|
|
Interest and similar expense |
(5,327) |
(19) |
(456) |
(475) |
(7,258) |
(2,035) |
5,244 |
(9,851) |
|
|
Net interest income |
4,110 |
6 |
592 |
598 |
3,303 |
(293) |
– |
7,718 |
|
|
Other income (net of fee and commission expense) |
1,766 |
579 |
(3,680) |
(3,101) |
829 |
(199) |
– |
(705) |
|
|
Total income |
5,876 |
585 |
(3,088) |
(2,503) |
4,132 |
(492) |
– |
7,013 |
|
|
Insurance claims |
– |
(193) |
3,052 |
2,859 |
– |
– |
– |
2,859 |
|
|
Total income, net of insurance claims |
5,876 |
392 |
(36) |
356 |
4,132 |
(492) |
– |
9,872 |
|
|
Operating expenses |
(2,730) |
(161) |
(502) |
(663) |
(2,630) |
(30) |
– |
(6,053) |
|
|
Trading surplus (deficit) |
3,146 |
231 |
(538) |
(307) |
1,502 |
(522) |
– |
3,819 |
|
|
Impairment |
(1,472) |
– |
(2) |
(2) |
(1,508) |
(30) |
– |
(3,012) |
|
|
Profit (loss) before tax |
1,674 |
231 |
(540) |
(309) |
(6) |
(552) |
– |
807 |
|
|
External revenue |
9,804 |
1,176 |
(2,130) |
(954) |
7,679 |
1,029 |
– |
17,558 |
|
|
Inter-segment revenue |
1,002 |
65 |
120 |
185 |
2,395 |
1,152 |
(4,734) |
– |
|
|
Segment revenue |
10,806 |
1,241 |
(2,010) |
(769) |
10,074 |
2,181 |
(4,734) |
17,558 |
|
|
External assets |
127,502 |
1,123 |
65,426 |
66,549 |
238,832 |
3,150 |
– |
436,033 |
|
|
Inter-segment assets |
5,679 |
564 |
2,779 |
3,343 |
143,842 |
98,190 |
(251,054) |
– |
|
|
Total assets |
133,181 |
1,687 |
68,205 |
69,892 |
382,674 |
101,340 |
(251,054) |
436,033 |
|
|
External liabilities |
97,929 |
904 |
56,509 |
57,413 |
249,149 |
21,843 |
– |
426,334 |
|
|
Inter-segment liabilities |
31,361 |
74 |
7,088 |
7,162 |
128,681 |
83,850 |
(251,054) |
– |
|
|
Total liabilities |
129,290 |
978 |
63,597 |
64,575 |
377,830 |
105,693 |
(251,054) |
426,334 |
|
|
Other segment items: |
|||||||||
|
Capital expenditure |
167 |
9 |
227 |
236 |
837 |
196 |
– |
1, 436 |
|
|
Depreciation and amortisation |
215 |
16 |
34 |
50 |
421 |
– |
– |
686 |
|
|
Movement in value of in-force business |
– |
– |
(325) |
(325) |
– |
– |
– |
(325) |
|
|
Impairment of goodwill |
– |
– |
– |
– |
100 |
– |
– |
100 |
|
|
Defined benefit scheme charges |
103 |
2 |
19 |
21 |
85 |
(45) |
– |
164 |
|
UK Retail |
General |
Life, pensions |
Insurance |
Wholesale |
Central |
Inter-segment |
Total |
||
|---|---|---|---|---|---|---|---|---|---|
|
Year ended 31 December 2007 |
|||||||||
|
Interest and similar income |
7,964 |
23 |
1,040 |
1,063 |
9,762 |
1,386 |
(3,301) |
16,874 |
|
|
Interest and similar expense |
(4,269) |
(18) |
(682) |
(700) |
(7,353) |
(1,754) |
3,301 |
(10,775) |
|
|
Net interest income |
3,695 |
5 |
358 |
363 |
2,409 |
(368) |
– |
6,099 |
|
|
Other income (net of fee and commission expense) |
1,797 |
554 |
7,643 |
8,197 |
1,773 |
362 |
– |
12,129 |
|
|
Total income |
5,492 |
559 |
8,001 |
8,560 |
4,182 |
(6) |
– |
18,228 |
|
|
Insurance claims |
– |
(302) |
(7,220) |
(7,522) |
– |
– |
– |
(7,522) |
|
|
Total income, net of insurance claims |
5,492 |
257 |
781 |
1,038 |
4,182 |
(6) |
– |
10,706 |
|
|
Operating expenses |
(2,624) |
(154) |
(501) |
(655) |
(2,282) |
(6) |
– |
(5,567) |
|
|
Trading surplus (deficit) |
2,868 |
103 |
280 |
383 |
1,900 |
(12) |
– |
5,139 |
|
|
Impairment |
(1,224) |
– |
– |
– |
(572) |
– |
– |
(1,796) |
|
|
Profit on sale of businesses |
– |
– |
272 |
272 |
385 |
– |
– |
657 |
|
|
Profit (loss) before tax |
1,644 |
103 |
552 |
655 |
1,713 |
(12) |
– |
4,000 |
|
|
External revenue |
9,132 |
1,235 |
8,854 |
10,089 |
10,082 |
300 |
– |
29,603 |
|
|
Inter-segment revenue |
958 |
49 |
181 |
230 |
1,487 |
1,591 |
(4,266) |
– |
|
|
Segment revenue |
10,090 |
1,284 |
9,035 |
10,319 |
11,569 |
1,891 |
(4,266) |
29,603 |
|
|
External assets |
115,012 |
1,164 |
72,213 |
73,377 |
163,294 |
1,663 |
– |
353,346 |
|
|
Inter-segment assets |
5,093 |
361 |
3,777 |
4,138 |
91,246 |
64,654 |
(165,131) |
– |
|
|
Total assets |
120,105 |
1,525 |
75,990 |
77,515 |
254,540 |
66,317 |
(165,131) |
353,346 |
|
|
External liabilities |
96,166 |
870 |
65,304 |
66,174 |
162,376 |
16,205 |
– |
340,921 |
|
|
Inter-segment liabilities |
20,321 |
12 |
5,930 |
5,942 |
86,159 |
52,709 |
(165,131) |
– |
|
|
Total liabilities |
116,487 |
882 |
71,234 |
72,116 |
248,535 |
68,914 |
(165,131) |
340,921 |
|
|
Other segment items: |
|||||||||
|
Capital expenditure |
80 |
11 |
452 |
463 |
613 |
178 |
– |
1,334 |
|
|
Depreciation and amortisation |
205 |
14 |
37 |
51 |
374 |
– |
– |
630 |
|
|
Movement in value of in-force business |
– |
– |
(93) |
(93) |
– |
– |
– |
(93) |
|
|
Defined benefit scheme charges |
114 |
3 |
26 |
29 |
92 |
(60) |
– |
175 |
As the activities of the Group are predominantly carried out in the UK, no geographical analysis is presented.