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Financial instruments - valuation (Tables)

6 Months Ended

Jun. 30, 2024

Financial instruments - classification

Schedule of financial assets and liabilities at fair value by valuation hierarchy


		30 June 2024								31 December 2023
		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
		£m		£m		£m		£m		£m		£m		£m		£m
Assets
Trading assets
Loans		—		26,008		230		26,238		—		33,388		209		33,597
Securities		15,097		4,639		—		19,736		8,447		3,493		14		11,954
Derivatives
Interest rate		—		40,364		561		40,925		1		43,912		650		44,563
Foreign exchange		—		26,314		132		26,446		—		34,096		65		34,161
Other		—		74		69		143		—		72		108		180
Other financial assets
Loans		—		352		416		768		—		108		657		765
Securities		17,969		9,690		248		27,907		17,848		10,536		258		28,642
Total financial assets held at fair value		33,066		107,441		1,656		142,163		26,296		125,605		1,961		153,862
As a % of total fair value assets		23	%	76	%	1	%	—		17	%	82	%	1	%

Liabilities
Trading liabilities
Deposits		—		44,151		—		44,151		—		43,126		1		43,127
Debt securities in issue		—		307		—		307		—		706		—		706
Short positions		7,843		1,864		2		9,709		7,936		1,865		2		9,803
Derivatives
Interest rate		—		34,698		440		35,138		—		38,044		439		38,483
Foreign exchange		—		25,374		67		25,441		—		33,528		58		33,586
Other		—		119		151		270		—		138		188		326
Other financial liabilities
Debt securities in issue		—		1,636		3		1,639		—		1,605		3		1,608
Other deposits		—		1,626		23		1,649		—		1,280		—		1,280
Subordinated liabilities		—		229		—		229		—		237		—		237
Total financial liabilities held at fair value		7,843		110,004		686		118,533		7,936		120,529		691		129,156
As a % of total fair value liabilities		7	%	92	%	1	%	—		6	%	93	%	1	%

(1)	Level 1 - Instruments valued using unadjusted quoted prices in active and liquid markets, for identical financial instruments. Examples include government bonds, listed equity shares and certain exchange-traded derivatives.

Level 2 - Instruments valued using valuation techniques that have observable inputs. Observable inputs are those that are readily available with limited adjustments required. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products - including CLOs, most bank loans, repos and reverse repos, state and municipal obligations, most notes issued, certain money market securities, loan commitments and most OTC derivatives.

Level 3 - Instruments valued using a valuation technique where at least one input which could have a significant effect on the instrument’s valuation, is not based on observable market data. Examples include non-derivative instruments which trade infrequently, certain syndicated and commercial mortgage loans, private equity, and derivatives with unobservable model inputs.

(2)	Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.

(3)	For an analysis of debt securities held at mandatorily fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk.

Schedule of financial instruments valuation adjustments


		30 June		31 December
		2024		2023
		£m		£m
Funding - FVA		125		132
Credit - CVA		220		236
Bid - Offer		75		86
Product and deal specific		149		103
Total		569		557

-	Valuation reserves comprising credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves, increased to £569 million at 30 June 2024 (31 December 2023 – £557 million).

-	The movements in FVA and CVA were driven by a reduction in exposure as interest rates increased. The decrease in bid-offer was driven by overall risk reduction over the period. Product and deal specific increased following valuation adjustments on specific trades.

Schedule of financial instruments carried at fair value on the balance sheet by valuation sensitivities for level 3 balances


		30 June 2024						31 December 2023
		Level 3		Favourable		Unfavourable		Level 3		Favourable		Unfavourable
		£m		£m		£m		£m		£m		£m
Assets
Trading assets
Loans		230		—		—		209		—		—
Securities		—		—		—		14		—		—
Derivatives
Interest rate		561		20		(20)		650		20		(20)
Foreign exchange		132		10		(10)		65		—		—
Other		69		—		—		108		10		(10)
Other financial assets
Loans		416		—		(10)		657		—		(40)
Securities		248		20		(40)		258		20		(50)
Total financial assets held at fair value		1,656		50		(80)		1,961		50		(120)

Liabilities
Trading liabilities
Deposits		—		—		—		1		—		—
Short positions		2		—		—		2		—		—
Derivatives
Interest rate		440		10		(10)		439		10		(10)
Foreign exchange		67		—		—		58		—		—
Other		151		10		(10)		188		10		(10)
Other financial liabilities
Debt securities in issue		3		—		—		3		—		—
Other deposits		23		—		(20)		—		—		—
Total financial liabilities held at fair value		686		20		(40)		691		20		(20)

Schedule of movement in level 3 assets and liabilities


				Other		Other						Other		Other
		Derivatives		trading		financial		Total		Derivatives		trading		financial		Total
		assets		assets (2)		assets (3)		assets		liabilities		liabilities (2)		liabilities		liabilities
		£m		£m		£m		£m		£m		£m		£m		£m
At 1 January 2024		823		223		915		1,961		685		3		3		691
Amounts recorded in the income statement (1)		(70)		2		5		(63)		(28)		—		—		(28)
Amount recorded in the statement of comprehensive income		—		—		(13)		(13)		—		—		—		—
Level 3 transfers in		7		—		—		7		1		—		23		24
Level 3 transfers out		(2)		(14)		(258)		(274)		(2)		(1)		—		(3)
Purchases/originations		82		25		23		130		67		1		—		68
Settlements/other decreases		(38)		(7)		—		(45)		(29)		—		—		(29)
Sales		(40)		—		(2)		(42)		(34)		(1)		—		(35)
Foreign exchange and other adjustments		—		1		(6)		(5)		(2)		—		—		(2)
At 30 June 2024		762		230		664		1,656		658		2		26		686

Amounts recorded in the income statement in respect of balances held at period end - unrealised		116		—		4		120		123		—		—		123


At 1 January 2023		1,007		396		930		2,333		975		1		—		976
Amounts recorded in the income statement (1)		(52)		(28)		—		(80)		(84)		—		—		(84)
Amount recorded in the statement of comprehensive income		—		—		12		12		—		—		—		—
Level 3 transfers in		4		—		(72)		(68)		6		1		—		7
Level 3 transfers out		(2)		(32)		—		(34)		(5)		—		—		(5)
Purchases/originations		86		6		68		160		89		—		—		89
Settlements/other decreases		(20)		(4)		—		(24)		(27)		—		—		(27)
Sales		(92)		(58)		(25)		(175)		(54)		—		—		(54)
Foreign exchange and other adjustments		(1)		(3)		(15)		(19)		(5)		—		—		(5)
At 30 June 2023		930		277		898		2,105		895		2		—		897

Amounts recorded in the income statement in respect of balances held at period end - unrealised		(52)		(28)		(1)		(81)		(84)		—		—		(84)

(1)	There were £40 million net losses on trading assets and liabilities (30 June 2023 – £4 million net losses) recorded in income from trading activities. Net gains on other instruments of £5 million (30 June 2023 – nil) were recorded in other operating income and interest income as appropriate.

(2)	Other trading assets and other trading liabilities comprise assets and liabilities held at fair value in trading portfolios.

(3)	Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.

Schedule of carrying value and fair value of financial instruments carried at amortised cost on the balance sheet


												Items where fair value
		Carrying				Fair value hierarchy level						approximates
		value		Fair value		Level 1		Level 2		Level 3		carrying value
30 June 2024		£bn		£bn		£bn		£bn		£bn		£bn
Financial assets
Cash and balances at central banks		115.8		115.8		—		—		—		115.8
Settlement balances		6.3		6.3		—		—		—		6.3
Loans to banks		6.0		6.0		—		1.3		0.8		3.9
Loans to customers		379.3		372.4		—		25.2		347.2		—
Other financial assets - securities		23.9		23.9		4.9		10.7		8.3		—

31 December 2023
Financial assets
Cash and balances at central banks		104.3		104.3		—		—		—		104.3
Settlement balances		7.2		7.2		—		—		—		7.2
Loans to banks		6.9		7.0		—		2.2		0.6		4.2
Loans to customers		381.4		373.2		—		27.5		345.7		—
Other financial assets - securities		21.7		21.6		4.0		6.6		11.0		—

30 June 2024
Financial liabilities
Bank deposits		25.6		25.6		—		17.5		3.7		4.4
Customer deposits		433.0		432.6		—		29.9		49.8		352.9
Settlement balances		7.1		7.1		—		—		—		7.1
Other financial liabilities
- debt securities in issue		55.0		55.0		—		45.0		10.0		—
Subordinated liabilities		5.8		5.8		—		5.8		—		—
Notes in circulation		3.3		3.3		—		—		—		3.3

31 December 2023
Financial liabilities
Bank deposits		22.2		22.3		—		15.4		2.7		4.2
Customer deposits		431.4		431.0		—		30.7		48.8		351.5
Settlement balances		6.6		6.6		—		—		—		6.6
Other financial liabilities
- debt securities in issue		52.2		52.2		—		41.7		10.5		—
Subordinated liabilities		5.5		5.4		—		5.4		—		—
Notes in circulation		3.2		3.2		—		—		—		3.2