Chief Executive's Report
Treasury & Asset Management
Underlying profit before tax decreased by 21% to £275m (2006 £350m) reflecting the negative fair value adjustment to certain debt securities of £227m (2006 positive fair value adjustment of £2m). Underlying net operating income decreased by 1% to £613m (2006 £620m) as strong sales to Corporate customers and growth in income from the asset management businesses predominantly offset the negative fair value adjustments. Underlying operating expenses increased by 17% to £342m (2006 £292m) reflecting ongoing investment in the expansion of our product range and our European asset management activities. Funds under management increased 9% to £117.8bn (2006 £107.8bn) reflecting strong net inflows into Institutional Fixed Income and Liability Driven Investment mandates.
Outlook
The key focus for our Treasury team is the management of our funding and liquidity during the financial markets dislocation. We entered this period confident in our funding profile and capital base. This has served us well and we intend to maintain robust liquidity and capital positions going forward.