HSBC 2003 Annual Report Download - page 311

309
At 31 December 2003 At 31 December 2002
Guarantees in
favour of third
parties
Guarantees by
HSBC Holdings
in favour o
f
other HSBC
Group entities
Guarantees in
favour of third
parties
Guarantees by
HSBC Holdings
in favour o
f
other HSBC
Group entities
US$m US$m US$m US$m
Guarantee type
Acceptances and endorsements1 ........................................ 5,412 47 4,711 48
Financial guarantees2 ......................................................... 21,573 41,775 15,980 35,370
Standby letters of credit which are financial guarantees3 ... 2,371 26 3,144 87
Other direct credit substitutes4 ........................................... 7,188 34 7,002 16
Performance bonds5 ........................................................... 4,780 372 4,464 209
Bid bonds5 ......................................................................... 290 45 191 34
Standby letters of credit related to particular transactions5 4,345 343 4,075 122
Other transaction-related guarantees5 ................................ 13,881 179 11,659 169
Other items ........................................................................ 40 – 29 –
Balance as at 31 December ................................................ 59,880 42,821 51,255 36,055
1Acceptances and endorsements arise where HSBC agrees to guarantee payment on a negotiable instrument drawn up by a
customer. The accepted instrument is then sold into the market on a discounted basis.
2Financial guarantees include undertakings to stand behind the obligations of customers or other HSBC entities and to undertake
these obligations if the other entity fails to do so. Intra-group items of this type will also include guarantees of a capital nature,
given to another HSBC entity and intended to be considered as capital support by the relevant regulatory authority.
3Standby letters of credit which are financial guarantees are irrevocable obligations to pay a third party where a customer fails to
repay an outstanding commitment.
4Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit which have been issued
without provision for the issuing entity to retain title to the underlying shipment.
5Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings whereby the
requirement to make payment under the guarantee depends on the outcome of a future event which is independent of the
creditworthiness of the customer.
The above maximum amounts payable reflect HSBC’ s maximum exposure under a large number of individual
guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in
accordance with HSBC’ s overall credit risk management policies and procedures.
Approximately one half of the above guarantees have a term of less than one year. Guarantees with a term of
more than one year are subject to HSBC’ s annual credit review process.
When HSBC has given a guarantee on behalf of a customer, it will have the right to recover from that customer
any amounts paid under the guarantee. At 31 December 2003, HSBC held collateral amounting to some US$9.8
billion (2002: US$9.4 billion) which could be used to recover amounts paid under the above guarantees.
A provision is recognised only where HSBC considers that it is more likely than not that an obligation exists
under the guarantees. At 31 December 2003, HSBC had established the following provisions in respect of its
obligations under outstanding guarantees:
2003 2002
US$m US$m
Acceptances and endorsements ........................................................................................................... 92 37
Guarantees and items pledged as collateral security ............................................................................82 106
Other items .......................................................................................................................................... 25 32
HSBC believes that the amortised fair value of its liabilities under other guarantees for which no provision has
been established is broadly equivalent to the amount of deferred income received but not yet recognised for such
guarantees, which at 31 December 2003 amounted to US$32 million.