HSBC 2003 Annual Report Download - page 363

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nominal equity stake in some of these funds, but the majority of the expected losses and expected residual
returns of these funds are absorbed or received by the funds’ other investors. In certain other instances, HSBC’ s
involvement in the funds is limited to that of an equity investor with a minority stake that does not cause HSBC
to absorb or receive the majority of the funds’ expected losses or expected residual returns.
In respect of commercial paper conduits and securitisation vehicles, HSBC’s exposure to loss generally arises
through back-up liquidity facility commitments. In respect of infrastructure projects, HSBC’ s exposure to loss
generally arises through on-balance sheet financing of these projects. In respect of investment funds, HSBC’s
exposure to loss primarily reflects ‘seed capital’ investments in these funds. In respect of low income housing
tax credit partnerships, HSBC’ s exposure to loss arises from the amount it is committed to invest in the limited
partnerships. In respect of the capital funding vehicles, HSBC’s exposure to loss represents its equity investment
in the trust vehicles. In respect of government debt restructuring programs, HSBC’ s exposure to loss represents
its net investment in the program.
Under UK GAAP, HSBC does not consolidate the above VIEs, except for the capital funding vehicles
(including trust preferred securities). Under US GAAP, HSBC will be required to deconsolidate these vehicles
with effect from 1 January 2004 which will result in non-equity minority interests being reclassified as
subordinated liabilities.
VIEs created or acquired after 31 January 2003
HSBC has fully applied the provisions of FIN 46 or FIN 46R for entities created or acquired after 31 January
2003, including all VIEs held by Household, as follows:
VIEs where HSBC is the primary beneficiary
Total
assets
Activity US$m
Asset-backed commercial paper conduits .................................................................................................................. 10
Investment funds ........................................................................................................................................................ 84
94
There was no significant impact on US GAAP net income for the year ended 31 December 2003 as a result of
consolidating the above VIEs. Under UK GAAP, HSBC does not consolidate the above VIEs. Investment funds
have been consolidated for US GAAP where it is known HSBC is the primary beneficiary.
VIEs where HSBC is not the primary beneficiary
Size
HSBC’s
maximum
exposure
to loss
Activity US$m US$m
Asset-backed commercial paper conduits ................................................................................... 3,225 3,215
Low income housing tax credit partnerships ............................................................................... 643 476
Capital funding vehicles .............................................................................................................. 5,269 30
Other ........................................................................................................................................... 700 15
9,837 3,736
HSBC’ s involvement in investment funds created or acquired after 31 January 2003, is similar to its
involvement with other investment funds as noted above.
Under UK GAAP, HSBC does not consolidate the above VIEs, except for capital funding vehicles (including
trust preferred securities).
HSBC revised the structure of one existing commercial paper conduit, which continues not to be consolidated
under UK and US GAAP, as HSBC will not absorb the majority of expected losses for this entity.