HSBC 2005 Annual Report Download - page 154

HSBC HOLDINGS PLC
Financial Review (continued)
152
HSBC actively manages the cash flows from its
subsidiaries to optimise the amount of cash held at
the holding company level, and expects to continue
doing so in the future. The wide range of HSBC’s
activities means that HSBC Holdings is not
dependent on a single source of profits to fund its
dividends. Together with its accumulated liquid
assets, HSBC Holdings believes that planned
dividends and interest from subsidiaries will enable
it to meet anticipated cash obligations. Also, in
normal circumstances, HSBC Holdings has full
access to capital markets on normal terms.
The following is an analysis of cash flows
payable by HSBC Holdings under financial
liabilities by remaining contractual maturities at the
balance sheet date:
On
demand
US$m
Due
within 3
months
US$m
Due
between
3 and 12
months
US$m
Due
between
1 and 5
years
US$m
Due
after 5
years
US$m
Amounts owed to HSBC undertakings ................... 664 176 1,060 1,654 521
Financial liabilities designated at fair value............ – 140 420 3,442 20,382
Other liabilities ....................................................... –1,196 – – 7
Accruals and deferred income ............................... 13 82 – – –
Subordinated liabilities ........................................... – 107 321 2,771 15,638
Total at 31 December 2005..................................... 677 1,701 1,801 7,867 36,548
At 31 December 2005, the short-term liabilities
of HSBC Holdings totalled US$3,191 million
including US$1,193 million in respect of the
proposed third interim dividend for 2005. Short-term
assets of US$5,599 million consisted mainly of cash
at bank of US$756 million and loans and advances
to HSBC undertakings of US$4,661 million.
Market risk management
(Audited IFRS 7 information)
The objective of HSBC’s market risk management is
to manage and control market risk exposures in order
to optimise return on risk while maintaining a market
profile consistent with the Group’s status as a
premier provider of financial products and services.
Market risk is the risk that movements in market
risk factors, including foreign exchange rates and
commodity prices, interest rates, credit spreads and
equity prices will reduce HSBC’s income or the
value of its portfolios. Credit risk is discussed
separately in the Credit risk management section.
HSBC separates exposures to market risk into
either trading or non-trading portfolios. Trading
portfolios include those positions arising from
market-making, proprietary position-taking and
other marked-to-market positions so designated. The
marked-to-market positions so designated but not
held with trading intent have historically not been
material to the Trading Value at Risk figure.
However, this is no longer the case following the
transition to accounting under IFRSs, which has
increased the proportion of financial instruments
measured at fair value. The contribution of these
positions to the Trading Value at Risk is disclosed
separately.
Non-trading portfolios primarily arise from the
effective interest rate management of HSBC’s retail
and commercial banking assets and liabilities.
The management of market risk is principally
undertaken in Global Markets using risk limits
approved by the Group Management Board. Limits
are set for each portfolio, product and risk type, with
market liquidity being a principal factor in
determining the level of limits set. Traded Markets
Development and Risk, an independent unit within
Corporate, Investment Banking and Markets,
develops the Group’s market risk management
policies and measurement techniques. Each major
operating entity has an independent market risk
control function which is responsible for measuring
market risk exposures in accordance with the
policies defined by Traded Markets Development
and Risk, and monitoring and reporting these
exposures against the prescribed limits on a daily
basis.
Each operating entity is required to assess the
market risks which arise on each product in its
business and to transfer these risks to either its local
Global Markets unit for management, or to separate
books managed under the supervision of the local
Asset and Liability Management Committee
(‘ALCO’). The aim is to ensure that all market risks
are consolidated within operations which have the
necessary skills, tools, management and governance
to manage such risks professionally.
Value at risk (‘VAR’) (Audited IFRS 7 information)
One of the principal tools used by HSBC to monitor
and limit market risk exposure is VAR. VAR is a