HSBC 2007 Annual Report Download - page 450

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 42, 43 and 44
448
further terms. Lessees may participate in any sales proceeds achieved. Lease rentals arising during the lease terms
will either be fixed in quantum or be varied to reflect changes in, for example, tax or interest rates. Rentals are
calculated to recover the cost of assets less their residual value, and earn finance income.
2007 2006
Total future
minimum
payments
Unearned
finance
income
Present
value
Total future
minimum
payments
Unearned
interest
income
Present
value
US$m US$m US$m US$m US$m US$m
Lease receivables:
– no later than one year ...... 2,958 (528) 2,430 2,305 (460) 1,845
– later than one year and
no later than five years .... 8,741 (1,500) 7,241 7,207 (1,400) 5,807
– later than five years ......... 9,194 (2,789) 6,405 9,206 (2,944) 6,262
20,893 (4,817) 16,076 18,718 (4,804) 13,914
At 31 December 2007, unguaranteed residual values of US$224 million (2006: US$212 million) had been accrued,
and the accumulated allowance for uncollectible minimum lease payments receivable amounted to US$23 million
(2006: US$28 million).
During the year, a total of US$44 million (2006: US$59 million) was received as contingent rents and recognised in
the income statement.
Operating lease receivables
HSBC leases a variety of different assets to third parties under operating lease arrangements, including transport
assets (such as rolling stock), property and general plant and machinery.
2007 2006
Land and
buildings Equipment
Land and
buildings Equipment
US$m US$m US$m US$m
Future minimum lease payments under
non-cancellable operating leases:
– no later than one year ........................................... 50 838 47 808
– later than one year and no later than five years ... 14 1,363 17 1,561
– later than five years .............................................. 10 400 12 573
74 2,601 76 2,942
43 Litigation
HSBC is party to legal actions in a number of jurisdictions including the UK, Hong Kong and the US, arising out of
its normal business operations. HSBC considers that none of the actions is material, and none is expected to result in
a significant adverse effect on the financial position of HSBC, either individually or in the aggregate. Management
believes that adequate provisions have been made in respect of such litigation. HSBC has not disclosed any
contingent liability associated with these legal actions because it is not practicable to do so, except as set out below.
On 27 July 2007, the UK Office of Fair Trading (‘OFT’) issued High Court legal proceedings against a number of
UK financial institutions, including HSBC Bank plc, to determine the legal status and enforceability of certain of the
charges applied to their personal customers in relation to unauthorised overdrafts (the ‘charges’). Certain preliminary
issues in these proceedings were heard in a trial in the Commercial Division of the High Court on 17 January 2008.
This trial concluded on 8 February 2008 and judgment, on the preliminary issues tested, is awaited.
The proceedings remain at a very early stage and may, if appeals on the preliminary issues (or, subsequently, on
substantive issues) are pursued, take a number of years to conclude. A wide range of outcomes is possible,
depending, initially, upon whether the Court finds that some, all, or none of the charges should be tested for fairness
and/or tested as common law penalties and, if it does find that some or all of the charges should be so tested, upon the
Court’s subsequent assessment of each charge across the period under review. Since July 2001, there have been a
variety of charges applied by HSBC Bank plc across different charging periods under the then current contractual
arrangements. HSBC Bank plc considers the charges to be and to have been valid and enforceable, and intends
strongly to defend its position.