HSBC 2008 Annual Report Download - page 162

HSBC HOLDINGS PLC
Report of the Directors: Impact of Market Turmoil (continued)
Nature and extent of exposures > Monolines / Leveraged finance
160
HSBC’s exposure to Credit Derivative
Product Companies
CDPCs are independent companies that specialise in
selling credit default protection on corporate
exposures. As corporate credit spreads widened
during the second half of 2008, increasing the
potential value of claims against the CDPCs, the
creditworthiness of CDPCs became a focus. At
31 December 2008, HSBC had purchased credit
protection from CDPCs with a notional value of
US$6.4 billion (2007: US$5.7 billion) which had a
fair value (essentially, replacement cost) of
US$1.2 billion (2007: US$218 million), against
which a credit risk adjustment (a provision) of
US$228 million (2007: nil) was held. All of the fair
value exposures at 31 December 2008 and 2007
represented exposure to CDPCs with investment
grade ratings.
Leveraged finance transactions
Leveraged finance transactions include sub-
investment grade acquisition or event-driven
financing. During the second half of 2008, HSBC
reclassified US$6.5 billion of leveraged finance
loans from the held-for-trading category to loans and
receivables as detailed on page 146 as its intention
now is to hold these assets for the foreseeable future
or until maturity. Impairment on these reclassified
assets is now recognised on an incurred loss basis.
The following tables show HSBC’s gross
commitments and exposure to leveraged finance
transactions arising from primary transactions and
the movement in that leveraged finance exposure in
the year. HSBC’s additional exposure to leveraged
finance loans through holdings of ABSs from its
trading and investment activities is shown in the
tables on pages 151 and 152.
HSBC’s gross commitments to leveraged finance transactions by geographical segment
Funded
commitments
Unfunded
commitments
Total
commitments
US$m US$m US$m
At 31 December 2008
Europe .............................................................................................................. 3,818 543 4,361
Rest of Asia-Pacific ......................................................................................... 25 12 37
North America ................................................................................................. 1,987 268 2,255
5,830 823 6,653
Funded
commitments
Unfunded
commitments
Total
commitments
US$m US$m US$m
At 31 December 2007
Europe .................................................................................................................. 4,004 1,822 5,826
Hong Kong .......................................................................................................... – 160 160
Rest of Asia-Pacific ............................................................................................. 45 182 227
North America ..................................................................................................... 1,991 733 2,724
6,040 2,897 8,937
HSBC’s exposure to leveraged finance transactions
At 31 December
Funded
exposures14
Unfunded
exposures15
Total
exposures
US$m US$m US$m
2008
Europe .................................................................................................................. 3,554 480 4,034
Rest of Asia-Pacific ............................................................................................. 25 12 37
North America ..................................................................................................... 1,825 258 2,083
5,404 750 6,154
Held within:
– loans and receivables .................................................................................... 5,401 482 5,883
– fair value through the profit or loss .............................................................. 3 268 271