HSBC 2008 Annual Report Download - page 184

HSBC HOLDINGS PLC
Report of the Directors: Impact of Market Turmoil (continued)
SPEs > SIVs and conduits > Maximum exposures
182
Total assets of HSBC’s non-money market funds
which are on-balance sheet by balance sheet
classification
At 31 December
2008 2007
US$bn US$bn
Cash ........................................... 0.4 0.4
Trading assets ............................ 0.2 0.5
Financial instruments
designated at fair value .......... 2.3 3.0
Financial investments ................ 0.8 0.2
3.7 4.1
HSBC’s maximum exposure
HSBC’s maximum exposure to consolidated
and unconsolidated non-money market funds is
represented by HSBC’s investment in the units of
each respective fund. HSBC’s exposure at
31 December 2008 amounted to US$4.4 billion
(2007: US$6.0 billion).
Securitisations
HSBC uses SPEs to securitise customer loans and
advances that it has originated, mainly in order to
diversify its sources of funding for asset origination
and for capital efficiency purposes. In such cases, the
loans and advances are transferred by HSBC to the
SPEs for cash, and the SPEs issue debt securities
to investors to fund the cash purchases. Credit
enhancements to the underlying assets may be used
to obtain investment grade ratings on the senior debt
issued by the SPEs. Except in one instance, these
securitisations are all consolidated by HSBC. HSBC
has also established securitisation programmes in the
US and Germany where loans originated by third
parties are securitised. Most of these vehicles are not
consolidated by HSBC as it is not exposed to the
majority of risks and rewards of ownership in the
SPEs. In 2008, demand for the securitised products
remained low.
In addition, HSBC uses SPEs to mitigate the
capital absorbed by some of the customer loans and
advances it has originated. Credit derivatives are
used to transfer the credit risk associated with such
customer loans and advances to an SPE, using
securitisations commonly known as synthetic
securitisations. These SPEs are consolidated when
HSBC is exposed to the majority of risks and
rewards of ownership.
Total assets of HSBC’s securitisations which are on-
balance sheet, by balance sheet classification
At 31 December
2008 2007
US$bn US$bn
Trading assets ........................... 1.3 3.6
Loans and advances to customers 50.8 69.6
Financial investments ............... – 0.1
Other assets ............................... 1.1 1.3
Derivatives ................................ 1.4 0.1
54.6 74.7
These assets include US$1.3 billion (2007:
US$3.6 billion) of exposure to US sub-prime
mortgages.
Total assets of HSBC’s securitisations which are
off-balance sheet
2008 2007
US$bn US$bn
HSBC originated assets ............. 0.6 0.9
Non-HSBC originated assets –
term securitisation
programmes ............................ 13.5 16.0
14.1 16.9
HSBC’s financial investments in off-balance
sheet securitisations at 31 December 2008 amounted
to US$0.2 billion (2007: US$0.4 billion). These
assets include assets which are classified as
available-for-sale securities and measured at fair
value, and have been securitised by HSBC under
arrangements by which HSBC retains a continuing
involvement in them. Further details are provided in
Note 20 on the Financial Statements.
HSBC’s maximum exposure
The maximum exposure is the aggregate of any
holdings of notes issued by these vehicles and the
reserve account positions intended to provide credit
support under certain pre-defined circumstances to
senior note holders. HSBC is not obligated to
provide further funding. At 31 December 2008,
HSBC’s maximum exposure to consolidated and
unconsolidated securitisations amounted to
US$27.2 billion (2007: US$31 billion).
Other
HSBC also establishes SPEs in the normal course of
business for a number of purposes, for example,
structured credit transactions for customers to
provide finance to public and private sector
infrastructure projects, and for asset and structured
finance (‘ASF’) transactions.