HSBC 2008 Annual Report Download - page 428

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 32
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4 The distributions on the trust preferred securities change in November 2015 to three-month dollar LIBOR plus 1.926 per cent.
5 The interest rate on the 4.75 per cent callable subordinated notes 2020 changes in September 2015 to three-month sterling LIBOR plus
0.82 per cent.
6 The interest rate on the 4.25 per cent callable subordinated notes changes in March 2011 to three-month EURIBOR plus 1.05 per cent.
7 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75 per cent until June 2012. Thereafter, the rate
per annum is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.70 per cent.
8 The interest margin on the callable subordinated floating rate notes 2020 increases by 0.5 per cent from September 2015.
9 The interest rate on the 5 per cent callable subordinated notes 2023 changes in March 2018 to become the rate per annum which is the
sum of the gross redemption yield of the prevailing five-year UK gilt plus 1.80 per cent.
10 The interest rate on the 5.375 per cent callable subordinated step-up notes 2030 changes in November 2025 to three-month sterling
LIBOR plus 1.50 per cent.
11 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5 per cent from July 2012.
Footnotes 3 to 10 all relate to notes that are repayable at the option of the borrower on the date of the change of the interest rate, and at
subsequent interest rate reset dates and interest payment dates in some cases, subject to prior notification to the Financial Services
Authority and, where relevant, the consent of the local banking regulator.
Step-up perpetual preferred securities
(a) Guaranteed by HSBC Holdings
The seven issues of non-cumulative step-up perpetual preferred securities (footnote 1) were made by Jersey
limited partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues
were on-lent to HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred
securities qualify as innovative tier 1 capital for HSBC. The preferred securities, together with the guarantee, are
intended to provide investors with rights to income and capital distributions and distributions upon liquidation of
HSBC Holdings that are equivalent to the rights that they would have had if they had purchased non-cumulative
perpetual preference shares of HSBC Holdings.
The preferred securities are perpetual, but redeemable in 2014, 2010, 2030, 2012, 2016, 2013 and 2015,
respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions
payable step-up and become floating rate or, for the sterling issue, for each successive five-year period the sum
of the then five-year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if
prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s
capital adequacy requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).
HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on
the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or
effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.
If (i) HSBC’s total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect
that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term,
then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms
which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.
(b) Guaranteed by HSBC Bank
The two issues of non-cumulative step-up perpetual preferred securities (footnote 2) were made by Jersey limited
partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-
lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as
innovative tier 1 capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the
guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon
liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-
cumulative perpetual preference shares of HSBC Bank.
The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option
of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become
floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings,
as described above. HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as
described above.
If (i) any of the two issues of preferred securities are outstanding in November 2048 or April 2049, respectively,
or (ii) the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum
ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to