HSBC 2009 Annual Report Download - page 197

195
Footnotes to Impact of Market Turmoil
1 Total includes holdings of ABSs issued by Freddie Mac and Fannie Mae.
2 ‘Income and expense’ recorded in the income statement represents the accrual of the effective interest rate and, for 2009, also includes
US$163 million in respect of impairment (2008: US$26 million). The effect on the income statement for 2008 shows the income and
expense post-reclassification. In 2008 pre-reclassification, the assets were held at fair value and a loss of US$1,371 million was
recorded in the period up to reclassification.
3 Effect on the income statement during the period had the reclassification not occurred.
4 Included in the write-downs during the half year to 31 December 2008 were US$26 million relating to reclassified leveraged finance
exposures, which had previously been presented under leveraged finance loans.
5 The carrying amount includes funded loans plus the net exposure to unfunded leveraged finance commitments, held within fair value
through the profit or loss.
6 ‘Directly held’ includes assets held by Solitaire where HSBC provides first loss protection and assets held directly by the Group.
7 Impairment charges allocated to capital note holders represent impairments where losses would be borne by external third-party
investors in the structures.
8 Mortgage-backed securities (‘MBS’s), asset-backed securities (‘ABS’s) and collateralised debt obligations (‘CDO’s).
9 During 2009, for disclosure purposes, certain other residential MBSs were reclassified to commercial property mortgage-related
assets. Comparatives have been restated accordingly.
10 High grade assets rated AA or AAA.
11 Gains or losses on the net principal exposure (footnote 17) recognised in the income statement as a result of changes in the fair value of
the asset.
12 Fair value gains and losses on the net principal exposure (footnote 17) recognised in other comprehensive income as a result of the
changes in the fair value of available-for-sale assets.
13 Realised fair value gains and losses on the net principal exposure (footnote 17) recognised in the income statement as a result of the
disposal of assets or the receipt of cash flows from assets.
14 Reclassified from equity on impairment, disposal or payment. This includes impairment losses recognised in the income statement in
respect of the net principal exposure (footnote 17) of available-for-sale assets. Payments are the contractual cash flows received on the
assets.
15 The gross principal is the redemption amount on maturity or, in the case of an amortising instrument, the sum of the future redemption
amounts through the residual life of the security.
16 A credit default swap (‘CDS’) gross protection is the gross principal of the underlying instrument that is protected by CDSs.
17 Net principal exposure is the gross principal amount of assets that are not protected by CDSs. It includes assets that benefit from
monoline protection, except where this protection is purchased with a CDS.
18 Carrying amount of the net principal exposure.
19 Net exposure after legal netting and any other relevant credit mitigation prior to deduction of the credit risk adjustment.
20 Cumulative fair value adjustment recorded against OTC derivative counterparty exposures to reflect the creditworthiness of the
counterparty.
21 Funded exposure represents the loan amount advanced to the customer, less any fair value write-downs, net of fees held on deposit.
22 Unfunded exposures represent the contractually committed loan facility amount not yet drawn down by the customer, less any fair value
write-downs, net of fees held on deposit.
23 Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these financial
instruments are risk-managed.
24 The Middle East is disclosed as a separate geographical region with effect from 1 January 2009. Previously, it formed part of Rest of
Asia-Pacific. Comparative data have been restated accordingly.
25 The reasons for the significant difference between carrying amount and fair value of loans and advances to customers in North America
are discussed on page 179.
26 Assets within multi-seller conduits are classified as collateralised loans. Under IFRSs, the conduits cannot recognise the underlying
assets.
27 For details of the geographical origin of the mortgage loans held at fair value and ABSs, including those represented by MBSs and
CDOs held in consolidated SIVs and securities investment conduits, see ‘Nature and extent of HSBC’s exposures’ on page 157.
28 The securities investment conduits include Mazarin, Barion, Malachite and Solitaire.
29 Local investment management funds.
30 Also includes consolidated SPEs that hold mortgage loans held at fair value.
31 These assets only include those measured at fair value. For details on the geographical origin of the mortgage loans held at fair value
and ABSs, including those represented by MBSs and CDOs held in consolidated SIVs and securities investment conduits, see ‘Nature
and extent of HSBC’s exposures’ on page 157. The geographical origin of the loans and receivables held by the multi-seller conduits is
disclosed on page 185.
32 The carrying amount of HSBC’s holding of capital notes in the securities investment conduits amounted to US$2.6 million (2008:
US$1.9 million) with a par value of US$54 million (2008: US$52 million).
33 Total maximum exposure to consolidated SPEs as at 31 December 2008 has been restated to reflect more accurately the Group’s
exposure to certain securitisation vehicles in which a proportion of the maximum exposure to risk of loss is borne by third-party
noteholders.
34 Two limited letters of indemnity which were in place in respect of CNAV funds at 31 December 2008 expired in April 2009.
35 HSBC’s financial investments in off-balance sheet money market funds and non-money market funds have been classified as available-
for-sale securities, and measured at fair value. HSBC’s financial investments in off-balance sheet securitisations have been classified as
trading assets and available-for-sale securities, and measured at fair value.
36 In the US, HSBC has established securitisation programmes where term-funded SPEs are used to securitise third-party originated
mortgages, mainly sub-prime and Alt-A residential mortgages. The majority of these SPEs are not consolidated by HSBC as it is not
exposed to the majority of the risk and rewards of ownership in the SPEs. No liquidity facility has been provided by HSBC.
37 Local investment management funds.