HSBC 2009 Annual Report Download - page 250

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Liquidity and funding > Contingent liquidity risk / Impact of market turmoil / HSBC Holdings
248
The Group’s contractual exposures at 31 December monitored under the contingent liquidity risk limit structure
(Audited)
HSBC Bank HSBC Bank USA HSBC Bank Canada
The Hongkong and
Shanghai Banking
Corporation
2009 2008 2009 2008 2009 2008 2009 2008
US$bn US$bn US$bn US$bn US$bn US$bn US$bn US$bn
Conduits
Client-originated assets39 ............
– total lines ............................. 7.4 5.6 6.4 11.2 0.3 0.3 0.3 –
– largest individual lines ........ 0.8 1.0 0.4 0.4 0.1 0.2 0.3 –
HSBC-managed assets40 ............. 29.1 34.8 – – – – – –
Other conduits41 .......................... – – 1.3 1.1 – – – –
Single-issuer liquidity facilities
– five largest42 ......................... 4.3 6.0 6.1 5.0 2.0 1.5 1.2 1.0
– largest market sector43 ......... 7.9 7.3 4.7 3.5 2.9 2.4 1.5 1.7
For footnotes, see page 291.
In times of market stress, the Group may choose
to provide non-contractual liquidity support to
certain HSBC-sponsored vehicles or HSBC-
promoted products. This support would only be
provided after careful consideration of the potential
funding requirement and the impact on the entity’s
overall liquidity.
The impact of market turmoil on the Group’s
liquidity risk position
(Audited)
Market turmoil continued to have significant adverse
effects on the liquidity and funding risk profile of
the banking system in 2009, although the effects
gradually moderated during the year:
• interbank funding costs remained above pre-
market turmoil levels, although they declined
significantly from the peaks observed in the
latter part of 2008;
• many asset classes continued to suffer from
reduced liquidity;
• the ability of many market participants to issue
either unsecured or secured debt continued to be
restricted, although the effect was mitigated in
part by the support provided by some central
bank and government programmes; and
• many special purpose entities with investments
linked to US sub-prime mortgages, or to ABSs
where the underlying credit exposures were not
fully transparent, continued to experience
difficulties in raising wholesale funding.
In general terms, the strains arising from the
credit crisis were concentrated in the wholesale
market. The retail market, the market from which
HSBC derives its core current and savings accounts,
(the importance of which as a source of funding for
the Group is discussed under ‘Advances to deposits
ratio’ above) was relatively unaffected. The Group’s
limited dependence on wholesale markets for
funding has been a significant competitive advantage
to HSBC through the recent period of dislocation in
the financial markets.
As a net provider of funds to the interbank
market, HSBC has not been significantly
affected by the scarcity of interbank funding.
HSBC’s customer deposit base grew between
30 June 2007, the reporting date closest to the onset
of the market turmoil, and 31 December 2009 by
US$178 billion. This growth in US dollar equivalent
terms was diluted by the strengthening of the US
dollar against other major currencies between these
two reporting dates, and therefore understates the
growth in customer deposits on an underlying
currency basis.
A number of central banks and governments
have taken action to alleviate the effects of the
market turmoil, including making available
government guaranteed term funding facilities.
In the US, bank issuance under such programmes
became normal market practice during 2008,
although many market participants successfully
issued non-government guaranteed debt in the
latter half of 2009. HSBC’s US-based operations
participated modestly at the outset in the US
government guaranteed term debt issuance scheme.
At 31 December 2009, US$2.67 billion had been
issued by HSBC USA, Inc. under the Federal
Deposit Insurance Corporation Temporary Liquidity
Guarantee Programme. This debt was issued in
2008.
The deterioration of the US sub-prime credit
market reduced the availability of term financing to
entities with exposures to the US sub-prime market.
However, HSBC Finance, by virtue of its position