HSBC 2010 Annual Report Download - page 319

317
Overview Operating & Financial Review Governance Financial Statements Shareholder Information
HSBC Holdings
The following table provides an analysis of the basis for valuing financial assets and financial liabilities measured at
fair value in the financial statements:
Bases of valuing HSBC Holdings’ financial assets and liabilities measured at fair value
Valuation techniques
Quoted
market
price
Using
observable
inputs
With
significant
unobservable
inputs
Level 1 Level 2 Level 3 Total
US$m US$m US$m US$m
At 31 December 2010
Assets
Derivatives ................................................................................ – 2,327 – 2,327
Financial investments: available for sale ................................. – – 2,025 2,025
Liabilities
Financial liabilities designated at fair value ............................. 12,029 4,259 – 16,288
Derivatives ................................................................................ – 827 – 827
At 31 December 2009
Assets
Derivatives ................................................................................ – 2,981 – 2,981
Financial investments: available for sale ................................. – – 2,455 2,455
Liabilities
Financial liabilities designated at fair value ............................. 12,549 4,360 – 16,909
Derivatives ................................................................................ – 362 – 362
Financial instruments measured at fair value – Level 3
Financial investments measured using a valuation technique with significant unobservable inputs (Level 3) comprise
fixed-rate preferred securities and senior notes purchased from HSBC undertakings. The unobservable elements of
the valuation technique include the use of implied credit spreads and simplified bond pricing assumptions.
Movement in Level 3 financial instruments available for sale
2010 2009
US$m US$m
At 1 January .............................................................................................................................................. 2,455 2,629
Total gains or losses:
– recognised in profit or loss ................................................................................................................... (155) (2)
– recognised in other comprehensive income ......................................................................................... (275) 103
Settlements ................................................................................................................................................ – (275)
At 31 December ........................................................................................................................................ 2,025 2,455
Total gains or losses recognised in profit or loss relating to those assets and liabilities
held on 31 December ............................................................................................................................ (1) (2)
In certain circumstances, the fair value of financial instruments are measured using valuation models that incorporate
assumptions that are not supported by prices from observable current market transactions in the same instrument and
are not based on observable market data. The following table shows the sensitivity of non-derivative financial
instruments to reasonably possible alternative assumptions:
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Reflected in equity
Favourable
changes
Unfavourable
changes
US$m US$m
Financial investments: available for sale
At 31 December 2010 .............................................................................................................................. 34 (33)
At 31 December 2009 ............................................................................................................................... 115 (107)