HSBC 2012 Annual Report Download - page 186

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > HSBC Holdings / Securitisation exposures and other structured products
184
HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by the HSBC
Holdings Asset and Liability Management
Committee (‘ALCO’). The major risks faced by
HSBC Holdings are credit risk and market risk (in
the form of interest rate risk and foreign exchange
risk), of which the most significant is credit risk.
Credit risk in HSBC Holdings primarily arises
from transactions with Group subsidiaries and from
guarantees issued in support of obligations assumed
by certain Group operations in the normal conduct
of their business.
These risks are reviewed and managed within
regulatory and internal limits for exposures by our
Global Risk function, which provides high-level
centralised oversight and management of our credit
risks worldwide.
HSBC Holdings’ maximum exposure to credit
risk at 31 December 2012 is shown below. Its
financial assets principally represent claims on
Group subsidiaries in Europe and North America.
All of the derivative transactions are with HSBC
undertakings which are banking counterparties
(2011: 100%) and for which HSBC Holdings has in
place master netting arrangements. From 2012, the
credit risk exposure has been managed on a net basis
and the remaining net exposure specifically
collateralised in the form of cash.
HSBC Holdings – maximum exposure to credit risk
(Audited)
At 31 December 2012 At 31 December 2011
Maximum
exposure Offset
Exposure to
credit risk
(net)
Maximum
exposure Offset
Exposure to
credit risk
(net)
US$m US$m US$m US$m US$m US$m
Cash at bank and in hand:
– balances with HSBC undertakings .............. 353 – 353 316 – 316
Derivatives .......................................................... 3,768 (3,768) – 3,568 – 3,568
Loans and advances to HSBC undertakings ...... 41,675 – 41,675 28,048 – 28,048
Financial investments ......................................... 1,208 – 1,208 1,078 – 1,078
Financial guarantees and similar contracts ........ 49,402 – 49,402 49,402 – 49,402
Loan and other credit-related commitments ...... 1,200 – 1,200 1,810 – 1,810
97,606 (3,768) 93,838 84,222 – 84,222
The credit quality of the loans and advances to
HSBC undertakings is assessed as ‘strong’ or ‘good’,
with 100% of the exposure being neither past due
nor impaired (2011: 100%). The financial
investments held by HSBC Holdings were rated by
Standard and Poor’s (‘S&P’) at A– (2011: within the
range of A to A–).
Securitisation exposures and other
structured products
(Audited)
This section contains information about our exposure
to the following:
• asset-backed securities (‘ABS’s), including
mortgage-backed securities (‘MBS’s) and
related collateralised debt obligations (‘CDO’s);
• direct lending at fair value through profit or
loss;
• monoline insurance companies (‘monolines’);
• leveraged finance transactions; and
• representations and warranties related to
mortgage sales and securitisation activities.
Within the above is included information on
the GB&M legacy credit activities in respect of
Solitaire, the securities investment conduits (‘SIC’s),
the ABSs trading portfolios and derivative
transactions with monolines. Further information
in respect of Solitaire and the SICs is provided in
Note 42 on the Financial Statements.
Accounting policies
Our accounting policies for the classification and measurement
of financial instruments are in accordance with the
requirements of IAS 32 ‘Financial Instruments: Presentation’
and IAS 39 ‘Financial Instruments: Recognition and
Measurement’, as described in Note 2 on the Financial
Statements, and the use of assumptions and estimates in
respect of the valuation of financial instruments is described
in Note 15 on the Financial Statements.