HSBC 2012 Annual Report Download - page 446

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
15 – Fair values of financial instruments carried at fair value
444
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Available
for sale
Held for
trading
Designated
at fair value
through
profit or loss Derivatives
Held for
trading
Designated
at fair value
through
profit or loss Derivatives
US$m US$m US$m US$m US$m US$m US$m
2011
At 1 January ...................................... 8,237 5,689 587 3,961 11,393 570 3,806
Total gains/(losses) recognised in
profit or loss ................................. 222 (330) 11 767 36 8 628
Total gains/(losses) recognised in
other comprehensive income1 ...... (179) (12) (15) (16) 11 (11) –
Purchases .......................................... 1,858 1,483 242 – (1,843) – –
New issuances ................................... – – – – 4,569 – –
Sales .................................................. (756) (2,578) (69) – – – –
Settlements ........................................ (1,088) (199) (7) (33) (1,528) – (1,083)
Transfers out ..................................... (1,891) (569) (173) (410) (5,266) – (608)
Transfers in ....................................... 2,718 1,296 140 180 455 – 386
At 31 December ................................ 9,121 4,780 716 4,449 7,827 567 3,129
Total gains/(losses) recognised in
profit or loss relating to assets and
liabilities held on 31 December: 134 (237) 36 617 101 8 80
– net interest income ................... 105 – – – – – –
– trading income/(expense)
excluding net interest income .. – (265) – 617 119 – 80
– net interest income/(expense)
on trading activities .................. – 28 – – (18) – –
– net income from other
financial instruments
designated at fair value ............ – – 36 – – 8 –
– dividend income ....................... 29 – – – – – –
1 Included in ‘Available-for-sale investments: Fair value gains/losses’ and ‘Exchange differences’ in the consolidated statement of
comprehensive income.
Available-for-sale securities: Purchases of Level 3 AFS assets relate principally to Emerging Market corporate
bonds. Sales of Level 3 AFS assets relate principally to private equity disposals. Transfers in and out of Level 3 relate
principally to ABS securities, and the excess of transfers out over transfers in reflects some improvement in ABS
liquidity over the year.
Derivatives: The reduction in Level 3 derivative assets predominantly reflected reductions in the fair value of legacy
structured credit assets as credit spreads narrowed and the unwind or maturity of certain other structured derivatives.
Trading liabilities: Movements in Level 3 trading liability balances primarily reflect issue and redemption of
structured notes, particularly equity-linked notes. Transfers out reflect structured notes, particularly equity
linked notes, becoming observable as their residual maturity decreased.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation
techniques that incorporate assumptions that are not evidenced 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
these fair values to reasonably possible alternative assumptions:
Sensitivity of fair values to reasonably possible alternative assumptions
Reflected in profit or loss
Reflected in other
comprehensive income
Favourable
changes
Unfavourable
changes
Favourable
changes
Unfavourable
changes
US$m US$m US$m US$m
At 31 December 2012
Derivatives, trading assets and trading liabilities1 ........................ 465 (384) – –
Financial assets and liabilities designated at fair value ................ 41 (41) – –
Financial investments: available for sale ..................................... – – 680 (710)
506 (425) 680 (710)