HSBC 2012 Annual Report Download - page 482

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
33 – Subordinated liabilities
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In addition to these factors and assumptions, the extent of the required redress will also depend on the facts and
circumstances of each individual customer’s case. For these reasons, there is currently a high degree of uncertainty as
to the eventual costs of redress for this matter.
Interest rate derivatives
A provision of US$598m was recognised relating to the estimated liability for redress in respect of the possible mis-
selling of interest rate derivatives in the UK. Of this provision, US$272m related to the estimated redress payable to
customers in respect of historical payments under derivative contracts, US$254m covered the expected write-off by
the bank of open derivative contracts balances, and US$72m covers estimated project costs.
Following an FSA review of the sale of interest rate derivatives, HSBC agreed to pay redress to customers where
mis-selling of these products has occurred under the FSA’s criteria. On 31 January 2013, the FSA announced the
findings from their review of pilot cases completed by the banks. Following its review, the FSA clarified the
eligibility criteria to ensure the programme is focused on those small businesses that were unlikely to understand
the risks associated with those products. HSBC has also been working with the FSA and an independent ‘skilled
person’ adviser to clarify the standards against which it should assess sales, and how redress should be calculated (for
example, when it would be appropriate to assume a customer would have taken an alternative interest rate product).
The extent to which HSBC is required to pay redress depends on the responses of contacted and other customers
during the review period and the facts and circumstances of each individual case. For these reasons, there is currently
a high degree of uncertainty as to the eventual costs of redress related to this programme.
Brazilian labour, civil and fiscal claims
Within ‘legal proceedings and regulatory matters’ above are labour, civil and fiscal litigation provisions of US$506m
(2011: US$481m) which includes provisions in respect of labour and overtime litigation claims brought by past
employees against HSBC operations in Brazil following their departure from the bank. The main assumptions
involved in estimating the liability are the expected number of departing employees, individual salary levels and the
facts and circumstances of each individual case.
33 Subordinated liabilities
HSBC
At 31 December
2012 2011
US$m US$m
Subordinated liabilities
At amortised cost .............................................................................................................................................. 29,479 30,606
– subordinated liabilities ................................................................................................................................. 25,119 25,543
– preferred securities ....................................................................................................................................... 4,360 5,063
Designated at fair value (Note 28) ................................................................................................................... 21,559 21,611
– subordinated liabilities ................................................................................................................................. 16,863 17,503
– preferred securities ....................................................................................................................................... 4,696 4,108
51,038 52,217
Subordinated liabilities
HSBC Holdings ................................................................................................................................................ 20,569 21,456
Other HSBC ..................................................................................................................................................... 30,469 30,761
51,038 52,217
Subordinated liabilities are capital securities which have been included in the capital base of HSBC and were issued
in accordance with the rules and guidance in the FSA’s General Prudential Sourcebook (‘GENPRU’). Where
applicable, these capital securities may be called and redeemed by HSBC subject to prior notification to the FSA and,
where relevant, the consent of the local banking regulator. If not redeemed at the first call date, interest coupons
payable may step-up or become floating rate related to interbank rates, and in some cases may be subject to a floor.
Interest rates on the floating rate capital securities are generally related to interbank offered rates. On the remaining
capital securities, interest is payable at fixed rates of up to 10.176%.