HSBC 2013 Annual Report Download - page 116

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HSBC BANK CANADA
114
Notes on the Consolidated Financial Statements (continued)
29 Contingent liabilities, contractual commitments and guarantees (continued)
US regulatory and law enforcement investigations (continued)
If HSBC Holdings and HSBC Bank USA fulfil all of the requirements imposed by the US DPA, the DOJ’s charges
against those entities will be dismissed at the end of the five-year period of that agreement. Similarly, if HSBC Holdings
fulfils all of the requirements imposed by the DANY DPA, DANY’s charges against it will be dismissed at the end of
the two-year period of that agreement. The DoJ may prosecute HSBC Holdings or HSBC Bank USA in relation to the
matters which are the subject of the US DPA if HSBC Holdings or HSBC Bank USA breaches the terms of the US DPA,
and DANY may prosecute HSBC Holdings in relation to the matters which are subject of the DANY DPA if HSBC
Holdings violates the terms of the DANY DPA.
Under these agreements, HSBC Holdings has certain obligations to ensure that entities in the HSBC Group, including
the bank and its subsidiaries, comply with certain requirements. Steps continue to be taken to implement ongoing
obligations under the US DPA, FCA direction, and other settlement agreements.
The settlement with U.S. and U.K. authorities does not preclude private litigation relating to, among other things, the
HSBC Group’s compliance with applicable AML/BSA and sanctions laws or other regulatory or law enforcement
actions for AML/BSA or sanctions matters not covered by the various agreements.
Guarantees
The bank provides guarantees and similar undertakings on behalf of both third party customers and other entities within
the bank. These guarantees are generally provided in the normal course of the bank’s banking business. The principal
types of guarantees provided, and the maximum potential amount of future payments which the bank could be required
to make at 31 December, were as follows:
Guarantees in favour of third parties
2013
$m
2012
$m
Guarantee type
Financial guarantee contracts1 .................................................................................. 1,663 1,305
Performance bonds2 .................................................................................................. 2,277 1,778
Total ............................................................................................................................... 3,940 3,083
1 Financial guarantees contracts require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified
debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The amounts in the above
table are nominal principal amounts.
2 Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the obligation
on the bank and/or the bank to make payment depends on the outcome of a future event.
The amounts disclosed in the above table reflect the bank’s maximum exposure under a large number of individual
guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in accordance with
the bank’s overall credit risk management policies and procedures. Guarantees with terms of more than one year are
subject to the bank’s annual credit review process.
Credit enhancements
The bank provides partial program-wide credit enhancements to the multi-seller conduit program administered by
it to protect commercial paper investors in the event that the collections on the underlying assets and any draws on
the transaction specific credit enhancement and liquidity backstop facilities are insufficient to repay the maturing
asset-backed commercial paper issued by such multi-seller conduit program. Each of the assets pools funded by this
multi-seller conduit program is structured to achieve a high investment grade credit profile through the provision of
transaction specific credit enhancement provided by the seller of each asset pool to this multi-seller conduit program.
The term of this program-wide credit enhancement is 12 months.