HSBC 2015 Annual Report Download - page 388

Notes on the Financial Statements (continued)
13 – Fair values of financial instruments carried at fair value
HSBC HOLDINGS PLC
386
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Sensitivity of Level 3 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
$m $m $m $m
Derivatives, trading assets and trading liabilities1 335 (215)
–
–
Financial assets and liabilities designated at fair value 24 (24)
–
–
Financial investments: available for sale 35 (30) 230 (243)
At 31 December 2015 394 (269) 230 (243)
Derivatives, trading assets and trading liabilities1 296 (276)
–
–
Financial assets and liabilities designated at fair value 37 (47)
–
–
Financial investments: available for sale 51 (67) 270 (350)
At 31 December 2014 384 (390) 270 (350)
1 Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these financial instruments are
risk managed.
The effect of favourable changes is broadly unchanged over the period. The decrease in the effect of unfavourable changes
reflects increased price certainty in respect of private equity and certain legacy funding structures, offset by greater syndicated
loan uncertainty as a result of the increased Level 3 balance.
Sensitivity of fair values to reasonably possible alternative assumptions by Level 3 instrument type
Reflected in profit or loss
Reflected in other
comprehensive income
Favourable
changes
Unfavourable
changes
Favourable
changes
Unfavourable
changes
$m $m $m $m
Private equity including strategic investments 54 (53) 152 (171)
Asset-backed securities 18 (12) 57 (51)
Loans held for securitisation 1(1)
–
–
Structured notes 15 (11)
–
–
Derivatives with monolines 11 (11)
–
–
Other derivatives 179 (87)
–
–
Other portfolios 116 (94) 21 (21)
At 31 December 2015 394 (269) 230 (243)
Private equity including strategic investments 77 (110) 172 (255)
Asset-backed securities 49 (22) 60 (55)
Loans held for securitisation 1 (1)
–
–
Structured notes 14 (9)
–
–
Derivatives with monolines 11 (11)
–
–
Other derivatives 129 (155)
–
–
Other portfolios 103 (82) 38 (40)
At 31 December 2014 384 (390) 270 (350)
Favourable and unfavourable changes are determined on the basis of sensitivity analysis. The sensitivity analysis aims to
measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the
nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.
When the available data is not amenable to statistical analysis, the quantification of uncertainty is judgemental, but remains
guided by the 95% confidence interval.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects
the most favourable or the most unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The table below lists key unobservable inputs to Level 3 financial instruments, and provides the range of those inputs as at
31 December 2015. The core range of inputs is the estimated range within which 90% of the inputs fall. A further description
of the categories of key unobservable inputs is given below.