HSBC 2001 Annual Report Download - page 214

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
212
34 Minority interests – non-equity
Preference shares issued by subsidiaries:
2001 2000
US$m US$m
US$1,350m 9.547% Non-cumulative Step-up Perpetual Preferred Securities,
Series 1 ........................................................................................... 1,337 1,335
US$900m 10.176% Non-cumulative Step-up Perpetual Preferred Securities,
Series 2 ........................................................................................... 891 889
£500m 8.208% Non-cumulative Step-up Perpetual Preferred Securities ....... 717 737
€600m 8.03% Non-cumulative Step-up Perpetual Preferred Securities......... 526 552
US$1m Non-cumulative preference shares1.................................................... 50 873
US$150m Depositary shares each representing 25% interest in a share of
adjustable rate cumulative preferred stock, Series D2..................... 150 150
US$150m Cumulative preferred stock3............................................................... 150 150
US$125m Dutch auction rate transferable securities preferred stock,
Series A and B4............................................................................... 125 125
US$125m 7.20% Series A cumulative preference shares5.................................. 125 125
CAD125m Non-cumulative redeemable class 1 preferred shares, Series A......... 77 81
DM105m 6.35% Series B cumulative preference shares.................................... 68 71
US$75m Cumulative preferred stock ................................................................ 75 75
Other issues .......................................................................................
–
8
4,291 5,171
Step-up Perpetual Preferred Securities
The four issues of Non-cumulative Step-up Perpetual Preferred Securities were issued by Jersey limited partnerships
and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issue were on-lent to HSBC
Holdings by the limited partnerships by issue of subordinated notes. The Preferred Securities qualify as innovative
tier 1 capital for HSBC. The Preferred Securities, together with the guarantee, are intended to provide investors with
rights to income and capital distributions and distributions upon liquidation of HSBC Holdings that are equivalent to
the rights they would have had if they had purchased non-cumulative perpetual preference shares of HSBC
Holdings.
The Preferred Securities are perpetual, but redeemable in 2010, 2030, 2015 and 2012, respectively, at the option of
the general partners of the limited partnerships. If not redeemed the distributions payable step-up and become
floating rate. There are limitations on the payment of distributions if prohibited under UK banking regulations or
other requirements, if a payment would cause a breach of HSBC’ s capital adequacy requirements, or if HSBC
Holdings has insufficient distributable reserves (as defined).
HSBC Holdings has covenanted that if it has been prevented under certain circumstances from paying distributions
on the Preferred Securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or
effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.
If i) HSBC’ s total capital ratio falls below the regulatory minimum ratio required, or ii) in view of the deteriorating
financial condition of HSBC Holdings, the Directors expect i) to occur in the near term, then the Preferred Securities
will be substituted by Preference Shares of HSBC Holdings having economic terms which are in all material respects
equivalent to those of the Preferred Securities and the guarantee taken together.
1 Non-cumulative preference shares
HSBC Bank plc redeemed preference shares with an aggregate amount of US$825 million, plus an additional
premium on certain series of the shares of US$19 million, during 2001. The remaining preference shares are
redeemable at the option of HSBC Bank plc at an aggregate amount of US$50 million from February 2002.