HSBC 2002 Annual Report Download - page 137

135
Customer accounts and deposits by banks 2002
% US$bn
Deposits by banks 9.7 52.9
Current 38.8 213.0
Savings and
other deposits 51.5 282.4
Total 100.0 548.3
Customer accounts and deposits by banks 2001
% US$bn
Deposits by banks 10.7 53.6
Current 34.1 171.8
Savings and
other deposits 55.2 278.2
Total 100.0 . 503.6
HSBC Holdings
HSBC Holdings' primary source of cash is dividends
from its directly and indirectly held subsidiaries.
The ability of these subsidiaries to pay dividends or
loan or advance monies to HSBC Holdings depends,
among other things, on their respective regulatory
capital requirements, statutory reserves, and their
financial and operating performance. The diversity of
HSBC’s activities means that HSBC Holdings is not
dependent on a single source of profits to generate
dividends. HSBC Bank and The Hongkong and
Shanghai Banking Corporation, which currently
provide most of the cash paid up to HSBC Holdings,
are themselves diversified banking businesses.
HSBC Holdings also periodically issues capital
securities and subordinated debt which provides both
regulatory capital for HSBC and funding for HSBC
Holdings. During 2002, HSBC Holdings issued
US$3.4 billion of subordinated debt.
At 31 December 2002, the short term liabilities
of HSBC Holdings plc totalled US$5.0 billion,
including US$3.1 billion in respect of the proposed
second interim dividend for 2002. In practice,
shareholders may elect to receive their dividend
entitlement in scrip rather than cash so that the full
amount of the proposed dividend is not paid out.
Short term assets of US$9.3 billion, consisting
mainly of cash at bank and money market deposits of
US$6.6 billion, and other amounts due from HSBC
undertakings (including dividends) of US$1.6
billion, exceeded short term liabilities.
HSBC Holdings actively manages the cash
flows from its subsidiaries to maximise the amount
of cash held at the holding company and non-trading
subsidiary levels and expects to continue to do so in
the future. With its accumulated liquid assets, HSBC
Holdings believes that dividends from subsidiaries,
coupled with debt and equity financing, will enable it
to meet anticipated cash obligations.
Market risk management
Market risk is the risk that foreign exchange rates,
interest rates or equity and commodity prices will
move and result in profits or losses to HSBC. Market
risk arises on financial instruments which are valued
at current market prices (mark-to-market basis) and
those valued at cost plus any accrued interest
(accruals basis).
Trading positions are valued on a mark-to-
market basis.
In liquid portfolios, market values are
determined by reference to independently
sourced mid-market prices where it is reasonable
to assume the positions could be sold at that
price. In those instances where markets are less
liquid and/or where positions have been held for
extended periods, portfolios are valued by
reference to bid or offer prices as appropriate.
In relation to certain products, such as over-
the counter derivative instruments, there are no
independent prices quoted in the markets. In
these circumstances market values are
determined by reference to standard industry
models, which typically utilise discounted cash
flow techniques to derive the market value. The
models may be in-house developed or software
vendor packages.
In valuing transactions, prices may be
amended in respect of those positions considered
illiquid, having recognition of the size of the
position vis-a-vis the normal market trading
volume in that product.
The main valuation sources are securities
prices, foreign exchange rates, and interest rate
yield curves.
In excess of 95 per cent of HSBC’s
derivative transactions are in plain vanilla