HSBC 2002 Annual Report Download - page 313

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Nature, purpose and activities of VIEs with which HSBC is involved
HSBC makes limited use of VIE structures in its business and principally engages in these transactions to
facilitate client needs. Any use by HSBC of a VIE structure in a business transaction is commercially driven.
Utilisation of a VIE occurs only after careful consideration has been given to the most appropriate structure
needed to achieve HSBC’ s control and risk allocation objectives and to ensure the most efficient structure from
a taxation and regulatory perspective.
Business activities within HSBC where VIEs are utilised primarily include asset-backed commercial paper
conduits, securitisation vehicles, and public and private sector infrastructure related projects and funds.
HSBC currently consolidates entities in which it has a controlling financial interest in accordance with UK
GAAP. HSBC’ s interests in entities that may be deemed to be VIEs will change over time as a result of ongoing
commercial activities and it is possible that such entities may be consolidated and deconsolidated at various
points in time. As a result, the accounting treatment of HSBC’ s variable interests included below may not be
the same at 31 December 2003.
VIEs where HSBC is the primary beneficiary
At 31 December 2002, the aggregate size of VIEs where HSBC believe that it is the primary beneficiary is
analysed as follows:
Activity Size Carrying amoun
t
US$ m US$ m
Asset-backed commercial paper conduits.................................... 2,015 2,015
Securitisation vehicles ................................................................. 2,949 2,949
4,964 4,964
The third party liabilities of these entities are supported by the collateral held by the issuing VIEs.
At 31 December 2002, HSBC consolidated all VIEs where it was the primary beneficiary, although one entity
(Clover) is included under the linked presentation method, as explained in Note 16.
VIEs where HSBC is not the primary beneficiary
At 31 December 2002, the aggregate size of VIEs where HSBC does not believe that it is the primary
beneficiary, but has a significant involvement is analysed as follows:
Activity Size HSBC maximum exposure to loss
US$ m US$ m
Asset-backed commercial paper conduits.................................... 1,250 685
Securitisation vehicles ................................................................. 1,010 519
Public and private sector infrastructure projects and funds.......... 4,217 433
6,477 1,637
In the case of the commercial paper conduits and securitisation vehicles, HSBC’ s exposure to loss generally
arises through back-up liquidity facility commitments. In the case of infrastructure projects, HSBC’ s exposure
to loss generally arises through on-balance sheet financing of these projects.
(q) Consolidated cash flow statement
HSBC prepares its cash flow statement in accordance with the UK Financial Reporting Standard 1 (Revised
1996) ‘Cash flow statements’ . Its objectives and principles are similar to those set out in SFAS 95 ‘Statement of
cash flows’ , as amended by SFAS 104 ‘Statement of cash flows – Net reporting of certain cash receipts and cash