HSBC 2004 Annual Report Download - page 290

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
288
33 Minority interests – non-equity
Preference shares issued by subsidiaries:
2004 2003
US$m US$m
€1,400m 5.3687% Non-cumulative Step-up Perpetual Preferred Securities1 ...................... 1,908 1,763
£700m 5.844% Non-cumulative Step-up Perpetual Preferred Securities2 ........................ 1,354 1,250
US$1,350m 9.547% Non-cumulative Step-up Perpetual Preferred Securities, Series 11 ......... 1,338 1,338
US$1,250m 4.61% Non-cumulative Step-up Perpetual Preferred Securities1 .......................... 1,250 1,250
€750m 5.13% Non-cumulative Step-up Perpetual Preferred Securities1 .......................... 1,025 –
£500m 8.208% Non-cumulative Step-up Perpetual Preferred Securities1 ........................ 958 884
US$900m 10.176% Non-cumulative Step-up Perpetual Preferred Securities, Series 21 ....... 889 889
€600m 8.03% Non-cumulative Step-up Perpetual Preferred Securities1 .......................... 812 749
£300m 5.862% Non-cumulative Step-up Perpetual Preferred Securities2 ........................ 580 –
US$150m Depositary shares each representing 25% interest in a share of
adjustable rate cumulative preferred stock, Series D3 ...................................... 150 150
US$150m Cumulative preferred stock4 ................................................................................. 150 150
US$125m Dutch auction rate transferable securities preferred stock, Series A and B5.......... 125 125
CAD125m Non-cumulative redeemable class 1 preferred shares, Series A ........................... 104 96
US$75m Cumulative preferred stock ................................................................................. 75 75
10,718 8,719
1See Step-up Perpetual Preferred Securities, note (a) Guaranteed by HSBC Holdings.
2See Step-up Perpetual Preferred Securities, note (b) Guaranteed by HSBC Bank.
3The preferred stock has been redeemable, at the option of HSBC USA Inc., in whole or in part from 1 July 1999 at par.
4The preferred stock is redeemable at the option of HSBC USA Inc., in whole or in part, at any time on or after 1 October 2007 at par.
5The preferred stock of each series is redeemable at the option of HSBC USA Inc., in whole or in part, on any dividend payment date
at par.
The redemption of all preference shares is subject to the prior consent of the Financial Services Authority and, where
relevant, the local banking regulator.
Step-up Perpetual Preferred Securities
(a) Guaranteed by HSBC Holdings
The seven issues of Non-cumulative Step-up Perpetual Preferred Securities (footnote 1) were made by Jersey
limited partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues
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 that they would have had if they had purchased
non-cumulative perpetual preference shares of HSBC Holdings.
The Preferred Securities are perpetual, but redeemable in 2014, 2010, 2013, 2016, 2030, 2015 and 2012
respectively at the option of the general partner of the limited partnerships. If not redeemed the distributions
payable step-up and become floating rate or, for the sterling issue, for each successive five-year period, the sum
of the then five-year benchmark UK gilt plus a margin. 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 is 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) the Directors expect
that, in view of the deteriorating financial condition of HSBC Holdings, (i) will 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.