HSBC 2005 Annual Report Download - page 330

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
328
1Acceptances and endorsements arise when HSBC guarantees payments on negotiable instruments drawn up by customers, prior to
selling the accepted instruments into the market on a discounted basis. From 1 January 2005, acceptances and endorsements are
recognised on-balance sheet in ‘Other assets’ and ‘Other liabilities’ as a result of the adoption of IAS 39.
2Financial guarantees include undertakings to fulfill the obligations of customers or HSBC Group entities should the obligated party
fail to do so.
3Standby letters of credit which are financial guarantees are irrevocable obligations on the part of HSBC to pay third parties when
customers fail to meet commitments.
4Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the
issuing entity to retain title to the underlying shipment.
5Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the
obligation on HSBC to make payment depends on the outcome of a future event which is unconnected to the creditworthiness of the
customer concerned.
The amounts disclosed in the above table reflect HSBC’s maximum exposure under a large number of individual
guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in accordance
with HSBC’s overall credit risk management policies and procedures. Approximately half of the above guarantees
have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC’s annual credit
review process.
When HSBC gives a guarantee on behalf of a customer, it retains the right to recover from that customer amounts
paid under the guarantee. A provision is booked only when HSBC considers it probable that it has an obligation
under an outstanding guarantee. Provisions are disclosed in Note 30.
Joint ventures and associates
HSBC and its operations are contingently liable with respect to lawsuits and other matters that arise in the normal
course of business. Management is of the opinion that while it is impossible to ascertain the ultimate legal and
financial liability with respect to these contingencies, their eventual outcome is not expected to materially affect the
Group’s financial position and operations.
In relation to joint ventures, HSBC had no contingent liabilities, incurred jointly or otherwise.
HSBC had no commitments of its joint ventures at 31 December 2005 (2004: US$ nil ).
HSBC had no capital commitments incurred jointly or otherwise in relation to its interests in joint ventures.
In relation to associates, HSBC’s share of those matters, incurred jointly with other investors, that had not been
provided for amounted to US$7,733 million (2004: US$5,663 million). No matters arose where HSBC was severally
liable.
Post-employment benefit obligations
HSBC had no contingent liabilities relating to post-employment benefits.
41 Lease commitments
Finance lease commitments
2005 2004
Total future
minimum
payments
Interest
charges
Present
value
Total future
minimum
payments
Interest
charges
Present
value
US$m US$m US$m US$m US$m US$m
No later than one year ............. 50 (25) 25 51 (26) 25
Later than one year and no
later than five years ............ 152 (98) 54 155 (115) 40
Later than five years ............... 630 (70) 560 745 (115) 630
832 (193) 639 951 (256) 695
In 2005 US$1 million (2004: US$1 million) was paid as contingent rents and charged to ‘General and administrative
expenses’.
No future minimum sublease payments (2004: US$nil) were expected to be received under non-cancellable subleases
at 31 December 2005.