HSBC 2005 Annual Report Download - page 404

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
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private label loan balances, the weighted average percentage of static pool credit losses is not considered to be
materially different from the weighted average charge-off assumptions used in determining the fair value of
interest-only strip receivables in the table above. At 31 December 2005, static pool credit losses for vehicle
finance loans securitised in 2003 were estimated to be 10.6 per cent and for vehicle finance loans securitised in
2002 were estimated to be 14.8 per cent (2004: 14.7 per cent).
Activities of other North American subsidiaries
Through its subsidiaries, HSBC Markets (USA) Inc. and HSBC Bank USA, N.A., HSBC began acquiring
residential mortgage loans from unrelated third parties in the middle of 2005 with the intention to sell these loans
to securitisation trusts. HSBC received US$540 million in proceeds from the initial securitisation transaction
under this program and recorded a gain on sale of US$6 million. HSBC does not service these loans and at
31 December 2005 held no residual interests resulting from this transaction. In addition, HSBC securitised the
net interest margin (‘NIM’) associated with the initial securitisation. A NIM securitisation is a structured finance
transaction backed by the residual cash flows from an Asset Backed Security (‘ABS’) deal. NIMs are
collateralised by the excess spread left after absorbing the realised losses and satisfying the required over-
collateralisation levels in the underlying ABS deals. HSBC received US$39 million in proceeds from this
securitisation transaction and recorded no gain on sale. HSBC holds a residual interest of US$14 million
resulting from the NIM securitisation. The residual interest is recorded in trading assets and is measured at fair
value in accordance with SFAS 115. As the NIM securitisation occurred late in 2005, HSBC received no income
from the residual interest in 2005.
48 Approval of accounts
These accounts were approved by the Board of Directors on 6 March 2006.