HSBC 2007 Annual Report Download - page 191

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conduits carries highly liquid short-term ratings, and
benefits from liquidity facilities typically provided
by HSBC. HSBC also provides secondary credit
enhancements under the terms specified in the
relevant programme documentation. HSBC’s multi-
seller conduits are Regency Assets Limited
(‘Regency’), Bryant Park Funding LLC (‘Bryant
Park’), Abington Square Funding LLC (‘Abington
Square’), and Performance Trust.
Due to lack of investor interest from the middle
of 2007 in extendable CP, including that issued by
Abington Square, HSBC provided finance to the
conduit by purchasing the majority of its extendable
CP from investors. In February 2008, the remaining
assets within the conduit were refinanced and the CP
repaid. The other multi-seller conduits are supported
by liquidity facilities typically provided by HSBC.
While these facilities do not provide for liquidity
payments against defaulted assets they will in all
cases provide for repayment of 100 per cent of CP
that is covered by non-defaulted receivables.
Performance Trust was originally consolidated
by HSBC, and later deconsolidated because HSBC
retired the programme-wide credit enhancement and
the first loss note was sold to a third party during
2006. However, due to lack of liquidity in the
market, Performance Trust experienced funding
difficulties in the fourth quarter of 2007 and HSBC
purchased Performance Trust’s CP as it became
due. This resulted in HSBC consolidating the fund
because its resultant holding of 83 per cent
represents the majority of risks and rewards
of ownership.
Securities investment conduits purchase
highly rated asset-backed securities and facilitate
tailored investment opportunities for HSBC’s
investor clients. HSBC’s securities investment
conduit is Solitaire Funding Limited (‘Solitaire’).
An analysis of the assets held by Solitaire at
31 December 2007 and 2006 is set out below.
Solitaire – Ratings analysis of assets
2007 2006
US$bn US$bn
S&P Ratings
AAA ............................................... 20.8 20.2
Total investments ........................... 20.8 20.2
Cash and other assets ..................... 0.8 0.2
Total assets .................................... 21.6 20.4
Solitaire – Composition of asset portfolio
2007 2006
US$bn US$bn
Asset class
Structured finance
Residential mortgage-backed
securities .................................... 8.7 9.4
Commercial mortgage-backed
securities .................................... 3.7 3.1
Collateralised debt obligations ...... 3.1 2.5
Student loans securities .................. 3.5 3.0
Home equity lines of credit
securities ..................................... 0.6 0.8
Vehicle finance loans securities ..... 0.1 0.2
Credit loans securities..................... 0.3 0.3
Other asset-back securities ............ 1.0 0.9
Total structured finance assets ....... 21.0 20.2
Finance
Commercial bank debt
securities and deposits ............... 0.6 0.2
Total bank and finance
company assets .......................... 0.6 0.2
Total assets ..................................... 21.6 20.4
These assets include US$1.1 billion (2006:
US$1.8 billion) of exposure to US sub-prime
mortgages, all of which are rated AAA.
Solitaire – Total assets by balance sheet
classification
2007 2006
US$bn US$bn
Financial instruments
designated at fair value .............. 0.1 0.1
Derivative assets ............................ 0.1 –
Loans and advances to banks ........ 0.2 –
Financial investments .................... 20.6 20.1
Other assets .................................... 0.6 0.2
21.6 20.4
Solitaire – Funding structure
Total
Provided
by HSBC
US$bn US$bn
2007
Commercial paper .......................... 23.0 7.8
2006
Commercial paper .......................... 20.2 –
The consolidation of HSBC’s conduits resulted
in HSBC consolidating assets of US$37.4 billion
(2006: US$35.0 billion, excluding Performance
Trust).