HSBC 2007 Annual Report Download - page 193

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US$0.1 billion (2006: US$0.7 billion) in SPEs that
were consolidated by HSBC.
Other uses of SPEs
HSBC participates in ‘Public-Private Partnerships’
to provide financial support for infrastructure
projects initiated by government authorities. The
funding structure is commonly achieved through the
use of SPEs. HSBC consolidates these SPEs where
it is exposed to the majority of risks and rewards of
the vehicles.
HSBC’s ASF business specialises in leasing and
arranging finance for aircraft and other physical
assets, which it is customary to ring-fence through
the use of SPEs, and in structured loans and deposits
where SPEs introduce cost efficiencies. HSBC
consolidates these SPEs where the substance of the
relationship indicates that HSBC controls the SPE.
HSBC’s risks and rewards of ownership in these
SPEs are in respect of its on-balance sheet assets and
liabilities.
Third party sponsored SPEs
HSBC’s exposure to third party sponsored SIVs,
conduits and securitisations have arisen through
normal banking arrangements on standard market
terms. HSBC did not provide any credit
enhancement to third party SIVs, conduits and
securitisations.
HSBC’s commitments under liquidity facilities to
third party SIVs, conduits and securitisations
Commit-
ments Drawn
US$bn US$bn
2007
Third party SIVs ............................ 0.3 –
Third party conduits ...................... 5.3 0.4
Third party securitisations ............. 0.5 –
6.1 0.4
2006
Third party SIVs ............................ 0.2 –
Third party conduits ...................... 5.4 –
Third party securitisations ............. 0.5 –
6.1 –
Other exposures to third party SIVs, conduits and
securitisations where a liquidity facility has been
provided
2007 2006
US$bn US$bn
Derivative assets .............................
.
0.2 0.1
Other off-balance sheet arrangements and
commitments
Financial guarantees, letters of credit and
similar undertakings
Note 41 on the Financial Statements describes
various types of guarantees and discloses the
maximum potential future payments under such
arrangements. Credit risk associated with all forms
of guarantees is assessed in the same manner as
for on-balance sheet credit advances and, where
necessary, provisions for assessed impairment are
included in ‘Other provisions’.
Commitments to lend
Undrawn credit lines are disclosed in Note 41 on the
Financial Statements. The majority by value of
undrawn credit lines arise from ‘open to buy’ lines
on personal credit cards, advised overdraft limits and
other pre-approved loan products, and mortgage
offers awaiting customer acceptance. HSBC
generally has the right to change or terminate any
conditions of a personal customer’s overdraft, credit
card or other credit line upon notification to the
customer. In respect of corporate commitments
to lend, in most cases HSBC’s position will be
protected through restrictions on access to funding
in the event of material adverse change.
Leveraged finance transactions
Loan commitments in respect of leveraged finance
transactions are accounted for as derivatives where it
is HSBC’s intention to sell the loan after origination.
As at 31 December 2007, HSBC’s commitments in
respect of leveraged finance transactions were
US$8.9 billion, of which US$6.0 billion were funded
and US$2.9 billion were unfunded. During 2007,
losses of US$195 million were recognised in trading
income relating to transactions priced prior to the
dislocation in the market. Transactions priced
subsequent to the widening of credit spreads have
not resulted in any material net write-downs.