HSBC 2008 Annual Report Download - page 147

145
Overview of exposure
(Audited)
At 31 December 2008, the aggregate carrying
amount of HSBC’s exposure to ABSs, trading loans
held for securitisation and exposure to leveraged
finance transactions was US$91 billion (2007:
US$131 billion), summarised as follows:
At 31 December 2008 At 31 December 2007
Carrying
amount
Including
sub-prime
and Alt-A
Carrying
amount
Including
sub-prime
and Alt-A
US$bn US$bn US$bn US$bn
ABSs .................................................................................................... 81 12 116 31
– fair value through profit or loss ................................................... 14 1 33 7
– available for sale1 ......................................................................... 56 9 80 24
– held to maturity1 ........................................................................... 3–3 –
– loans and receivables .................................................................... 82– –
Loans at fair value through profit or loss ............................................ 4 3 6 6
Leveraged finance loans ...................................................................... 6 – 9 –
– fair value through profit or loss2 .................................................. ––8 –
– loans and receivables .................................................................... 6–1 –
91 15 131 37
1 Total includes holdings of ABSs issued by Freddie Mac and Fannie Mae.
2 Includes the carrying amount of funded loans plus the net exposure to unfunded leveraged finance commitments.
The majority of these exposures arise in the
Global Banking and Markets business segment.
Within the total carrying amount of ABSs on
the balance sheet, ABS holdings of US$14.6 billion
(2007: US$32.1 billion) are held through vehicles
discussed on page 148, where significant first loss
protection is provided by external investors on a
fully collateralised basis.
A reconciliation of the movement in the
carrying amount of ABSs on the balance sheet of
US$34.5 billion is set out below:
• the write-downs of ABSs taken to the income
statement – US$3.4 billion;
• the movement in fair values on available-for-
sale ABSs taken to equity – US$16.5 billion;
• principal amortisation – US$11.4 billion; and,
• exchange differences and other movements –
US$3.2 billion.
Due to the market dislocation in respect of
these securities, the impact of purchases and sales
on the total carrying amount of ABSs was not
significant in 2008.
At 31 December 2008, of the total carrying
amount of ABSs and trading loans held for
securitisation in respect of sub-prime and Alt-A
residential mortgage exposure, US$3.5 billion
(2007: US$11.7 billion) was held through special
purpose entities (‘SPE’s).
Reclassification of financial assets
In October 2008, the IASB issued amendments to
IAS 39 ‘Financial Instruments: Recognition and
Measurement’ and IFRS 7 ‘Financial Instruments:
Disclosures’ which permitted an entity to reclassify
non-derivative financial assets out of the held-for-
trading category as described in the accounting
policies on Note 2 (e) on the Financial Statements.
This was done to better align IFRSs with US
GAAP and was restricted to situations where the
transferring entity had the intention and ability to
hold the transferred position for the foreseeable
future or until maturity.
During the second half of 2008, HSBC
reclassified financial assets from the held-for-
trading category as tabulated below. The amount
reclassified was the fair value of the financial assets
at the date of reclassification, subject to the
transition rules noted below. In October 2008,
HSBC reclassified US$12.5 billion and
US$0.4 billion of held-for-trading financial assets
as loans and receivables and available for sale,
respectively. During November and December
2008, HSBC reclassified a further US$2.8 billion
and US$2.2 billion of held-for-trading financial
assets as loans and receivables and available for
sale, respectively. The financial consequence of the
reclassification is that the reclassified assets are no
longer marked-to-market through the income
statement. Amounts reclassified as loans and
receivables are accounted as such from the date of
reclassification and tested thereafter for