HSBC 2008 Annual Report Download - page 181

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Solitaire
• CP issued by Solitaire benefits from a 100 per
cent liquidity facility provided by HSBC. First
loss credit protection, after any transaction-
specific credit enhancement (as described on
page 148) and retained reserves, is provided by
HSBC in the form of letters of credit with a
combined notional value of US$1.2 billion at
31 December 2008 (2007: US$1.2 billion).
• HSBC’s maximum exposure to Solitaire is
limited to the amortised cost of non-cash
equivalent assets, which represents the risk that
HSBC may be required to fund the vehicle in
the event the debt is redeemed without
reinvestment from third parties.
• HSBC’s maximum exposure at 31 December
2008 amounted to US$20.4 billion (2007:
US$25.7 billion).
Multi-seller conduits
• HSBC provides transaction-specific liquidity
facilities to each of its multi-seller conduits,
designed to be drawn in order to ensure the
repayment of the CP issued. At 31 December
2008, the committed liquidity facilities
amounted to US$17.1 billion (2007:
US$21.2 billion).
• First loss protection is provided through
transaction-specific credit enhancements, for
example, over-collateralisation and excess
spread. These credit enhancements are provided
by the originator of the assets and not by HSBC.
In addition, a layer of secondary loss protection
is provided by HSBC in the form of
programme-wide enhancement facilities, and at
31 December 2008 this amounted to
US$0.6 billion (2007: US$0.7 billion). HSBC’s
maximum exposure is equal to the transaction-
specific liquidity facilities offered to the multi-
seller conduits, as described above.
• The liquidity facilities are set to support total
commitments and therefore exceed the funded
assets as at 31 December 2008.
• In consideration of the significant first loss
protection afforded by the structure, the credit
enhancements and a range of indemnities
provided by the various obligors, HSBC carries
only a minimal risk of loss from the programme.
Structured investment vehicles
• At 31 December 2008, Cullinan held Mazarin
CP amounting to US$0.3 billion. HSBC retains
no marginal exposure through Cullinan to
Mazarin’s activities over the maximum
exposure value stated for Mazarin.
• Asscher retains only cash and equivalent assets
held within the HSBC Group. Consequently,
HSBC retains no exposure to the vehicle.
Money market funds
HSBC has established and manages a number of
money market funds which provide customers with
tailored investment opportunities with a set of
narrow and well-defined objectives. In most cases,
they are not consolidated in HSBC because the
Group’s holdings in them are not of sufficient size to
represent the majority of the risks and rewards of
ownership.
Investors in money market funds generally have
no recourse other than to the assets in the funds, so
asset holdings are designed to meet expected fund
liabilities. Usually, money market funds are
constrained in their operations should the value of
their assets and their ratings fall below
predetermined thresholds. The risks to HSBC are,
therefore, contingent, arising from the reputational
damage which could occur if an HSBC-sponsored
money market fund was thought to be unable to meet
withdrawal requests on a timely basis or in full.
In aggregate, HSBC has established money
market funds with total assets of US$102.7 billion at
31 December 2008 (2007: US$91.3 billion).
The main sub-categories of money market funds
are:
• US$72.0 billion (2007: US$56.8 billion) in
Constant Net Asset Value (‘CNAV’) funds,
which invest in shorter-dated and highly-rated
money market securities with the objective of
providing investors with a highly liquid and
secure investment;
• US$2.7 billion (2007: US$11.9 billion) in
French domiciled dynamique (‘dynamic’) funds
and Irish ‘enhanced’ funds, together Enhanced
Variable Net Asset Value (‘Enhanced VNAV’)
funds, which invest in longer-dated money
market securities to provide investors with a
higher return than traditional money market
funds; and
• US$28.0 billion (2007: US$22.6 billion) in
various other money market Variable Net Asset
Value (‘VNAV’) funds, including funds
domiciled in Brazil, France, India, Mexico and
other countries.